Strategic Marketing & Planning - Pakistan State Oil

STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

BACKGROUND REPORT

Pakistan State Oil Company Limited is one of Pakistan’s largest companies which posted an after tax profit of Rs. 4.2 billion this year. For nearly two decades PSO had held the reigns of market leadership when it came to lubricants. Yet in 1994, when the government announced a new petroleum policy in which lubricants were deregulated, PSO failed to react and manage the challenges of the free market conditions. It did not expand its stagnant product lines, and the growing consumer needs were met instead by its closest competitors, Shell and Caltex. In 2000, PSO underwent a corporate restructuring, and thus began its transformation process that has seen it restored as market leader in POL products, and has regained significant confidence in its lubricants division. The following highlight the changes brought on for lubricants during the transformation process: 1. The formation of a complete value chain under the new business unit concept. 2. Extension of product line. 3. Technical seminars conducted for dealers. 4. Improved customer services. PSO’s extensive progress in such short time warranted it a proposal for privatization in 2003. Yet time passed, and the prospect of privatization kept being delayed. Finally, with the completion of PTCL’s privatization process this year, PSO is now scheduled to be next in line with the date set for the end of 2005.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

1. BUSINESS SCOPE Business we are in: •

The provision of the highest quality petroleum products and services to customers.

Specific Region: •

3,800 retail outlets (stations) scattered all over Pakistan’s geography

•

Lubricants manufacturing plants in Korangi and Kemari

Who are we serving? •

Automobile owners

•

High-Street distributors

What are we offering? •

High quality grades of lubricants

•

The world’s leading brand of motor oils: “Castrol”

How are we achieving our goals? •

Integrated value chain

•

Strong marketing capabilities

•

Largest retail network

Business we are not in: •

Engine parts manufacturing

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

2. EXTERNAL ENVIRONMENT 2.1 Market Structure

End-Customer Brackets BRAND LOYAL • •

Will buy lubricants based on perceived quality and from preferred vendor Will buy lubricants from that station that has shown best service or quality

CONVENIENCE • •

PRICE CONSCIOUS • •

Purchases based on lower price The loudest customer type, will buy that lubricant that fits desired quality and fits the wallet

•PSO

Will purchase lubricants from vendor that is most convenient Purchases from station closest to home/work IMPULSE

• •

Will buy lubricants on impulse While filling petrol at station, will suddenly realize the need for lubricant

has the most retail outlets, thus a good portion of its customers fall under the

Convenience and Impulse brackets. •However,

the majority of PSO’s customers fall under the Brand Loyal brackets

because of Castrol’s higher quality offering.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

2.2 Competitive Sales Analysis

Industry Sales (Litres) Industry

2004/05

Player PSO

2001/02

2002/03

2003/04

39,953,740.00

40,257,985.94

39,843,800.44

46,256,954.85

Shell

44,273,063.24

46,967,650.26

50,390,688.79

53,966,447.33

Caltex

19,436,954.59

22,365,547.74

23,437,529.67

25,698,308.25

Others

4,319,323.24

2,236,554.77

3,515,629.45

2,569,830.83

Total

107,983,081.07

111,827,738.71

117,187,648.35

128,491,541.26

Yearly Sales (Litres) 60,000,000 50,000,000 40,000,000 PSO

Litres 30,000,000

Shell

20,000,000

Caltex

10,000,000

Others

-

2001/02

2002/03

2003/04

2004/05

Fiscal Year

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

Total Industry Sales (Litres) 135,000,000 130,000,000 125,000,000 120,000,000 115,000,000 110,000,000 105,000,000 100,000,000 95,000,000

2001/02

2002/03

2003/04

2004/05

Sales Growth Over Four Year Period 2001/02 2002/03 2003/04 2004/05 60,000,000 50,000,000 40,000,000

Litres 30,000,000 20,000,000 10,000,000 -

PSO

Shell

Caltex

Others

Industry Players

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

2.3 Competitive Market Share Analysis

Market Share in Lubricants Category (Percentage of Total) Industry

2001/02

2002/03

2003/04

2004/05

PSO

37%

36%

34%

36%

Shell

41%

42%

43%

42%

Caltex

18%

20%

20%

20%

Others

4%

2%

3%

2%

Total

100%

100%

100%

100%

Player

•

PSO is currently number two in the industry with a market share in 2005 of 36%.

•

Shell continues to be the market leader.

•

Caltex has consistently maintained its position in the market.

•

Oil marketing giant Total has recently entered the Pakistani market, yet still has not afforded marketing efforts towards their lubricants.

•

There was a dip in PSO’s sales at the end of 2004.

•

PSO has shown the largest jump in sales from 2004 to 2005.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

Market Share Fiscal Year 2001/02 4% 18% 37%

PSO Shell Caltex Others

41%

Market Share Fiscal Year 2002/03 2% 20% 36%

PSO Shell Caltex Others

42%

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

Market Share Fiscal Year 2003/04

3% 20% 34%

PSO Shell Caltex Others

43%

Market Share Fiscal Year 2004/05

2% 20% 36%

PSO Shell Caltex Others

42%

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

2.4 Competitive Market Growth Model

Sales Forecast 80,000,000 70,000,000 60,000,000 PSO

50,000,000

Shell

40,000,000

Ca lte x

30,000,000

Others

20,000,000 10,000,000 0

2004/05

2005/06

2006/07

2007/08

2008/09

PSO

46,256,954.85

46,201,985.07

48,051,530.98

49,901,076.88

51,750,622.79

Shell

53,966,447.33

57,025,260.11

60,275,579.19

63,525,898.27

66,776,217.35

Caltex

25,698,308.25

27,698,595.79

29,684,200.08

31,669,804.37

33,655,408.66

Others

2,569,830.83

2,167,983.94

1,771,043.68

1,374,103.43

977,163.17

•PSO

shows the slowest growth rate among the industry players.

Forecast ofis Total PSO Sales in sales forecasted for fiscal year 2005 – 2006.

•A dip 60,000,000

50,000,000

40,000,000

30,000,000

Total

20,000,000

10,000,000

0 2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

2.5 Customer Buying Criteria QUALITY AND PRICE Non-Price Attributes Affecting Customer Choice

% Weight

Product – Related

94%

1. Engine Maintenance 2. Performance 3. Brand Image 4. Quality 5. Longevity 6. Color of oil

36 30 12 9 5 2

Service – Related

6%

1. Attendants’ 3 Responsiveness 2. Efficiency of Free 3 Oil Change Service Total 100% Has Quality gone up/down (+/–) in past 4 years Relative price today Relative price 4 years ago

PSO

Shell

Caltex

14 10 2 2 3 1

10 9 7 5 1 0

12 11 3 2 1 1

0

1

2

1

2

0

33%

35%

32%

+

+

+

Higher Lower

Higher Lower

Higher Lower

PSO’s Relative Performance Rating KEEP IT UP

QUESTION ITS COST

Engine Maintenance Better

Quality

Same

Worse DO NOT SWEAT

Attendant’s Responsiveness Least

Brand Image 10%

20%

Most

IMPROVE FAST

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

3. INTERNAL ANALYSIS 3.1 Profitability STRATEGIC VIEWPOINT

Relative Product Quality

ACCOUNTING VIEWPOINT

Relative Price (High) Margin

Relative market share

Relative Productivity

Relative cost (low)

ROI OPERATIONS VIEWPOINT

Relative - capacity utilized - capital intensity - age of capital

Relative turnover on fixed capital Turnover

Relative - product availability - product variety - collection time - plant layout

•PSO

Relative turnover on working capital

operates with a lowest cost operations policy.

•It

is closing the gap in market share with leader Shell.

•It

offers the highest quality lubricants in the market.

•It

has a significantly high turnover.

•Lubricants

have very high profit margins; an average of Rs. 20 profit per litre sold.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

•

Castrol CR is PSO’s best performing lubricant.

•

Castrol CR is a diesel lubricant, and the largest market is in the diesel engine vehicles category.

•

PSO’s in-house brands, Carient, DEO and Blaze 7 all show signs of continuous progress over the next four years.

•

However, there has been no significant effort in the marketing of GTX Magnatec, which is in fact the highest grade of lubricants worldwide.

•

Unbranded lubricants account a high contribution toward sales, yet is showing a steady decline in the years to come.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

3.2 Driving Forces 1.

Global rise in petrol prices. As the price of an oil barrel reaches $60, Oil Marketing Companies (OMCs) are

forced to increase their prices of petrol. This in turn leads to consumers limiting their petrol consumption which accounts for a lower frequency of visits to petrol stations. This would hurt lubricant sales from both convenience and impulse buyers. Shell Pakistan has been able to sustain lower prices due to backing from their worldwide operations. Thus price conscious consumers would also be swayed from purchasing at PSO outlets. 2.

Economic Situation. The economic situation of Pakistan serves as a major driving force in this

industry. Since a large part of economic wellbeing for any society depends heavily on the petroleum industry, a global rise in petrol prices would impact the economic situation of Pakistan negatively. Similar to the first driving force, economic instability would lead to a lower emphasis on consumption nationwide, and would inhibit lubricant sales. Conversely, positive economic conditions would lead to higher overall consumption rates, which would promote sales in this industry. 3.

Government Regulation. Government regulations serve as a major driving force in this industry. Tariffs on

imports, lower duties, and entry barriers, all play a part in the wellbeing on the industry. The Pakistani government provides incentives to OMCs as they contribute significantly towards the economy. PSO, being a government organization, has to adhere to government regulations in several forays of their marketing activities. This has both positive and negative implications on business efforts.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

4.

Car Financing. More and more banks are offering low rebate rates on car financing. This leasing

phenomenon has led to an influx of sales in the motor vehicles industry. The automobile industry and motor oil industry have a positive relationship, the more cars on the road, the more demand for lubricants.

3.3 Key Success Factors •

PSO’s Sustainable Competitive Advantage is their association with Castrol. Castrol is the world’s leading manufacturer of the highest quality grade of motor oils, and PSO has garnered the license to solely mix and market their lubricants under the Pakistan State Oil mantle.

•

Lead time in manufacturing and marketing.

•

Lowest cost operator.

•

Largest retail network.

•

Corporate emphasis on pioneering innovation.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

3.4 SWOT Analysis

• • • • • •

Strengths Pioneered quick oil change service: Speedy Sole licensee of Castrol Lubricants Initiated free lube delivery service Mobile Quality Testing Unit Largest retail distribution network: 3800 retail outlets Integrated Value Chain

Opportunities • Privatization prospect • Use of the success of Castrol to reposition consumer perceptions of National Company offerings • Pioneers of innovation in industry

• • • • • •

Weaknesses Semi-bureaucratic system Slow decision making Bad product positioning Lower perceived quality Lack of trust with dealers Failed promotional scheme (‘Jeet Hee Jeet’, 2004)

Threats • Induction of new player: Total • Global Externalities • Global rise in petrol prices • All competitors have strong international backing from worldwide operations

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

4. STRATEGIC MARKETING AND PLANNING 4.1 Vision •

To continually excel in the provision of unmatched value to customers by offering the highest quality of lubricants sustainable through dynamic innovation.

4.2 Mission Statement •

To identify PSO automotive lubricants in the minds of consumers as the premier choice for their automobiles through the following: 1.

Promise of exceptional quality;

2.

Integrated Value Chain;

3.

Sustained growth in earnings in real terms.

4.3 Strategic Intent •

To consolidate the belief in consumers that PSO lubricants surpass those of Shell and Caltex in terms of higher quality.

4.4 Core Competencies •

Pioneer in product and service innovation.

•

Most ‘New Vision Outlets’.

4.5 Business Objectives •

To gain a market share of 45% in three years.

•

To be the market leader in lubricants within five years.

•

To slowly phase out Castrol XL, and invest in developing Castrol Magnatec Advance1.

•

To eradicate un-branded lubricants within ten years and consolidate a more concise product portfolio.

1

XL customer base has high probability of switching easily to PSO brand Carient.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

5. KEY ISSUES 1. Price sensitive market will not accept expensive Magnatec Advance. 2. Consumer perception of “cheating”, mixing of impure oils, low quality product offering at PSO. 3. Consumer perception that internationally renowned competitors offer high quality, whereas national company equals low quality. 4. Sales from un-branded lubricants account for nearly 35% of total sales. 5. PSO has the largest retail network, yet still fails to secure the highest market share in the industry. 6. Being a semi-government organization means more bureaucracy and slow decision making. 7. PSO does not maintain the same standards of quality for service and point of sale at all of its stations. 8. Lack of trust with dealers.2 9. Non-effective provisional checking policies and standards. 10. There is a 70% variation in quantity sold between Karachi’s top selling site and the average of Karachi’s top 50 sites.

2

During promotional schemes, lack of trust with dealers leads to heavy investment in provisional checking policies.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

6. OVERALL STRATEGIC DIRECTION •To

change customer perceptions regarding PSO’s product quality.

The majority of consumers perceive Shell’s lubricants as being of the best quality. Yet this is far from the truth. In fact, PSO and Caltex both offer better quality lubricants, but Shell has managed to capitalize on incredible product positioning. Through their better service, and marketing campaigns, one of which claimed that Shell fuel gives you better mileage, they created an image of exceptional quality and brand loyalty. This in turn applied not only to its fuels, but to all of its product offerings, especially lubricants. Therefore, even by offering products of lesser quality than those of its competitors, Shell has managed to convince the buying public that it is better. Furthermore, PSO launched a promotional scheme for lubricants in early 2004, called Jeet Hee Jeet. Due to mismanagement and distrust between their dealers, this campaign failed in its purpose of garnering extra sales. Prizes were not being awarded to customers, and some dealers actually paid for them out of their own pockets and were never compensated. This left many of PSO’s customers and several of their dealers with a waning sense of trust in the company. In hindsight, this failed scheme only added to the belief that was prevalent before the restructuring in 2000, that PSO was a mismanaged and defunct government company interested only in their own gains. Therefore, it is vital that PSO invest heavily in the long-term product positioning and restructuring of consumer perceptions.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

MARKETING AND PRODUCT PLAN 7.1 Segmentation Analysis

Lubricant Brand

Income Bracket

Vehicle Type

Example of Vehicle

Castrol Magnatec

50,000+

2000CC+ [Petrol]

Castrol GTX

25,000 - 50,000+

1300CC - 1600CC [Petrol]

Honda Civic/Toyota Corolla

Castrol XL

18,000 - 30,000

850CC - 1300CC [Petrol]

Suzuki Cultus

Carient

24,000 - 44,000

Castrol CR

10,000 - 42,000+

Castrol RX

8,000 - 18,000

DEO

10,000 - 24,000

1000CC - 1600CC [Petrol] Carriers and 2000CC cars [Diesel] Pick-up trucks and Vans [Diesel] Large Transport Trucks and SUVs

Castrol Activ

10,000 - 35,000

4-Stroke [Motorcycles]

Blaze 7

5,000 - 18,000

70CC - 125CC [Motorcycles]

Two-Stroke Oil

Under 5,000 - 15,000

2-Stroke [Motorcycles]

•PSO’s

Honda City Toyota Corolla 2.0D Suzuki Van Transport Trucks Honda CD 125 Yamaha Yamaha Royale

best selling lubricant is Castrol CR.

•Castrol •Its

Honda Accord/BMW

CR falls under a broad range of customer segments.

dual appeal, to both lower end truck drivers, and higher scale Corolla 2.0D

owners, allows it to capture a greater piece of the market. •GTX

Magnatec’s potential customers are not informed of its attractive features,

and thus opt for GTX Plus instead.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

7.2 New Product Plan

Existing

New

Line Extension

Brand Extension

Castrol Magnatec Advance

New

Brand Name

Existing

Product Category

Multi-Brands

•Although

New Brand

PSO has had Castrol GTX Magnatec on the market for the last few

years, no significant effort has been made to position it in the minds of the consumer. Features of Magnatec Advance: 1.

Best grade of lubricant worldwide

2.

Manufactured with highest quality standards

3.

Life of lubricant nearly three times as long as any other currently on the market: can run for 15,000 kms without needing to be changed

•These

features need to be highlighted in a heavy marketing campaign in order to

raise awareness about Magnatec, as well as build overall consumer perception regarding PSO’s lubricants.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

7.3 Product Portfolio Management

Lubricant (Motor Oil) Category Passenger Car Motor Oil

Industry Player

•Carient

PSO

•Castrol

GTX Magnatec

(Includes

•Castrol

GTX

Castrol)

•Castrol

XL

Shell

Caltex

•Helix

Ultra

•Helix

Plus

•Helix

Super

•Helix

CNG

Diesel Engine Oil •DEO

Motorcycle Oil •Blaze

7

•Castrol

CR

•Two-Stroke

•Castrol

RX

•Castrol

•Helix

Diesel

•Helix

Rimula

•Havoline

Formula

•Delo

Gold

•Havoline

Motor Oil

•Delo

Silver

Oil

Activ

•Advance

•Revtex

BCG Matrix High

Market Growth

High

Market Share

Low

Star

Question Mark

Castrol CR

Blaze 7 DEO

Cash Cow

Dog

Castrol GTX Carient Two-Stroke Oil

Castrol Magnatec Castrol XL Castrol RX Castrol Activ

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

Low

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

Product Line Categories Petrol Engine Oils 1. Carient a. Ultra b. Plus c. Super d. Advance e. Extra 2. Castrol GTX a. Magnatec b. Magnatec Advance c. Plus d. GTX 20W50 3. Castrol XL Diesel Engine Oils 4. DEO a. 8000 b. 7000 c. 6000 d. 5000 e. 4000 f. 3000 g. 2000 h. 1000 5. Castrol CR a. Ultra b. Plus c. CRD 10, 20, 30, 40, 50 d. CR 10, 20, 30, 40, 50 6. Castrol RX a. Super Max b. Super Motorcycle Oils 7. Blaze 7 8. Two Stroke Oil 9. Castrol Activ •

PSO has an excessive number of product variations.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

7.4 Pricing Strategies API LEVEL SL / CF

CASTROL AUTOMOTIVE BRAND GTX MAGNATEC 10W-40 (Advance)

PACK SIZE

PRICE RS.

4 Ltr Can

390

SJ/CF

GTX MAGNATEC

4 Ltr Can

224.75

SJ/CF

GTX MAGNATEC

1 Ltr Can

249

SJ/CF

GTX Plus

4 Ltr Can

190

SJ/CF

GTX Plus

210 Drum

164

SG/CD

GTX 20W50

4 Ltr Can

170

SG/CD

GTX 20W50

3 Ltr Can

171.67

SG/CD

GTX 20W50

210 Drum

140

SG/CD

GTX 20W50

10 Ltr Can

158

SG/CD

GTX 20W50

1 Ltr Can

176

SF/CC

GTX-XL

4 Ltr Can

131

SF/CC

GTX-XL

3 Ltr Can

133

SF/CC

GTX-XL

210 Drum

109

CH-4/SG

CR Ultra

4 Ltr Can

195

CH-4/SG

CR Ultra

210 Drum

180

CH-4/SG

CR Ultra

10 Ltr Can

195

CF/SF

CR Plus

4 Ltr Can

150

CF/SF

CR Plus

210 Drum

129

CF/SF

CR Plus

10 Ltr Can

150

CD/SE

CRD 10, 20, 30, 40, 50

210 Drum

113

CC/SD

CR10, 20, 30, 40, 50

210 Drum

CC/SD

CR40 (Tin)

4 Ltr Tin

93.56

CC/SD

CR40, CR50

4 Ltr Can

117.5

CC/SD

CR40, CR50

10 Ltr Can

115

CF-4/SG

RX SUPER MAX 15W40

210 Drum

160

CD/SE

RX SUPER 20W50

210 Drum

114

SG

CASTROL ACTIV 4T 20W-50

1 Ltr Bottle

125

110

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

API LEVEL

PSO AUTOMOTIVE BRAND

PACK SIZE

PRICE RS.

SJ/CF

CARIENT ULTRA 20W-50

210 Drum

158.75

SJ/CF

CARIENT ULTRA 20W-50

20 Ltr Can

160

SG/CD

CARIENT PLUS 20W-50

210 Drum

128

SG/CD

CARIENT PLUS 20W-50

20 Ltr Can

130

SG/CD

CARIENT PLUS 20W-50

04 Ltr Can

137.5

SF/CC

CARIENT SUPER 20W-50

210 Drum

117

SF/CC

CARIENT SUPER 20W-50

20 Ltr Can

110

SF/CC

CARIENT SUPER 40

210 Drum

115

SF/CC

CARIENT SUPER 40

20 Ltr Can

108

SE/CC

CARIENT ADVANCE 20W-50

210 Drum

113

SE/CC

CARIENT ADVANCE 20W-50

20 Ltr Can

108

SE/CC

CARIENT ADVANCE 40

210 Drum

111

SE/CC

20 Ltr Can

105

210 Drum

103

SD/CC

CARIENT ADVANCE 40 CARIENT EXTRA 10, 20, 30, 40, 50 CARIENT EXTRA 10, 20, 30, 40, 50

20 Ltr Can

89

SD/CC

CARIENT EXTRA SAE 40

04 Ltr Can

115

SC/CC

CARIENT 10, 20, 30, 40, 50

210 Drum

100

SC/CC

CARIENT 10, 20, 30, 40, 50

20 Ltr Can

98

SC/CC

CARIENT 40

04 Ltr Can

111

210 Drum

175

20 Ltr Can

170

04 Ltr Can

180

210 Drum

170

20 Ltr Can

160

210 Drum

125

SD/CC

CH-4 CH-4 CH-4

DEO 8000 SAE 15W- 40, 20W- 50 DEO 8000 SAE 15W- 40, 20W- 50

CF/SF

DEO 8000 DEO 7000 20W- 50 DEO 7000 20W- 50 DEO 5000 50

CF/SF

DEO 5000 SAE 20W-50

210 Drum

128

CF/SF

DEO 5000 SAE 20W-50

20 Ltr Can

118

CF/SF

DEO 5000 DEO 6000 20W- 50 DEO 6000 20W- 50 DEO 4000 20W- 50 DEO 4000 20W- 50 DEO 3000 50 DEO 3000 50 DEO 3000 20W- 50

20 Ltr Can

115

210 Drum

145

20 Ltr Can

135

210 Drum

115.75

20 Ltr Can

110

210 Drum

105

20 Ltr Can

100

20 Ltr Can

105

CG-4 CG-4

CF-4/SG CF-4 CE CE CD/SE CD/SE CD/SE

SAE 15W-40 SAE 15W- 40, SAE 15W- 40, SAE 10, 20, 30, 40,

SAE 40 SAE 15W- 40, SAE 15W- 40, SAE 15W- 40, SAE 15W- 40, SAE 10, 20, 30, 40, SAE 10, 20, 30, 40, SAE 15W- 40,

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

DEO 3000 SAE 15W-40, 20W50

CD/SE CD/SE

107.5

04 Ltr Can

114

210 Drum

103

20 Ltr Can

89

210 Drum

101.75

20 Ltr Can

85

CC/SC CC/SC

DEO 1000 SAE 40

04 Ltr Can

111

DOT - 3

2- STROKE OIL (Plastic Bottle)

1 Ltr Bottle

113

CC/SD CC/SD CC/SC

3000 SAE 40 2000 SAE 10, 20, 30, 40,

210 Drum

DEO DEO 50 DEO 50 DEO 50 DEO 50

2000 SAE 10, 20, 30, 40, 1000 SAE 10, 20, 30, 40, 1000 SAE 10, 20, 30, 40,

•PSO

employs a diversification strategy when it comes to pricing.

•Each

product and sub product is priced differently.

•Depending •PSO’s

on the amount of fixed purchase, the prices also vary.

pricing on lubricants needs to be standardized on homogenous packs.

•A maximum

of three pack sizes may be offered, but the subdivisions of prices need

to be curbed.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

7.5 Distribution Strategies

Distribution Structure

Retail Outlets

PSO

Shell

Caltex

3866

1290

650

14

22

30

High-Street Distributors

•PSO

has three times the number of retail outlets that Shell has, and six times that

of Caltex. •However, •Out

the trend is opposite when it comes to high-street distributors.

of the 3866 outlets, more than 50 are CoCo sites, (Company Owned and

Company Operated). •PSO

needs to curtail the resources spent on developing new sites, and in turn

invest in optimizing its distribution network, (more is better is not necessarily the best strategy). •PSO

needs to capitalize on their larger retail network by offering long-term

discount schemes to its dealers. •The

major gap in PSO’s distribution network is that there is little trust between

the company and its dealers.

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

7.6 Marcom Plan 1. Formulate a comprehensive marketing and advertising campaign to build customer perceptions of GTX Magnatec. See Sample Ads on page 33 2. Introduce promotional activities that not only capture short-term sales, but also build long-term customer loyalty. See Attachment 1 3. Invest in dealer relationship management by offering long-term incentive schemes and discounts, so as to build trust between both parties. See Attachment 2 4. Manage lubricant displays at stations and auto-workshops that house PSO brands. 5. Develop an SOP (Standard Operating Procedures) which would standardize quality of service at all points of sale, as well as on the Speedy free oil change service. See Attachment 3 6.

Enlist an endorsement from the CEO of BMW, MetroCab and/or White Cabs, in which they would highlight the superior quality of PSO lubricants.

7. Negotiate partnerships with major auto-workshops and service stations by offering them rates lower than market rates, in exchange for effective shelf space. 8. Develop a co-branding campaign with Yamaha in which Blaze 7 and Castrol Activ would be backed by a strong motorcycle brand.

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STRATEGIC MARKETING AND PLANNING

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8. SUMMARY OF ACTION PLAN

PROPOSED INVESTMENT

ACTION

METHODOLOGY

TIMELINE

1. Promotional Schemes

See Attachment 1: •‘Pump it Up’ (Race to 1000 Litres) •‘Spin and Win’ (Wheel of Fortune)

1/10/2005 to 31/3/2006

Rs. 35 Lakhs

2. Magnatec Marketing Campaign

•Nationwide

advertising: Print ads, TV Spots, Hoardings •Corporate Dinner/Letters to corporate heads informing them of Magnatec’s benefits

1/4/2005 to 30/6/2006

Rs. 15 to 25 Lakhs

3. Build Dealer Relationships

See Attachment 2

1/1/2006 to 30/6/2006

Rs. 2.5 Lakhs

4. MetroCab Endorsement

•TV

1/6/2006 to 30/8/2006

Rs. 2 Lakhs

Spot: CEO MetroCabs endorses PSO’s lubricants •Provision of free lubricants for one promotional period of three months

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THE FOLLOWING ADVERTISING CAMPAIGNS FOR MAGNATEC WERE DESIGNED BY BABAR MUSHTAQ FOR PSO DURING HIS INTERNSHIP IN THE SUMMER OF 2005.

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STRATEGIC MARKETING AND PLANNING

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ATTACHMENT 1

‘PUMP IT UP’ RACE TO 1000 LITRES

___

LUBRICANTS SCHEME

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

OBJECTIVE •

To promote lubricant sales

•

To promote Premier XL petrol sales

•

To increase the number of PSO Loyalty Card holders

ESSENTIALS PSO will launch a promotional scheme in which a figurative race will take place where all the participants will try to achieve the filling of 1000 litres of Premier XL in under three months. This contest will be open to all PSO Loyalty Card holders, upon purchase of lubricants. In order not to limit the target segment, another facility will be available, and that is that lubricant buyers who do not have a loyalty card will have the opportunity to fill out the Loyalty Card application form which will be attached to the promotional pamphlet printed specifically for this event. The pamphlet that will be attached to all lube packs during the promotional phase will include a description of the event, all rules and regulations, as well as a prizes list. Attached to the last page of the pamphlet will be an application form which will serve as the entry into the competition. For potential loyalty card customers, a copy of their NID card is required and must be submitted before last date of submission. After 15 to 20 days the card will be issued to all those participating individuals and will serve as their entry into the competition. A database will be compiled using the current operational database that the PSO Cards division maintains. This database will sort on a daily basis all the fields required for upkeep. Fields include: 1. Participating Loyalty Card Holders 2. Type of petrol filled (Premier XL only) 3. Car license number 4. Name and number of registered individual 5. Quantity in Litres 6. Date and time of transaction

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STRATEGIC MARKETING AND PLANNING

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Scoreboards will be set up at selected PSO outlets which will be updated on a daily basis, and will show that day’s top ten leaders. Leader-boards will also be available for viewing on the website www.psocl.com. Another facility will be offered to participants, in which they can send a query through an SMS, and then they will receive a reply message regarding their position on the leader-board, as well as all other quantitative details regarding their progress in the event; such as amount of petrol filled, approximation of kilometers traveled each week, estimated lag behind the leader, and other similar data. PRIZES AND CONDITIONS Prize List a. The first three participants to reach 100 litres first will choose between three prizes (first winner will get fist preference of prize and so on): i. Dinner for two at Lal Qila restaurant ii. Voucher for Rs. 1000 at Laraib iii. Warid sim card b. On 200 litres; i. Creative mp3 player ii. Shopping coupon at EBCO for Rs. 5000 iii. Sony CD Player c. On 300 litres; i. Gift voucher at Jaffarjees for Rs. 7500 ii. Body Shop products iii. One year subscription to SHE magazine d. On 400 litres; i. Sony Ericsson Mobile Phone ii. Perfume/Cologne set iii. Designer watch and sunglasses

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STRATEGIC MARKETING AND PLANNING

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e. On 500 litres; i. Pentium 4 Desktop computer ii. Sofa/Bed set from ChenOne iii. Dining Room Tableware Set f. On 600 litres; i. LG Split AC Unit ii. Sony Camcorder iii. Trip to Murree for four people with accommodation for four days and three nights g. On 700 litres; i. Rs. 20,000 shopping spree at Park Towers ii. Round Trip for two to Dubai with hotel stay for two days and three nights iii. Free Makeover at Nabila’s h. On 800 litres; i. Home Theater System ii. Car Accessories iii. Tessori Gold Jewellery Set i. On 900 litres; i. Flat Screen LG TV ii. Latest Toshiba Laptop iii. Rolex j. The first participant to reach 1000 litres; i. Grand Prize: Mitsubishi Lancer 2005 Conditions Certain measures and parameters have been developed in order to minimize the risk of deviation on the part of dishonest participants who fill petrol in more than one car with their card. These measures are necessary in order to maintain a healthy and fun competitiveness to the contest, and serve as an assurance to other players of the fairness involved.

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STRATEGIC MARKETING AND PLANNING

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Option 1 This promotional scheme will be monitored on a daily basis. Thus, by enforcing a rule that will count only the single highest transaction of each participant per day, it would enforce an accurate and fair checking system. This system would include the following: 1. The risk that participants may cheat by filling petrol in more than one car on their card in a day would be eradicated, as only their highest transaction every day will be counted. 2. Attendants would not need to be held responsible or accountable on the accuracy of transactions. 3. This would promote a fair atmosphere to the contest and would allow participants to potentially see themselves as feasible winners. 4. This would allow participants the chance to develop strategies and involve themselves in planning on how to effectively win each stage. Option 2 Each participant will be issued two stickers; one sticker with their participation number on it for their car, and another smaller identical sticker that will be pasted on their loyalty card. These stickers will remain for the duration of the event, and for two weeks following the close of the competition, the small sticker may be traded in or shown for a discount on lubricants. During the duration of the event, all attendants will be responsible for checking and matching the number on the card with the number on the car. If they do not match, the attendant should swipe the loyalty card twice; this will identify double entries on the database which would then be disqualified. Although this system may not be enforced properly due to attendant negligence, it will still serve as a form of assurance to the majority of participants that a proper checking system is in place.

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STRATEGIC MARKETING AND PLANNING

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Alternative Prize Condition In order to maintain the competitive drive in participants, an option is to offer the nine runners up a Nokia mobile phone, upon reaching 1000 litres. FINANCIALS Cost Fixed Marketing Expense: Rs. 750,000 Prizes Cost: Rs. 1,874,0003 Total Fixed Cost: Rs. 2,624,000 Variable Pamphlet Cost/participant: Rs. 10 Revenue Profit Margin on Lube packs/participant: Rs. 80 (20 Rs. per litre x 4 litres) Profit Margin on Premier XL/participant: Rs. 1397 (0.0954 x 49.025 x 3006) Total estimated profit margin from this promotional scheme: Rs. 1477 Break-Even Fixed Cost Selling Price7 – Variable Cost

=

2,624,000

=

1789 participants

1477 – 10

Estimated Profit At 5000 participation level: Revenue – Variable cost – Fixed cost 7,385,000 – 50,000 – 2,624,000 = 4,711,000 At 10,000 participation level: Revenue – Variable cost – Fixed cost 14,770,000 – 100,000 – 2,624,000 = 12,046,000 3

See attached financial workings page. Average profit margin per litre of Premier XL generated by PSO. 5 Price of one litre of Premier XL. 6 300 litres is the estimated amount of extra petrol consumption per participant during the three month promotional quarter (about 25 litres extra per week). 7 Because we are calculating the break even number of participants for a promotional scheme, the Selling Price is set as the total profit margins being made off of the scheme. 4

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STRATEGIC MARKETING AND PLANNING

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At 40,000 participation level: Revenue – Variable cost – Fixed cost 59,080,000 – 400,000 – 2,624,000 = 56,056,000 IMPLEMENTATION PLAN In order to effectively implement this plan, a deal must be established with Dewan Mushtaq Motors in which they will entirely sponsor the car or give a discounted price for exchange of the marketing of their company throughout our promotional phase. The advertising effort put forth would include mention of their company as co-sponsors of the event in all the print mediums utilized. Furthermore, an event will be held on the first Saturday following the close of the contest, in which all of the winners will be invited in order to receive their prizes. The event will be televised, and will culminate with the grand winner receiving his keys to his new car.

This event may be called “The Crowning of the King” or “The PSO

Coronation”. PAMPHLET DESIGN FRONT COVER

CENTER SPREAD

BACK COVER

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STRATEGIC MARKETING AND PLANNING

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‘SPIN AND WIN’ WHEEL OF FORTUNE

___

LUBRICANTS SCHEME

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STRATEGIC MARKETING AND PLANNING

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OBJECTIVE •

To promote lubricant sales.

ESSENTIALS 1. Spin and Win A spinning game wheel will be set up at the top fifty lube selling stations in Karachi. One spin of the wheel will be offered to all PSO customers upon purchase of a lubricant pack. The wheel will be divided into eight slices, with each slice containing a prize valued at around fifty rupees. The prizes will be instant giveaways. The game will be called ‘Spin and Win’, and would be conducted on a daily basis for the duration of three months. Alternative Option 2. Wheel of Fortune Upon purchasing a lubricant pack, the customer will receive a coupon. Upon the collection of four or more coupons during the promotional phase, the customer will qualify for the ‘Wheel of Fortune’, an event to be held at the Forum. The ‘Wheel of Fortune’ event will basically be a televised event in which all qualifiers will get the chance to win big prizes by partaking in different fun games. Three wheels will be set up ranging in size and prize value, and qualification for the respective wheels will depend on the participant’s performance on these games. The games include: 1. ‘Dart Mania’ 2. ‘The Mean Spinner’ 3. ‘Hole in One Ace’ Dart Mania A dart board will set up where each participant will get five throws. There will be ten different sections of the board, ranging from the outer rim which is one point all the way to the bulls-eye which is ten points.

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STRATEGIC MARKETING AND PLANNING

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The Mean Spinner Participants will have the opportunity to test their might by spinning one of the wheels the hardest. Depending on number of spins (rotation of wheel) they will qualify for a spin on one of the wheels of fortune. Each participant will get five attempts. Hole in One Ace A small mini golf hole will be set up in which participants will have to sink the ball in the least number of tries. Each participant will get five attempts. Scoring After each game, the participants’ scores will be tallied, and the winner of each of the three games will get to spin the Gold Wheel of Fortune. The next five highest scorers in each game will qualify for a spin on the Silver Wheel of Fortune, and the rest will get a spin on the Bronze Wheel of Fortune. PRIZES AND CONDITIONS Prize List (Spin and Win) Each slice on the wheel will contain one of the following prizes costing Rs. 50: 

Stuffed Toy



Audio CD



Cap



1.5 litre Pepsi



Cybernet: Internet Prepaid Card



Photo Frame



Chocolate Pack



Gillette: Two disposable razors

Conditions 1. On purchase of one lubricant pack, only one spin may be taken by participant. 2. Only one gift will be given per spin.

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STRATEGIC MARKETING AND PLANNING

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3. Gifts will not be exchangeable or refundable. Prize List (Wheel of Fortune) Bronze Wheel •

Warid sim card

•

Bad Luck (Keychain)

•

Jump to higher Wheel level

•

Swatch watch

•

50 Rupees

Silver Wheel •

Nokia Phone 9210i with sim card

•

Bad Luck (Drop to lower wheel level)

•

100 Rupees

•

Sony CD Player

•

Jump to higher wheel level

Gold Wheel •

Grand Prize Sony 60” TV

•

Bad Luck (Drop to lower wheel level)

•

500 Rupees

•

Return Tickets to Dubai

•

Spin Again

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

FINANCIALS ‘Spin and Win’ PSO will receive a revenue of Rs. 80 per customer of lubricants through the ‘Spin and Win’ scheme, and will need to spend Rs. 50 per prize gift for each customer. Thus the cost of the prizes will be adjusted from the profit margin itself. The other costs such as marketing expense and the manufacturing of the wheels would be included as fixed costs. Cost Fixed Marketing Expense: Rs. 250,000 Wheels Manufacturing Cost: Rs. 5000 Total Fixed Cost: Rs. 255,000 Variable Prizes Cost per unit: Rs. 50 Revenue Total profit margin per participant: Rs. 80 Break-Even Fixed Cost Selling Price – Variable Cost

=

255,000

=

8500 participants

80 – 50

Estimated Profit At 10,000 participation level: Revenue – Variable cost – Fixed cost 800,000 – 500,000 – 255,000 = Rs. 45,000 At 50,000 participation level: Revenue – Variable cost – Fixed cost 4,000,000 – 2,500,000 – 255,000 = Rs. 1,245,000 Considering that on average, around 10 to 20 customers buy lubricants from PSO’s top 50 sites in Karachi, we can estimate potentially more than 50,000 customers in

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STRATEGIC MARKETING AND PLANNING

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the three months promotional phase. Thus, it would seem feasible to launch this event to further promote the sale of lubricants. The financial directive of the ‘Wheel of Fortune’ event would be interpreted in a long-term strengthening of our lubricants customer base, and the high expense attached to it would be recovered through a larger clientele in the future. IMPLEMENTATION PLAN ‘Spin and Win’ 

Wooden boards can be fashioned into spinning wheels that will serve as the Wheel of Fortune.



Prizes must be stocked at each participating station.



PSO would need to invest in the advance purchase of at least 1500 gifts of each type.

This would mean a total number of 12,000 gifts.

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STRATEGIC MARKETING AND PLANNING

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ATTACHMENT 2

‘THE HIGH ACHIEVERS’ – DEALER INCENTIVES

___

DEALER RELATIONSHIP MANAGEMENT STRATEGY

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STRATEGIC MARKETING AND PLANNING

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OBJECTIVE •

To build trust and garner respect of all channel members.

•

To offer incentives and motivation to dealers so as to encourage the sales of lubricants through building competition between themselves.

ESSENTIALS At the beginning of the quarter, an announcement will be made to all PSO lubricant dealers, that their sites will be evaluated on the basis of three parameters: 1. Highest sales of lubricants 2. Most well maintained station 3. Best customer service provided These parameters will be judged through an evaluation by a team of PSO appraisers, and an overall score will be awarded to each station. The three highest scoring sites will be showcased as ‘high achievers’, and will be rewarded with special awards and prizes8. From the results garnered from the top ten sites, a list of key positive indicators highlighting their success will be fashioned. This list will serve as a quarterly bulletin that will then be distributed to all dealer sites. At the end of the quarter, the evaluation team will once again appraise all the dealer stations, and compare the scores achieved at the end of the quarter with those at the beginning. The station that shows the most progress since the last check will be classified as ‘Highest Climber’ and will be awarded an incentive prize that will in turn serve as a motivational factor to all other dealer sites.

8

See Prizes Section

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STRATEGIC MARKETING AND PLANNING

PAKISTAN STATE OIL Automotive Lubricants

PRIZES AND CONDITIONS Prize List Top three ‘high achievers’ First Place 1. Round Trip for two to Dubai with hotel stay for two days and three nights. 2. 30% higher profit margin on lubricants for next quarter. Second Place 1. LG Split AC Unit. 2. 20% higher profit margin on lubricants for next quarter. Third Place 1. Sony CD and Cassette Player. 2. 10% higher profit margin lubricants for next quarter. ‘Highest Climber’ 1. 6630 Nokia Phone with Warid sim card. Conditions At the end of the first quarter, those sites that receive prizes will not be eligible in the next appraisal period. In the case that any or all of the same sites remain as ‘High Achievers’, the three sites who score directly under them will be announced as that quarter’s high achievers. The same applies to the ‘Highest Climber’ position holder. Financials The entire cost incurred by implementing this event would be done so in order to motivate dealers to achieve higher sales figures. •

Extra Wages Cost: Rs. 25,0009

•

Prizes Expense: Rs. 89,100

Total Expense: Rs. 114,100

9

Based on an estimated Rs. 5000 to be paid to each of the five employees in the appraisers’ team.

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STRATEGIC MARKETING AND PLANNING

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Total estimated income generated: Rs. 800,00010 Return on Investment: Rs. 800,000 = 7.01 Rs. 114,100 By investing in this scheme, we would be instigating dealers to achieve even higher sales figures in the upcoming quarters. By awarding them prizes, we would be showing that PSO acknowledges and rewards its dealers for their efforts, and in turn dealers would be motivated to perform even better in the future. Thus this scheme’s positive repercussions would be felt in the long-term increase of efforts on the dealers’ part in achieving higher sales of lubricants.

IMPLEMENTATION PLAN For each area or city, a team comprised of capable PSO employees should be formed. This team would be charged with the task of grading the different sites on the afore-mentioned criteria. The team would include one employee from the customer services department, one from lube sales, one from retail, one from brand, and one from finance. This cross-functional team would allow an unbiased focus to the appraisal, with each individual scoring based on his or her area of expertise.

10

This figure is based on an estimated extra sales volume of 100 litres of lubricants every quarter for a year by a force of 100 better-motivated dealers.

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STRATEGIC MARKETING AND PLANNING

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ATTACHMENT 3

STANDARD OPERATING PROCEDURES

___ QUALITY OF SERVICE AT POINT OF SALE

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STRATEGIC MARKETING AND PLANNING

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STANDARD OPERATING PROCEDURES I. Attendants 1.

Attendants trained to fulfill all required tasks must undergo time trials to establish efficiency levels.

2.

An incentive bonus11 is on offer from the company to selected attendants upon selling a certain number of lubricants and/or achieving the fastest completion time during ‘Speedy’ trials. a.

This would create competition among attendants and would further enhance the quality of service.

3.

Selected attendants are to receive attractive new uniforms.

4.

Potential attendants are to participate in training sessions.

II. Lubricants Display Canopy 1. The canopy is to be easily accessible. 2. It is to be fitted with luminescent bulbs so as to make it well-lit at night. 3. It is to be positioned so that potential customers filling fuel can see the canopy from anywhere in the station. 4. Lubricants are to be situated based on categorization on either side of the canopy. 5. Monthly checks are to ensure the upkeep and proper maintenance of the canopy. III. Rules and Regulations 1. Attendant must be wearing uniform jackets at all times. 2. The water used to clean the windows must be changed after every five ‘Speedy’ services. 3. The goody bag with added valuables (AV) must be offered to first time ‘Speedy’ customers. First timer bag includes branded Speedy keychain, tissue packet, and candies. 4. Returning customers are to receive only AV perishables (tissue packet and candies). 11

A bonus of Rs. 10 will be offered to attendants upon every three cars serviced/lube sold. (Amount will be paid as a monthly stipend).

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5. Customers must be informed of the best lubricant for their vehicle, as well as all the service components and total time needed to complete the entire ‘Speedy’ service. 6. Mobile checks must be given to all customers upon first service. 7. From returning customers, the attendant must politely ask for the mobile check, and should fill it out accordingly. 8. Customers should be informed of the discount available to Privilege Loyalty Card holders. 9. Customers should be informed of lubricant price ranges and quality (in accordance to their car specifications). 10. Customers must be offered mineral water if they are waiting in their car. 11. While service is taking place, customers must be offered the option of utilizing the internet facility in the business center, or shopping in the Shop-Stop. IV. Provisional Checking Policies 1. Random maintenance checks are to be facilitated every three months in order to gauge the efficiency of the attendants, upkeep of the canopy, and enforcement of regulations. 2. Checks are to be facilitated at the behest of the company, and the checker must not be discernable as a representative of PSO. 3. The checker’s evaluation must be interpreted as constructive feedback, and action must be taken accordingly.

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STRATEGIC MARKETING AND PLANNING

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V. Service Components for Speedy ‘Quick Oil Change’ Activity

Duration

Comments

(maximum minutes spent)

1.0 Engine Work 7

One-time process

0.5

Inclusive process [1.1]

1.3 Cleaning of spark plugs

1

Inclusive process [1.1]

1.4 Radiator water check and/or filling

1

One-time process

2.1 Tyre air pressure check/filling

4

One-time process

2.2 Cleaning of windows

4

One-time process

3.1 Spraying of Air Freshener

0.25

One-time process

3.2 Placing of ‘Mobile’ check

0.5

One-time process

3.3 Cleaning of ashtray

0.5

One-time process

3.4 Placing of Tissue Packet

0.25

One-time process

Total duration

9.5 (10)

Two attendants14

Total duration

17.5 (20)

1.1 Oil change 1.2 Cleaning of air filter

2.0 Body Work

3.0 Interior Work

12

12

One attendant

With two attendants, one would be working on the engine, while the other would be working on the body

and tires. Therefore, the two processes would be carried out simultaneously and this would minimize the time duration for the entire service.

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