Castrol India Limited: An Innovative Distribution Channel – Case Solution

1. Minimalists: The need for them was to do things right, with the insights of valuing money with reassurance from a credible brand.
2. Appreciators: The need for them was to inspire freedom and confidence. With the insight that the bike was a means of transport for them, they needed assurance that it remained reliable and were also ready to pay a slight premium to avoid breakdowns.
3. Enthusiasts: The need for them was to get the most out of their bike’s engine. Insight for them was that they wanted to be associated with the best, as the bike was their vehicle for dreams through which they would uncover new opportunities.

What is the specific challenge for Rai and his team?

The challenge faced by Rai and his team was how to get Non-Franchise Workshops (NFWs) and spare parts shops to stock, display, and sell Castrol.

Out of the targeted 30% market share in the aftermarket, while 24% could be achieved through trade promotions, sales incentive plans, and marketing support, the remaining 6% potentially could be achieved through servicing NFWs and spare part shops.

However, there were a few concerns for the distributors regarding the buying behavior of these outlets, such as:

1. They were hesitant to supply the mechanics of these outlets as the latter lacked a rudimentary understanding of cash flows and payment cycles.

2. The erratic consumption pattern of the consumers was also a concern as the demand for oil changes used to fluctuate violently. While stock and sell used to be supplied fairly regularly by distributors of either Castrol or its competitors, there was a chunk of NFWs who did not want to stock oil products as they were concerned that their customers would ask for credit for the cost of the Castrol motorcycle oil.

3. Also, distributors were cautious in investing in extra employees or delivery units to gain access to these workshops, as each Distributor Sales Rep (DSR) would cost more than Rs.12000 a month. Moreover, the DSR would not be able to manage the activity from an area that is at a great distance from the base station as if credit was demanded by the respective workshop; the payment had to be completed by the end of the day. Furthermore, DSRs were hesitant to visit these workshops for social reasons as well as for fear of exposing their lack of technical knowledge of bikes and parts.

4. Rai also had to make sure that any distribution route-to-market plan that he made had to be a cost-neutral exercise, as Castrol would not increase its distribution or trade margins to fund the proposed expansion. Delivery costs were bound to hit the roof as these outlets were highly scattered as well.

What are Castrol’s options for expanding its distribution? Discuss the advantages and disadvantages of each option.

There are two options that Castrol has for expanding its distribution, and their advantages and disadvantages are in the following ways:

1. After Market Channel:

Spare parts outlets, non-franchised workshops, and oil shops come under the after-market channel. In total, there are about 77000 outlets, out of which Castrol has grabbed 12578. They have a market share of about 16.4% in Spare part outlets, 30.4% in Oil shops, and 6.3% in Non-Franchised workshops.

By coming up with a strategy like educating them about the technology and the benefits of the product through advertisements and campaigns and converting more outlets in this channel, Castrol can achieve a greater number of sales.

Advantages

• After the warranty period, almost all vehicles come to non-franchised workshops for servicing. Through this, they can also convert the old vehicle users into their customers.
• With the long footprint and goodwill in the market, they can boost their sales and convert many more customers.
• They can effectively convert all the “enthusiasts” into customers of Castrol when it is easily available in the market.

Disadvantages

• The conflicts between the distributors of spare parts outlets and oil shops as a part of their customers will be taken away from them.
• As most of the non-franchised workshops are located in remote locations, on-time supply and delivery might also be difficult.
• As many of the mechanics can’t afford to maintain the stock, a credit system should be implemented. It will be difficult for the company as they have to employ a person for follow-up, and they need to spend much more for the expansion.

2. Franchised Workshops

There are 4500 outlets, and Castrol has captured 665 out of them. In terms of percentage, it holds 14.8% of the total market share. By increasing the number of outlets, Castrol can potentially increase its market share, and this will result in a direct increase in its sales.

Advantages

• In order not to void the warranty, the owners prefer to give their vehicles to an authorized service station during the warranty period, and thus, all the new vehicles will be exposed to Castrol.
• Since the authorized service station uses Castrol, the trust in customers to buy Castrol from the outside market will also increase.

Disadvantages

• It will be difficult to convince the franchised workshop dealers as the OEM also supplies their own oil under their packaging.
• Castrol India Limited might be forced to reduce its profit margin to attract authorized dealers to buy and use its products.