What are the toughest, most challenging issues facing senior executives and top-level marketing managers in the lubricants and additives business? And how do these issues affect their companies sales/marketing efforts?
For answers to these questions, market research firms Strategic Resources and Delphi Services interviewed dozens of industry thought leaders, at companies large and small, major and independent, U.S.-based and global. The proprietary research project was conducted by William Downey of Delphi Services and myself, on behalf of LubesnGreases magazine.
Without prompting (and to no ones surprise), many of those interviewed volunteered that they view the U.S. markets for motor oil and performance chemicals as flat to declining in volume terms. We serve the U.S. market, and demand is flat, was a typical assertion. Participants went on to say that because of market oversupply and overcapacity, competition today is extremely tough, from raw materials through finished lubricants.
Global oversupply of base oil in static-to-declining markets makes it hard to compete, we heard, and, Oversupply makes the U.S. market overly competitive. Another frequent worry: There is misinformation about product quality, [and] competitors do whatever it takes to make sales.
Many executives interviewed say they are now looking beyond U.S. borders to emerging markets where demand is greater and sales growth may be easier. Years ago we just thought about North America … now we focus on emerging markets worldwide.
The positive side of emerging markets is that demand is clearly growing in certain markets around the world. However, there are downsides to going global, as respondents rightly acknowledged.
The first downside is international specifications and regulations, i.e., certain countries may require special product formulas in order to compete in their playing field. This leaves companies in a dilemma. Should they change their worldwide formula, or tailor products for each specific country? If they diverge from their global formula, they may be less competitive elsewhere. If we change product worldwide, we may lose efficiency or a competitive edge in other countries, one marketer remarked. If we do not, it may cost us more to produce in the country having the requirement. You cant win.
A second downside is that emerging markets may be void of meaningful market information to assist in making well-informed decisions. We are trying to predict the future so we can have the right products in right places in right emerging markets, another executive related. We are investing heavily in marketing research in emerging countries to better understand our target end-using customer, like we understand them in the U.S. However, this type of information is hard to get in emerging markets.
So, what are aftermarket engine oil suppliers to do? Should they swim in emerging-market lakes where all the fish have room to grow? Or stick to North American lakes, where the competing fish are mature and seem to be turning into piranhas in the fight for food?
In our sample set, some patterns began to emerge. More medium-to-large companies seem to be swimming in both lakes, while smaller blenders and service and equipment suppliers can only compete in their home markets: Our budgets follow revenue. We are primarily in the U.S. market so this is where we place our monies and marketing efforts.
No matter which lake or lakes your company is swimming, the key is to first survive and live to swim another day. Then you can develop a long-term strategy to eventually become your lakes big fish.
And the best way to do that is to know – deeply, intimately – the business needs of your end-using target customer, whether your connection is business-to-business or business-to-consumer.
Companies manage to do this with varying success. Some executives in the automotive aftermarket arena told us they know their end-using target customers, but only in a general way: I concentrate on knowing the needs of the next person down on my distribution chain.
Some smaller lube manufacturers knew more about their distributors needs, and relied on these marketplace partners to inform them of end-using consumers and professional installers needs.
Some additive suppliers only knew the needs of lube manufacturers to whom they sold product. They also relied on these lube manufacturers to inform them about their end-using target customers.
Others interviewed were emphatic that they know their target customers. Now whenever someone says, I know what my target customers want. I dont need any research to tell me what I already know, most marketing professionals (me included) tend to cringe a bit on the inside. What they really mean to say is, I know what I want to know, and I do not want any market research or information to change what I know.
Of course we all like things to be stable and to not change. However, there is one constant: Change happens. And in the current business environment, change is happening at a faster and faster rate. Inevitably, automotive aftermarket sales and marketing executives will face a choice – chase change or drive change.
Both choices are valid, according to your companys strategy, and both need a map or GPS to guide you through the changing terrain. Continuous market research is what keeps that map up-to-date.
Companies that chase change observe what is going on in the marketplace and then react to changes. They obtain information wherever they can – additive suppliers, sales reports, attending conferences, reading studies and publications – then make business decisions from this practice. We do not do a lot of marketing research studies, but we do monitor share and sales data closely. We are a smaller company and we rely on published information – LubesnGreases the most – as well as our sales force passing up information to us. We cannot afford to conduct major studies, so we rely on LubesnGreases and go to conferences.
Successful change-chasers are companies with the ability to react quickly to market changes, such as a new specification or regulation, an alternative source of raw materials, or a competitors stumble. (Theres a name for companies that are slow to react to market change; we call them observers.)
Some executives drive change very well, we found. One additive supplier, as a business strategy to gain favor, is helping its direct customers better understand their target audiences: Lube manufacturers look to us to provide good information and help them better market to their target customers. The better information we provide, another said, the greater the likelihood we become insight experts to them. Being insight experts gets us greater business.
Others said they have changed strategic direction based on what they believed were solid insights about their customers. We have changed to a brand-awareness strategy to drive customers to the store. But we have yet to see enough increases in sales to offset our investment. Did this company really know its target end-users? Had it examined, for example, their purchasing habits and practices? When planned results are not achieved, the first step is to go back and dig deeper in understanding end-using target customers; you may have overlooked something. (In this case, this was an infrequently purchased product category; maybe customers forgot the brand between infrequent purchases? Or were they swayed at retail by house brands or another brands on-sale pricing?)
So, how do you get to know end-using target customers? I mean really get to know them? The classic method for developing a successful product strategy is to segment the market, and then to take aim at key market segments that have the greatest likelihood of buying your product. These are your end-using target customers.
Next, learn all you can about them demographically, their behaviors, habits and practices. You also need to stay on top of their behavioral changes, because soon as you learn about them, develop a solid strategy, and think you really know your end-using target customer, their behaviors and attitudes can change. Imagine, for example, that youve spent 18 months preparing to unveil an engine oil that delivers great gasoline mileage, but consumer car-buying and maintenance behaviors change when gas prices fall steeply, as they did this summer. Your product still needs to launch, but fresh research may steer you to stress wear control or cold-weather starts in the roll-out campaign, and hold the fuel economy boast for another day.
In the past, automotive aftermarket researchers would conduct a series of qualitative focus-group interviews, or one-on-one interviews, to grasp why consumers purchased a product or service. Then the subjects would be observed using the product or service and asked why they did what they did, in qualitative and quantitative studies. From all that, one would obtain a solid understanding of what product/service features were most important to buyers – attributes which then could be emphasized in advertising, marketing and point-of-sale materials.
One example would be a car wax. Researchers would observe end-using consumers waxing their cars to see how they applied and rubbed off the wax. It was found that easy and smooth application followed by an easy rub-off with zero or minimal wax dust were important attributes. That led to the development of wax formulas offering easy application and takeoff, with minimum dust.
This exercise can be applied to existing and test products/services alike, and still is the foundation for introducing and repositioning products in the marketplace. We have new marketing research techniques as well now that can add important measurements to these traditional methodologies, to reach a deeper understanding of end-using target customers.
In the past, when we asked people why they did what they did, theyd generally tell us what they thought we wanted to hear. Observing what they do is much more reliable. By asking why they did what they did – after observing their actual behavior – we got to true motivations.
Today, even greater emphasis is on observing behavior, while this next stage – asking consumers why and what they did, after observing them – is sometimes overlooked. But it is an important element to achieving better understanding of motivations.
Another new tool is data from smart phones and tablets. These devices are becoming a preferred platform for many applications, including conducting marketing research. Another spin to observational research is a technique called mobile ethnography. Mobile ethnography can track locations – where people go to shop and when. Now we observe them actually shopping, transacting business and/or pursuing their personal lifestyles.
In the past, segmentation research was expensive to conduct, and consequently companies could refine target customer segments only once every several years. Now, with social media research techniques, updating and refining key target segments can be more cost effective. And that means marketers can test multiple tactics, gather end-user generated content to further refine segments, and expand knowledge about each expanded segment. Social media also affords us the opportunity to communicate with each key targeted segment – which was beyond our budgets in the past.
The cornerstone for building any brand strategy and subsequent execution lies in knowing, really knowing, end-user target customers and key segment needs, in order to greater exploit them. Armed with that knowledge, companies can go find more individuals in the key target segments who match those demographics, behaviors and buying habits and practices.
Having greater knowledge about target segments increases the probability of finding these individuals, and newer marketing research techniques and methodologies can make that quest more cost-effective. Thats critical, whether a company swims in local markets or global ones, and chases change or drives it.
Larry Solomon is president of Strategic Resources Inc., a marketing research and consulting firm that specializes in the automotive aftermarket. His experience includes over 23 years in automotive research with Valvoline. E-mail him at larry.solomon@getstrategicresources.com or phone (859) 817-0301.