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Strategic Management Class Presentation Outline October 11, 2000

Analyzing the shift from DIY to DIFM in the motor oil market. Strategies to grow market share, improve margins, and forge alliances. Examination of brand share trends and key channel dynamics.

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Strategic Management Class Presentation Outline October 11, 2000

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  1. Strategic Management Class Presentation Outline October 11, 2000 • Market Background • DIFM Strategies

  2. DIY vs. DIFM % D-I-Y % Installed Quarts Based Total United States By Selected Time Periods 12 Months Ending June, 1996 - 2000

  3. Market Continues to Shift From DIY to DIFM Factors Causing Shift From DIY To DIFM • Age - The aging population is more inclined to be DIFM’s • Convenience - Higher demand as less leisure time is available • Increased Installed Outlets - Emergence of new outlets and competitive pricing • Environmental Concerns - Public awareness on hazards of improper used oil disposal • Female Influence - Increased number of female drivers, decision-makers • Strong Economy - Increased disposable income decreases DIY activity Conclusions • More Profitable Packaged Volume Declining While Less Profitable Bulk Volume Increasing • Less Brand Recognition / Influence in DIFM

  4. MOTOR OIL BRAND SHARE TRENDS Installed Quarts Total United States 12 Months Ending June, 1996 -2000 (0.5)* (0.7) (0.6) (0.4) (0.4) (0.3) * Share point change required for statistically significant difference between years, at the 90% confidence level.

  5. PURCHASES BY KEY CHANNELS - INDUSTRY Installed Quarts Total United States 12 Months Ending June, 1996 - 2000

  6. Quick Car Repair LubesDealersGarages Valvoline 17.8 11.3 15.3 Pennzoil 37.4 20.3 26.2 Quaker State 19.8 17.8 15.5 Castrol 8.0 8.6 10.2 Havoline 7.1 3.4 7.5 Mobil 3.0 4.2 7.9 Brand Share within Top 3 Installed Channels Installed Quarts Total United States 12 Months Ending June, 2000 é ê é ê ê é ê é ê é é

  7. Top 10 Quick Lubes by Centers (Fast Lubes Only) Source: National Oil & Lube News, March 2000

  8. Top 10 Oil Change + Businesses • GM Goodwrench Quick Lube Plus 4500 • Midas Auto Systems Experts 1500 • Firestone Tire & Service Center 1363 • Wal-Mart Lube Express 1200 • Motorcraft Fast Lube 1000 • DaimlerChrysler Mopar Express Lube 970 • Shell Auto Care 900 • Gemini Auto Service Center (Goodyear) 806 • Penske Auto Center (Kmart) 660 • Meineke Discount Muffler 622 SOURCE: National Oil & Lube News / as of March 2000

  9. Service Center Growth 630 584 574 519 474 455 422 407 360

  10. Strategic Management Class Presentation Outline October 11, 2000 • Market Background • DIFM Strategies

  11. Motor Oil Company • ChallengeResponse • Slow Market Growth Grow market share in installed segment • and Shift to DIFM Improve bulk oil margins • Alliances with distributors / grow together • Outlets less Brand Loyal / “Controlled” Outlets • Switching Costs Low - Company-owned oil changes • - Franchised oil changes • - Mid-tier Program: Express Care • - Tougher Supply Contracts • Differentiate Understand the oil change business • - Offer solutions • “Family of Brands”

  12. Valvoline Express Care

  13. Reasons for Express Care Program • Accelerate Growth for Valvoline’s DIFM Business • Provides Offerings for Three Distinct Installer Groups: VIOC, Valvoline Express Care and the “We Feature” Program • Provides a “Branded” Program to a Customer Valvoline is not Currently Positioned to Sell • Competitive Program to Sell Against Texaco Xpress Lube, Pennzoil 10 Minute Oil Change and other Branded Independent Programs • Increased “Family of Brands” Purchases, Longer Term (10 Year) Contract, Consistent Marketing and Image Management of Independent Operators • Pulls Several Fragments into One Program

  14. Quick Lube - General ChallengesResponse Location, location, location Site Selection Models Labor expense and turnover “People. Cars. Greatness.” (Become a ‘Most Admired’ Company) Benefits New Hiring Methods Offering new products and Convenience services Ability to sell / focus Trust Trade-offs between price Constantly shop motor oil company deals and brand Understand impact on customer base l l l l l l l l l l l l l

  15. VIOC - Specifically ChallengesResponse Controlling Expenses Real-time Management Systems Labor Scheduling Internal Benchmarking Investment Base Greater Percentage of Franchisees Geographic Expansion Protect Existing Markets - 3 Tiers Stay within Areas of Valvoline Brand Strength Concentrate to Leverage Advertising Differentiate MVP Program Service / Trust l l l l l l l l l l l l l

  16. Competitive Interaction • Protect Your Markets • Concentrate / contiguous • Fill out existing markets • Stay in Areas of Strength • Good distribution (cost advantage) • High DIY market share • Areas Where You Compete Head-to-Head • Service (Employee Friendliness / Recognition) • Trust • Best Location / Convenience • Promotions • Service (Product and Service Offering)

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