Auto Service World
Feature   November 1, 2002   by Andrew Ross

Cover Story: The Oil Business Is the People Business

Why Motor Oil Offerings are Expanding

“It confuses the customer. There are too many choices,” offers Doug Coates, vice-president of sales of Lordco Parts, which operates 70 wholesale/retail locations in B.C. He isn’t sure that it has paid off just yet in terms of sales. He questions the need for all the middle ground between synthetic and conventional oils.

“To me, there is too much in between. In my experience the guy who wants to look after his car will buy the top performer. I find that the middle-of-the-road is a harder sell.”

He says Lordco, which built its motor oil sales by 20% in the past year, sells more full synthetic than semi-synthetic, and sells more premium conventional oil than any other category by far.

He understands that the market for products like high-mileage oil is still developing, but he hasn’t become convinced yet that the market is as diverse as the products.

“Are there four different customers out there? I’m not so sure there are. We carry five major brands of oil, each with multiple skus. I find it a bit overwhelming.”

“Welcome to the modern world of branding and niche marketing,” says Dennis Favaro, Canadian marketing manager, Valvoline Canada. He says that it is a natural consequence of competing in a market where all the major brands meet the same specifications. “It is inevitable that everybody decides that motor oil is motor oil. They all meet the specs, but there are different automotive companies that require additional specifications that must be met and that usually comes with a cost.” That was the origin of most products in the motor oil market: engineering and chemistry first, marketing second. It was different for the high-mileage category.

“We developed the category with Max Life. It was driven by the consumer. The consumer told us they wanted this product. It didn’t come out of the research lab; it came out of consumer research. We explored it further and determined that there were a lot of people interested in this stuff. That’s why we’re seeing sales grow. Over two-thirds of the cars on the road have that mileage and the motors have special needs.”

But, he adds, the marketing is really about the consumer, not the car.

“The jobber is a link in the chain, but he is not the one who drives what he carries. He can make decisions on what to carry based on what he is selling and not selling, but when you have the market becoming increasingly niche-oriented, it’s the consumer in the end who determines what is flowing through.”

It was inevitable that the market would start to offer products with a high perceived value. Motor oil became the price-war football when mass merchandisers were waging a no-holds-barred war against each other. Jobbers and independent installers found themselves battling on price against their better judgement, and profitability in the conventional oil category has remained problematic ever since.

“The easiest and most unsophisticated way to increase your bottom line is to drive your cost down, but it’s not the most profitable way. The most profitable way is to drive your margin up. The reality is they should be pushing premium products and high margin products,” says Favaro.

“There is an evolution going on in this industry. Evolution is always bad luck for somebody. It’s already gone on in the States. Our market is still a lot more traditional. Motor oil has been viewed as a commodity, and with all these new products coming to the forefront, companies are looking at where they are going to get their best return.”

The math, he says, is compelling. Profitability in high-mileage oils is significantly greater than in conventional products. Retailers and installers alike can both benefit if they are prepared to spend some time with the sale.

“You can’t just look at the car. You have to look at the consumer and what his needs are,” says Favaro.

Anthony Stadelman, marketing manager at Castrol Canada, agrees. He says that consumers can be divided into six basic categories based on their buying habits.

“There are passionates, who are passionate about their car and want the best. The experts understand the inner workings. They are the target for synthetics. There is the minimalist, motivated by price. The diligent and the dutiful understand that they need to maintain their car and are doing it because it’s a duty. The dutiful will change their oil less often. They understand the need, but don’t stick to the schedule. ‘Peace-of-minders’ are more likely to choose a branded lube. They don’t know or care much, but because they have heard through the media or marketing that a brand is a superior product, they are influenced to put that in the car.”

Different oil companies may segment the consumer in slightly different ways, but knowing who is who when they walk into your store or into your customer’s shop is equal parts luck and good management.

“We try and help that with branding,” says Stadelman, “to show the consumer that there are differences in oils and that branded lubricants have benefits. Hopefully that can translate into driving them to places where the brand is identified.” He says that the signage program Castrol offers to independents is one of the company’s most popular.

“It’s one of those things that looks professional and is a professional sign. It makes a difference and a lot of our customers feel the same way. The goal is to trade them up. We want the GTX user to be a High Mileage user at the very least, and a synthetic user at best.

“It’s not just smoke and mirrors. There is a value proposition. Synthetics have real benefits and High Mileage does, too.”

While he says he understands the concerns of the jobber in terms of inventory investment, the market has changed and there is little any player can do about it.

“You’re not going to change consumer behaviour, so you might as well fashion your product to appeal to the customers you have.”

It is important to note in this discussion that the overall volume in the market is dropping year to year–about 2% in the past 12 months–and that competition from the car dealer channel has been bleeding away an increasing share. According to Mark Reed, director of brand management, lubricant products at Pennzoil-Quaker State Canada Company, the strong emphasis on installed business that distinguishes the Canadian market (estimates put it at a 65/35 split versus a 50/50 installed/DIY split in the U.S. market) does not preclude jobbers here from capitalizing on the value proposition hatched in that strong consumer market.

“There are 24 million litres sold for top-ups,” says Reed by way of example. “86% are DIY, but 57% is done at service stations. Our whole emphasis is to try and shift our mix from conventional to premium. Obviously this is synthetics and blends, but also our high mileage.”

To understand why, you need to look no further than the bottom line for companies focused on retailing. “Synthetic and blends have moved up in the marketplace.” These premium motor oils are 5% of volume, but represent 11% of the dollars. On the DIY side, it is 8% of the market but makes up 18% of the market dollars.

“As long as I’ve been in this crazy business, jobbers talk about retail, but not many have done it well.”

Stephen Main is one of those jobbers working on making the transition. His store in Hampton, N.B. has recently been remodelled into the NAPA mould.

“If you start asking customers what they want, it could take you forever. It depends what kind of a mood you’re in. Sometimes you give the sales options, other times you’re concerned that if you make it too complicated they might walk out and go to the next guy who says ‘that one over there is about the best’ and they’ll buy from him.”

“Most of the customers will read about it and ask for what they want. Our job here is to keep it in stock, to have the brand they want. A lot of customers won’t even think about changing.”

It is interesting to note that despite Main’s laid-back characterization of his approach, it is just as consumer-focused as the most sophisticated mass merchandiser: sell what the customer wants to buy.

The missing link in many
jobber and independent installer approaches, then, is improving consumer awareness. That’s why oil suppliers are focusing on the consumer. The payoff in the future for products like high mileage oils is greater profitability up and down the chain.

“With high mileage products, it is best for the installer who knows his customer,” says Reed. You can’t just estimate based on vehicle mileage. “If he sees the engine is sloppy, with oil drips and some oil smoke, he is an absolute prime customer for a high mileage product. It will not repair severe damage, but you really have to see the vehicle.”

Using my vehicle as an example, would you say that a nine-year-old passenger car with 190,000 km is a candidate for high-mileage oil? Maybe, but my car is as tight as a drum, without leaks or drips. Plus, and this is important, I am a devoted synthetic motor oil user. I may not be a candidate for a high-mileage product, but millions are.

“You can’t just look at the car,” reiterates Favaro. “You have to look at the consumer and what his needs are. Most people would notice oil spots and if they think they need it, they’ll use it. The jobber has a role to educate the installer about the products [from technical and business aspects]. It becomes complicated when you have [several brands] out there every day. You have the market segmented by application, with 15 to 20 skus per supplier, but there is a need for each product and a need for each brand because people have different brand preferences.”

Ultimately, he adds, the whole aftermarket is answerable to an external force.

“Regardless of what we think, we’re selling to the consumer. It’s not for us to say what a jobber is to carry, but we do know there is the demand for certain products. It may mean that you have to increase your inventory investment, but in the end we’re all there to meet the consumer’s need.”

High Mileage By the Numbers

While market prices and local market conditions can vary, here are a few numbers to take to the installer base:

40: The approximate market price in dollars of a high mileage oil change.

4: The approximate increase in product cost to perform this service.

56: The percentage of the car park that is 6 to 10 years old.

8: The average age of vehicles in years.

19,065: The average number of kilometers Canadians drive in a year. (J.D. Power)

3.8: The average number of oil changes per year Canadians have performed.

124,431: The average number of kilometers on vehicles 2 to 12 years old. (J.D. Power)

154,288: The average number of kilometers on vehicles serviced by independent repair shops. (J.D. Power)

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