Auto Service World
Feature   June 1, 2006   by Auto Service World

Motor Oil Retailing

Few categories of automotive products have historically borne the brunt of pricing battles as much as motor oil. While the current volatility in the pricing of oil at the wellhead and supply issues of base oils has caused this pressure to ease up somewhat lately, motor oil still remains a key retail draw.

With nearly one in four litres of oil being sold directly to the DIY consumer–more than one in three in some regions–one can understand why some retailers compete so hard for the consumer’s attention.

Yet it would seem to many that only the largest players in the market, the mass merchandisers, can afford to play in this important market.

However, this impression is not borne out by experience. While it is certainly true that big box retailers have chosen to use very aggressive pricing on certain grades of motor oil to attract retail customers, this does not mean that the advertised price applies across the category.

In fact, quite the opposite has been historically true, which brings us to tip #1.

Tip #1: Be Intelligent About Pricing

Keeping track of competitive pricing is important, but do not assume that an advertised price is consistent either across the category or for a lengthy period of time. Decide on a pricing structure that will meet your needs for attracting customers (or at least won’t turn them away), and does not bleed more profit away than you can afford.

If you are using a cost-plus method of pricing, you may find that your top-level premium products are priced too high, while you are not charging as much as you can for mid- and lower-level products and still remain competitive.

Tip #2: Monitor Changes in the Market

Motor oil is not a market of the status quo, and hasn’t been for some time. Costs have increased for everyone up and down the supply chain, and you should recognize that you must react quickly to changes in the market.

Tip #3: Employ Category Management Techniques

While it may not be directly relevant if you operate a smaller store, understanding the motor oil category as a whole rather than just as a set of competing brands can be an effective strategy. This means looking at overall profitability among the different classes of product–basic, economy, high-mileage, semi-synthetic, synthetic–and even the performance of different grades.

While an attentive supplier rep can be of great assistance in this, do not allow competing reps to steal shelf space from each other with successive detailing visits. Display the amount, type, and brands that work for your business.

Tip #4: Understand the Customer

The motor oil customer is not the same as the professional installer. They are probably more inclined to see the benefits of the higher-value products than the trade customer. If they do, they are already sold on the product.

Tip #5: Know Who Buys What

The motor oil customer is not one monolithic demographic; different folks see value in different things. Employ strategies to maximize the appeal of your stock to the prevalent demographics in your area. If, for example, the walk-in customer tends to be of retirement age and you haven’t seen a muscle car on Main Street in 20 years, focusing on attracting the performance customer may not be your best bet.

Tip #5: Know Your Technology

Despite the reams of information published by suppliers of motor oil and industry associations, there continues to be some rather broad miscommunication, particularly regarding synthetic motor oils and the relatively new extended life motor oils.

Ensure that your staff is properly versed in the right ways to communicate with consumers about motor oil technology. They should also understand some of the persistent myths (that synthetic oils can’t be mixed with standard mineral oils, for example), and know how to respond.

Tip #5: Know Which Oils Meet Automaker Standards

As noted above, there are some misconceptions about motor oil. One that has recently risen to the surface is that the motor oil for some cars can only be purchased at the car dealer. While this is not the case, staff should know that there are an increasing number of certifications that not all motor oils meet, particularly where European vehicles are concerned.

Tip #6: Keep Inventory Up to Date

Did you know that at least one leading brand has replaced its 0W-20 with a 5W-20? While not on the top of the list for popularity, this grade of motor oil is becoming more common: Ford, Honda, and Chrysler all specify it for certain vehicles.

And if you have a customer who previously purchased the 0W-20, he may wonder what happened to it. Ensure that not only do you have up-to-date grades on the shelf, but also that your staff knows what happened to the old ones (i.e., they’re not out of stock, they have been superseded by the new grade).

Tip #7: Be Realistic About Your Retail Potential

On average, a jobber store will sell about one-seventh the amount of motor oil at retail as the independent garage will. While this may seem at odds with the overall DIY market, one needs to account for the fact that much of the DIY market share goes to the mass merchandisers, and probably always will. However, priced properly, retail motor oil sales could likely generate significantly more per-litre profit than the trade sale, without the costs of servicing the customer or carrying receivables.

Tip #8: Set Targets and Work to Meet Them

Sit down with your key suppliers and set retail targets for sales, and enlist their assistance to help you meet them. As with employing category management techniques, the expertise of your key suppliers may be even more important in strong retail categories than in more traditional segments where trade sales are overwhelmingly dominant.

Tip #9: Merchandise Wisely

While it may seem difficult to accomplish at times, a smart approach is to have all the necessary products to perform an oil change located adjacent to each other.

Keep it simple, from the consumer’s point of view, not yours: don’t have oil on one side of the store and filters on the other just because “they fit on the shelf better over there.”

You can be creative about it, by creating an oil change theme or an all-encompassing car care theme display, but whichever approach you choose, it should help direct a consumer to making a wise decision, not get in the way.

Displays that offer too many options, or recommend an extensive list of items, may only serve to confuse or repel the consumer. Oil, filter, oil catch basin, and even air filters are okay, but including every filter, additive, and treatment in your assortment as “recommended” is probably going too far.

Tip #10: Revisit Your Approach Regularly

This is probably the most important part of any retail strategy, whether you are talking about motor oil or any category. Things change; so should you. Years ago, one of the leaders of retailing, Canadian Tire, was a strong private brand player; you had to look long and hard to see featured products that were not “Motomaster” branded. But, while that identity still exists, branded products dominate the automotive department of that retailer now. Don’t assume that a competitor’s approach that you noted two years ago, or even two months ago, is what is being planned for the fall.

A wise retailer is always planning ahead, and that is something that any business, big or small, can do.

Consumers Can Be Categorized

While different studies may use different terms, there are four basic types of consumers when it comes to motor oil purchases.

Understanding which types most of your consumers fall into may help you determine your product mix and your pricing for DIY sales.

Passionate: These consumers are passionate about their car, and have some expertise about its inner workings. These are premium product consumers. For motor oil, this means synthetic grades.

Minimalist: Price, price, and price are what dictate these consumers’ behaviour. They will seek out the best deal, regardless of brand, grade, or specifications.

Diligent and Dutiful: These consumers don’t know much about motor oil or their car, but will try to perform the kind of maintenance required. From a motor oil perspective, they understand the need to change a car’s oil, but don’t necessarily stick to the recommended change intervals.

Peace of Minders: These consumers want to be worry free, so they are likely to choose a branded motor oil–any branded motor oil. These consumers respond well to media messages and believe those messages are credible.

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