Adv 388k group 6 case analysis eco7

Eco 7: Launching a New Motor Oil ADV 388K Integrated Communication Management Group 6

Zachary Bodner (bodnerzd) Alex Hart (amh6375) Xing Liu (xl5525) Darya Procopovich (dp28353) Emma Szyller (es34345) The University of Texas at Austin

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Situation Analysis Demographic Environment The Do-It-Yourself (DIY) consumer segment is younger overall than the Do-It-For-Me (DIFM) consumer segment and is more likely to live in smaller towns or rural areas. On average, DIY consumers are slightly less affluent, favor trucks and SUV’s, and are more conscious when it comes to automotive maintenance. They are more likely to purchase their motor oil from a mass merchandiser, such as Walmart, or an automotive parts store, such as AutoZone or Advance Auto Parts. They also tend to know more about their vehicles and have a better understanding of the differences between motor oils.

The Do-It-For-Me (DIFM) consumer segment is usually older, has more education and a higher income, and is more likely to live in a large metropolitan area. They tend to prefer foreign cars and luxury vehicles, and are more likely to drive fuel-efficient diesel or hybrid cars. They are less likely than DIY consumers to do any maintenance on vehicles themselves. They typically rely on professionals for routine maintenance such as tire rotations, brake service, and tune-ups. Additionally, most DIFM customers cannot explain the product classification and don’t remember what brand of motor oil they last purchased.

DIY consumer segment

DIFM consumer segment

Age

Younger

Older

Geography

Smaller towns or rural areas

Large metropolitan areas

Income

Less affluent

Higher income

Education

Less

More

Type of car

Trucks and SUV’s

Foreign, luxury cars, and fuelefficient diesel or hybrid cars.

Motor oil purchase location

Mass merchandiser (Walmart) or automotive parts stores (AutoZone)

Rely on professional for routine maintenance

Overall, most consumers are price sensitive and despite the fact that it is recommended that regular drivers get an oil change every 3,000 miles or three months (whichever comes first), customers typically only change their oil every 4,500 miles.

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Economic Environment The market for PCMO manufacturers in the U.S., excluding service revenues, is approximately $10.5 billion in 2012. The industry is mature, and analysts expect annual growth of no more than 2% through 2020. Manufacturers sell PCMO directly (25% of industry sales) and through wholesale distributors (75% of industry sales).

Natural Environment Used motor oil will harm soil and water if not disposed of properly. However, when managed properly, used motor oil can be refined and reused. For instance, Eco7 is an environmentally friendly motor oil because it is made of 65% recycled oil and 45% less energy than is typically used to produce conventional oil.

Technological Environment Overall, the performance of a PCMO is gauged by how well it provides lubrication under different conditions. PCMO’s come in three basic categories: conventional, full synthetic, and synthetic blend. Conventional motor oil meets performance specifications and costs less than other types. Full synthetic motor oil uses petroleum as its base material, but is further refined and modified and has more additives to boost performance. Synthetics offer greater longevity and withstand high temperatures more effectively than conventional motor oils. They can be used in any vehicle, but are often specified for higher performance vehicles that generate more engine heat.

Competitive Environment The PCMO industry is mature, and the market leaders are Baud and Motoline. Aveline ranks third among PCMO manufacturers. However, although Avellin remains the number three player in branded motor oil, its market share had fallen slightly, making Eco7 an important product launch.

Baud and Motoline have invested heavily in expanding their fast-lube chains. The two market leaders have made themselves the easy, obvious choice for consumers in the most attractive metropolitan markets. Baud has the largest fast-lube chain in the country. Baud also enjoys a strong presence in mass merchandisers and clubs, where it is the preferred brand for oil changes at Walmart and is granted significant shelf space, which helps it capture DIY sales.

Motoline has more than 1,200 stores in its fast-lube chain and long-term relationships with major chains for brakes and mufflers, as well as national tire dealers.

To date, only Sevoline, a competitor to Avellin and ranked 5th in the market, has introduced a ‘green’ motor oil, SevoGreen, which was introduced in 2011. Like Eco7, SevoGreen is manufactured with recycled motor oil. It performs on par with other conventional oils, although, at $7.50 per quart, it costs nearly twice as much. Sevogreen has generated significant buzz within the industry and initial sales penetration of channel partners has shown promise, but the green motor oil market is clearly in its infancy.

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Despite the fact that Eco7 is a “green” motor oil, it still has to compete with other “regular” motor oils (conventional, full synthetic and synthetic blend). One of the advantages is that although Eco7 is a conventional motor oil, it also has the same characteristics as a synthetic blend. However, Eco7 will be priced higher than conventional oils. It is also important to note that customers are rarely loyal to PMCO brands, and private-label motor oils have lower prices while also generating high gross margins for DIFM installers. Taken together, this leads to private-label motor oils having 32% of the market share, which continues to increase.

Product Environment Many consumers view motor oil as a commodity product (pg. 1). That being said, consumer interest in “green” automobile technology, such as hybrids and electric vehicles, has still increased steadily. Most research and development focuses on improving fuel efficiency, alternative energy sources, and reducing emissions. However, there has been little innovation in the motor oil used to maintain engines.

The most widely used products are those within the conventional motor oil category, because they meet performance specifications and, at $2.50 to $4.00 per quart, they are the most affordable motor oil. Synthetic motor oil accounts for less than 20% of industry sales because of its high price point ($5.50 to $9.00 per quart), despite the fact that is has greater longevity and can withstand high temperatures more effectively.

Company Analysis Avellin has experienced sluggish growth since 2005. This is partly due to a takeover bid that Avellin was forced to fight in 2007. While the resulting management buyout kept Avellin independent, the whole ordeal saddled the company with significant debt and interest payments.

In 2013, Avellin’s net income was only 4% of total industry revenues of $2.2 billion. In 2014, Avellin operated ten lubricant blending and packaging plants in the U.S. and seven regional distribution centers.

Like its competitors, Avellin has its own fast-lube chain, AvellinAuto. However, Avellin cannot aggressively advertise its motor oil through AvellinAuto because it competes with the company’s other DIFM customers.

Overall, Avellin has two divisions: Industrial Materials and Automotive. Approximately 60% of Avellin’s revenues and 40% of its profit come from the automotive division. And although Avellin remains the number 3 player in branded motor oil, its market share has fallen slightly, making Eco7 an important product launch.

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SWOT Analysis Strengths

Weaknesses

Competition Company ● Avellin remains the number 3 player ● Avellin’s market share has fallen in branded motor oil. slightly (pg.1) ● Avellin is the leading PCMO brand ● Avellin has experienced sluggish among independent DIFM customers growth since 2005. (pg.6) ● Avellin is saddled with significant debt ● Avellin remains a well-respected, and interest payments. innovative company that consumers ● In 2013, Avellin’s net income was only trust (pg.1) 4% on total industry revenues of $2.2 ● Approximately 60% of Avellin’s billion. revenues, and 40% of its profits come from the automotive division; making Avellin Programs & Stores ● Avellin has been less aggressive than this product launch a key move in the its competitors in expanding its fastcompany’s ability to grow. lube chain (pg.6) ● Jonnerson believes that Eco7 offers performance and cost advantages over SevoGreen and can help grow Avellin’s business in the passengercar motor oil (PCMO) market (pg. 1) ● Avellin has historically been favored by independent fast-lube stores, oil change-plus stores, and repair shops (pg.5) Technology ● Eco7 is an environmentally friendly motor oil. ● Avellin’s refining process and additives give Eco7 a longevity and performance comparable to a synthetic blend, making it superior to conventional oil (pg.7) ● Eco7 is made of 65% recycled oil and uses 45% less energy than is typically used to produce conventional oil (pg.

7)

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Avellin Programs & Stores ● Avellin’s Aventage program provides customers with dedicated sales managers, management of in-store displays, provision of consumer education and support, and bulk discounts (pg.6) ● AvellinAuto stores are serviced directly through the company’s regional distribution centers, rather than through wholesalers, and the effective manufacturer's gross profit is about $0.75 higher per five quarts (pg.6) Opportunities

Threats

Market Market ● The market for PCMO manufacturers ● The industry of PCMO is mature, and in the United States, excluding service analysts expect annual growth of no revenues, was approximately $10.5 more than 2% through 2020 (pg. 2) billion in 2012 (pg.1) ● The “fast-lube” channel - comprised of service outlets focused on quick oil Competition changes - has peaked. This is a concern ● There is only one competitor for Avellin, who has a strong customer (Sevoline) that produces a recycled base among independent fast-lube oil. stores. Only the national fast-lube chains have seen meaningful revenue Consumer Insights growth. ● Most vehicle owners understand the ● Oil changes in mass merchandisers and importance of regular oil changes and clubs are priced very competitively and know the leading PCMO brands. generate little profit for the retailers, ● Customers appreciate having a “onebut drive customers to these stores stop shop” for all maintenance, such (pg.4) as oil changes (pg.4) ● Repair shops’ share of automotive ● 83% of consumers are willing to maintenance services has declined in accept a professional installer’s favor of lower-cost, higher-volume recommended PCMO brand if it outlets (pg.4) meets their price expectations and the vehicle manufacturer’s requirements.

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Technology ● There has been little innovation in the motor oil used to maintain engines. ● The green motor oil market is still in its infancy, thus there is a large opportunity for significant growth. ● SevoGreen performs on par with other conventional oils, although at $7.50 per quart, it costs nearly twice as much as current conventional oil options (pg. 7), and would cost a dollar more than the highest proposed price option for Eco7.

Environment/Green Technologies ● Surveys indicate that an increasing number of consumers value environmentally friendly options and would pay a premium to be green (pg.6) ● Consumer interest in “green” automobile technology, such as hybrids or electric vehicles, has increased steadily (pg. 1) DIY ● During the past decade, the DIY segment has shrunk dramatically as more customers are beginning to use professional oil-change services (pg.1) ● Sales to DIY consumers are modest, as Sevoline invests little in national marketing campaigns that could build awareness (pg.7)

Consumer Insights ● Consumers are not excited by motor oil, and building momentum for Eco7 will be difficult. ● Most PCMO consumers view oil changes as a nuisance that costs them time and money (pg.3) ● Many consumers view motor oil as a commodity product (pg. 1) ● Some customers may not understand that Eco7 is not only an environmentally friendly product, but also provides better driving performance (pg.7) ● Aventage customers have begun to demand their own private-label product that can give them good margins and a low price to compete against the lowcost oil changes at mass merchandisers and clubs (pg.6) Technology ● Most innovations offer only modest improvements to existing products and typically are unnoticed by consumers (pg. 2) ● New cars can be driven much farther before requiring an oil change; in 2013, the average consumer drove nearly 4,500 miles before getting an oil change (up from the traditionally recommended 3,000 miles between oil changes).

DIY ● A consumer might be unwilling to pay DIFM full price for a branded synthetic, but ● Most distributors and independent could be upsold from conventional DIFM outlets only carry a few brands, motor oil to a private-label synthetic thus if Eco7 can find a way into these oil.

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outlets, they will have prime territory ● Nearly 70% of DIY consumers report because of the lack of competition purchasing one PCMO product within each individual outlet. consistently because of trust and ● DIFM service providers will steer familiarity with the brand. their customers to a preferred brand; DIFM if Avellin can convince service ● Most DIFM consumers could not providers that Eco7 is a superior explain the product classifications and option, then it should follow that they could not recall what brand of motor will recommend it to customers. oil they had last purchased. ● One-third of Sevoline’s DIFM ● For the DIFM installers, private label customers have agreed to carry offers lower prices while generating SevoGreen, but few are motivated or high gross margins (pg.5) trained to promote it (pg.7); thus ● Major retailers that offered DIFM Avellin can try to gain market share in services, such as Walmart, usually the green motor oil segment by promoted their own private label, resolving this issue and teaching Baud, or Motoline (pg.6) DIFM customers of the superior qualities of Eco7.

Price ● The price of an oil change at a fastlube outlet is 15%-20% higher than it is at repair shops, dealers, and mass merchandisers. (pg.4) ● The varying retail prices of Eco7 at different store locations can create complaints about lower price at other stores (pg.8)

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Problem Statement What distribution channel and pricing strategy should Avellin choose for launching its new “green” motor oil?

Critical Factors 1. Distribution channels - the company has three key distribution channels through which it sells its products to different types of customers. Each channel provides Avellin and it’s retailers with different margins, which are important to consider when analyzing the feasibility of each solution.

2. Price - customers are sensitive to a price, and the company has more price-focused consumers than quality-focused consumers.

3. Competition - Avellin’s Eco7 will compete not only with other “green” oils such as Sevoline, but also with other types of oils (conventional, synthetic and blend synthetic).

4. Target audience - do-it-yourself (DIY) and do-it-for-me (DIFM) are two disparate segments. The DIY segment is younger and more likely to live in smaller towns or rural areas, and more loyal to their brand of choice. The DIFM consumers are older, and have higher income, however they are less brand loyal.

5. Market trends - An increasing number of consumers value environmentally friendly options and will pay a premium for products that align with the idea of being greener.

Eco7 is a product that Avellin is pushing to be more environmentally friendly.

6. Product - Eco7 is made of 65% recycled oil, and requires 45% less energy than is typically needed when producing conventional PCMO. In addition, the product provides a longevity and performance level comparable to a synthetic blend of oil, making it superior to conventional oil on a number of fronts.

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Solution 1: Distribution through the independent DIFM customer base and AvellinAuto stores This solution includes offering Eco7 exclusively through the independent DIFM customer base and AvellinAuto stores while keeping it out of the national mass merchandisers, clubs, and major auto-parts chains.

Distribution channels Independent DIFM Independent DIFM customers are the key feature in Avellin’s distribution channels, and they bring 68% of the company’s revenue. More than 70% of them join the Aventage loyalty program. Fast lubes, oil change-plus stores and repair stores generate 53% of DIFM purchases (pg. 9, Exhibit 1; combined Fast lube - 32%, Oil change-plus - 12% and Repair shop - 9%), and by selling Eco7 through a wide chain of distributors, the company will reach more final customers and will have higher revenue (Appendix A).

Moreover, the fast-lube model helps to drive the consumer shift from DIY to DIFM, often being the first place DIY customers choose among other DIFM installers. Avellin might attract new customers of the growing DIFM segment by offering Eco7 in these stores.

AvellinAuto stores With 436 stores open as of 2014, the AvellinAuto chain generated approximately 7% of PMCO sales. Due to the fact that they are serviced directly through the company’s regional distribution centers, AvellinAuto stores bring higher gross profit than DIFM, who are serviced through wholesalers. The result is an additional $0.75 per five quarts. Penetration of Eco7 will be 100% through these stores, but the company still has to be careful and perform less aggressively due to fear of competing with other DIFM chains.

Pricing strategy Because the market is sensitive to price, and 17% of Avellin’s consumers are priceoriented, penetration and sales performance of the new motor oil is dependant on price point.

The company estimated different levels of adoption and number of sales for each type of distributor (pg. 11, exhibit 6). Also, because Eco7 is a conventional motor oil, it is estimated that consumers of this type of oil would be the first to switch.

By choosing to price Eco 7 at $6.75 per quart, the company would have a fewer number of oil changes and lower level of penetration, than it would have by pricing Eco7 at $5.50. Also a lower price might provide independent DIFM customers with a higher margin. Because of these facts, monthly revenue of selling Eco7 at $5.50 is predicted to be $21.8M versus $18.2M selling it at $6.75 (Appendix A).

However, these customers would be upsold from Avellin’s conventional motor oil, and the company would sell less conventional oil. The difference in Avellin's revenue selling Eco7

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instead of Avellin Conventional would be higher for $6.75 despite lower number of changes and lower level of adoption.

Target audience The DIFM consumer segment who typically use professional service providers to assist in the routine maintenance of their vehicles. Overall, these customers are more affluent and have less interest in the specifics of their car maintenance routines. Moreover, the typical DIFM consumer is more likely to drive fuel-efficient diesel or hybrid cars and thus may be more interested in paying a higher price to receive an environmentally friendly motor oil alternative.

Competition Compete with large national brands: Baud and Motoline. In addition, they would compete with the first major “green” motor oil manufacturer, Sevoline, because both companies have similar product offerings and positioning strategies.

Pros: ● Avellin is the leading PCMO brand among independent DIFM customers (pg.6). ● Wider chain of distributors compared to only AvellinAuto stores and Aventage loyalty program (Solution 2). ● Independent DIFM bring 68% of revenue, and ignoring them would prevent Avellin from reaching a significant portion of the market. ● The company may focus on distributing through independent DIFM customers, which have big market share, and AvellinAuto stores would have lower priority. The level of competition between Independent DIFM and AvellinAuto would be lower.

Cons: ● Keeping out of the national mass merchandisers, clubs, and major auto-part chains would affect the sales of Avellin because National retailers accounted for 9% of Avellin’s PCMO sales. ● The company will not be able to aggressively advertise its services and oil through AvellinAuto. ● Price of an oil change in independent DIFM store will be higher than in AvellinAuto store, and selling more through independent DIFM customers, the company will have to use lower price. ● Recently, Aventage customers have begun to demand their own private-label product that could give them good margins and a low price to compete against the low-cost oil changes at mass merchandisers and clubs.

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Solution 2: Distribution through the AvellinAuto stores and independent DIFM customers in the Aventage program This solution involves selling Eco7 only through AvellinAuto stores and independent DIFM customers in the Aventage program.

Distribution channels Aventage Program Stores One of the main advantages of distributing through the Aventage Program is building and bolstering customer loyalty. Selling Eco7 only through 4,400 Aventage program stores (73% of all independent DIFM stores that sell Avellin’s motor oil) ignoring other 1,600 independent DIFM stores, will result in higher adoption of the new motor oil (95% vs. 75% by choosing full price and approximately 100% vs. 90% by choosing discounted price).

This is mainly achieved through in-store sales managers, bulk discounts, administration of consumer education and support, and management of in-store sales displays. The sales managers further provide Avellin with consumer insights and trends, and ensure that wholesale distributors serve the DIFM customers effectively. Selling the new Eco7 only through Aventage program stores, Avellin would make other companies want to join this program.

AvellinAuto stores AvellinAuto stores bring higher gross profit than DIFM stores, and by incorporating Eco7 into its own chain of stores and giving them opportunity to grow, Avellin would take a step toward maximizing its profit in the future as other manufacturers have done. Additionally, the AvellinAuto stores generate approximately 7% of PCMO sales and are located in places where other independent DIFM stores have a lack of presence. However, AvellinAuto still has to ensure that they do not perform too aggressively out of fear of competing with other DIFM chains, which sell other types of Avellin’s oil.

Pricing strategy By selling the new motor oil only through Aventage program and AvellinAuto stores, the company can demonstrate that it is an exclusive motor oil with advantageous benefits over the competition. The higher price (compared to conventional motor oil) might be an indicator of that.

By choosing to price Eco7 at $6.75 per quart, Avellin would have a lower revenue because of the lower percentage of adoption and a lower number of oil changes (Appendix B).

However, because of converting more customers from conventional oil to Eco7, to total revenue would be higher for this price, and it will result in bigger gross margin for installers (approximately 55% of final price).

By choosing to price Eco7 at $5.50 per quart, the company would provide Aventage program stores with a huge benefit by giving them the freedom to price the new motor oil at a higher price (and to have gross margin higher than 55%) and in turn, allow these stores the

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ability to pull in higher margins. Overall, this would increase loyalty and limit the encroachment of private labels.

Target audience The DIFM consumer segment who typically use professional service providers to assist in the routine maintenance of their vehicles; but this strategy will put more emphasis on customers who are already loyal to the Avellin’s Aventage program. Because this customer base is already loyal to the Avellin brand, and are more interested in purchasing products that are environmentally friendly, the jump from them purchasing the standard Avellin products to now purchasing the Eco7 product should be an easy hurdle for Avellin to tackle.

Competition Aside from the obvious competition of large national brands (Baud and Motoline), and the first major green motor oil manufacturer, SevoGreen, the new Eco7 will create competition between Aventage program stores and other independent DIFM stores because it will give the Aventage program stores additional advantages.

Pros: The company will get higher gross profit selling through AvellinAuto only The team projects this approach would grow 95% among Aventage stores ● Independent DIFM bring 68% of revenue, and ignoring them would prevent Avellin from reaching a significant portion of the market. ● The likelihood that the Eco7 launch will be executed effectively will increase by working with fewer, but more engaged, stores already in the Aventage program. ● Avellin is the leading PCMO brand among independent DIFM customers (pg.6). ● ●

Cons: Competition between AvellinAuto and Independent DIFM distributors will be more tense and that may lead to termination of relationship between the company and customers ● AvellinAuto doesn’t have many stores, and they are not situated at key locations. ● The company may cause anger of independent DIFM customers who sell regular motor oil, but not allowed to sell “green” motor oil. ●

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Recommendation Solution 2: Distribution through the AvellinAuto stores and independent DIFM customers in the Aventage program We recommend Avellin distribute the new environmentally friendly motor oil, Eco7, through the AvellinAuto stores and independent DIFM customer in the Aventage program, while keeping it out of the national mass merchandisers, clubs, and major auto-parts chains. This distribution plan will reach the DIFM customer base and since independent DIFM generate a large percentage of revenue, they are key to reaching a significant portion of the market.

Additionally, Avellin is already the leading PCMO brand among independent DIFM customers, so this target audience is more likely to be receptive to a new product from a brand they already trust.

Based on prior experience, the penetration with this approach is expected to grow to 95% among Aventage stores. Distributing through the Aventage Program will increase and strengthen customer loyalty. Working with fewer, but more engaged, stores already in the Aventage program will improve the odds that the launch of Eco7 will be executed effectively.

Additionally, there is only one other “green� motor oil in the market right now (SevoGreen), and the opportunity of selling it should be a reason to join Aventage program. If Avellin additionally signs 8% of current customers and reaches 4,750 stores in the program, the revenue of selling Eco7 will be $18.2M, and difference in Avellin's revenue selling Eco7 instead of Avellin Conventional will reach the same difference in selling through all independent DIFM customers ($9,436,219).

Furthermore, because AvellinAuto stores produce higher gross profit than DIFM stores, introducing Eco7 in AvellinAuto stores will allow Avellin to maximize its profit in the future as other manufacturers have done. AvellinAuto stores being located in places where other independent DIFM stores have no presence, is another advantage of this distribution plan, but to ensure low competition between Independent DIFM and AvellinAuto, we need to focus on the distribution through independent DIFM customers first and AvellinAuto stores second.

Introducing Eco7 at $6.75 per quart would provide Aventage program stores with higher margin. Overall, this would increase loyalty and limit the encroachment of private labels.

We decided it would not be beneficial for Avellin to focus their efforts on the DIY consumer segment for a number of reasons. First, DIY consumers are more cost-conscious when it comes to automotive maintenance, thus, convincing DIY customers of the value proposition of this new product would be a significant hurdle to overcome. Second, the marketing and advertising costs to do so would also be significant and less fruitful than offering the product primarily to DIFM customers, who, on average are more affluent. Third, DIY consumers are more involved in the regular maintenance of their vehicles and thus might be more critical of the performance benefits of this new, more expensive product offering. Fourth, competition for this segment will be fierce because the national retailers come into play with their cheaper price of

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motor oil and quick oil change service. Because of the lower price point, there is a risk of customers wanting to switch from the independent DIFM stores to the national retailers, which would create a rift between the distributors and Avellin. Additionally, customers in the Avellin Aventage programs will likely demand changing to private motor oils, which would further hurt Avellins’ sales landscape. Finally, if Avellin decided to distribute Eco7 through national wholesalers, the company would need to spend a significant amount of money on in-store displays and other advertising efforts to ensure that potential customers understand the value proposition of this new product. The cost of these efforts combined with the lower product price necessary to compete with the more competitive pricing within these stores would plague Avellin with significant losses.

However, it is also important to note that by largely ignoring the DIY consumers, Avellin will miss targeting 9% of Avellin’s PCMO sales. If Avellin did want to target this small subset of customers, they would need to offer Eco7 at a cheaper price point, which, in turn, would anger other DIFM stores and would poach customers from those stores to national retailers. Given the need to offer the product at lower prices for wholesalers, Avellin’s missing out on this percentage of customers would not cause a significant loss. Another point to note is that DIY consumers are more aware of the brands they buy and have a high level of brand awareness. By ignoring the DIY customers Avellin may potentially hurt their chances of building the brand and customer loyalty in the future.

To summarize, we decided not to include National retailers in our distribution channel strategy because such a decision would drive current Avellin customers to those retailers because of the more competitive pricing. This, in turn would reduce the sales from DIFM and AvellinAuto stores. Overall, the cons of targeting DIY customers outweigh the pros and thus we think Avellin’s focus for Eco7 should revolve around the Aventage program customers and their own AvellinAuto stores.

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Appendix A Solution #1: Distribution through the independent DIFM customer base and AvellinAuto stores Independent DIFM Fast lubes

Oil change-plus AvellinAuto and Repair Other stores stores

Aventage stores Number of stores

Total

4,400

1,600

6,500

436

12,936

- full price

75%

45%

30%

100%

- discounted

90%

60%

40%

100%

- full price

3,300

720

1,950

436

6,406

- discounted

3,960

960

2,600

436

7,956

- full price

105

105

26

150

- discounted

135

135

34

180

- full price

346,500

75,600

51,188

65,400

538,688

- discounted

534,600

129,600

87,750

78,480

830,430

- full price

$6.75

$6.75

$6.75

$6.75

- discounted

$5.25

$5.25

$5.25

$5.25

5

5

5

5

- full price

$11,694,375

$2,551,500

$1,727,578

$2,207,250

$18,180,703

- discounted

$14,033,250

$3,402,000

$2,303,438

$2,060,100

$21,798,788

$3.25

$3.25

$3.25

$3.25

- full price

$6,063,750

$1,323,000

$895,781

$1,144,500

$9,427,031

- discounted

$5,346,000

$1,296,000

$877,500

$784,800

$8,304,300

Adoption of Eco7, %

Adoption of Eco7, stores

Retail sales of Eco7, per store

Retail sales of Eco7, total

Price of Eco7 per quart

Amount of quarts for an oil change Revenue of selling Eco7

Price of Avellin Conventional Difference in Avellin's revenue selling Eco7 instead of Avellin Conventional

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Appendix B Solution #2: Distribution through the AvellinAuto stores and independent DIFM customers in the Aventage program Independent DIFM Oil change-plus and Repair Aventage stores Other stores stores Fast lubes

Number of stores

AvellinAuto

Total

4,400

0

0

436

4,836

95%

0%

0%

100%

100%

0%

0%

100%

0

- full price

4,180

0

0

436

4,616

- discounted

4,400

0

0

436

4,836

- full price

105

0

0

150

- discounted

135

0

0

180

- full price

438,900

0

0

65,400

504,300

- discounted

594,000

0

0

78,480

672,480

- full price

$6.75

$6.75

$6.75

$6.75

- discounted

$5.25

$5.25

$5.25

$5.25

5

5

5

5

- full price

$14,812,875

$0

$0

$2,207,250

$17,020,125

- discounted

$15,592,500

$0

$0

$2,060,100

$17,652,600

$3.25

$3.25

$3.25

$3.25

- full price

$7,680,750

$0

$0

$1,144,500

$8,825,250

- discounted

$5,940,000

$0

$0

$784,800

$6,724,800

Adoption of Eco7, % - full price - discounted Adoption of Eco7, stores

Retail sales of Eco7, per store

Retail sales of Eco7, total

Price of Eco7 per quart

Amount of quarts for an oil change Revenue of selling Eco7

Price of Avellin Conventional Difference in Avellin's revenue selling Eco7 instead of Avellin Conventional

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Appendix C Solution #2: Distribution through the AvellinAuto stores and independent DIFM customers in the Aventage program Growth prediction Independent DIFM Fast lubes

Oil changeplus and Repair Other stores stores

Aventage stores Number of stores

AvellinAuto

Total

4,750

0

0

436

5,186

95%

0%

0%

100%

100%

0%

0%

100%

0

- full price

4,513

0

0

436

4,949

- discounted

4,750

0

0

436

5,186

- full price

105

0

0

150

- discounted

135

0

0

180

- full price

473,813

0

0

65,400

539,213

- discounted

641,250

0

0

78,480

719,730

- full price

$6.75

$6.75

$6.75

$6.75

- discounted

$5.25

$5.25

$5.25

$5.25

5

5

5

5

- full price

$15,991,172

$0

$0

$2,207,250

$18,198,422

- discounted

$16,832,813

$0

$0

$2,060,100

$18,892,913

$3.25

$3.25

$3.25

$3.25

- full price

$8,291,719

$0

$0

$1,144,500

$9,436,219

- discounted

$6,412,500

$0

$0

$784,800

$7,197,300

Adoption of Eco7, % - full price - discounted Adoption of Eco7, stores

Retail sales of Eco7, per store

Retail sales of Eco7, total

Price of Eco7 per quart

Amount of quarts for an oil change Revenue of selling Eco7

Price of Avellin Conventional Difference in Avellin's revenue selling Eco7 instead of Avellin Conventional