As Mark Twain purportedly said, Rumors of my death are grossly exaggerated. Much the same could be said of the internal combustion engine, now surviving into its fourth century. Far from a decline, current trends are a substantial opportunity for lubricant brands to flourish.

Even so, the trends are daunting. Global sales of electric vehicles are growing apace, at more than 60 percent in 2018 over 2017 figures, and every significant original equipment manufacturer is tooling up to make them in growing numbers. Volkswagen, for example, expects battery EVs to make up 40 percent of group sales by 2030. Meanwhile, governments are discouraging the use of gasoline- and diesel-fueled vehicles and are threatening to eventually ban their sales, as well as incentivizing OEMs to locate new EV production plants in country.

Projections about the impact EVs will have on lubricant demand vary significantly. Automotive lube demand stands today at about 20 million liters per year. Senka forecasts that the number will peak by the middle of the next decade, while some predict those volumes will continue rising until 2040 and possibly beyond. The prospect of that event – whenever it may occur – makes an arresting headline, but it signals less of a change than first appears.

Demand has been weak or falling in nearly all mature markets for years, and it has been a long time since lubricant company CEOs have been rewarded for simply growing with the market. Success is measured on the bottom line, which means growing a profitable business by capturing and retaining lucrative market segments with the right product and service packages.

Other threats challenge the way lubricant companies do business, from OEMs to digital innovators and lubricant mega-distributors. Many consumers are falling out of love with their cars, certainly as far as maintenance is concerned, and are looking for alternative transport options. Meanwhile, vehicles are generating vast amounts of data, which flow to OEMs and not the lubricant companies.

That said, as lubricant companies steadily drive to upgrade their products to meet evermore exacting performance standards, revenues are expected to continue rising into the medium term. This gives companies breathing space and a platform on which to plan for the longer term. To be clear though, this platform is unstable and the situation calls for more than a strategy-as-usual approach. The technical and financial schemes that worked in the past are inadequate to deal with the new realities.

On the technical side, adding a service to a basic lubricant offer, such as quick lubes, has been effective in the past. Just look at Valvoline, with its expanding chain of more than 1,170 locations across the United States. Aside from franchising, the costs of ongoing direct technical support can be prohibitive. Financially, some lubricant companies have been adept at increasing margins, but there is a limit to how high margins can go before competitors, suppliers and customers react, maybe by taking the margin themselves. As market demand declines, what sustained growth in margin will a lube company need to achieve to satisfy its owners? The calculations are not encouraging.

As tough as the outlook may be, lubricant brands could turn the disruption of EV technology and changing customer habits to their advantage. But how? One way is to acquire detailed market understanding. It is critical to get the basics right and an opportunity arises from many competitors failure to do their homework. This is where growth will come from. In flat-to-declining markets, marginal (profitable) business has to be taken from less-agile competitors, which may require overcoming years of customer loyalty.

Developing a market strategy starts from an understanding of where customers buy their lubes and the channels – retail outlet, OEM franchise or independent workshop – through which lubes pass to reach them. Distributors competitive advantages allow them to build a presence in several channels and typically sell a range of competing brands.

Next, lube companies should analyze how the margin between what the customer pays and the cost of a product is shared across the value chain, between the lubes company, retailer or workshop and, if there is one, the distributor. With this data for each product and channel, they can calculate which business to target with advertising, promotions and customer support.

This basic, time-consuming analysis is vital for companies to protect and grow their business and gain a disproportionately high share of revenue growth. Attention to the current market is no desperate rearguard action. A vibrant lubricant industry will be needed to meet consumer demand for mobility at an acceptable environmental cost for many years.

From Lube Sales to Mobility

Another opportunity is to expand marketing focus across all personal mobility activities. In their day, technical service step-outs were a sensible response to customer needs. Today, customers need for personal mobility, and their service expectations, are radically evolving. Increasingly, the lubricant, although important, is just one of the many ingredients of mobility, which encompasses not just accessing and using transport but potentially all the activities associated with travel. If we start to explore consumers involvement with mobility, we see that there is value at each step of their journey.

Consider a market like the Untied Kingdom, where the average motorist spends approximately 3,500 per year to run a car. The lubricants part of this cost is around 70 per year, while a routine service can easily exceed 150 and tires more than 120 each. Leasing, insurance and fuel account for much of the difference, but there is an opportunity to provide other mobility services that will skyrocket with the penetration of electrification and autonomous vehicles.

Figure 2 lays out some of the services consumers are coming to expect, including the expanding range of e-based mobility. It shows that lubricants companies can both provide a range of solutions to consumers and support the provision of services from other suppliers. The e-based structure is similar to the so-called online aggregator business model, where a company gathers services from several providers within one website or app. While that model is often little more than a price comparison and a payment portal, lube companies and their partners can create a customized service for consumers extending across their mobility needs.

A lubricants company aiming to successfully compete beyond its core competencies must determine those activities where it can be directly involved successfully. That will include identifying each available value, or margin pool. There may be some spaces where it is simply prevented from direct entry or where it would operate at some competitive disadvantage just in order to provide a full service.

Second, the lubricants marketers need to understand not only what it takes to meet basic service levels but also to deliver service that is distinctively superior in some key respects so they can win in that space, based on a deep understanding of the consumer pain points – in other words, their needs and wants – and shaped around each target group.

Balancing Short and Long Term

Each step drives the customer offer and calls for relevant organizational capabilities. Admittedly, a lube brand is unlikely to have all of them in house to participate directly across the entire spectrum of the mobility market.

Combining with others does seem the most logical and feasible way to deliver a full mobility service with each partner contributing their strengths. This will drive the management structures, skills and competencies as well as the support infrastructure.

The mergers and consolidation exercises of recent years have given many lubes brands valuable insights into the challenges involved in combining brands and personnel into a cohesive organization.

This is a disruptive concept for lubricants companies. In return for participation in the wider mobility space, they stand to lose some of their hold over their traditional business. But no industry can expect to be unaffected by changing purchase behavior in the digital age.

Conversely, there will be benefits to early movers in this field, and success will go to those that can focus on their existing business and position for the longer term. Think of Mark Twain. After denying his death, he went on to further success, in a range of activities and in many countries!