The motor oil business is somewhat unique when it comes to defining who the customers are and understanding and meeting their wants and needs. Because of this, its a challenging business for developing and selling products, and its becoming more challenging as the wants and needs of various groups of customers evolve.
Most would say the main customers who buy passenger car motor oil are those who drive cars, but oil installers purchase close to 75 percent of the PCMO consumed in the United States. Installers include fast lubes, new car dealers, tire and muffler shops, big box stores, auto parts stores and others that buy oil to provide a service to car owners. So, how do you meet the needs of these customers and stand out in a crowded field to get sales?
In short, installers need to address issues that help them increase profits and grow their businesses by managing costs, selling higher-margin products and attracting more cars into their stores or shops. But like most things, its not that simple, and installers are not the only customers that lubricant manufacturers must consider, nor are they the largest.
The motor oil business comprises several layers of customers that have both shared and differing needs. While some of them may not buy much oil, they have a significant say in what products enter the market.
Although not necessarily a customer in the true sense of the word, its not uncommon to hear some say that the first and most demanding customers in the business are the original equipment manufacturers. This is because, before a credible motor oil ever reaches the crankcase of a car, the oil blender must meet the needs of the OEMs. These needs are driven by vehicle power platforms and government mandates on fuel economy, emissions, and health and safety concerns.
In addition to complying with government regulations, OEMs must work to meet the needs of their own customers, including private vehicle owners and commercial and government fleet operators. For automakers, while motor oil is primarily a product-driven business, its also customer-driven and those needs are passed on to PCMO manufacturers.
It is important to recognize that, even though OEMs must meet some common regulatory requirements, what each looks for in a motor oil is becoming increasingly different due to engine designs and response to customers needs. This makes for a complex world for lubricant manufacturers. Before even one drop of PCMO is sold, they must meet the demanding and differing requirements of a highly influential customer that (aside from factory fill and the push they give to their genuine oil brands) doesnt actually buy much oil. Further, the money the lubricants industry has invested in meeting OEMs needs is enormous and is often considered only table stakes-the minimum requirement for a credible supplier to sell a motor oil.
The next and largest class of customers is not the installers; its lubricant distributors. Distributors reside upstream of the installers and supply them with most of the PCMO they use for oil changes.
Meeting the needs of distributors is heavily based on the relationship the lubricant manufacturer has with the distributor. This goes well beyond PCMOs to other product segments; product quality and brand image; programs, pricing, and technical and marketing support; contracts; logistics; personal relationships; national account business; corporate cultures and myriad other business-related issues; and, importantly, the needs of the distributors customers. When these needs are met, PCMO brand selection is typically determined by the relationship the supplier has with the distributor.
Installers are the second-largest customer in the PCMO business. To meet their needs, lubricant suppliers must primarily address product quality, price, availability and marketing support. Unlike OEMs, sales to installers tend to be more customer-focused than product-driven.
Suffice it to say, meeting the needs of PCMO customers is a challenging task for lubricant manufacturers. In addition, its complicated by the fact that these needs-often filtered through distributors-are in some cases diverging to a point where meeting the requirements of one customer group means those of another are not being met. And where compromise worked in the past, its becoming evident that PCMO customers are less tolerant of compromise today.
As a result, the industry may have to make adjustments to its rules and market strategies in an effort to compete in the evolving market. This will be the subject of next months column.
Tom Glenn is president of the consulting firm Petroleum Trends International, the Petroleum Quality Institute of America, and Jobbers World newsletter. Phone: (732) 494-0405. Email: tom_glenn@petroleumtrends.com