Introduction
The business under analysis is Avellin, a brand focused on industrial materials and automotive products. Avellin sells “resins and adhesive technologies,” as well as “lubricants and other automotive care products to commercial and consumer markets,” while passenger-car motor oil (PCMO) sales constitute its primary revenue and profit (Quelch & Yong, 2015, p. 2). Avellin’s vice president decided to launch a new product offering, namely, Eco7. Eco7 is a green oil intended for the PCMO market.
The target market for PCMO consists of two segments defined as do-it-for-yourself (DIY) and do-it-for-me (DIFM) consumers. The first category consists of young customers, willing to change their motor oil by themselves. They live in rural areas, have low disposable income, use large vehicles for work, and pay attention to the technical details, brand, and cost of their purchases (Quelch & Yong, 2015). In contrast, DIFM clients are older, more affluent, live in urbanized areas, use advanced, convenient vehicles, and know little about the motor oil they need. As a result, they prefer to delegate oil change to professional services. However, all customers appreciate longevity, low price, and appropriateness for different conditions in motor oils.
Avellin has two major competitors in the PCMO market, although the platforms for distribution of motor oil differ among the companies. According to Quelch and Yong (2015), “in the U.S., … Baud and Motoline … accounted for 23% and 15%, respectively, of branded sales in 2012” (p. 5). In turn, “Avellin ranked third among PCMO manufacturers with 11% of the market” (Quelch & Yong, 2015, p. 5). Baud has a strong position in the fast-lube market through its partnership with wholesalers like Walmart. Similarly, Motoline has a high profit through the fast-lube channel by attracting customers through stores in urbanized areas and national dealers. Avellin relies more on independent fast-lube stores, as well as other small providers of oil change services, being favorite among DIFM consumers who value low prices. The major problem for all competitors is the low brand awareness among the DIFM customers, who have begun to comprise a more significant part of the market.
Critical Analysis
One of the essential and defining concepts that can be used to analyze the success and failure of Avellin’s new product launch is the business model. In fact, Avellin decided to pursue a business model of combining existing distribution practices with a market in its infancy stage, namely the green motor oil market. A similar approach is described by McDonald and Eisenhardt (2019) as an entrance into a nascent market. However, pursuing new markets does not always suggest a favorable result, so the authors identified the components of the practical business model for the developing needs. Avellin’s business practices are in accordance with McDonald’s and Eisenhardt’s theory. As such, borrowing from peer companies is suggested as a successful decision compared to building value products from scratch. Avellin has used the idea of green motor oil in the US developed by Sevoline, reducing its research and production costs (Quelch & Yong, 2015). Moreover, before launching Eco7, Avellin has tested the market and elaborated on the business model before implementing changes, which is also an effective practice.
Next, Avellin has successfully applied the concept of increasing brand awareness and brand loyalty. For example, “buyers of Eco7 were more likely to have consciously from a competing PCMO,” which signifies that there emerged some value in Avellin’s brand (Quelch & Yong, 2015, p. 7). This fact can be constructed to the situation before the launch of the product: the customers (especially DIFM) tended to pay little attention to the producer of their motor oil and cared about price or quality more. However, the desire to purchase Avellin’s green motor oil specifically corresponds to what is described in Ali’s (2019) article cognizance, behavioral, and emotional patterns that characterize brand awareness and loyalty. The practices that led to this success factor are personal sales at the stores and outlets servicing the customers with an attractive product package design.
Although the mentioned earlier practices are rather beneficial to the firm, there are also issues in the marketing strategy. Namely, Avellin has overemphasized the role of social media in advertising by using TV as its main promotion channel. Whatever intent was behind this effort–whether brand awareness or sales volume increase–it turned out to be in vain. The buyers of Avellin’s new product reported that local TV advertisements contributed little to choosing the brand and the product. Moreover, this use of a promotion channel does not correspond to the theory outlined by Ikbal et al. (2021), which suggests that promotion should be appropriate for the target market. Additionally, Ikbal et al. (2021) underline that distribution channels matter more than advertising. The problem with Avellin’s advertisements’ practices consists in the fact that their DIFM customers do not view the qualities and brands of motor oil as significant purchases that need thoughtful choice. As a result, it could be expected that they either do not pay attention to TV advertisements about the product or forget it as unnecessary information.
Furthermore, the marketing message of Avellin’s promotion practices does not correspond to the needs and values of its target audience. According to Noar et al. (2018), a compelling and perceived message should invoke the most related concepts and values of the customer for which the promotion is intended. Avellin has highlighted the quality characteristics of its product, Eco7 (Quelch & Yong, 2015). However, as was mentioned earlier, the DIFM target market of the company is not interested in the details of their purchase and trusts the sales assistants in the service outlets more than advertisements. Moreover, the DIFM clients of Avellin tend to value price over quality, which has been confirmed by the test marketing after the launch (Quelch & Yong, 2015). Thus, the message of the recommended promotion failed to incorporate the price aspect of Eco7.
The other area of concern is the pricing strategy that Avellin has applied for presale. According to Feng et al. (2019), using a presale approach provides several advantages for businesses when releasing new items. Presales guarantee that consumers, particularly brand loyalists and technological product devotees, are satisfied. It implies that these consumers should be treated differently than average buyers since their willingness to pay more for the new product is profitable for manufacturers. As a result, it is helpful to use a skimming pricing strategy for presales at first, which suggests high prices and availability of the product only for the brand loyalists. After these people have satisfied their needs, the producer can launch a penetrating strategy to reach more public that prefers lower prices. However, Avellin has employed only a penetrating pricing strategy, although it made premium prices in its stores, which is not practical since the lower price was available elsewhere. Thus, Avellin has missed an opportunity to increase its revenue.
Remedies
The inappropriateness of the chosen promotion channel can be solved through some change. It could be suggested that Avellin shift its efforts from TV advertisements to personal selling. Since the recommendations of change motor oil service providers are considered authoritative by the DIFM consumer, as has been discussed above, it would be more effective to focus on their efforts. To increase the effectiveness of the employees at the outlets, Avellin should invest in instructing them on the message and impression that the company wants to achieve. Avellin can propose some discounts on the purchase of its Eco7 for retailers in exchange for promotional activity. This solution would raise the trust and demand among the clients of the outlets that rely on the pieces of advice from qualified professionals.
The other important remedy is improving the marketing message for the DIFM consumers. Since they value price before quality, it would be appropriate to articulate the cost-efficiency of Eco7 that is achieved through the lesser frequency of change and more excellent quality of the product. The customers should be informed by the outlets’ service providers that although the price of Eco7 motor oil is slightly higher than that of other blends, it can be used for a long time, which reduces the amount of needed oil. Moreover, it should be communicated that a more significant amount of longevity and efficiency qualities of the motor oil diminishes the probability of breaking or other damage to the vehicle. As a result, the product prevents the customers from repairing expenses. Thus, the customers would be ensured of the product quality while the emphasis on the economy would satisfy their needs.
Conclusion
Finally, the pricing strategy that the company employed during presales needs a remedy. Namely, it would be more profitable if the company had employed a skimming pricing strategy for customers who visit Avellin’s stores. Since these buyers are more willing to purchase the new product and value the brand, they would acquire Eco7 at a higher price under the condition that the oil is not yet available in other stores. After the premium delivery would be sold out, the firm can launch a penetrating pricing strategy, meaning that it would distribute the oil to different spots and sell it at lower prices or with discounts.
References
Ali, H. (2019). Building repurchase intention and purchase decision: Brand awareness and brand loyalty analysis (case study private label product in Alfamidi Tangerang). Saudi Journal of Humanities and Social Sciences, 04(09), 623–634.
Feng, S., Hu, X., Yang, A., & Liu, J. (2019). Pricing strategy for new products with presales. Mathematical Problems in Engineering, 2019, 1–13.
Ikbal, M., Saragi, S., & Sitanggang, M. L. (2021). The effect of sales distribution channels and promotion policies on the consumer buying behavior and its impact on sales volume. The International Journal of Business Review.
McDonald, R. M., & Eisenhardt, K. M. (2019). Parallel play: Startups, nascent markets, and effective business-model design. Administrative Science Quarterly, 65(2), 483–523.
Noar, S. M., Bell, T., Kelley, D., Barker, J., & Yzer, M. (2018). Perceived message effectiveness measures in tobacco education campaigns: A systematic review. Communication Methods and Measures, 12(4), 295–313.
Quelch, J., & Yong, S. (2015). Three main headings must be used (summary, analysis, remedies). Harvard Business School.