Lubricant Marketing, Selling, and Key Account Management 1032331461, 9781032331461

Table of contents :
Cover
Half Title
Title Page
Copyright Page
Contents
Preface
Biography
Glossary
Chapter 1: Introduction
1.1. Purpose
1.2. Approach
Chapter 2: Fundamentals of Marketing and Selling
2.1. Introduction
2.2. Marketing
2.3. Selling
2.4. Opening and Closing Deals
2.5. Summary
References
Chapter 3: Lubricant Marketing and Sales Channels
3.1. Introduction
3.2. Types of Lubricants
3.2.1. Automotive Lubricants
3.2.2. Industrial, Marine, Mining, Aviation and Other Lubricants
3.3. Channels to Market
3.4. Direct and Indirect Marketing Channels
3.5. Factors Involved in Selecting Channels to Market
3.6. Channel Support Strategies
3.7. Different Channel Objectives
3.8. Assessing Marketing Channel Effectiveness
3.9. Summary
Chapter 4: Understanding Markets: Market Research
4.1. Introduction
4.2. Market Research Process and Analysis
4.3. Analytical Methods
4.4. Identifying Market Potential
4.5. Market Dynamics and Changes
4.6. Types of Customers
4.7. Competitor Analysis
4.8. Identifying Competitive Position in a Market
4.9. Sources of Market Information
4.10. Data Analysis and Research Report Preparation
4.11. Summary
Chapter 5: Forecasting Lubricant Demand
5.1. Introduction
5.2. Methodologies for Forecasting
5.3. Forecasting in the Oil Industry
5.4. Historic and Current Drivers of Lubricant Demand
5.4.1. Long Oil Drain Intervals and Extended Oil Life
5.4.2. Low Equipment Maintenance
5.4.3. Tight Mechanical Tolerances and Improved Seals
5.4.4. Fill-For-Life Lubricants
5.4.5. Effects of Current Drivers on Demand for Lubricants
5.5. Emerging Drivers of Lubricant Demand
5.5.1. Climate Change
5.5.2. Electric and Hybrid Vehicles
5.5.3. Hydrogen Power and Fuel Cells
5.5.4. Demographics, Economics and Pandemics
5.6. Future Markets for Lubricants
5.7. Lubricant Demand Forecasting
5.7.1. Demand Forecast
5.7.2. Supply Forecast
5.7.3. Application of the Methodology to Other Lubricant Markets
5.8. How to React to Unexpected Events
5.9. Summary
Reference
Chapter 6: Retail Lubricants: Consumer Buying Behaviour
6.1. Introduction
6.2. Types and Characteristics of Retail Lubricant Customers
6.3. Retail Customer Buying Influences
6.4. Consumer Purchasing Decisions
6.5. How to Influence Lubricant Consumer Purchases
6.6. Automotive Lubricant Specifications
6.7. Why Lubricant Consumers Are Key Decision Makers
6.8. Summary
References
Chapter 7: Industrial Lubricants: Company Buying Behaviour
7.1. Introduction
7.2. The Industrial Buying Function and Process
7.3. Methods of Evaluating Alternative Suppliers
7.4. Marketing and Sales Strategies and Tactics for Industrial Customer Buying
7.5. Buying Centres, Key Decision Makers, Key Decision Influencers and Gatekeepers
7.6. Industrial Lubricant Procurement Issues
7.7. Summary
Chapter 8: Use of PR and Advertising Agencies for Effective Marketing
8.1. Introduction
8.2. Market Communication Processes and Tasks
8.3. The Promotional Mix
8.4. Advantages and Disadvantages of Communications Methods
8.5. Advertising Agency Selection and Briefing
8.6. Public Relations Agency Selection and Briefing
8.7. Public Relations and Press Releases
8.8. Public Relations and Public Image
8.9. Benefits of Effective Advertising and Public Relations
8.10. Summary
Reference
Chapter 9: Lubricant Market Communications
9.1. Introduction
9.2. Retail Lubricant Market Communication
9.3. Industrial Lubricant Market Communication
9.4. The Role of Salespeople in Lubricant Market Communication
9.5. Lubricant Advertisements and Press Releases
9.6. Finding Out What Works and What Doesn’t
9.7. Summary
Chapter 10: Detailed Lubricant Market Segmentation Methods
10.1. Introduction
10.2. Market Segmentation
10.3. Product Positioning
10.4. Segmentation Criteria
10.5. Macro and Micro Variables
10.6. Target Market Segments and Values
10.7. Summary
Chapter 11: Influence of Automotive Lubricant Packaging on Sales
11.1. Introduction
11.2. Retail Brands and the Use of Brands
11.3. Retail Lubricant Brands
11.4. Retail Lubricant Packs and Packaging
11.5. Lubricant Pack Labels and Labelling
11.6. Influence of Lubricant Packaging on Branding
11.7. Waste Packaging Plastic and Packaging Recycling
11.8. Alternative Packaging and Methods of Delivering Lubricants
11.9. Retail Lubricant Branding and Sales
11.10. Summary
Chapter 12: Marketing Inputs to New Lubricant Development
12.1. Introduction
12.2. The Product/Market Matrix and Product Life Cycles
12.3. The New Product Development Process
12.3.1. Organisation for New Product Development
12.3.2. Idea Generation
12.3.3. Idea Screening
12.3.4. Idea Evaluation
12.3.5. Agreement Between Marketing and Product Development Departments
12.3.6. Preliminary Business Analysis
12.3.7. Product Development and Testing
12.3.8. Test Marketing
12.4. Formulating and Developing a New Automotive Lubricant
12.4.1. The Specification
12.4.2. Choice of Base Oil(s)
12.4.3. Choice of Viscosity Index Improver
12.4.4. Developing the Dispersant/Inhibitor (DI) Package
12.4.5. Evaluating and Finalising the Formulation
12.5. Formulating and Developing a New Industrial Lubricant
12.6. Introducing the New Lubricant to the Market
12.7. Lubricants and Fluids for New Applications
12.8. Summary
Reference
Chapter 13: Customer Support Services as a Marketing Aid for Lubricants
13.1. Introduction
13.2. Scope and Limitations of Customer Support Service
13.3. Types of Customer Support Service for Lubricants
13.4. Lubrication Surveys
13.5. Objectives for Providing Customer Support Service
13.5.1. Increased Contribution
13.5.2. Increased Volume
13.5.3. Security of Tenure
13.5.4. Brand Image
13.5.5. Other Benefits of Technical Service
13.6. Balancing the Cost of Customer Support Service
13.7. Deciding Who Receives Customer Support Service
13.8. Organisation of Customer Support Services
13.8.1. Marketing Strategy
13.8.2. Types of Industry
13.8.3. Location of Industry
13.8.4. Communications and Geography
13.9. Customer Service Reporting and Control
13.10. Summary
Chapter 14: Devising Lubricant Marketing and Selling Strategies
14.1. Introduction
14.2. Strategic Analysis
14.3. The Need to Plan
14.4. Marketing Plans and Action Plans
14.5. Marketing and Sales Strategies
14.6. Key Performance Indicators and Key Success Factors
14.7. Common Planning Pitfalls
14.8. Benefits of Strategic Planning
14.9. Summary
Reference
Chapter 15: Organisation for Effective Lubricant Marketing and Selling
15.1. Introduction
15.2. Marketing Department Activities and Development
15.3. Business Functions and Silo Organisations
15.4. Influences of Company Size
15.5. Alternative Marketing Organisations
15.6. Alternative Sales Force Organisation
15.7. Measuring Marketing and Sales Performance
15.8. Summary
References
Chapter 16: Lubricant Pricing Policies
16.1. Introduction
16.2. Prices and Supply and Demand
16.3. Prices and Costs
16.4. Product Pricing Strategy
16.5. Lubricant Base Oil and Additive Pricing and Prices
16.6. Automotive Lubricant Pricing Issues
16.7. Automotive Lubricant Prices
16.8. Industrial Lubricant Pricing Issues
16.9. Industrial Lubricant Prices
16.10. Future Trends
16.11. Summary
Chapter 17: Key Account Management
17.1. Introduction
17.2. Key Accounts
17.3. Issues in Managing Key Accounts
17.4. Key Account Manager’s Skills, Qualities and Activities
17.5. Effective Key Account Management
17.6. Differences in Key Account Status
17.7. Selecting Key Accounts
17.8. Sales Team Objectives for Key Accounts
17.9. Pitfalls in Managing Key Accounts
17.10. Preparing a Key Account Strategy and Plan
17.11. Benefits of Key Account Management
17.12. Summary
Reference
Chapter 18: Supply Chain Management
18.1. Introduction
18.2. The Physical Flow of Products
18.3. Information Management
18.4. The Organisation and Management Structure Controlling the Supply Chain
18.5. Integrated Supply Chains
18.5.1. Primary Supply
18.5.2. Secondary Transportation
18.6. Global Supply Chains
18.7. Disruptions to Global Supply Chains
18.8. Logistics Function Challenges
18.9. Road Transport Strategy
18.9.1. Principal Transportation Issues
18.9.2. Own or Contracted Vehicles
18.9.3. Transportation Management
18.9.4. Information Technology and Road Transport
18.9.5. Road Transport Performance Management
18.10. Tender Bundling
18.11. Summary
Chapter 19: Practical Sales Tactics for Lubricants
19.1. Introduction
19.2. Benefit Selling Methodology
19.2.1. Fewest Correct Lubricants
19.2.2. Lubrication Instructions
19.2.3. Lubrication Organisation
19.2.4. Lubricating Devices
19.2.5. Storage and Handling
19.2.6. Lubricant Life
19.2.7. Oil Purification
19.2.8. Lubrication Controls
19.2.9. Customer Staff Training
19.2.10. Preventative Maintenance
19.3. Selling Lubricants
19.4. Examples of Benefits Achieved by Lubricant Users
19.5. Benefits of Lubricants in the Future
19.6. Selling Retail Lubricants
19.7. Selling Industrial Lubricants
19.8. Common Mistakes Made by Salespeople
19.9. Tips for Salespeople
19.10. Summary
References
Chapter 20: “One-Stop-Shop” Solutions for Marketing Lubricants
20.1. Introduction
20.2. “one-stop-shops”
20.3. “one-stop-shop” Facilities and Systems
20.4. Drivers for Globalisation
20.5. Advantages and Disadvantages of “One-Stop-Shops”
20.6. Future Trends
20.7. Summary
Index

Citation preview

Lubricant Marketing, Selling, and Key Account Management The global lubricants market exceeds $110 billion, with strong future-estimated annual growth projections. While much has been written about the technical aspects of lubricant development, Lubricant Marketing, Selling, and Key Account Management fills a need for a comprehensive guide on the important commercial aspects of the business, offering unique and valuable insights from a veteran of the industry. It answers questions and offers insights on how to effectively market and sell all types of lubricants, including automotive, industrial, mining, marine, agricultural and aerospace, among others. • Covers how and why people and companies buy lubricants. • Instructs readers how to research and analyze markets and use the results to plan marketing and sales campaigns and activities. • Details how to identify specific target market segments and sell to key lubricant accounts. • Discusses how to forecast future demand for lubricants in all types of global markets. This practical book is written for technical and non-technical readers involved in the sale and management of lubricant products and offers hands-on guidance for how to successfully navigate and grow your profitability in this vitally important product sector.

Lubricant Marketing, Selling, and Key Account Management

R. David Whitby

First edition published 2023 by CRC Press 6000 Broken Sound Parkway NW, Suite 300, Boca Raton, FL 33487-2742 and by CRC Press 4 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN CRC Press is an imprint of Taylor & Francis Group, LLC © 2023 Taylor & Francis Group, LLC Reasonable efforts have been made to publish reliable data and information, but the author and publisher cannot assume responsibility for the validity of all materials or the consequences of their use. The authors and publishers have attempted to trace the copyright holders of all material reproduced in this publication and apologize to copyright holders if permission to publish in this form has not been obtained. If any copyright material has not been acknowledged please write and let us know so we may rectify in any future reprint. Except as permitted under U.S. Copyright Law, no part of this book may be reprinted, reproduced, transmitted, or utilized in any form by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying, microfilming, and recording, or in any information storage or retrieval system, without written permission from the publishers. For permission to photocopy or use material electronically from this work, access www.copyright.com or contact the Copyright Clearance Center, Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, 978750-8400. For works that are not available on CCC please contact [email protected] Trademark notice: Product or corporate names may be trademarks or registered trademarks and are used only for identification and explanation without intent to infringe. ISBN: 978-1-032-33146-1 (hbk) ISBN: 978-1-032-33147-8 (pbk) ISBN: 978-1-003-31839-2 (ebk) DOI: 10.1201/9781003318392 Typeset in Times by KnowledgeWorks Global Ltd.

Contents Preface.................................................................................................................... xiii Biography.................................................................................................................. xv Glossary..................................................................................................................xvii Chapter 1 Introduction........................................................................................... 1 1.1 1.2

Purpose.......................................................................................1 Approach.................................................................................... 3

Chapter 2 Fundamentals of Marketing and Selling............................................. 13 2.1 Introduction.............................................................................. 13 2.2 Marketing................................................................................. 13 2.3 Selling.......................................................................................20 2.4 Opening and Closing Deals......................................................24 2.5 Summary..................................................................................28 References...........................................................................................28 Chapter 3 Lubricant Marketing and Sales Channels........................................... 29 3.1 3.2

3.3 3.4 3.5 3.6 3.7 3.8 3.9

Introduction.............................................................................. 29 Types of Lubricants.................................................................. 30 3.2.1 Automotive Lubricants................................................ 30 3.2.2 Industrial, Marine, Mining, Aviation and Other Lubricants................................................... 31 Channels to Market.................................................................. 33 Direct and Indirect Marketing Channels.................................. 41 Factors Involved in Selecting Channels to Market................... 42 Channel Support Strategies...................................................... 43 Different Channel Objectives................................................... 45 Assessing Marketing Channel Effectiveness........................... 48 Summary.................................................................................. 49

Chapter 4 Understanding Markets: Market Research.......................................... 51 4.1 4.2 4.3 4.4 4.5 4.6 4.7

Introduction.............................................................................. 51 Market Research Process and Analysis.................................... 52 Analytical Methods.................................................................. 54 Identifying Market Potential.................................................... 56 Market Dynamics and Changes............................................... 58 Types of Customers.................................................................. 59 Competitor Analysis................................................................. 61 v

vi

Contents

4.8 4.9 4.10 4.11

Identifying Competitive Position in a Market.......................... 62 Sources of Market Information................................................ 65 Data Analysis and Research Report Preparation.....................66 Summary.................................................................................. 68

Chapter 5 Forecasting Lubricant Demand........................................................... 69 5.1 5.2 5.3 5.4

Introduction.............................................................................. 69 Methodologies for Forecasting................................................. 69 Forecasting in the Oil Industry................................................ 76 Historic and Current Drivers of Lubricant Demand................ 78 5.4.1 Long Oil Drain Intervals and Extended Oil Life........................................................................ 79 5.4.2 Low Equipment Maintenance.....................................80 5.4.3 Tight Mechanical Tolerances and Improved Seals............................................................ 81 5.4.4 Fill-For-Life Lubricants.............................................. 82 5.4.5 Effects of Current Drivers on Demand for Lubricants.............................................................. 83 5.5 Emerging Drivers of Lubricant Demand.................................. 85 5.5.1 Climate Change........................................................... 85 5.5.2 Electric and Hybrid Vehicles....................................... 86 5.5.3 Hydrogen Power and Fuel Cells.................................. 88 5.5.4 Demographics, Economics and Pandemics................ 89 5.6 Future Markets for Lubricants..................................................90 5.7 Lubricant Demand Forecasting................................................ 91 5.7.1 Demand Forecast......................................................... 91 5.7.2 Supply Forecast...........................................................94 5.7.3 Application of the Methodology to Other Lubricant Markets.......................................................97 5.8 How to React to Unexpected Events........................................97 5.9 Summary.................................................................................. 98 Reference.............................................................................................99 Chapter 6 Retail Lubricants: Consumer Buying Behaviour.............................. 101 6.1 6.2

Introduction............................................................................ 101 Types and Characteristics of Retail Lubricant Customers.............................................................. 102 6.3 Retail Customer Buying Influences........................................ 105 6.4 Consumer Purchasing Decisions............................................ 108 6.5 How to Influence Lubricant Consumer Purchases................. 109 6.6 Automotive Lubricant Specifications..................................... 111 6.7 Why Lubricant Consumers are Key Decision Makers........... 113 6.8 Summary................................................................................ 114 References......................................................................................... 114

vii

Contents

Chapter 7 Industrial Lubricants: Company Buying Behaviour......................... 117 7.1 7.2 7.3 7.4 7.5 7.6 7.7

Introduction............................................................................ 117 The Industrial Buying Function and Process......................... 118 Methods of Evaluating Alternative Suppliers........................ 122 Marketing and Sales Strategies and Tactics for Industrial Customer Buying................................................... 124 Buying Centres, Key Decision Makers, Key Decision Influencers and Gatekeepers............................ 126 Industrial Lubricant Procurement Issues................................ 128 Summary................................................................................ 133

Chapter 8 Use of PR and Advertising Agencies for Effective Marketing......... 135 8.1 8.2 8.3 8.4

Introduction............................................................................ 135 Market Communication Processes and Tasks........................ 136 The Promotional Mix............................................................. 140 Advantages and Disadvantages of Communications Methods...................................................... 147 8.5 Advertising Agency Selection and Briefing........................... 150 8.6 Public Relations Agency Selection and Briefing.................... 155 8.7 Public Relations and Press Releases....................................... 157 8.8 Public Relations and Public Image......................................... 158 8.9 Benefits of Effective Advertising and Public Relations......... 163 8.10 Summary................................................................................ 164 Reference........................................................................................... 164 Chapter 9 Lubricant Market Communications.................................................. 165 9.1 9.2 9.3 9.4 9.5 9.6 9.7

Introduction............................................................................ 165 Retail Lubricant Market Communication.............................. 165 Industrial Lubricant Market Communication........................ 170 The Role of Salespeople in Lubricant Market Communication...................................................................... 172 Lubricant Advertisements and Press Releases....................... 173 Finding Out What Works and What Doesn’t......................... 174 Summary................................................................................ 177

Chapter 10 Detailed Lubricant Market Segmentation Methods.......................... 179 10.1 10.2 10.3 10.4 10.5 10.6 10.7

Introduction............................................................................ 179 Market Segmentation.............................................................. 180 Product Positioning................................................................ 182 Segmentation Criteria............................................................. 183 Macro and Micro Variables.................................................... 189 Target Market Segments and Values...................................... 191 Summary................................................................................ 194

viii

Contents

Chapter 11 Influence of Automotive Lubricant Packaging on Sales................... 195 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8

Introduction............................................................................ 195 Retail Brands and the Use of Brands..................................... 195 Retail Lubricant Brands......................................................... 198 Retail Lubricant Packs and Packaging................................... 199 Lubricant Pack Labels and Labelling..................................... 201 Influence of Lubricant Packaging on Branding...................... 203 Waste Packaging Plastic and Packaging Recycling...............204 Alternative Packaging and Methods of Delivering Lubricants...............................................................................207 11.9 Retail Lubricant Branding and Sales.....................................209 11.10 Summary................................................................................ 210 Chapter 12 Marketing Inputs to New Lubricant Development............................ 211 12.1 Introduction............................................................................ 211 12.2 The Product/Market Matrix and Product Life Cycles........... 211 12.3 The New Product Development Process................................ 216 12.3.1 Organisation for New Product Development............ 216 12.3.2 Idea Generation......................................................... 217 12.3.3 Idea Screening........................................................... 219 12.3.4 Idea Evaluation.......................................................... 219 12.3.5 Agreement Between Marketing and Product Development Departments........................................ 220 12.3.6 Preliminary Business Analysis................................. 220 12.3.7 Product Development and Testing............................. 221 12.3.8 Test Marketing........................................................... 221 12.4 Formulating and Developing a New Automotive Lubricant............................................................. 222 12.4.1 The Specification....................................................... 222 12.4.2 Choice of Base Oil(s)................................................. 223 12.4.3 Choice of Viscosity Index Improver.........................224 12.4.4 Developing the Dispersant/Inhibitor (DI) Package...................................................................... 225 12.4.5 Evaluating and Finalising the Formulation............... 226 12.5 Formulating and Developing a New Industrial Lubricant................................................................................ 228 12.6 Introducing the New Lubricant to the Market........................ 230 12.7 Lubricants and Fluids for New Applications.......................... 231 12.8 Summary................................................................................ 232 Reference........................................................................................... 232 Chapter 13 Customer Support Services as a Marketing Aid for Lubricants....... 233 13.1 Introduction............................................................................ 233

ix

Contents

13.2 13.3 13.4 13.5

Scope and Limitations of Customer Support Service............ 233 Types of Customer Support Service for Lubricants............... 234 Lubrication Surveys................................................................ 236 Objectives for Providing Customer Support Service............. 237 13.5.1 Increased Contribution.............................................. 238 13.5.2 Increased Volume...................................................... 238 13.5.3 Security of Tenure..................................................... 238 13.5.4 Brand Image.............................................................. 238 13.5.5 Other Benefits of Technical Service.......................... 239 13.6 Balancing the Cost of Customer Support Service.................. 239 13.7 Deciding Who Receives Customer Support Service.............. 241 13.8 Organisation of Customer Support Services.......................... 242 13.8.1 Marketing Strategy.................................................... 242 13.8.2 Types of Industry....................................................... 242 13.8.3 Location of Industry.................................................. 243 13.8.4 Communications and Geography.............................. 243 13.9 Customer Service Reporting and Control.............................. 243 13.10 Summary................................................................................ 245 Chapter 14 Devising Lubricant Marketing and Selling Strategies...................... 247 14.1 Introduction............................................................................ 247 14.2 Strategic Analysis................................................................... 249 14.3 The Need to Plan.................................................................... 250 14.4 Marketing Plans and Action Plans......................................... 253 14.5 Marketing and Sales Strategies.............................................. 258 14.6 Key Performance Indicators and Key Success Factors.......... 261 14.7 Common Planning Pitfalls.....................................................264 14.8 Benefits of Strategic Planning................................................ 265 14.9 Summary................................................................................266 Reference...........................................................................................266 Chapter 15 Organisation for Effective Lubricant Marketing and Selling........... 267 15.1 Introduction............................................................................ 267 15.2 Marketing Department Activities and Development.............. 269 15.3 Business Functions and Silo Organisations............................ 271 15.4 Influences of Company Size................................................... 274 15.5 Alternative Marketing Organisations..................................... 277 15.6 Alternative Sales Force Organisation..................................... 279 15.7 Measuring Marketing and Sales Performance....................... 282 15.8 Summary................................................................................ 287 References......................................................................................... 287

x

Contents

Chapter 16 Lubricant Pricing Policies................................................................. 289 16.1 Introduction............................................................................ 289 16.2 Prices and Supply and Demand.............................................. 290 16.3 Prices and Costs..................................................................... 293 16.4 Product Pricing Strategy........................................................ 298 16.5 Lubricant Base Oil and Additive Pricing and Prices.............300 16.6 Automotive Lubricant Pricing Issues.....................................302 16.7 Automotive Lubricant Prices.................................................. 303 16.8 Industrial Lubricant Pricing Issues........................................304 16.9 Industrial Lubricant Prices..................................................... 305 16.10 Future Trends..........................................................................306 16.11 Summary................................................................................307 Chapter 17 Key Account Management................................................................309 17.1 Introduction............................................................................309 17.2 Key Accounts......................................................................... 310 17.3 Issues in Managing Key Accounts......................................... 312 17.4 Key Account Manager’s Skills, Qualities and Activities....... 313 17.5 Effective Key Account Management...................................... 315 17.6 Differences in Key Account Status........................................ 316 17.7 Selecting Key Accounts.......................................................... 318 17.8 Sales Team Objectives for Key Accounts............................... 319 17.9 Pitfalls in Managing Key Accounts....................................... 321 17.10 Preparing a Key Account Strategy and Plan.......................... 321 17.11 Benefits of Key Account Management................................... 323 17.12 Summary................................................................................ 324 Reference........................................................................................... 324 Chapter 18 Supply Chain Management............................................................... 325 18.1 18.2 18.3 18.4 18.5 18.6 18.7 18.8 18.9

Introduction............................................................................ 325 The Physical Flow of Products............................................... 326 Information Management....................................................... 328 The Organisation and Management Structure Controlling the Supply Chain................................................. 329 Integrated Supply Chains....................................................... 330 18.5.1 Primary Supply......................................................... 331 18.5.2 Secondary Transportation......................................... 331 Global Supply Chains............................................................. 333 Disruptions to Global Supply Chains..................................... 334 Logistics Function Challenges............................................... 337 Road Transport Strategy......................................................... 337 18.9.1 Principal Transportation Issues................................. 337 18.9.2 Own or Contracted Vehicles..................................... 338

xi

Contents

18.9.3 Transportation Management..................................... 338 18.9.4 Information Technology and Road Transport........... 338 18.9.5 Road Transport Performance Management.............. 339 18.10 Tender Bundling.....................................................................340 18.11 Summary................................................................................340 Chapter 19 Practical Sales Tactics for Lubricants............................................... 341 19.1 Introduction............................................................................ 341 19.2 Benefit Selling Methodology.................................................. 341 19.2.1 Fewest Correct Lubricants........................................ 343 19.2.2 Lubrication Instructions............................................344 19.2.3 Lubrication Organisation.......................................... 345 19.2.4 Lubricating Devices.................................................. 345 19.2.5 Storage and Handling................................................346 19.2.6 Lubricant Life............................................................346 19.2.7 Oil Purification.......................................................... 347 19.2.8 Lubrication Controls.................................................348 19.2.9 Customer Staff Training............................................ 348 19.2.10 Preventative Maintenance......................................... 349 19.3 Selling Lubricants.................................................................. 350 19.4 Examples of Benefits Achieved by Lubricant Users.............. 351 19.5 Benefits of Lubricants in the Future....................................... 357 19.6 Selling Retail Lubricants........................................................ 358 19.7 Selling Industrial Lubricants.................................................. 358 19.8 Common Mistakes Made by Salespeople.............................. 359 19.9 Tips for Salespeople...............................................................360 19.10 Summary................................................................................ 361 References......................................................................................... 361 Chapter 20 “One-Stop-Shop” Solutions for Marketing Lubricants..................... 363 20.1 20.2 20.3 20.4 20.5 20.6 20.7

Introduction............................................................................ 363 “One-Stop-Shops”..................................................................364 “One-Stop-Shop” Facilities and Systems............................... 366 Drivers for Globalisation........................................................ 367 Advantages and Disadvantages of “One-Stop-Shops”........... 369 Future Trends.......................................................................... 371 Summary................................................................................ 372

Index....................................................................................................................... 373

Preface Lubricating oils and greases are highly technical products, about which most people know very little. The vast majority of people appear to believe that “oil is oil” and “grease is grease”. They will usually rely on someone else to tell them what type of oil or grease to use in a specific item of equipment. Quite often, the people who tell users what to use have themselves relied on another person, product application sheet or equipment manual to find out what is the most appropriate lubricant to use. Most people do not want or need to know the technical details of lubricants and lubrication. However, there are a few people who definitely do need to know the technical details. They are the marketing and sales managers and staff who market and sell lubricants and lubrication to hundreds and thousands of companies, whether locally, nationally or internationally. They are also the lubricant formulation chemists and research engineers who develop new and improved lubricants. Just as importantly, they are the customer support engineers and chemists who provide expert advice and problem-solving for a wide variety of lubricant users. More importantly, lubricants are marketed and sold on the basis of their performance in operating machines. They are not marketed and sold on the basis of their chemical and/or physical properties. Consequently, people who market and sell lubricants need to know quite a lot about lubrication in addition to lubricants. Users of lubricants need to be reassured that a specific lubricant will lubricate their machine or equipment and not damage them. The science of friction and wear, known as “tribology”, needs to be understood and practised by people who market and sell lubricants. In addition, in recent years, the ways in which customers in both developed and developing countries are using and buying lubricants have begun to change fundamentally. More people are now aware of climate change and the impact of human activities on the environment. Ways to reduce the amount of carbon dioxide, methane and other greenhouse gases being pumped into the atmosphere and oceans are being developed and improved. Reductions in the amounts of waste and processes to recycle and re-use materials, using “closed loops” and “cradle-to-grave” methodologies, are gaining in importance. Many factors influence the huge variety of ways in which lubricants are used and understood by people and companies. These affect the methods by which lubricants have been and will be marketed and sold. Advertising and Public Relations are still used by many companies, but these are increasingly being done using the internet and social media. The numerous other methods used by lubricant companies to communicate with consumers and companies in order to market and sell lubricants are described, explained and evaluated in this book. This book sets out the reasons why marketing and selling lubricants and lubrication are different to almost all other products and services. Exploring, explaining and discussing all the activities, strategies and plans associated with marketing, selling and using lubricants, in both the past and the future, are the subjects of this book. xiii

Biography R. David Whitby, BSc (Hons), CLP, is the Chief Executive of Pathmaster Marketing Ltd., a business development consultancy for the international downstream oil, gas and energy industries, which he founded in 1992. Pathmaster Marketing has advised clients in the UK, France, Germany, Belgium, Denmark, Poland, Hungary, Russia, the US, Canada, Israel, Saudi Arabia, Iran, South Africa, Brazil, Singapore, Malaysia, Thailand and Australia on business planning, business strategy, market development and technology commercialisation. Specialist sectors include lubricants, fuels, new energies and speciality chemicals. An Australian by birth, David began his career with British Petroleum, as a process chemist in a refinery in Western Australia. He worked for BP for 22 years in a number of management positions, including Marketing and Business Development Manager at Kalsep (an advanced separations company), Business Manager at BP Ventures and Project Leader for Industrial Lubricants at BP Research and Marketing Services Officer at Duckhams Oils. David was the Programme Director for Lubricants Courses at the Oxford Princeton Programme and he ran the Advanced Lubrication Training Programme for the UK Lubricants Association. He has written numerous papers and articles on lubricants, has chaired and lectured to international conferences and directed over 120 lubricants training courses in more than 30 countries. He writes the bimonthly “Worldwide” column for Tribology and Lubrication Tribology, published by the US Society of Tribologists and Lubrication Engineers. In addition to running Pathmaster Marketing, David was the Non-Executive Chairman of Microbial Solutions Ltd., a start-up from the University of Oxford, from 2007 to 2015, and a Non-Executive Director of the Sonic Development Company Ltd., from 1998 to 2003. His first book, Lubricant Blending and Quality Assurance, was published by CRC Press in January 2019 and his second book, Lubricant Analysis and Condition Monitoring, was published by CRC Press in January 2022. David has lived in Woking, Surrey, UK, for more than 38 years and is married with two daughters and four grandchildren.

xv

Glossary ACEA AFNOR AGMA ANSI API ATF ATM BN CCS CCS COVID CRM DI DIFM DIN DINK DIY EC EPA EU FMCG GATT GDP GLAM HDDEO HDPE HSE HTHS IBC IIP ILSAC IPCC ISO JASO KPI KSF LAN LTV MQL MRV MUPPY NPRA

Association des Constructeurs Européens d’Automobiles Association Française de Normalisation American Gear Manufacturers Association American National Standards Institute American Petroleum Institute Automatic Transmission Fluid Automated Teller Machine Base number Carbon capture and storage Cold cranking simulator Coronavirus infectious disease Customer relationship management Detergent inhibitor (additive pack) Do it for me Deutsche Institut für Normung Double (or dual) income and no kids Do it yourself European Community Environmental Protection Agency (US) European Union Fast-moving consumer goods General Agreement on Tariffs and Trade Gross domestic product Greying, Leisured and Moneyed Heavy duty diesel engine oil High-density polyethylene Health, safety and the environment High temperature high shear (viscosity) Intermediate bulk container Index of industrial production International Lubricant Standardization and Approval Committee Intergovernmental Panel on Climate Change International Organization for Standardization Japanese Automotive Standards Organisation Key performance indicator Key success factor Local area network Lifetime value Marketing qualified lead Mini rotary viscometer Middle-aged, upwardly mobile, prosperous and professional National Petroleum Refiners Association (US) xvii

xviii

NPS ODI OEM OPEC PCMO PEST PESTLE PET PPP PR PVC RFID RFQ ROI SCM SIDI SITKOM SMART SMCG SQL STP SWOT TFM TQM VAR VI VII WAN WASP WTO YUPPY ZDDP

Glossary

Net promoter score Oil drain interval Original equipment manufacturer Organisation of the Petroleum Exporting Countries Passenger car motor oil Political, economic, social and technological Political, economic, social, technological, legal and environmental Polyethylene terphthalate Purchasing power parity Public relations Polyvinyl chloride Radio frequency identification (tags) Request for quotation Return on investment Supply chain management Spark-ignited direct fuel-injected (engine) Single income, two kids, oppressive mortgage Specific, measurable, achievable, relevant and time-based Slow-moving consumer goods Sales qualified lead Segmentation, targeting, positioning (marketing) Strengths, weaknesses, opportunities and threats Total fluid management Total quality management Value added reseller Viscosity index Viscosity index improver Wide area network White, Anglo-Saxon and Protestant World Trade Organisation Young, urban/upwardly mobile, prosperous, professional Zinc dialkyl dithiophosphate or zinc diaryl dithiophosphate

1

Introduction

1.1 PURPOSE Lubricating oils and greases are highly technical products, about which most people know very little. The vast majority of people appear to believe that “oil is oil” and “grease is grease”. They will usually rely on someone else to tell them what type of oil or grease to use in a specific item of equipment. Quite often, the people who tell users what to use have themselves relied on another person, product application sheet or equipment manual to find out which is the most appropriate lubricant to use. Most people do not want or need to know the technical details of lubricants and lubrication. However, there are a few people who definitely do need to know the technical details. They are the marketing and sales managers and staff who market and sell lubricants and lubrication to hundreds and thousands of companies, whether locally, nationally or internationally. They are also the lubricant formulation chemists and research engineers who develop new and improved lubricants. Just as importantly, they are the customer support engineers and chemists who provide expert advice and problem-solving for a wide variety of lubricant users. More importantly, lubricants are marketed and sold on the basis of their performance in operating machines. They are not marketed and sold on the basis of their chemical and/or physical properties. Consequently, people who market and sell lubricants need to know quite a lot about lubrication, in addition to lubricants. Users of lubricants need to be reassured that a specific lubricant will lubricate their machine or equipment and not damage them. The science of friction and wear, known as “tribology”, needs to be understood and practised by people who market and sell lubricants. In addition, in recent years, the ways in which customers in both developed and developing countries are using and buying lubricants have begun to change fundamentally. More people are now aware of the climate change and the impact of human activities on the environment. Ways to reduce the amount of carbon dioxide, methane and other greenhouse gases being pumped into the atmosphere and oceans are being developed and improved. Reductions in the amounts of waste and processes to recycle and reuse materials, using “closed loops” and “cradle-to-grave” methodologies, are gaining in importance. The science of lubrication, known as tribology, is even more technical and bewildering. It is the science and engineering of interacting surfaces in relative motion. It includes the study and application of the principles of friction, wear and lubrication. The subject is highly interdisciplinary, drawing on many academic fields, including materials science, chemistry, physics, mathematics, biology and engineering. Friction is generally characterised as a branch of physics or mechanical engineering, wear is part of the material science of metallurgy, while lubrication is regarded DOI: 10.1201/9781003318392-1

1

2

Lubricant Marketing, Selling, and Key Account Management

as a branch of chemistry. A tribologist (a person who studies tribology) needs to be very familiar with all the required technologies. The technologies considered in tribology are among the most fundamental and most common of those encountered by people in their everyday lives. Many aspects of tribology are beneficial and make modern life possible. However, other effects of tribology constitute serious nuisances, and careful design is necessary to overcome the inconvenience arising from excessive friction or wear. On an overall basis, friction uses up or wastes a significant amount of the energy generated by industries, while a large amount of productive capacity is devoted to replacing objects made useless by wear. Friction is the resistance to sliding of a solid when the resistance is produced by a contacting body. It is therefore a vital factor in the operation of most mechanisms. High friction is needed for the familiar processes of walking, gripping objects manually and building piles of sand, in addition to the satisfactory functioning of nuts and bolts, paper clips and tongs. Conversely, low friction is desired in objects that are designed to move continuously, like engines, skis and the internal mechanism of watches. Constant friction is required in brakes and clutches, as otherwise unpleasant jerky movements would occur. Unfortunately, friction occurs in three distinct types: static friction, dynamic friction and rolling friction. A tribologist needs to understand all three types. Wear is the removal of material from a solid surface as a result of the mechanical action exerted by another solid. It is such a universal phenomenon that rarely do two solid bodies slide over each other or even touch each other without measurable material transfer or material loss. For example, coins become worn as a result of continued contact with human fingers, pencils become worn after sliding over paper and rails become worn as a result of the continued rolling of train wheels over them. Only living things, such as hips and knees, are generally resistant to the permanent damage caused by wear, because only they have the property of healing through regrowth. And even a few living things do not heal themselves, such as teeth. Again, unfortunately, wear occurs in a number of different types: adhesive, abrasive, fatigue, corrosive, fretting and erosive wear. Tribologists need to be able to differentiate between the different types. The use of substances introduced into the interface between sliding surfaces to diminish friction and/or wear is an ancient practice. These substances are lubricants. Egyptian pictures dating back 4,000 years show the application of lubricants to reduce the friction involved in dragging heavy monuments. In modern lubrication practice, the main concern is to reduce the wear that accompanies sliding and, at the same time, to design lubrication systems that will operate for long periods without inspection or maintenance. A large number of different lubricants are in use at any one time (a single major oil company may market many hundreds of different varieties), and no aspect of tribology receives as much attention as the development and testing of new or improved lubricants. Marketing and selling retail, industrial, marine, mining, aviation and railroad and other specialist lubricants is not like marketing and selling almost all types of other products and services, due primarily to the highly technical nature of tribology.

Introduction

3

Marketing and selling bread, milk, washing powder, vegetables and other household goods is relatively easy. Advertise the products widely, get supermarkets and shops to put them on shelves and wait for consumers to choose which taste or brand they prefer at a competitive price. Marketing and selling clothes, cars, holidays and similar products is a little more difficult. Many of the techniques rely on the persuasiveness of salespeople, the appeal of advertisements, previous positive or negative consumer experiences and/or price. In many situations, the features or benefits of the product or service are readily apparent to customers. For example, if a motorist puts the wrong fuel into his or her vehicle, the consequences will become evident almost immediately. An airline that is regularly late with either departures or arrivals might start to lose passengers to competitors. A hospital where too many patients have treatments or operations that are either not ideal or which go wrong might suffer an increasing number of lawsuits. The consequences of using the wrong lubricant in an application may not become apparent for many years, but could be catastrophic, leading to loss of life, production, equipment or facilities. There are too many examples of this to describe here. Because so many people do not understand lubricants or lubrication, they need to be guided as to which lubricant to use when, where and why. Ultimately, this is the function of lubricant marketing and sales professionals, customer service managers and engineers and key account managers. The changing uses of lubricants, their recycling and reuse and their impacts on climate change and the environment need to be explained to all types of customers. Throughout this book, the highly technical nature of lubricants and lubrication and how they should be marketed, sold and used will be explained and discussed. There is one additional caveat to the marketing and selling of lubricants. Because of the highly technical nature of lubricants and lubrication, in the author’s opinion and experience, it is easier to train engineers, metallurgists, physicists or chemists to be effective salespeople than it is to training good salespeople to be effective tribologists. The author aims to explain and discuss the reasons for this opinion throughout this book.

1.2 APPROACH In order to understand the complexity involved in marketing and selling lubricants, the subject needs to be illustrated, explored and discussed in a logical way. While marketing and selling lubricants is different from almost all other types of products, a number of principles and concepts are fundamental to all marketing and selling activities. These are described and discussed in Chapter 2, before considering lubricants in detail, which are the subjects of subsequent chapters. While marketing and selling are interconnected activities, the author believes that, in essence, marketing involves finding customers and opening deals, and selling involves closing those deals and retaining those customers. Tips for opening and closing deals will also be presented and discussed. It is particularly important when marketing and selling lubricants that all the people involved know and understand their respective roles, so that they can work together as a team to provide the necessary technical and commercial support to their customers.

4

Lubricant Marketing, Selling, and Key Account Management

Before any company can market and sell products and/or services to any market or market segment, it needs to work out how it is going to access that market or market segment. The ways in which a company accesses a market are known as “channels to market”. These are the subject of Chapter 3. Many types of channels can be used by a company. Identifying, evaluating, managing and using one or more channels forms part of a marketing and sales strategy. All products and services go through channels of distribution, and marketing depends on the way products are distributed. The route the product takes on its way from production to customers is important because a marketer must decide which route or channel is best for each specific product. Chapter 3 describes the different types of lubricants, the direct and indirect channels through which they are marketed, the factors involved in choosing which channels to use, support strategies for each channel and assessing how effective is each channel. The usual descriptions of the channels are either “business-to-consumer” (b2c) or “business-to-business” (b2b). The marketing and sales strategies and tactics for b2c and b2b are different. Although many aspects of marketing do not change much over time, other aspects do. Countries, economies and markets themselves change, sometimes very quickly, with new customers, new suppliers and new or improved products. The COVID-19 pandemic in 2020 illustrated clearly how quickly economies and markets can change dramatically in a few months. Understanding what is happening in a company’s target market(s) is critically important to devising and implementing achievable business strategies and plans. Chapter 4 investigates market research, which involves the collection, analysis and understanding of information about current and possible future markets. The chapter explores and discusses the market research process, methods of performing market research, types of customers, analysis of competitors and how a company can identify its competitive position in a market, sources of information about customers and markets and how to analyse and report the results of market research. Markets are usually categorised into three types. Retail markets involve the sale of goods (products) or services to individual consumers (people) through multiple channels of distribution. The term “retailer” is generally used for a provider of products or services who fills the small orders of many individuals, who are end-users. This is the b2c side of the marketing and selling process. Wholesale markets are where products (but not services) are sold in bulk quantities to retailers. A wholesaler sells goods to businesses, which then sell them on to numerous retailers. It is worth noting here that the lubricants business does not generally involve wholesalers. Industrial markets comprise organisations that acquire goods and services, not for their own sake, but to facilitate the supply of other goods and services which ultimately may be bought by retail consumers. This is the b2b side of the marketing and selling process. Unlike marketing and selling, which focus on the needs of buyers, market research has a wide-ranging brief. Market research people need to be interested in why a buyer buys and why a seller sells. They are fact finders who seek the most accurate information possible within imposed constraints of time and money. Their aim should be to reduce a company’s risk by eliminating, or hopefully minimising, the guesswork out of business decisions.

Introduction

5

Chapter 5 describes and discusses methods for forecasting and how to construct forecasts, including scenario planning, investigates forecasting in the oil industry, examines current and future drivers of lubricant demand and prepares an illustrative forecast of lubricant demand in one market. A forecast is a view of the future. Business decisions rely on a forecast. The object of forecasting should be to use information and judgement to minimise uncertainty and to identify and evaluate risk. Unfortunately, a number of the forecasts companies or people are obliged to make will prove mistaken. This does not invalidate the case for basing decisions upon forecasts. Forecasts of some kind are likely to help as a means of determining a future course of action. People generally try to survive and improve, relying on an ability to foresee the consequences of their decisions. In that sense, everyone is a forecaster. Again, the COVID-19 pandemic illustrated this very clearly. Chapter 5 describes and discusses this in depth. Forecasting is an essential discipline in planning and running a business. Success depends, to a large extent, on getting these forecasts right. Many people believe that the future is highly uncertain. Everyone knows that almost everybody is regularly confronted with uncertainties, so there is a real possibility that they will not make the right decisions. Fortunately, the future is often more predictable than many people realise. Thinking about what could happen in the future and using this to prepare scenario forecasts enable companies to develop strategies and plans as to what to do if something good or bad happens to change the expected plan. Understanding consumer behaviour is vital for a retail business, so that it is able to create and develop effective marketing and sales strategies. Retail is the process of selling consumer goods or services to customers through multiple channels of distribution. Retailers usually market and sell thousands of products or hundreds of services to thousands or millions of customers. Chapter 6 presents and discusses the similarities and differences between retail customers, why they do and don’t buy products and services and how they make purchasing decisions. The chapter examines b2c marketing and selling in depth. Because companies make products or offer services for people to buy, all businesses should know as much as possible about who are their potential customers and why they buy products or services. Customers often behave in quite different ways from the ways their suppliers think. Marketing and salespeople are likely to find it helpful to be aware of some established generalisations about the way customers decide to buy, before applying new-found techniques to a particular product or business. Identifying, developing and implementing a marketing strategy for industrial customers require an understanding of the nature of buying by companies. The buying behaviours of companies are different from the buying behaviours of retail consumers. Industrial buying adds extensions and entirely new dimensions. It entails knowledge of the different types of buying situations that companies encounter, the process that industrial buyers go through in reaching purchasing decisions, how those decisions are affected by different members of the company and the criteria they apply in making purchasing decisions. Chapter 7 discusses the purchasing decision process that organisational buyers apply when confronted with different buying situations and how a supplier’s

6

Lubricant Marketing, Selling, and Key Account Management

marketing strategy is affected. It also describes the various roles played by people who make and influence the purchasing decision process and why it is important to identify those key influencers. The criteria that organisational buyers apply in making purchasing decisions are also described and discussed. The chapter examines b2b marketing and selling in detail. One of the key aspects of marketing and selling any product or service is the ability and effectiveness of a company to communicate information to and receive information from existing customers and prospective customers. The communication is a two-way process. It is important that messages are heard and understood by the customers, so getting feedback from them is also fundamental to success. Advertising and public relations (PR) are the two main ways with which to communicate with a target market. Within both methods, there are a number of approaches that a marketing department can use. Using agencies to do either or both tasks can help to make the communication more effective. Chapter 8 outlines and discusses the numerous marketing communications and tasks, including the objectives, factors, strategies, plans and tailoring of messages to target market segments. The promotional mix is also covered, such as advertisements in newspapers, magazines and journals, on television and radio and, now, using the internet. The mix includes PR, conferences, exhibitions, roadshows and seminars, price promotions, giveaways, competitions, websites, social media influencers and digital media platforms. The advantages and disadvantages of the different communications methods in the promotional mix are also explained and discussed. Because marketing to retail lubricant customers is very different from marketing to industrial lubricant customers, the methods of communication can be, although not always are, different. Lubricant market communications are changing and adapting for many reasons. The growth of electric and hybrid vehicles, of many types and sizes, will alter the advertising and promotional methods that should be used in the future by lubricant suppliers. The increasing use of online shopping, the internet and social media will also affect lubricant market communications. Many countries have introduced regulations that aim to protect retail customers from unwanted or intrusive communications. The effectiveness of television advertisements is also being questioned by marketing directors and managers. Chapter 9 looks specifically at methods of communication to either or both retail lubricant consumers and industrial lubricant customers. These include all the general methods discussed in Chapter 8 together with specific examples for lubricants and lubrication. Again, the numerous methods of communication are described in terms of their relevance and effectiveness for marketing and selling lubricants. The benefits and problems of communicating using direct mail, telemarketing, webpages and social media are presented and discussed. Creating a successful marketing strategy can depend on the abilities of a marketing department to identify, analyse and evaluate attractive segments of a market. Market segmentation is the first of the three steps that eventually enables a company to maximise its return on investment. Attractive segments of a market must be identified and evaluated, target segments selected and decisions made about how to

Introduction

7

compete in those segments before product and/or service positioning and marketing mix strategies can be developed. The methods by which a market can be segmented and how to identify target markets, the positioning of products in those target markets and the most frequently used criteria for segmenting both retail and industrial markets are explored in Chapter 10. It discusses macro and micro variables that can be used to refine the identification of target markets and provides examples for both retail and industrial lubricant markets. The chapter also discusses how to determine the commercial attractiveness of target market segments. Additionally, it looks at the positioning of brands in an illustrative retail lubricant market. Most motorists who buy retail automotive lubricants do not know very much about engine oils, gear oils, automatic transmission fluids or greases. They usually need guidance from one or more sources about which lubricant(s) to use in their vehicles, vans, motorbikes, boats, caravans or other items of equipment. These sources, discussed in other chapters, include car dealers, specialist motoring shops or repair workshops. Many of these suppliers of lubricants and guidance on their uses have begun to be involved in systems to recycle and reuse products. Chapter 10 also describes and discusses these systems, particularly in the context of their impacts on reducing waste and damage to the environment. Motorists can also find information on the backs of retail engine oil packs, automotive gear oil packs or grease containers. Lubricant suppliers know this, so they use pull marketing strategies to entice motorists to look at their packs of lubricants on the shelves of the retail outlets. A pack might have printed on it that the oil meets the requirements of BMW xxxx specification, so a driver of a BMW car might conclude that this oil will be suitable in his or her car. As a consequence, packaging can play a significant role in the marketing and selling of retail automotive lubricants. Colourful packs that can be easily differentiated from competitors’ packs will help motorists to find the oil they have been advised to use. Packaging for automotive engine oils can also be valuable in terms of ease of use by motorists, particularly when pouring oil into the engine oil filler. When automotive lubricant packages have been designed and coloured with a specific suppliers’ identity and logo, this is likely to encourage brand loyalty by motorists. Almost all marketing activities seek to maximise brand loyalty among retail consumers. Chapter 11 explores and discusses brands and branding, retail lubricant brands, retail lubricant packages and packaging and the impact of lubricant packaging on sales. Recycling packaging is also covered in this chapter. Marketing and sales activities have a major contribution to make in the development of a new product. Drivers of new products include customer requirements, competitors’ new products, government regulations, industry specifications and standards and many others. Knowing and understanding the requirements of customers and the activities of competitors provide valuable information for deciding about the development of one or more new products. However, not all potential new products can or should be developed at the same time. Managing a portfolio of products involves deciding which are the highest priority with regard to profit potential and so should be tackled first.

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Lubricant Marketing, Selling, and Key Account Management

A successful new product development is vital for business success. Product portfolio management includes the ability to select which current development projects are highly likely to become tomorrow’s commercial successes. Product portfolio management also involves resource allocation. In business, when shareholder and stakeholder value and achieving more with limited resources are important, marketing, sales and technology resources are too scarce to waste. Many tools, some quantitative, some graphical and some strategic, can be used to help choose the best portfolio of development projects. Chapter 12 describes and discusses the process by which new products are developed, methods of formulating and developing new automotive and industrial lubricants and the introduction of a new lubricant to the marketplace. This includes identifying new applications for lubricants, such as electric and hybrid vehicles, and developing products to satisfy these applications. Customer support service, more commonly known previously as technical service, is a concept that has only been applied realistically to industrial marketing, primarily due to the much greater technical expertise of industrial customers. A much more limited form of technical service is used in retail markets, but it is most usually called after-sales service and often only involves product repair and maintenance in the event of breakdown within the warranty period. In most companies that manufacture products for industrial markets, there is an ongoing debate about technical service. The technical department usually insists that it is essential if the business is to be successful and the finance department usually considers it to be an unnecessary expense. Reality usually lies somewhere between these two extremes and the positioning will depend on the company’s marketing strategy. In most companies, the marketing and sales department usually admits that technical service can be beneficial in support of commercial activities, and will therefore usually insist on controlling the type and extent of customer support service offered. All aspects of customer support service as an aid to the marketing, selling and use of industrial lubricants are described and discussed in Chapter 13. Balancing the costs and benefits of service support to customers is specific to each customer. Some will need very little service, while others will benefit from a lot of service. Whether they are willing and able to pay for it is also explored. A business strategy is the search for a sustainable competitive advantage in the marketplace. It can be defined as the combination of all the decisions taken and actions performed by a company to accomplish its business goals and to secure and maintain a competitive position in the market. A business objective without a strategy is simply a dream. Any company that is in, or enters, a market without a carefully thought-out strategy is taking a gamble on succeeding. Business strategy is a part of a business plan. While the business plan sets the goals and objectives, the strategy gives a company a way to achieve those goals. The three key elements of a business strategy are: • Where are we now? • Where do we want to go? • How are we going to get there?

Introduction

9

The answers to all the questions within each of these three key elements will help to identify the most appropriate strategy. The choice of strategy will depend on the size and nature of the company. Some companies are simple and consist of only one business activity. Other companies are complex, with the group consisting of many businesses. Some of these businesses may be closely related, for example, by using the same or similar technologies, while others may be competing in entirely separate business areas, in terms of both technologies and markets. Chapter 14 explains and discusses business strategy, marketing strategy, strategic planning and sales strategies, with particular reference to the lubricants business. Business strategies are likely to need to adapt to changing global markets, particularly with regard to climate change, environmental protection and population demographics. Profitable marketing and selling in any company require effective organisation and management. How a company or department should be structured is one of the debates that has no right or wrong answers. The search continues for the perfect organogram. Managers, task forces and committees that spend too much time trying to invent the best reporting relationships are likely to be distracted from the real business of the day-to-day running of the company and to be wasting their time. The defects of hierarchical company structures have been documented by many experts. Horizontal communications are difficult, feelings of status and privilege tend to be reinforced and procedures often become institutionalised. It even occurs commonly in nature, without the presence of committees to nurture it. Unfortunately, none of the efforts to find a substitute has succeeded. The hierarchy has great merits of its own, including the stability and order it brings to businesses and the security and opportunities for personal growth it provides for many employees. Chapter 15 explores and discusses the different company structures and alternative marketing and sales department organisations that might be required in order to achieve marketing and sales success with lubricants. It considers which structures might be used by which types of lubricant company, for which industries, markets and products. The pricing of products and services is an indispensable part of marketing strategy. Prices must be carefully interrelated to the company’s product, manufacturing, distribution and communication strategies. Every marketing manager has the challenging responsibility of blending the various elements of the marketing mix to ensure that the total offering is not only responsive to the needs of the market, but also provides a return consistent with the company’s profit objectives. This is not an easy task. From a marketing perspective, price represents the value that customers place on a product at some point in time, but different groups of customers will perceive product values differently. They may also place different values on the range of attributes that make up the product offering, such as durability, innovative design or ease of use. In addition, a marketing manager’s task is made more complex because pricing decisions must consider costs, market demand, competition and national regulations. Pricing decisions also influence channel decisions and relationships because they affect the profit margins of distributors and the commissions of manufacturers’ representatives. The complexity or otherwise of distribution systems affects prices to customers, whether retail or industrial.

10

Lubricant Marketing, Selling, and Key Account Management

Lubricant pricing strategies and policies, the relationships between prices, supply, demand and costs, issues with automotive lubricant pricing and prices, issues with industrial lubricant pricing and prices, illustrative prices and possible future trends are studied and discussed in Chapter 16. In almost all businesses, the marketing and sales department has a list of all the companies to which it sells products and/or services. Some of these customers are more valuable to the company than are other customers, usually for one or more reasons. At regular intervals, the company’s directors and senior managers, particularly those in marketing and sales, should look at the list of the most valuable customers and ask, “Would it be really bad if our company lost any of these customers?” These customers are called “Key Accounts”. They represent a disproportionate percentage of either sales or profits. In total, they probably account for between 30% and 50% of either revenue or profits. The loss of any one of them would be a cause for significant concern. However, they are not just the important customers currently. Thought should also be given to those smaller customers that might grow to become important and to those companies that are not current customers but would be very valuable if they could be persuaded to become customers in the future. Chapter 17 investigates how to identify key accounts and how to manage them, so that they remain key accounts and continue to generate revenues and profits. All the earlier chapters have provided the detailed information required for effectively managing key accounts. A very important part of marketing and selling lubricants is to make sure that products are delivered to customers at the right times, right places and right qualities. Consequently, marketing and salespeople need to understand the complexity and methodology of managing a supply chain for product production and delivery, so that they can reassure their customers. Chapter 18 explains and discusses supply chain management and its application to the lubricants business, particularly logistics. It explores the methods by which marketing and sales managers are able to meet customers’ expectations about deliveries and product quality. The chapter also considers the organisation and advantages of localised supply chains, integrated supply chains and global supply chains. The management of these chains continues to evolve, as each has a number of benefits and drawbacks. The evolution is also being driven by a number of political, environmental and social factors, such as the COVID-19 pandemic, international trade and trade agreements, food and water shortages and adaption to climate change, that are explained and discussed in the chapter. The main objective of all good salespeople is to find ways to increase productivity, achieve more sales and generate higher profits on every selling day. Experience has shown that “benefit selling” is the best way to secure and retain customers with minimum sales effort. This allows a salesperson to focus on building strong and enduring customer relationships. Studies of customer accounts in almost all industries show that around 20 of every 100 accounts make up 80% of sales. It is therefore apparent that a salesperson

Introduction

11

should concentrate on those twenty accounts and can afford to spend only 20% of his or her time on the smaller accounts. For reasons discussed in Chapter 19, the benefit selling methodology is immediately applicable to the lubricants business. To be successful, salespeople and customer support engineers must have a good working knowledge of lubricants, lubrication methods, maintenance practices, industrial equipment and manufacturing and production engineering processes. This is why selling lubricants is not the same as selling almost all other products. The sales process for industrial lubricant customers involves face-to-face selling, creating links between value and price and management of routine ordering, so these are discussed in the chapter. The range of benefits provided by lubricants and lubrication is likely to change in the future, as countries, markets and customers adapt to new ways of using lubricants in response to climate change, waste minimisation, product recycling and international travel. Chapter 19 looks at these factors as well. Effective sales are win-win for the customer and the supplier. What this means is achieving the lowest total cost for the customer and not the lowest unit price from the supplier. A “one-stop-shop” (sometimes called a “one-stop-store” or “one-stop-source”) is a company, office or retail outlet where multiple products and/or services are offered. In these locations, customers can buy all they need in just “one stop”. The term originated in the US in the late 1920s or early 1930s, to describe a business model offering customers the convenience of having multiple needs met in one location, instead of having to “drive all over the town” to obtain related products and/or services in different places. The term is now used to describe everything where people can find most of what they need, including information, in one location. Chapter 20 explores the concept of “one-stop-shops” in the context of marketing and selling lubricants. The advantages and disadvantages of the methodology are discussed and evaluated. Some customers like “one-stop-shops”, while others do not, for reasons that are explained in the chapter.

2

Fundamentals of Marketing and Selling

2.1 INTRODUCTION While marketing and selling lubricants are different to almost all other types of products, a number of principles and concepts are fundamental to all marketing and selling activities. It is, therefore, important to describe and discuss these fundamental principles and concepts before considering lubricants in detail, which will be the subjects of subsequent chapters. The fundamentals of marketing and selling will be described and discussed in this chapter. While marketing and selling are interconnected activities, the author believes that, in essence, marketing involves finding customers and opening deals and selling involves closing those deals and retaining those customers.

2.2 MARKETING The principal purpose of a business is to create, serve and satisfy customers. Superior products, technical excellence, perfect delivery, outstanding service and competitive prices will be of little value if a business is unable to identify, develop and meet customers’ needs and expectations. All companies start with no customers. In order to succeed and grow, people must be found who want to buy what the company wants to sell. To keep growing, or at least to avoid declining, every company needs to retain as many existing customers as possible and to find new customers to replace those who have moved, died or found an alternative supplier. One definition of marketing is “the management process responsible for identifying, anticipating and satisfying customer needs profitably”. A more precise definition is “the process of balancing the company’s needs for profit against the benefits required by customers, so as to maximise long-term earnings”. Marketing is a complex process that involves everyone in the company, even if only to a small extent. The practice of marketing is almost as old as civilisation itself and its validity has been proven over and over again. Developing a marketing strategy and plan involves finding rigorous answers to a number of questions. The main questions for marketing people are listed in Figure 2.1. The marketing plan will also require a careful and honest analysis of the information gathered in answering the questions. The information does not necessarily have to be 100% accurate. The 80:20 rule applies. The 80:20 rule, also known as the Pareto Principle, is an observation which asserts that 80% of outcomes (outputs or results) arise from 20% of all causes (or inputs) for any given event. The Italian economist Vilfredo Pareto published his findings on wealth distribution in 1895 after he discovered that 20% of Italy’s citizens DOI: 10.1201/9781003318392-2

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Lubricant Marketing, Selling, and Key Account Management

FIGURE 2.1  Main questions for market strategy and plans. (Pathmaster Marketing Ltd.)

owned 80% of the country’s wealth. In business, a goal of the 80:20 rule is to identify inputs (or factors) that are potentially the most productive or important and make them the priority. Since Pareto’s findings, many others have applied the 80:20 rule of cause and effect to numerous situations outside wealth distribution, including business principles and professional development. For example, in business, it is often said that 80% of sales result from 20% of clients. While 80:20 is the most commonly found ratio, the Pareto Principle may also exist in other similar ratios, such as 70:30, 75:25 or 85:15. All these values show that a low percentage of causes affect or create a high percentage of results. The answers to the questions shown in Figure 2.1 are likely to change as the company evolves and the market and competitors change. Updating the market analysis is an ongoing activity. In general, getting 80% of the information is likely to involve only 20% of the work required. More work may not yield significantly better or more useful information. Marketing is a philosophy and a method of achieving company financial objectives. The balance lies between the company’s assets, such as people, equipment, facilities, research and brands, which generate costs, and the marketplace, involving customers and competitors, which generates revenues. The marketing process could start by searching the marketplace for opportunities and then finding out whether the company can handle them. Alternatively, the company could look at its key assets and determine whether there are ways to exploit them for the benefit of customers. The first approach is known as “market-led marketing”, while the second approach is known as “asset-led marketing”, as illustrated in Figure 2.2. The best marketing strategies use both approaches concurrently. Market-led and asset-led marketing are not conflicting ways of doing business.

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FIGURE 2.2  Market-led and asset-led marketing. (Pathmaster Marketing Ltd.)

They simply view the marketing process from different perspectives and are complementary. However, it is important to recognise the difference between marketled and asset-led marketing and to get the most out of both. Market-led marketing finds out what the customer wants (or more properly, needs) and then looks at how the company can satisfy these profitably. This is sometimes called “classical marketing” and is favoured by many textbooks. The typical sequence is to identify an unmet customer need, develop a product or service to meet that need and, if the profit numbers look reasonable, introduce the product or service to the market. The distinguishing factor about market-led marketing is its relatively high cost. Asset-led marketing takes the company’s assets as its starting point and asks the same question in reverse. It requires marketing staff to analyse and define assets as thoroughly as markets. This means identifying the company’s skills and resources and then searching the market for customer needs which can use those skills more fully. Asset-led marketing starts with what the company has, and what it does well, then works back to the marketplace. For success in the long-term, a company should pursue both types of marketing. The main differences between the two approaches are summarised in Figure 2.3. Lew Young, Editor-in-Chief of Business Week from 1969 to 1984, is widely reported to have said, “Probably the most important management fundamental that is being ignored today is staying close to the customer to satisfy his needs and anticipate his wants. In too many instances, the customer has become a bloody nuisance, whose unpredictable behaviour damages carefully made strategic plans, whose activities mess up computer operations and who stubbornly insists that purchased products should work”.

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FIGURE 2.3  Market-led versus asset-led marketing. (Pathmaster Marketing Ltd.)

During the course of many years of running a marketing consultancy, the author has accumulated a number of descriptions of customers: • Are the most important things in this office; in person, by telephone, by e-mail or by mail. • Are not dependent on us; we are dependent on them. • Are not an interruption to our work; they are the purpose of it. • Are not cold statistics; they are flesh-and-blood human beings, just like us. • Are people who bring us their needs and wants; it is our job to handle these profitably to them and ourselves. • Are precious … and fickle. One of the seven deadly sins of a business is to fall in love with its own products. The love affair should be with the company’s customers. A marketing strategy and plan will look at the market’s potential in terms of its size, segmentation, forecasts, which features and benefits to emphasise, product pricing, which customers are prospects and who are the buying decision makers. Each of these aspects in the lubricants business will be described, analysed and discussed in detail in later chapters. The concept of market segmentation, presented in depth in Chapter 10, is illustrated in Figures 2.4 and 2.5. The purchasing process of problem recognition, general description of customer needs, specification of product or service, search for suppliers, obtain and evaluate proposals, select supplier, order and performance review will be presented in Chapters 6 and 7.

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FIGURE 2.4  Market segment analysis: concept. (Pathmaster Marketing Ltd.)

One of the key activities of marketing directors and managers is to manage the company’s portfolio of products. A product portfolio can be defined as the combined products and services offered by a company to its target market(s). It comprises the complete range of products offered, from those that were launched at the beginning of the company, to those that have been launched since, to those that are being introduced currently and to those that are being developed for introduction in the near future.

FIGURE 2.5  Market segment analysis: example. (Pathmaster Marketing Ltd.)

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A product portfolio comprises all the different categories of products, the different product ranges and individual products. Management of these is required for all three levels. Junior managers for individual products, intermediate managers for product ranges and senior managers and directors for the complete portfolio. Product portfolio management is one of the most crucial elements of an entire business strategy, as it helps the company to achieve its overall financial and operational objectives and to be able to plan for the future. A comprehensive analysis of a product portfolio will provide the management of the company with crucial information, such as stock types, growth prospects of brands, products that have high profit margins, revenue contribution by product, market share of every product, operational risks and market leadership. Some companies have too many products, whether on sale or in development. Some of these may not be contributing much, if anything, to profits and others may not be well aligned to the overall business strategy. Product portfolio management will identify those products that require investment and those that do not. One of the most successful product portfolio management tools over the last fifty years has been the Boston Consulting Group’s growth share matrix, shown in Figure 2.6. It was created in 1968 by BCG’s founder, Bruce Henderson, and was published in one of BCG’s short, provocative essays, called “Perspectives”. It has been used by many companies, globally, and is still central in business school teachings on strategy. The growth share matrix is a portfolio management framework that helps companies decide how to prioritise their different businesses. It was built on the logic that market leadership results in sustainable superior returns. Ultimately, the market leader obtains a self-reinforcing cost advantage that competitors find difficult to replicate. These high growth rates then signal which markets have the most growth potential. The matrix identifies two factors that companies should consider when deciding where to invest, company competitiveness and market attractiveness, with relative market share and growth rate as the underlying drivers of these factors. The matrix is split into four quadrants, each of which represents a specific combination of

FIGURE 2.6  Product growth share matrix. (Boston Consulting Group.)

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relative market share and growth. Each quadrant has a unique symbol that represents a certain degree of profitability: • Low Growth, High Share: Cash Cows. These products produce more cash than they use. They pay for overheads and for the future. Companies should milk these “cash cows” for funds to reinvest. • High Growth, High Share: Stars. These grow rapidly and need lots of cash. When (if) they become leaders, they generate cash. As growth slows, they become cash cows, or pets. Companies should significantly invest in these “stars” as they have high future potential. • Low Share, Low Growth: Pets. (Also known as “dogs”.) These products are cash traps. They are sometimes called “pets” because they were favoured by earlier managers. Companies should liquidate, divest or reposition these “pets”. • High Growth, Low Share: Question Marks. Are the real problem. Left alone they will become dogs. Properly managed, they will become tomorrow’s stars. Companies should invest in or discard these “question marks”, depending on their chances of becoming stars. By assigning each product to one of these four categories, executives should then be able to decide where to focus the company’s resources and capital to generate the most value, as well as where to cut losses. This analysis indicates that product value depends entirely on whether or not a company is able to obtain a leading share of its market before growth slows. All products will eventually become either cash cows or pets. Although pets can be cute and pampered, they can also be a financial drain and are unnecessary. They are evidence of failure to either obtain a leadership position or to get out of the market and cut losses. Four marketing strategies can be used to manage the portfolio of products: • Build: Increase the product’s market share, even at the expense of shortterm earnings. Aim to convert question marks into stars. Stars should be managed for higher growth. • Protect: Try to hold market share and current earnings. Defend cash cows. • Harvest: Minimise investment and assign people to either building or protecting. Maximise short-term cash flows. Kill dogs! • Dispose: Sell at a time to get maximum cash value. If necessary, liquidate some or all of the business. This is appropriate for some dogs and question marks that are draining resources. Another aspect of the Boston Consulting Group approach to product portfolio management is shown in Figure 2.7. The four quadrants are again linked to products and markets: • Present Products, Present Markets: Marketing and selling are focused on market penetration. • Present Products, New Markets: Marketing is concerned with developing the company’s offerings.

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FIGURE 2.7  The product/market matrix. (Boston Consulting Group.)

• Present Markets, New Products: Marketing is involved with product development. • New Markets, New Products: This involves company diversification. In the lower left quadrant in Figure 2.7, the company and its people are in a familiar business territory. The activities are focused on finding and selling to new prospective customers. In the upper left quadrant, the activities are concerned with establishing whether the existing products are suitable for markets that may be unfamiliar. Here, greater marketing effort needs to be focused on identifying and then confirming market potential. In the lower right quadrant, the activities involve developing new products for existing customers. Attention to exactly what customers need, and what they are willing and able to pay for are the keys to success and growth. The upper right quadrant is the danger area, as the territory is unfamiliar. Many companies make serious business mistakes when trying to diversify from their core competencies. Success could result in a bigger company with more revenues and profits. Failure could spell the end of the company.

2.3 SELLING Selling is basically the job and skill of persuading people to buy things. Selling is primarily a transaction between a seller and a prospective buyer (or buyers) where money (or something considered to have a monetary value) is exchanged for goods or services. Consequently, the best way to define selling is to focus on the sales skills that are necessary to make that transaction happen. Defining selling as “the art of closing a deal” encapsulates the essence of what selling is about. However, there are very significant differences between various types of sales, from very simple to very complex. For example, buying gasoline for a car and

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buying a car are very different purchases. In the first case, the sale is built on the simple need that the car’s fuel tank is nearly empty. The motorist goes to a fuel station, fills the tank with gasoline and pays the cashier with either cash, a credit card or a store card. There may not even be (and probably isn’t) a salesperson involved. In the second case, the sale is built on a manufactured need, created through marketing. The motorist has been persuaded that he or she needs a new car, for any number of possible reasons. Here is where one or more salespeople step in to convince the motorist to buy this car or that car, depending on the specific needs of the motorist. Selling is therefore a spectrum and most selling consists of performing the art of persuading a customer that buying the product or service will benefit him or her. Some people are very good at directing and persuading. They are called “super salespeople”. Whatever product or service that is being sold, the focus of sales effort needs to be on communicating the benefits of a product or service to a customer. The benefits may be tangible or intangible, but unless an individual customer is convinced that he or she will personally experience the benefits, the product or service won’t be purchased. It has been found that effective salespeople share a number of important characteristics. They are able to build solid relationships with customers, one at a time and sometimes over a long period of time. Most good salespeople think long-term and how they can leverage the current sale into more business in future from the same customer or via referrals. The best salespeople are able to listen to and establish the precise needs of the customer. Less effective salespeople spend too much time attempting to talk to a prospective customer into purchasing the product or service in question, without finding out what it is the customer actually needs or wants. The customer may not be interested in the product being offered but he or she may have a need for a related product or service. A good salesperson knows that it may take several attempts to make a sale and they very rarely give up on a potential customer. At some future time, an e-mail or phone call reminder might finalise the sale. A good salesperson also knows the difference between pursuing a potential sale and pestering a customer. Successful salespeople have a high level of self-motivation and a positive attitude, so they don’t need micro-management. They regularly look for new opportunities and view setbacks as learning experiences. They hold themselves accountable for their performance and don’t blame others or current economic conditions for the lack of success. They constantly look for ways to add to marketing activities, for example, by using e-mails and social media postings, so customers can be kept up to date with the latest product or service offerings. There are numerous methods of selling, some of which are more successful than others. The most common approaches are: • Relationship Selling: Also known as consultative selling. This depends on developing a long-term relationship with the customer. The salesperson’s goal is to get to know the customer’s needs and wants, so he or she can do the best job of giving the customer what they want. • Collaborative Selling: This takes relationship selling one step further by developing a partnership mentality between the buyer and the seller.

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• High-Pressure Selling: This approach is sometimes called aggressive selling, because the salesperson won’t take “no” for an answer. The style is hard driving and an unfortunate consequence is that if the prospective customer walks away, the sale is lost. • Transactional Selling: This approach focuses on making a quick sale. There is no attempt to form a long-term relationship with the customer. While transactional selling tends to be shunned now, from the point of view of some prospective customers, a simple transaction is all the customer wants. The type of selling approach used by a salesperson depends on his or her personality, the industry and market and each specific customer. Most salespeople are more comfortable with some styles of selling rather than others and are probably more successful with that type of sales approach as a result. Although there is a kernel of truth in the axiom that “a good salesperson can sell anything”, particular approaches have become synonymous with particular industries. For lubricants and lubrication, this will become apparent in subsequent chapters. The most effective selling approach is the one that results in a sale, which is why the best salespeople are able to successfully use different types of selling depending on who is their customer. There are many reasons why a customer might buy a product or service. A number of them are listed in Figure 2.8. Salespeople need to be alert to which one (or ones) applies to the current selling opportunity. Some appear to be frivolous; several involve personal beliefs, while some are more about competition with other customers. Conversely, there are many reasons (or excuses) why people don’t buy, at least not yet. These are listed in Figure 2.9. Again, some are trivial, while some cannot

FIGURE 2.8  Reasons why customers buy. (Pathmaster Marketing Ltd.)

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FIGURE 2.9  Reasons why people say no. (Pathmaster Marketing Ltd.)

be overcome, even by very skilled salespeople. Effective salespeople learn, through either experience or training, how to handle these objections. A discussion of these techniques is outside the scope of this book, but they can be found in a number of books and in training courses. In almost all selling situations, it has been found that five words really impress customers: • • • • •

Increase. Improve. Reduce. Save. Gain.

The more they are used, throughout a salesperson’s presentation and during the closes, the more likely it will be to achieve the sale. Good salespeople are also trained in things they should not do when trying to convince a customer to buy. These are, don’t: • • • • •

Put your feet in the customer’s door. Knock your competitors. Lie, mislead or misrepresent. Exaggerate of give deliberately optimistic delivery dates. Keep trying to sell after you’ve established that no need exists for your product or service. • Keep trying to sell after you have established that the prospective customer can’t afford to buy.

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In his book, Close! Close! Close!,1 John Fenton advises that “In business, nothing happens until somebody sells something”. He also notes that Robin Fielder has said, “In selling, our income and achievement depend almost entirely on our ability to close” and that J Douglas Edwards advises salespeople that “You haven’t done your job if you quit without asking for the order at least five times”. Selling is the process of closing a deal.

2.4  OPENING AND CLOSING DEALS If selling is the process of closing a deal, marketing is the process of opening the possibility of a deal. It is, in the author’s opinion, axiomatic that the two go hand-in-hand. One of the first steps in preparing a strategic marketing plan, to find one or more target markets, is to perform a SWOT analysis. SWOT is shorthand for Strengths, Weaknesses, Opportunities and Threats. The first two are internal to a company and the last two are external to a company. Strengths are distinctive capabilities, competencies, skills or assets that provide a company with one or more sustainable competitive advantages over potential rivals. Strength is something that a company has that its competitors do not. Simply having similar skills to those of competitors is not strength. Strengths need to be utilised, developed and defended. When analysing strengths for a strategic marketing plan, managers and planners must be brutally honest with themselves to identify real strengths. Weaknesses are internal deficiencies that place the company at a disadvantage relative to competitors. They may also deter or prevent a company from entering new markets or developing new products. Weaknesses need to be corrected or eliminated. Again, honest assessments are critical to identifying how to overcome weaknesses, whether they are due to people, technology, finances, facilities or equipment. Opportunities are factors in the marketplace that a company could exploit to its advantage. Examples include new industries, new technologies, new routes to market, new regulations, lower barriers to market entry and mistakes by competitors. Opportunities need to be identified and exploited quickly, before competitors also spot the opportunity. Good strategic planners are constantly on the lookout for market opportunities. Threats are factors in the marketplace that could erode or hinder a company’s market position. Examples include new industries, new technologies, new routes to market, new regulations, higher barriers to market entry and successes by competitors. Threats need to be identified and counteracted quickly, before the company loses market share. As with opportunities, good strategic planners are constantly on the lookout for market threats. Good market planning will attempt to leverage those opportunities that can be matched with company strengths. A company is likely to have a competitive advantage where it can match strengths with opportunities. It may need to build capabilities if it wishes to leverage opportunities in areas of weakness. An area of weakness that is matched with an external threat represents a distinct vulnerability and the company is likely to need to develop contingency plans. In addition to a SWOT analysis, good strategic planners also perform a PEST analysis. This involves variables in the business environment that may affect a company

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and its plans, including strategic constraints. An understanding of the external operating environment is necessary for the identification of business opportunities and threats. The acronym stands for Political, Economic, Social and Technological. In essence, a PEST analysis guides strategic decision-making. Political interventions have the potential to enhance or disrupt trading conditions in the company’s market(s). Examples include new or updated government laws, regulations, directives, policies, funding or subsidies, support for specific industries, trade agreements, tax rates and fiscal policies. Economic factors may have the potential to affect a company’s profitability and the prices that can be charged. These include economic trends, inflation, exchange rates, seasonality and economic cycles, consumer confidence, consumer purchasing power and discretionary incomes. Social factors that affect demand for products and services, consumer attitudes, tastes and preferences like demographics, social influencers, role models and shopping habits. Technological advances, including innovation, new scientific discoveries, developments or breakthroughs that create opportunities for new products, improved production processes or new ways of transacting business. Examples include new materials, new ingredients, new types of machinery, new packaging solutions, new software and new intermediaries. A number of variants of the PEST analysis have be identified in the literature, the most common of which is the PESTLE analysis, meaning Political, Economic, Social, Technological, Legal and Environmental. Legal separates laws, regulations and directives from the political analysis. This can be because regulations, standards or specifications in many countries are developed by non-governmental organisations, such as trade associations and standards organisations. Environmental factors are becoming much more important for many companies and industries, particularly when considering climate change, pollution, waste management and corporate environmental responsibility. When performing a PEST analysis, planners may need to consider the business environment at three levels: international (supranational), national and local (subnational). Which of these will depend on the size of the company and its reach in the marketplace. As businesses become more globalised, they may need to pay greater attention to the supranational level. Further information about performing both SWOT and PEST analyses and what to do with the results is included in Chapter 14. Another tool used by strategic marketing planners is a gap analysis. This is a type of higher order analysis that seeks to identify the difference between the company’s current strategy and its desired strategy. This difference is sometimes known as the “strategic gap”. Henry Mintzberg2 categorises the strategic gap as the difference between deliberate strategy and inadvertent strategy. The first represents the company’s strategic intent or desired path, while the second represents the path that the company may have followed as it adjusted to environmental, competitive and market changes. This can also be described as intended strategy versus realised strategy. The gap analysis

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indicates whether an organisation has strayed from its desired path during the planning period. The presence of a large gap may indicate that the organisation has become stuck in the middle, a recipe for strategic mediocrity and potential failure. Each of the preceding analyses requires the collection of a large amount of information in order to identify whether potential deals might be exploitable or achievable in a company’s target market(s). Methods of locating and collecting this information are the subjects of Chapters 4, 6 and 7. The analysis enables deals to be opened. In getting a customer or prospective customer to agree to a purchase (in the jargon of salespeople, getting to “yes”), effective salespeople use a number of closing techniques. Although there are a large number of possible closing techniques, John Fenton1 found that only six of these techniques are used most frequently by the salespeople he surveyed in the late 1980s. Because sales methods depend on the type of customer and the industry or market in which they are located, the closing techniques are generally separated into those used most often for retail customers and for industrial customers. (The characteristics and buying behaviours of retail and industrial customers will be described and discussed in Chapters 3, 6 and 7.) As illustrated earlier, simple purchases by individual retail customers rarely involve a salesperson. More complex purchases with retail customers, particularly for more expensive products or services such as houses, cars or holidays, may involve some of the selling and closing techniques used by technical salespeople. For industrial customers, the six most used closes are: • The Alternative Choice Close: Favoured by 74% of technical salespeople surveyed. Examples include “Do you want us to commission the equipment or will your engineers do it?”, “Do you want it delivered on Tuesday or Wednesday?”, “Do you want us to send you an invoice before you transfer the funds electronically?, “Do you want the oil delivered in bulk or in drums?” and “Do you need single-phase or three-phase power supply?”. • The Concession Close: Used by 9% of technical salespeople. For example, “If we can get you a delivery a week earlier, can I have your order today?”, “If I can persuade our blending plant to order drums in your house colour, do we have a deal?” and “If I can shave another 2.5% off the price, can we go ahead?”. • The Summary Close: This is used by 7% of technical salespeople surveyed. It is a particularly good method for overcoming the “I want to think it over” objection. For example, “Let’s summarise what we’ve covered today, including the performance of the equipment, the operator-training programme and the acceptance of your workforce, and I think you said that everyone is more than happy on this point. Am I correct? We’ve covered the running and maintenance costs, and you agreed that they are lower than any of the alternative solutions you’ve been considering. Also, the total costs are well within your budget. So, if all that is okay, can we go ahead, then? Can you get me an order number so that I can get the ball rolling straight away?” • The Fear Close: Used by 4% of technical salespeople. Normally, this means fear of future price rises. For example: “We expect a 9% price

Fundamentals of Marketing and Selling

increase next month, and the way exchange rates and prices for base oils are moving, I wouldn’t be surprised if this puts finished lubricant prices up another 6%. I think I can hold the price we’ve quoted until the end of this month, but to be absolutely sure, it would be better if you confirmed the order today. Can you do that?”. Or: “What would be the cost in lost production if your old compressor breaks down in the next month? If you order today, we will be able to deliver the new compressor and have it installed by the end of next week”. • The Verbal Proof Close: This is used by 3% of technical salespeople surveyed. For example: “I understand that you want to think about this. We had a very similar situation some months ago at Universal Manufacturing. After considering whether to use our lubricants, their works manager found that their oil inventories are a third lower because of our twenty-four hour delivery service and they get better tool life. I’ve got a copy of a thank you letter their Chief Executive sent us. Would it help you to decide if I had a word with them and arranged for you to talk to your opposite number? Every week you think about it could be costing your company money”. • The Straight Close: Also known as the One-Two Close. “Are you happy with everything? Yes. Good, can we go ahead then?”. For retail customers, the six most used closes are: • The Order Form Close: This is used by 65% of retail salespeople surveyed and applies most often when suppliers sell to retail shops. It is the nearest to an automatic close that any retail business-to-business (b2b) salesperson can get. The salesperson has an order form, with entire range of products pre-printed, on a clipboard and a copy of the previous month’s order. The salesperson starts by checking the store’s stock (most usually stored on a computer) and product displays, in conjunction with either the purchasing manager or the store manager, checking which products are selling well and which would benefit from more marketing effort. They then agree on how much of which products need to be ordered for the following month. They can also discuss any new products and the marketing efforts that are going to be implemented to encourage sales. All that then needs to be done is the store manager to sign the order form. In a great many instances now, with established supplier/customer relationships, this ordering process is done by electronic transfer between supplier and customer, with no need for a salesperson to go to a retail store. So, this type of close is generally used when developing a new supplier/customer relationship. • The Alternative Choice Close: Used by 16% of retail salespeople surveyed. Examples in the retail market are, “Would you like six cases or eight?”. Or, “Shall we deliver this week or would you prefer some of the order next week?”. • The Summary Close: This is used by 8% of the retail salespeople surveyed and is analogous to the technique described for technical salespeople. • The Fear Close: Used by 6% of retail salespeople.

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• The Concession Close: This is used by 4% of the retail salespeople surveyed. • The Straight Close: Again, this is the simplest way of asking for an order. It is important for salespeople to remember that asking for an order has never caused a fatality and is probably one of the safest activities anywhere.

2.5 SUMMARY This chapter has set out the case for marketing being the activity tasked with finding prospective customers in target markets and opening up possible deals with both existing customers and prospective customers. Conversely, selling is the activity tasked with closing those potential deals and keeping customers content and ready to purchase further products and/or services. There are a number of methods that marketing and sales people can and should use to achieve the above aims. They are common to almost all marketing and selling situations, so they can be considered as fundamental. It is also evident that marketing and selling are opposite sides of the same coin. Marketing and sales people need to work cooperatively, supporting each other’s activities and communicating constantly. Marketing staff should be very familiar with selling techniques and salespeople should understand that finding prospective customers involves much more than simply visiting people and companies. The remainder of the book will explore and discuss why marketing and selling lubricants involve much more than just the fundamental methodologies presented in this chapter.

REFERENCES

1. Fenton, John. Close! Close! Close!, Mercury Books Division of W H Allen & Co. PLC, London, 1990. 2. Mintzberg, Henry. The Rise and Fall of Strategic Planning, Prentice-Hall, New Jersey, pp. 24–27, 1994.

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Lubricant Marketing and Sales Channels

3.1 INTRODUCTION Before any company can market and sell products and/or services to any market or market segment, it needs to work out how it is going to access that market or market segment. The ways in which a company accesses a market are known as “channels to market”. Many types of channels can be used by a company. Identifying, evaluating, managing and using one or more channels form part of a marketing and sales strategy. Choosing the right marketing channels will be an important part of achieving maximum profitability and return on investment (ROI). All products and services go through channels of distribution, and marketing depends on the way products are distributed. The route the product takes on its way from production to customers is important because a marketer must decide which route or channel is best for each specific product. The most effective channels to market create utility, improve exchange efficiency and help match supply and demand. They bring suppliers and buyers together. Each channel system has a different potential for achieving sales and incurring costs. The chosen channel will significantly affect and be affected by the rest of the marketing mix. A channel’s vertical dimension (length) is determined by the number of types of participants in the channel. Each type of channel should give a producer greater control over their products’ distribution. Intermediaries stand between producers and final buyers in indirect channels. A channel’s horizontal dimension (width) is determined by the number of participants of any one type on the same level in the channel. The situation varies considerably from one range of products to another. Many manufacturers find it necessary to use more than one type of channel for the same market. Decisions about channel selection affect other marketing decisions, so they are among the most critical marketing decisions. Channel selection depends on the company’s marketing strategy with respect to segmentation, targeting and positioning. Marketing channels should be a vital component in the process of converting potential buyers into profitable customers. Additionally, channel decisions include relatively long-term commitments with other companies. Marketing people should adopt an holistic perspective and ensure that marketing decisions in all these different areas are made to collectively maximise value. Marketing and selling lubricants require using a number of channels to market, but not all of those are used for other types of retail and industrial products.

DOI: 10.1201/9781003318392-3

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3.2  TYPES OF LUBRICANTS Lubricants can be classified in a number of different ways. One commonly used breakdown is: • • • • • • • • • • •

Engine oils. Gear and transmission oils. Hydraulic oils and fluids. Turbine oils. Compressor oils. General industrial oils. Metalworking and production engineering oils and fluids. Electrical and transformer oils. Greases. Process oils. Other oils.

Another, equally frequently used breakdown groups lubricants by application type: • • • • •

Automotive lubricants. Industrial lubricants. Marine lubricants. Mining lubricants. Aviation and aerospace lubricants.

Both classifications overlap. For example, different types of engine oils are used in all five of the above application groups, as are different types of gear lubricants and hydraulic fluids. Fortunately, for the purposes of marketing and selling lubricants, the strategies and methods can be grouped under two principal headings: • Retail lubricants. • Industrial lubricants. Industrial, marine, mining and aviation oils and greases can be marketed and sold using very similar methods, as this book will explain in this and later chapters. Separate chapters are dedicated to retail lubricants.

3.2.1  Automotive Lubricants The market for automotive lubricants is characterised by only eight main types of products: • Gasoline engine oils for passenger cars. • Diesel engine oils for passenger cars and vans. • Diesel engine oils for trucks and buses.

Lubricant Marketing and Sales Channels

• • • • •

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Multipurpose engine oils for agricultural and construction machinery. Two-stroke engine oils. Automotive gear oils. Automatic transmission fluids. Automotive greases.

These products are sold to two main types of customers: • Retail consumers. • Commercial vehicle operators. As a consequence, the market chain for automotive lubricants is significantly simpler, if slightly longer than that for industrial lubricants. However, regional and national differences are also considerably greater. As a result of the structure of the automotive lubricants market, sales of products are made using two types of marketing channel: • Direct sales to retail consumers, Original Equipment Manufacturers (OEMs) and fleet operators. • Indirect sales through distributors, including commercial distributors. OEMs are represented by manufacturers of all types of vehicles and engines, all of whom buy automotive lubricants for “factory fill”. Examples of OEMs in the automotive market include BMW, Mercedes-Benz, Ford, General Motors, Volkswagen Group, Toyota, Nissan, Citroen and many others. They also buy industrial lubricants, mainly hydraulic, compressor, general-purpose and metalworking lubricants, in order to manufacture the vehicles that use automotive lubricants. Recommendations or approvals from OEMs are critical to success in marketing and selling automotive lubricants.

3.2.2 Industrial, Marine, Mining, Aviation and Other Lubricants At first sight, it may not appear obvious, but lubricants are used by almost all industries in all countries. The number of different industries is nearly limitless, so the numbers and types of lubricants that are used are much larger than for automotive and non-industrial lubricants. Hence, the market for industrial lubricants is considerably more complex than for other types of lubricants. To try to impose some order on this complexity, industries are frequently grouped into a short list of specific sectors: • • • • • •

Manufacturing industries. Fabrication industries. Process industries. Consumer goods retailing. Agricultural industries. Mining industries.

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• • • •

Construction industries. Utility industries. Service industries. Research and development.

Examples of the major types of industries within each of these sectors are shown in Figure 3.1. In Europe, the markets for industrial lubricants are different for each country. For example, Germany, Ireland, Austria and Switzerland are more heavily involved with manufacturing industries, while France, Spain, Ireland, Greece and Turkey have a higher proportion of agricultural industries. Financial and service industries are more important in the UK, the Netherlands, Belgium and Switzerland than in other European countries. The effects of these differences on the balance between automotive and industrial lubricants usage impact the strategies and plans for marketing and selling lubricants in these countries. Some of the industry sectors listed in Figure 3.1 use large volumes of lubricants, while others use very small amounts. For example, manufacturing cars, vans and trucks requires a significant volume of metalworking fluids and pastes, as well as engine and gear oils (for “factory fill”), greases and hydraulic oils (for robots). Conversely, the computers (including automated teller machines (ATMs)) and lifts (in buildings) in banks (finance) use very little lubricants. Other, very big users of lubricants include iron and steel making, mining, chemicals, construction and electricity generation. The global industrial lubricants market is even more complicated by the differences that exist between the industrial development of different countries and different regions. While there are common features, such as the complexity of the market and the need for an extensive product range, Western Europe and North America are significantly more industrialised than Africa or the Middle East. In some cases, historical differences in business culture are an added reason for differences.

FIGURE 3.1  Industry sectors. (Pathmaster Marketing Ltd.)

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While there is a reasonably uniform pattern in Western European markets, there are significant differences in market characteristics, for example, between Germany and the US and between Spain and China.

3.3  CHANNELS TO MARKET A marketing channel comprises the processes, systems, people and organisations required to move a product from the point of production to the point of use. It is sometimes called a distribution channel. Another definition is that marketing channels are the methods used by a manufacturer to bring its products and/or services to consumers. When individual people or companies buy products or services, they almost always enter into an arrangement to exchange money for the product(s) and/or service(s). (The obvious exception is when individual people barter to exchange products or services; companies rarely barter.) These exchanges can be either simple or complex, as illustrated in Figures 3.2 and 3.3. In the simple system, a producer provides products or services to a customer, who pays the producer the agreed price. With more complex systems of exchange, more usually for big purchases and for buying by companies, the producer may be required to provide storage facilities (such as warehousing) and will be involved with promoting the products and/or services. (This is discussed in detail in Chapters 8 and 9.) There are likely to be contacts and negotiations between the producer and the user, which may involve agreements for financing the purchase. The eventual complexity of the exchange is likely to depend on the way(s) in which the products or services are marketed and sold to customers. Because almost all markets need to be segmented (see Chapter 10), a different channel to market may be needed for each market segment. There are four main types of marketing channel, as illustrated in Figure 3.4: • • • •

Zero Level. One Level. Two Level. Three Level.

In a zero-level channel, a producer sells the products or provides the service directly to a consumer, with no involvement with anyone in between. The consumer goes

FIGURE 3.2  Simple system of exchange. (Pathmaster Marketing Ltd.)

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FIGURE 3.3  Complex system of exchange. (Pathmaster Marketing Ltd.)

directly to the producer to buy the product without going through any other channel. This type of channel is used most frequently either when there are relatively few customers or the products or services are easy to distribute. In the first case, products used by a smaller market segment tend to be made for specific types of customers and the products are produced in response to the needs of those customers. An example of this are farmers who purchase their seeds and fertilisers directly

FIGURE 3.4  Types of retail marketing channels. (Pathmaster Marketing Ltd.)

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from manufacturers. In the second case, products and services can be easily sold to a very large number of customers. An example is the sale of computer software to the general public, where the producer can sell the software directly using the internet. With a one-level channel, a retailer is inserted between the producer and the consumer. The retailer buys products from manufacturers and sells them to customers. This channel is most appropriate for manufacturers that produce retail products such as clothes, shoes, furniture, toys and many other goods. Since consumers need more time with these items before they decide to purchase them, it is in the best interests of the manufacturer to sell them to an intermediary before consumers are able to buy them. Consumers also benefit, because the biggest retailers will have lots of products from many manufacturers for the customer to consider. It is also a good marketing strategy for new manufacturers to use an intermediary which has an established brand loyalty, in order to get products to market faster. Amazon is an example of a very successful intermediary between manufacturers and consumers. In a two-level channel, a wholesaler buys the products from manufacturers and then sells them, most usually through several retailers, to consumers. The wholesaler buys and stores very large quantities of products for subsequent delivery to retailers. Buying in bulk secures significant discounts from producers. The wholesaler lowers the sales and service costs for manufacturers, thereby enabling lower buying prices for consumers. Each participant in the channel, the producer, wholesaler and retailer, is looking to make a profit. Sometimes, wholesalers sell products directly to consumers, although usually in bulk quantities. For example, while a retailer might sell packs of four toilet rolls to a customer, a wholesaler will sell twelve packs of toilet rolls to customers who are members of the wholesaler’s co-operative. This channel is most effective for retail products where a wholesaler is able to supply a number of retailers spread over a relatively large geographical area. The storage facilities provided by wholesalers are another important contribution to efficient distribution in this channel. With a three-level channel, there is more than one intermediary before the product can be purchased by a customer. Most often, the additional middlemen are known as agents or brokers. They assist with negotiations between producers and wholesalers. Agents are most useful when a producer needs to get its product into a market as quickly as possible. Agents have specific expertise in knowing which wholesalers and retailers are likely to provide the most efficient and effective ways to get a product in front of prospective customers, particularly in retail markets. Agents will also seek to negotiate lower prices for wholesalers and find new markets for existing products. Because agents have specific expertise in specific markets, they are also able to assist producers in gaining and maintaining a competitive advantage in a market segment. Unlike industrial lubricants markets, there are a very large number of customers for automotive lubricants, spread across many social and financial groups. In general, technical support is only required for OEMs and fleet operators, although an increasing (though still tiny) number of private motorists are becoming more technically demanding. Marketing and selling automotive lubricants to OEMs and fleet operators require similar approaches to marketing and selling industrial lubricants.

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A large number of retail sales outlets sell automotive lubricants, including: • • • • • • • •

Fuel garages. Vehicle service workshops. Oil change workshops. Tyre and exhaust workshops. Supermarkets (including hypermarkets). Specialist motor accessory shops. DIY (do-it-yourself) shops. The internet.

These outlets can be characterised further, as either mass merchandisers or speciality merchandisers. Mass merchandisers are retailers that sell many different products in one location. Examples include department stores, supermarkets, hypermarkets, superstores, one-stop shops, warehouse showrooms and discount stores. These outlets offer a wide range of products in different categories and attract a large number of customers every day. The aim of mass merchandising is to sell higher volumes at lower prices. Products can be groceries, clothing, toys, sporting goods, recreational goods or household items or any combination of these. In addition, mass merchandisers can provoke impulse buying by customers as they look at the shelves closest to the check-out counter. Crossselling can also be achieved in these big shops, thereby generating more revenue. Conversely, speciality merchandisers focus on one type of product or small volumes of a few products. Examples include local convenience stores, franchises, factory outlets, speciality stores and co-operative societies. In the retail lubricants market, vehicle service workshops, oil change workshops, tyre and exhaust workshops and specialist motor accessory shops belong in the category of speciality merchandisers. This is illustrated in Figure 3.5. While all seven retailers listed in Figure 3.5 sell lubricants, supermarkets sell many other types of products, but service workshops sell only products appropriate for vehicle servicing, as do tyre and exhaust shops. The importance of this to marketing and sales strategies and plans will become more apparent in Chapter 6. Wholesalers act as intermediaries between producers and retailers and businesses, by assembling, sorting and grading products in large lots, breaking these into smaller lots and reselling them to retailers or industrial, commercial or institutional

FIGURE 3.5  Other products at retail lubricant outlets. (Pathmaster Marketing Ltd.)

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businesses. In doing so, wholesalers do not change any of the products they buy and resell. Wholesalers are different to distributors or agents, as will be explained later in this chapter and in Chapter 7. Historically, wholesalers were closer to the markets they supplied than the source from which they bought the products. Now, with the growth of the internet and global supply chains, an increasing number of wholesalers are located nearer to manufacturers in Asia, particularly China, Taiwan, Thailand, Vietnam, India and Malaysia. The functions of a wholesaler include buying, selling, management, promotion, research, financing, budgeting, negotiating, storage, security, risk-taking, inventory control, transportation and pricing. Wholesalers tend to be more important in indirect retail marketing channels. Four main channels to market are used for industrial lubricants: • • • •

The producer’s direct sales force. Distributors. Value added resellers (VARs). Original equipment manufacturers (OEMs).

The activities, responsibilities, organisation, management and importance of salespeople will be discussed and evaluated in Chapters 6, 7 and 13 to 15. Distributors are companies that facilitate the movement of products from producers to customers. They contribute to the efficiency of supply chains, by reducing the number of contacts between producers and customers, as illustrated in Figure 3.6. The illustration is a very simple one, showing relatively few contacts due to the

FIGURE 3.6  How intermediaries contribute to efficiency. (Pathmaster Marketing Ltd.)

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limitations of space. Distributors become more important, as described earlier in this section, when there are perhaps five producers and several thousand potential customers. However, some manufacturers consider distributors as a cost rather than a contribution to profits. Because a distributor requires a profit margin, a manufacturer must sell to them at a price lower than would be achieved by selling direct. Also, distributors generally sell both complementary products and similar or identical products from competing manufacturers. In developing a marketing and sales strategy for a product, a marketing department, in discussion with senior management, should evaluate whether or not to use a distributor. The manufacturer should ask what marketing and sales functions, such as quick delivery or exceptional service, will be critically important to the success of the marketing strategy. Then, which of these functions involves a weakness in the company, either because of scarcity, such as financial resources, manpower, expertise or time, or of opportunity trade-offs in terms of more effective use of assets in other marketing campaigns. If a distributor is able to provide this assistance to the marketing strategy and plan, a decision to use these services is likely to be more realistic, objective and unbiased. Distributors will be evaluated for what they can contribute, not for what they will cost. Both sellers and buyers can benefit from the use of distributors. The benefits to a seller are that the distributor carries product inventory, combines supplier outputs, shares the credit risk, shares the selling task, is able to forecast market needs, can provide market information and should provide enhanced customer service. Buyers, usually retailers, benefit when the distributor provides a range of products, can provide local credit, assists with buying decisions, anticipates buyers’ needs, provides product information, provides fast delivery and enhances customer service. Conversely, there are several disadvantages to using a distributor. A producer is further away from customers and distributors can mask true customer needs and accurate market information. Exclusive distribution can limit customer choice. Too many distributors can provoke intense competition. Problems may arise when there are mixtures of different types of distributors in multiple distribution markets. Additionally, marketing people need to be careful when evaluating the suitability of generalist versus specialist distributors. Increasingly in retail markets, larger companies have become vertically integrated in distribution, as illustrated in Figure 3.7. Supermarkets and hypermarkets, for example, now sell their “own brand” products, particularly groceries and clothes. They have become wholesalers, distributors and retailers. In this specific case, the supermarkets and hypermarkets contract other producers to supply products, which then compete with the producers’ own products. In the last few years, many of the biggest producers of lubricants have begun to sell gasoline and diesel engine oils, two-stroke oils and automotive greases directly to motorists using the internet, while continuing to sell through the other channels listed previously and in Figure 3.5. These sales are only to a small segment of the automotive lubricants market. This will be explored in more depth in Chapters 6 and 10. In this instance, these lubricant suppliers are producers, distributors and retailers all in one.

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FIGURE 3.7  Vertical integration in retail distribution. (Pathmaster Marketing Ltd.)

Numerous surveys during the last twenty years have identified the main reasons why producers select one or more distributors. An amalgamation of the results of these surveys is shown in Figure 3.8. The most cited reasons are dependable service and an appropriately large inventory of products. Price, technical capability and a variety of products are less important. Value added resellers (VARs) focus exclusively on one business or market segment. They supply a range of products and services for that segment. They are

FIGURE 3.8  Potential for marketing channel conflicts. (Pathmaster Marketing Ltd.)

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usually able to design, manufacture, assemble or market products and add value to bought-in products. There are several benefits for a producer in using a VAR. These include their specialist industry expertise that they select complimentary products for specific market demands, they provide enhanced product and service image, they have a good knowledge of product performance and their systems are tailored to speciality markets. However, as with some distributors, there are a number of disadvantages when using a VAR. The producer is distant from customers, many customers’ needs are dictated to the producer by the VAR, the results of market research (see the next chapter) and product development are dependent on the VAR, the producer’s profits are lower because of the VAR’s profit margin and customers are able to purchase products in smaller quantities than otherwise. Original equipment manufacturers (OEMs) design, produce, assemble and market consumer and industrial machines, equipment and systems. OEMs include the generally more familiar manufacturers of cars, vans, trucks and buses, including BMW, Mercedes-Benz, Ford, Volkswagen, Toyota, Nissan, Volvo, General Motors, Stellantis (which owns Fiat-Chrysler, Peugeot and Citroen), MAN, Mack, Detroit Diesel and many more. Less well known by the general public are the many manufacturers of industrial machines and equipment. Companies (listed in alphabetical order) such as Alstom, Atlas Copco, Bosch and Bosch-Rexroth, Caterpillar, Cincinnati Milacron, Compair, David Brown, Flender, General Electric, Hansen Transmissions, Hitachi Construction Machinery, Ingersoll-Rand, JCB, John Deere, Kaeser, Komatsu, Liebherr, MAN Turbo, Mitsubishi Heavy Industries, Parker (Denison Hydraulics), Rolls Royce, Siemens, Sullair, Terex, Vickers International and hundreds more. All these companies buy components from many sources. Some cover a range of similar industrial markets and some are competitors and others manufacture complimentary equipment or machinery. For a manufacturer and marketer of lubricants, the benefits of using OEMs include that, in their specific markets, they have an established market image. There will also be a reduced number of sales calls, products are delivered in bulk and there are regular orders and stock turns. All OEMs have established and clearly identified product demands, almost always based on detailed specifications, as will be discussed later in this chapter. Most importantly, OEMs are knowledgeable customers. However, when marketing and selling lubricants to OEMs, there are some potential disadvantages for suppliers. In some circumstances, the technical and procurement departments in OEMs tend to be remote from “real” customers. The profit margins for lubricant suppliers are likely to be lower than they are for other sales channels. There is the potential for reduced brand awareness and image for the lubricant supplier, either because motorists do not know which lubricants are being used in their vehicles or when OEMs sell their “own brand” of oils and greases. Then, there is the competitive tendering for product selection. Also, the lubricant supplier is placing a degree of reliance on the OEM’s marketing and sales skills.

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3.4  DIRECT AND INDIRECT MARKETING CHANNELS Channels to market can also be categorised as either more direct or less direct. This is not quite the same as the simple or complex systems of exchange discussed earlier. More direct channels to market are generally used for industrial products and products delivered in bulk, involving large and/or infrequent purchases. There tend to be fewer customers who buy high unit cost items and usually require customer support (or technical) service. These channels require more control and are sometimes more difficult to handle. Less direct channels to market and generally used for retail consumer products in small packs, where there are large numbers of customers. Purchases tend to be small and frequent, for low unit cost or standardised items. Producers will usually need to provide support to retailers and generally have less control over the purchases. There are many reasons why companies do not sell directly to customers: • Consumers often wish to inspect products before purchasing. • Display facilities would be required everywhere. • Consumers want to have a large variety of products available in a single location. • National distribution systems tend to separate producers from consumers. • Many manufacturers focus on production rather than on marketing and sales. • The growth of specialist wholesalers and retailers. There are almost as many reasons why companies should sell directly to customers: • • • • • •

When there are a few, large customers. It is the shortest possible channel. It maximises information flow between producers and customers. It allows the direct provision of products and services. It enables the direct control of marketing and sales. It maximises the profit potential.

Many manufacturers, particularly the larger ones, serving either or both retail and industrial markets have decided to use both direct and indirect marketing and sales strategies. For example, in the lubricants business, many companies market and sell lubricants using fuel garages, vehicle service workshops, oil change workshops, tyre and exhaust workshops, supermarkets and hypermarkets, specialist motor accessory shops, DIY shops and the internet. They also market and sell to OEMs and VARs, using their own sales force as well as distributors. This use of both direct and indirect channels to market is commonly called “Dual Channel Strategies”, although obviously many different channels are actually used, so it might be better to call it “Multi-Channel Strategies”. It is, however, very important that achieving maximum sales with minimum costs be analysed regularly, to check which channels are working effectively and which could be dropped.

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3.5  FACTORS INVOLVED IN SELECTING CHANNELS TO MARKET The main aims of choosing which channels to use to get a product or service to market should be to maximise sales and minimise costs. The factors involved in achieving these aims are numerous: • • • • • • • •

Financial. Market characteristics: Type, size, concentration. Producer type: Size, output, resources, objectives. Product attributes: Promotion, image, value, shelf-life. Consumer behaviour. Competitive behaviour. Types of intermediates available. Geographical dispersal: Producer, intermediary, consumer.

Additionally, numerous factors affect the retail marketing mix: • • • • • • • • • • •

Appropriateness for target markets. Product and service decisions. Retail pricing strategy. Physical distribution decisions. Retail image and promotional strategy. Merchandising decisions. Financial aspects. Service levels. Ambience and atmosphere. Location. Purchasing decisions.

When a producer decides to use more than one channel, the possible use of one or more distributors becomes an issue. The decision to use independent distributors prompts several other choices regarding the potential relationship. The producer must also decide which marketing functions will be assigned to or shared with distributors, what proportion of the product range will be sold through this channel, what size(s) and type(s) of distributor should be chosen, should exclusive or multiple distribution be used, how should the selling function be divided between distributors and the company’s sales force and what policies must be defined and agreed to ensure an effective, profitable and mutually satisfying relationship. In most cases, a distributor will be expected to carry local inventory sufficient to serve the marketplace. In addition, the producer will often divide existing and potential customers into two broad categories. Those that will be served directly using the company’s sales force, except for emergency deliveries that the distributor will make, and those that will be served almost entirely by the distributor, except for occasional customer support provided by the producer. It has been found over many years that customers handled directly tend to be larger and fewer in number. In effect, most producers select higher value target

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customers and markets with their direct sales force. The remaining accounts are assigned to the distributor, or perhaps allocated, if more than one distributor is franchised in a specific geographic market. The latter approach can become slightly problematic, since a producer cannot legally restrain a distributor from selling to any customer. Together with inventory and sales responsibilities, the distributor will be expected to assume credit liability for those customers who buy through distribution. This often relieves the producer of a problem disproportionate to the sales volume involved. While companies should not make a sweeping generalisation, there is normally a greater likelihood of assuming bad credit risks when dealing primarily with small companies.

3.6  CHANNEL SUPPORT STRATEGIES Two types of marketing strategy can be used by a company to support any of the channels to market: • Push strategies. • Pull strategies. A push strategy involves getting a product directly in front of a prospective customer using whatever methods are appropriate. In simple terms, it means “Taking the product to the customer”. A pull strategy involves motivating customers to actively seek out a company’s product(s). Again, in simple terms, it means “Getting the customer to come to the seller”. Examples of push strategies are: • • • • • • • • •

Cash discounts for wholesalers or retailers. Mailshots to retailers. Retailer or wholesaler competitions. Point-of-sale displays. Incentives for salespeople. Trade shows and exhibitions to encourage retailer demand. Negotiation with retailers to stock products. Packaging design to encourage purchase by customers. Trade advertising.

Examples of pull strategies, conversely, are: • • • • • • • •

Consumer advertising in magazines, newspapers or social media. Word-of-mouth referrals. Price reductions for consumers. Consumer sales promotions. Point-of-sale displays. Linked product promotions. Customer relationship management. Internet advertising.

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Push strategies often require the use of distributors and, possibly, wholesalers. They can work particularly well for lower value items, such as Fast-Moving Consumer Goods (FMCGs), when a customer is standing next to a retailer’s shelf ready to put an item into their basket and ready to make a buying decision on the spot. (This will be explained in depth in Chapter 6.) The term push strategy now broadly encompasses most direct promotional techniques, such as encouraging retailers to stock a product, designing point-of-sale materials or even selling face-to-face. New businesses often adopt a push strategy for their products in order to generate exposure and a retail channel. Once the product brand has been established, this can be integrated with a pull strategy. A pull strategy means that customers actively seek out a product and retailers place orders for stock due to direct consumer demand. It requires a highly visible brand which can be developed through mass media advertising or similar tactics. If customers want a product, retailers will stock it. This is the purest form of “supply and demand”; create the demand and the supply channels will almost look after themselves. There are several advantages to using a push marketing strategy. It is useful for manufacturers that are trying to establish a sales channel and are seeking distributors to help with product promotion. It creates product exposure, product demand and consumer awareness about a product. If market demand is forecastable or predictable, the producer is able to produce and push as much or as little product to consumers. Economies of scale can be realised if the product is able to be produced at scale due to high demand. However, there are also several disadvantages of using a push marketing strategy. It requires an active sales team that is able to work/network actively with retailers and distributors and to establish relationships. It requires a producer to be effective in negotiating with distributors and/or retailers, as producers are the ones asking retailers to stock their products. Demand may not exist among consumers, distributors or retailers, so the producer may be left with products that they are unable to distribute. It requires demand forecasting, which can be hard in a fast-moving market where consumer preferences change quickly. Pull marketing strategies use the opposite approach. The goal of pull marketing is to get the customers to come to a producer, either directly or via retailers or distributors. Common sales tactics used for pull marketing include mass media promotions, word-of-mouth referrals and advertised sales promotions. Pull marketing attempts to create brand loyalty and keep customers coming back, whereas push marketing is more concerned with short-term sales. Companies are able to use pull marketing strategies when customers know what they are looking for or what problem needs to be solved. It is easy to recognise a pull marketing strategy by the amount of advertising being used. In general, push strategies are targeted and pull strategies throw a wide net. Advertising and promotion, discussed in detail in Chapters 8 and 9, whether in newspapers or magazines, or on the radio or television or using social media on the internet, will throw a wide net. Digital mining and analysis allow an understanding of who is receiving and acting on the messages. The initial and effective use of a pull strategy should allow a company to identify and implement subsequent, targeted, push strategies.

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A successful channel strategy will usually have elements of both push and pull promotional methods. If a company starts a new business and intends to sell a product through retailers, it will almost certainly need to persuade outlets to purchase and stock its product. The company will also need to raise brand awareness and start building valuable word-of-mouth referrals. If a product has been designed, developed and manufactured around a customer or application and all elements of the marketing mix have been considered, both of these aspects should be achievable.

3.7  DIFFERENT CHANNEL OBJECTIVES It is very important to understand that each of the participants in a marketing channel has different, and sometimes conflicting, objectives. A diagrammatic representation of potential for conflicts in marketing channels is shown in Figure 3.8. A producer’s channel objectives include: • • • • • • • • •

Market share, by segment. Profit or contribution. Return on investment. Channel member loyalty. Consumer loyalty. Distribution penetration. Inventory carrying support, both by volume and by location. Communications support. Market development.

A distributor’s objectives and requirements include: • • • • • • • • •

Satisfactory stock turn. Gross margin. Return on investment. Promotional allowances. Distribution penetration. Below the line benefits. Distribution exclusivity. Market development. Credit.

An industrial customer’s objectives include: • • • •

Choice. Availability. Value for money. Convenience.

Industrial customer’s expectations for product delivery are to receive the right products, in the right quantities and in the right packages, to have them available for when

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they are required and to be able to obtain information about the progress of an order. Both producers and distributors need to be able to meet those expectations. The way of reconciling and managing the sometimes conflicting objectives is to develop and implement a dual channel marketing and sales strategy, as outlined earlier. Direct sales can be made to large, single customers, to specialised segments, to government agencies, for high value orders and for high levels of customer support service. This strategy will give reduced overheads and greater marketing and sales control. Indirect sales can be made to disperse customers, for relatively simple products, for products sold to specifications and for customers with modest buying potential. Selecting the right distributor depends on a company’s size and type, marketing functions, product range coverage, geographical coverage and marketing and sales policies. While all distributors perform the same primary functions, the relative importance and effort they assign to each is likely to vary. There is also a tendency for distributors to focus on different types of customers, place differing emphasis on price and the number of products stocked. Distributors may also spend different amounts of time on creative versus maintenance selling. Consequently, producers must choose a distributor on the basis of their size and the type of business they conduct. The choice of a distributor depends on the company’s marketing strategy (see Chapter 14). Obviously, if a marketing manager sacrifices a degree of control by shifting some responsibilities outside the company, there should be reasonable assurance that the contracted functions will be performed satisfactorily. The marketing manager must determine which type of distributor is most effective in selling a specific product range, what amount and type of market coverage do they provide and what sales and inventory support can a manufacturer realistically expect from the distributor. As noted above and in Section 3.3, many marketing and sales managers who focus their direct sales efforts on major customers and prospects would like to see distributors actively seeking business from the remainder of a market, including the smaller customers. However, many companies have found that both technical and inventory specialist distributors often direct the majority of their sales efforts towards larger potential customers, ignoring the smaller ones. One channel theory maintains that distributor participation decreases as customers’ buying potential increases. A number of investigations have found there is no contradiction of theory regarding the percentage of purchases going through indirect channels, because the lower revenues from smaller customers is more than offset by the relatively higher revenues from larger accounts, up to some level. As a result, distributors can realise greater sales volume and potential profit, for the same amount of effort and inventory investment, by concentrating on at least medium-sized customers. It has also been found that distributors do not usually engage in market development activities, preferring to direct their sales efforts towards product markets that have already been developed. Consequently, manufacturers cannot rely on distributors to participate in market development, except for the partial efforts of technical specialists. A more realistic expectation for distributors would be that they provide the types of post-development service that customers normally demand from them. When it comes to deciding how many distributors to franchise for a selected market segment, manufacturers will usually let the size and dispersion of a geographic market determine this. Distributors often start out being market specialists, but over

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time develop more into product specialists. If one distributor is clearly dominant in a market with a relatively low potential, the choice of exclusive distribution would be quite logical. However, in major markets, multiple distribution is a common strategy. Also, some countries prohibit exclusive distribution, as a consequence of market competition regulations. A producer should be wary of two potential problems. First, franchising too many distributors in any market simply makes the product range undesirable to all. If the majority of producers in a given industry use three or four distributors to serve a large market, then one would probably be insufficient and seven would be too many. There is no right or wrong answer. Each producer needs to decide based on market and competitor information. The second potential problem involves the mixture of distributors in multiple distribution markets. For example, a manufacturer might consider the combination of a generalist distributor and an inventory specialist distributor, aiming for the broadest possible market coverage. The generalist could be expected to cover smaller customers with a comprehensive product package, while the specialist would pursue major potential customers using a concentrated, priceaggressive approach. However, problems might arise if the two distributors meet too often as competitors for business at medium-sized accounts, as the specialist is likely to consistently undercut the generalist’s prices. Marketing managers cannot always foresee or prevent such problems, but careful analysis during the channel identification stage is likely to pay dividends. The formulation of an effective and workable distributor franchise agreement represents a real challenge to a producer. Some companies will try to anticipate every contingency that might arise during the next ten years, while others will leave too many important variables to chance. The best solution is to define the respective duties of both parties to each other and to their common market, to recognise the rights of both parties and show how these will be protected and, by virtue of the points elaborated, attempt to foresee major potential conflicts and resolve them beforehand. A large proportion of dual channel conflict can be traced back to ambiguity and incompatibility between the goals of the producer and those of the distributor. The results of several surveys, spread over the last thirty years, of the reasons why companies choose a distributor, have been combined and are shown in Figure 3.9.

FIGURE 3.9  Reasons for selecting a distributor. (Pathmaster Marketing Ltd., compiled from numerous sources.)

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Dependable customer service and inventory level are high on the list, while technical capability and range of products are much less important.

3.8  ASSESSING MARKETING CHANNEL EFFECTIVENESS Evaluating the effectiveness of the marketing channels used by a company comes down, ultimately, to money. Unfortunately, determining the financial effects of each channel to market used by a company is particularly difficult, because the channels almost always overlap. It has become well known that many marketing directors and marketing managers recognise that part of the company’s marketing budget is less effective than it should be, but they don’t know which part. The standard strategic profit model used to calculate a company’s return on assets is shown in Figure 3.10. The company’s gross margin, which is the net sales value minus the cost of products sold, will be affected by individual product sales margins, amounts of volume discounts, cost of sales efforts and costs of customer service. Total expenses will include order size-related costs, transportation costs, inventory carrying costs, warehousing costs, trade credit costs and administration expenses. (Marketing managers may or may not decide to include the administration expenses for the company’s finance, production and purchasing departments.) Current assets are product inventory plus accounts receivable plus cash in the bank. These figures will be influenced by inventory holders, financiers of the inventory, payment terms and the number of intermediaries. Fixed assets for the marketing and sales department will include computers, managers and sales representative cars and other ancillary customer support equipment. More details of the methods of financial measurements for marketing and sales are discussed in Chapter 15.

FIGURE 3.10  Assessing marketing channel effectiveness. (Pathmaster Marketing Ltd.)

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3.9 SUMMARY Many ways exist for a producer of products and/or services to access a market or market segment. Many are direct, while others are indirect. Some channels are appropriate for retail markets, while others are only used for industrial (business) markets. Numerous factors can be used to select which channels are likely to be most beneficial for a specific company. In the lubricants business, some channels are linked to the oil and automotive industries and others are linked to the fast-moving consumer goods retail businesses. Channel support strategies need to be aligned closely with the overall marketing and sales strategies, which are described and discussed in Chapter 14. Many companies, including lubricant manufacturers, use a dual channel marketing strategy, combining both direct and indirect marketing and sales. This strategy can enable a broader coverage of target market segments, but can also present management problems, because of conflicting channel objectives. Measuring the effectiveness of channels to market is complex, difficult and may not yield satisfactory insights for marketing directors and managers.

4 Market Research

Understanding Markets

4.1 INTRODUCTION Although many aspects of marketing do not change much over time, other aspects do. Markets themselves change, sometimes very quickly, with new customers, new suppliers and new or improved products. Understanding what is happening in a company’s target market(s) is critically important to devising and implementing achievable business strategies and plans. Market research involves the collection, analysis and understanding of information about current and possible future markets. Markets are usually categorised into three types. Retail markets involve the sale of goods (products) or services to individual consumers (people) through multiple channels of distribution. The term “retailer” is generally used for a provider of products or services who fills the small orders of many individuals, who are end-users. Wholesale markets are where products (but not services) are sold in bulk quantities to retailers. A wholesaler sells goods to businesses, which then sell them on to numerous retailers. It is worth noting here that the lubricants business does not generally involve wholesalers. This will be discussed further later in this chapter. Industrial markets comprise organisations that acquire goods and services, not for their own sake, but to facilitate the supply of other goods and services which ultimately may be bought by retail consumers. Unlike marketing and selling, which focus on the needs of buyers, market research has a wide-ranging brief. Market researchers need to be interested in why a buyer buys and why a seller sells. They are fact finders who seek the most accurate information possible, within imposed constraints of time and money. Their aim should be to reduce a company’s risk by eliminating, or hopefully minimising, the guesswork out of business decisions. Market research and analysis involve finding answers to the following questions: • • • • • •

What is my market? Who are my customers? Where are they located? Who are my competitors? How do I find answers? Where can I get information?

These questions and how to answer them will be addressed in the following sections. DOI: 10.1201/9781003318392-4

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4.2  MARKET RESEARCH PROCESS AND ANALYSIS A company could decide to carry out market research using its own resources. Some of the source information is readily available in the public domain (see Section 4.9). However, researching retail customer attitudes and behaviours may require the use of an independent market research organisation. Retail users of lubricants may not be able to provide accurate or useful information to company marketing or sales staff. Researching industrial markets can be done using in-house resources, although it may be done more quickly and cost-effectively using an independent market research organisation. The first step in the process is to determine why the research is needed. Most usually, research is undertaken to solve a marketing problem. Occasionally, studies are carried out because “it would be nice to know” or “to confirm assumptions” about a market. It is wise to identify the true reason for undertaking the research and it is sometimes difficult to determine the underlying problem which has initiated the enquiry. Without a clear statement of the problem, it is not possible to design a research programme that will lead to a solution. Once the problem has been identified, the cause and effect can be recognised, an objective established and a research plan designed to achieve it. There may also be a number of sub-objectives which must be completed before the broad goal is achieved. These could include: • • • • •

To analyse the trend in a market’s size over the last ten years and to explain it. To identify factors which will or could influence future trends. To forecast the market size for each of the next five years. To assess the share of each supplier to the market. To determine which suppliers’ shares are increasing or decreasing and why.

Completing these sub-objectives may require a detailed investigation. For example, the last of the above sub-objectives is likely to need a study of the sales and promotional methods used by each supplier, such as their product, pricing and delivery strategies and any focus they have on certain markets or specific customers. A market analyst in an independent research organisation should not assume that, when they receive a brief, the problem will have been identified by the contracting company. If the manager who delivers the brief cannot adequately define the problem, the responsibility should be for the research analyst and the sponsor to discuss and jointly define it. It is most important that the final document which the analyst produces is one which leads to effective decisions. In order to achieve actionable research, the analyst and sponsor need to answer the following four questions: • • • •

What is the problem? What is the cause of the problem? What information do I require to find a solution to the problem? What am I going to do with the information once we have obtained it?

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If there is a budget which limits the scope of the study, it must be known at the start. The market analyst should be pragmatic in the selection of a research method, knowing that beyond a certain input of effort (and therefore cost), the increase in volume and accuracy of information which can be acquired becomes marginal. The analyst should also advise the sponsor that a limited budget may affect the quality and accuracy of the information obtainable. Poor research may be worse than no research. It could mislead managers and may prejudice them against ever using market research in the future. The cost of carrying out a market survey is easier to determine if it is undertaken by an independent research organisation, as quotations that define the cost of the exercise are submitted in advance. Estimating the cost of a project carried out internally is a worthwhile discipline, even if sight of those costs is not required by management. Market researchers should recognise that research is only justified if the payback is greater than the cost of the project. Even if the findings lead to a recommendation not to enter a market, the sponsor may be saved a considerable amount of money in investment and management time which could otherwise have been wasted. An estimation of the cost of a research project before it starts gives a perspective against which the expected benefits can be measured. A market research project may also have constraints. Having decided that information is required, the findings might be available very quickly. Analysts should explain to managers what can and cannot be achieved within certain timescales, so they can decide whether they are prepared to accept the inadequacies which result from a tight timetable. Yielding to a demand from management for the results by tomorrow could, like a limited budget, produce incomplete, mistaken results. The scale of a business decision which will be based on the research results must ultimately determine the input of the research time and cost. Generally, a large investment will need a thorough and expensive study. A small investment can only merit a limited study. Unfortunately, the rules are never simple. Management may be forced to make decisions by a certain date. Realistically, the choice may be between no market information or as much as can be found in the allotted time. As long as any deficiencies in the information are qualified, the market researcher will have to learn to live with the constraints of time and cost. The basic market research methodology is therefore: • • • • • •

Define the problem. Set research objectives. Identify information sources. Collect the information. Analyse the information. Report the findings.

Completing the last four of these tasks will be discussed in the following sections.

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4.3  ANALYTICAL METHODS Three main methods can be used for researching a market: • Desk research. • Qualitative studies. • Quantitative studies. The last two methods must be designed and managed appropriately for each specific situation. Desk research is exactly what it implies. It is a search through published information, whether in books, brochures, web pages, magazines, journals or newspapers. It is relatively inexpensive, although it can take up a significant amount of time. Its main problem is that anything you can find out, so can your competitors. In addition, the information available may not exactly fit the parameters of your question about the market. If this occurs, another possible methodology is to use relevant information that the company has already, most often in computer spreadsheets and databases. Some of this information might be out of date and so may need updating. When desk research does not provide adequate market information, the next steps are to use qualitative and/or quantitative studies. Both are best done using expert market research staff, either in-house or from an independent consultancy. In either methodology, it is very important to define exactly: • What information we need to know. • Where and to whom we need to ask. • What we are going to do with the information when we get it. Qualitative studies involve asking people for their responses and attitudes to a particular concept or product, and the reasons for those responses and attitudes, in great detail. These studies need to be carried out by trained interviewers, using a predefined set of questions. They can interview people either individually or in small groups (usually called focus groups of between eight and twelve people). Individual interviews are probably best for business market research, while focus groups are often used for retail consumers. Participants in focus groups need to be selected for their knowledge or attitudes to the product or service being investigated so that they will have some empathy with other members of the group. They may be chosen on the basis of age, sex, marital status, income, lifestyle or experience. Qualitative studies may need to be recorded (audio or video) so that the interviewer can review the responses later, but the interviewer also needs to make copious notes, either by himself or herself or by an accompanying notetaker. This research methodology enables an understanding of consumer attitudes, beliefs and behaviours when buying, but it is unable to tell the number of people who think that way. It allows the identification of how many factors exist in a particular buying decision and to rank them in order of importance. It is also useful for generating

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hypotheses that can then be tested on a larger number of people to validate their accuracy. Quantitative studies are undertaken with large numbers of respondents who are selected to represent approximate proportions of the total population in a target market. This is called a “sample population”. The questions asked in a quantitative study are more definitive than those used in a qualitative study. A sample population is the smallest number that represents the total population, with statistical significance. Statistical accuracy must, therefore, be proportionate. A number of statistical methods are used to determine the level of accuracy of data according to population size and sample size. When preparing a questionnaire for either a qualitative or a quantitative study, it is very important that the questions must be tested beforehand for comprehensibility. Any chance of ambiguity arising from the replies will make the information obtained either less meaningful or even useless. Respondents must be able to understand the words used in the questions and you should not assume that other people use a word in the way that you do. Questions can be asked in one or more of four ways: • • • •

Dichotomous: Yes/no answers. Multiple choice: Which of the following do you buy? Open-ended: Free text answers. Rating scale: How important is this to you?

Qualitative and quantitative research can be carried out in a number of ways. Telephone interviews are a quick and cost-effective way to obtain opinions from a sample of customers. However, in many countries, “cold-calling” people is not allowed unless they have given prior permission to be interviewed by telephone. Some people have expressed their wish not to be “cold-called”. It can also be difficult to reassure people that you are conducting legitimate market research as opposed to trying to sell them something. Postal surveys are good for determining customer satisfaction, beliefs, reactions or attitudes. They may need to be relatively brief, particularly for retail consumers, who are unlikely to want to spend too much time with either yes/no answers or rating scales. It can be difficult to obtain a worthwhile response rate and you do not have any control over the process. Depending on the number of people being surveyed, they can be relatively expensive and you may need to provide an incentive (such as a cash prize or discount voucher) to fill in the questionnaire and post it back. Focus groups are good for identifying issues of concern for retail and (possibly) business customers. (Don’t forget that a group of business customers are likely to be competitors to each other and are unlikely to disclose sensitive information.) They can be open-ended and expose issues of which the interviewer is unaware. However, they probably need to be limited to a maximum of two hours. Also, group discussions may not necessarily be representative of the total population and can be influenced by a dominant member of the group. The results are as reliable as the quality of the participants and the people who run the sessions.

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Personal interviews are best for business customers, particularly those who are long-term customers of your product(s) or services. They allow in-depth discussion of complex issues and enable more control over the responses. If the market research involves a number of business customers, the responses may need to be anonymised or kept confidential, to avoid possible problems of anti-competitive behaviour. Internet-based data gathering has become more common in recent years. While there is an ever-growing amount of information available on the internet (see also Section 4.8), some of it is of dubious quality due to the ways in which it has been collected and analysed by others. The author always tries to cross-check information obtained from the internet with other sources. Also, many companies and people who promote reports, articles or published material on the internet only include limited amounts of factual data, as an introduction to more comprehensive information, for which readers may be asked to pay significant amounts of money or to buy a complete book. Searching for additional information from other sources can be similar to building a jigsaw puzzle from several pieces of information. Effective market research requires experienced people and is likely to benefit from the use of an independent consultancy. Their staff are trained to detect possible errors in the research results. Their independence is reassuring to the people being interviewed. Some desk research in advance of contracting a consulting organisation to carry out either a qualitative or a quantitative study is always worthwhile.

4.4  IDENTIFYING MARKET POTENTIAL In order to determine the potential of a target market, whether retail or industrial, a significant volume of information may need to be discovered. Types of information include: • • • • • • • •

Market size. Market segmentation. Market forecasts. Which features and benefits to emphasise. Product pricing. Which customers/companies are prospects. Who are the Key Decision Makers. Who are the Key Decision Influencers.

Market size is a measure, at a point in time, of the sales (or purchases) of goods or services in a defined area. It is usually expressed either as a monetary value or in units. Sometimes, one of these measures is unsuitable. For example, the monetary value of a market for engine oils in any country takes no account of the numbers or sizes of different engines in retail consumer, industrial, marine, mining, agricultural or aviation applications. The market needs to be segmented in order to determine specific target market sizes. (Market segmentation will be discussed in depth in Chapter 9.) As part of the identification of target markets for engine oils, one type of information could be numbers of cars, vans, trucks, buses, motorcycles, trains, planes, ships and other equipment that has an engine.

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Assessing the market size for services almost always requires the use of monetary value. A market size expressed in the number of jobs would be nonsensical if the value of each job differed widely. For products, unit volume rather than value is a preferable measure, because yearto-year comparisons are possible without the need to adjust for inflation. The measure of unit volume varies from product to product. For lubricants, oils are measured either in litres, gallons or metric tonnes. Greases are measured in either kilograms or metric tonnes. In each specific country or region, market size refers to the value or volume of products or services purchased in a given year. In theory, it can be expressed as an equation:

Production  +  Imports  =  Consumption  +  Exports

For the country or region, the size of the market is the consumption. Unfortunately, the equation does not always balance, most commonly because the production, imports and exports have not been collected (recorded) accurately. In many countries, the data is collected by government departments or agencies and the people collecting the data do not always know which piece of information belongs in which category. An obvious way of correcting the data collection accuracy is to conduct a detailed market survey. For some markets, reasonably accurate data can be purchased from marketing consultancies, although this can be quite expensive. Also, there are circumstances in which the data requires qualifying and/or cross-checking. Market size is a benchmark against which company performance can be measured and goals set. Over a period of time, market size establishes a trend and a pointer to the future. Without knowledge of market size, a company cannot know its market share and, therefore, cannot know whether it is possible or worthwhile to increase it. With a share less than 20%, it is nearly always possible to increase it, particularly if it is less than 5%. In contrast, a share of more than about 30% is likely to attract the attention of market competition authorities and above 50% is almost certain to encourage competitors to try to increase their share. Buyers are likely to encourage competition and support second- and third-tier suppliers to discourage the domination of a market by only one or two suppliers. Companies with market shares of between 15% and 30% often compete with suppliers of a similar size, experiencing fluctuating gains and losses in percentage points as they fight for supremacy. A company which contemplates entering a new market needs to know its size, to decide if its managers’ curiosity is justified. Managers are frequently attracted by markets that are new and growing rapidly. Unfortunately, media hype can lead to a widespread belief that these markets are bigger than they actually prove to be. Some companies misguidedly enter the market and within a short space of time, they discover they have made a mistake. Knowing the size of the target market and trends during the previous ten or more years allows an analyst to attempt to forecast what may happen in the market in the future. Forecasting a market is not as difficult as it may seem at first. Forecasting markets for lubricants is the subject of the next chapter.

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Which features and benefits to emphasise in a target market is discussed in Chapter 19 and product pricing is the subject of Chapter 16. Detailed discussions of which customers or companies are sales prospects, who are the Key Decision Makers and Key Decision Influencers, and why different people can be assigned to each category will be covered in Chapters 6 and 7. Chapter 6 focuses on retail customers and Chapter 7 focuses on industrial customers.

4.5  MARKET DYNAMICS AND CHANGES Market dynamics are those forces that will impact the prices and the behaviours of producers and consumers in a marketplace. These forces create pricing signals which result from the fluctuation of supply and demand for any product or service. Consumers’ emotions and perceptions also drive decision-making, influencing the market and creating price signals. Supply side economic theory postulates that the supply of goods and services is most important in determining economic growth. Demand-side economic theory holds that the creation of economic growth is from a high demand for goods and services. Unfortunately, some economic models cannot capture some dynamics which affect markets and increase market volatility. Consumers’ emotions and perceptions have begun to be better understood using behavioural economic models. Market dynamics are always fluctuating, so it is necessary to constantly re-­ evaluate them before making any investment or business decisions. Demand-side economists believe that, to boost economic activity in a market, a demand should be created. Governments, businesses and people are able to influence markets, by creating demand. With a product or service, when a demand results in more orders, production will be increased, leading to more economic activity (jobs, equipment, ingredients, distribution and many others) and growth. Tax rates, regulations, government monetary policy and prices are all able to influence consumer demand. Keynesian theory considers that demand for products and services can drop and, in that case, the government should intervene with fiscal and monetary stimuli. Supply side economists believe that producing more of a product or service will stimulate demand. The theory postulates that economic growth can be most effectively fostered by lowering taxes, decreasing regulation and allowing free trade. The result is that consumers will benefit from greater supplies of goods and services at lower prices, and employment will increase. This view leads government fiscal policy to be used as a main instrument for increasing the aggregate demand, which is consequently supposed to increase the total production and economic growth. The central tenant of supply side economics is that production is the most important factor in determining economic growth. Behavioural economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals and institutions and how those decisions vary from those implied by classical economic theories. Conventional economic models assume that all people are both rational and selfish. In practice, this is often not the case, which leads to the failure of traditional models. Behavioural economics studies the biases, tendencies and heuristics that affect

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the decisions that people make. This can be used to improve, modify or overhaul traditional economic theories. It aids in determining whether people make good or bad choices and whether they could be helped to make better choices. It can be applied both before and after a decision is made. Behavioural economics is primarily concerned with the bounds of rationality of economic factors, typically integrating insights from psychology, neuroscience and microeconomic theory. The study of behavioural economics includes how market decisions are made and the mechanisms that drive consumers’ choices. In microeconomics, supply and demand is an economic model of price determination in a market. It postulates that, holding all else equal, in a competitive market, the unit price for a particular product, service or other traded item, such as labour or liquid financial assets, will vary until it settles at a point where the quantity demanded (at the current price) will equal the quantity supplied (at the current price), resulting in an economic equilibrium for price and quantity transacted. If the demand or supply changes, whether up or down, this will send a price signal to the marketplace and a different equilibrium price will emerge. The effects of demand and supply on prices are discussed in depth in Chapter 16.

4.6  TYPES OF CUSTOMERS A customer is an individual or a business that purchases another company’s products or services. Customers are important because they drive sales and, therefore, revenues. Without customers, a company cannot prosper or grow. To understand how to better to meet the needs of its customers, the most successful businesses monitor their customer relationships closely to identify ways to improve services and products. The way a business treats its customers can give them a competitive advantage. Businesses often respect the adage “the customer is always right”. This is because a satisfied and happy customer is more likely to award repeat business to companies that meet or exceed their needs. A customer may or may not also be a consumer. The two descriptions are distinct. A customer buys products or services, while a consumer uses them. An ultimate customer may also be a consumer, but may have purchased items for someone else to consume. An intermediate customer is not a consumer at all. This distinction can also be rather complicated, in that ultimate customers of industrial products and services (such as manufacturers, government departments, local councils and military buyers) either use the products and services they buy, or incorporate them into other finished products. They are technically, therefore, also consumers. Customers can be categorised in many ways. Most commonly, customers are described as either retail or business customers. In the market for lubricants, customers are generally categorised as retail consumers (individual motorists), retail distributors, resellers, industrial distributors, companies, Original Equipment Manufacturers (OEMs), government departments or non-governmental organisations. Doing market research involves collecting and analysing qualitative data on customers. An example of the kinds of information that could be collected about retail

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FIGURE 4.1  Analysis of retail customers: example. (Pathmaster Marketing Ltd.)

customers is shown in Figure 4.1. Of course, collecting a lot of data about a lot of retail customers involves a considerable amount of effort. Fortunately for marketing and salespeople, there are numerous sources of compiled information, discussed in Section 4.8. A similar example of information that could be collected about an industrial customer is shown in Figure 4.2. Marketing managers should define exactly what information needs to be collected about each prospective customer, so that market researchers and analysts do not waste the company’s time and money. The golden rule about collecting market information is “let us assume that we have collected the information we think we need and now let us examine what we are going to do with it”. If the examination suggests that the information is unlikely to be of much value, then there is no need to collect it.

FIGURE 4.2  Analysis of industrial customers: example. (Pathmaster Marketing Ltd.)

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An analysis of the business environment is likely to involve information about many factors, including: • • • • • • • • • • •

Economic. Political. Social. Technical. Market size and potential. Customer behaviour. Market segmentation. Suppliers. Distributors. Pricing trends. Demand sensitivity.

All of these factors will be described and discussed in depth in later chapters.

4.7  COMPETITOR ANALYSIS Information about competitors and potential competitors helps a company to protect and grow its business. Just as a company needs to know its strengths and weaknesses, it needs to build a picture of its competitors’ strengths, weaknesses and relationships with customers. This can then be used to compare the performance of the company in the target market versus the competition. Competitor analysis does not just involve other companies offering the same or similar products and service. The complete analysis involves: • • • • •

Direct competitors. Potential competitors. Substitute products. The bargaining power of suppliers. The bargaining power of customers.

For example, in the current market for automotive engine oils, actual competition is increasingly coming from battery-powered electric vehicles and potential competition could come from buses and trains, as more people commute by public transport. Many companies know a great deal about their competitors, by collecting information from many sources, including their sales force. This information can include some or most of the following: • • • • • •

Sales by brand. Market share by brand. Distribution by brand. Pricing by brand. Advertising expenditure. Sales promotion activity.

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• • • • • • • •

Number of salespeople. Attitude to brands. Comparative product performance. Distribution system. Location of factories. Identity of key executives. Observable competitive strategies. Total company profit.

Unfortunately, most companies do not know other information about their competitors, some of which might be important for assessing a competitive position in a market: • • • • • • • • • • • • • • •

Market segmentation method. Trade discount policies. Organisation structure. Sales per employee. Plant capacity utilisation. Types of equipment used. Labour rates. Raw material purchasing methods. Major suppliers. Company policies. Future strategies. New product plans. Motivation of key executives. Profit by market, product and customer. Future investment plans.

Effective marketing and sales strategies and plans might benefit considerably from collecting and analysing this information.

4.8  IDENTIFYING COMPETITIVE POSITION IN A MARKET Competitive activity can have a significant impact on a company’s business strategies and plans. It could affect the effectiveness of a new product launch or an existing product promotion. It could also mean a growing threat to important customer accounts, particularly in industrial lubricant markets, for example. The answers to a number of important questions will provide a good guide as to the competitive position of any company in a target market: • • • • • •

Who are our major competitors? Are they direct or indirect competitors? How big are they? What are their main strengths? Which of them have the biggest growth potentials? Who are their largest customers?

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• Do they have links with their customers that might make it difficult for another supplier to gain market share? • What are their standards of customer service? • What are customers’ attitudes to our competitors? • How much of our business do our competitors threaten? • How do our prices compare with those of our competitors? • How does our customer service compare with those of our competitors? • Which customers might switch between competitors? • Which of our competitors’ customers do we want to acquire? An illustration of identifying a company’s competitive position in a market is shown in Figures 4.3 and 4.4. Figure 4.2 shows a list of some of the above questions and Figure 4.4 illustrates where one company is in relation to a competitor. Obviously, when a company has a number of competitors in the same target market, separate charts will be needed for each competitor, as they are likely to have different strengths and weaknesses. In order to determine where a company ranks in a market, it needs to conduct regular analyses of its strengths and weaknesses. This “position analysis” will involve identifying overall market trends, trends by segments and factors driving the market. In terms of the company’s products, it needs to know: • • • • • • • • •

Sales trends. Market share trends. Trade distribution trends. Pricing. Buyers, distributors, retailers. Operations. Product performance. Product value. Profit analysis.

FIGURE 4.3  Competitive position: key factors. (Pathmaster Marketing Ltd.)

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FIGURE 4.4  Competitive position: example. (Pathmaster Marketing Ltd.)

As part of the internal analysis, a company should know it has the right data in the right format, so that this can be converted into knowledge by analysis. It should conduct a performance audit, to identify where it is winning, where it is losing and why. There needs to be an attitudes audit to determine where it is leading, where it is following and what is being done about this. A strategy audit will establish whether the company is in the right markets and sectors, whether it has clear and consistent strategies and whether these are winners. Additionally, an execution audit will show whether the company is responsive, quick, efficient and cost-effective. A company resources and skills analysis requires a thorough determination of: • • • • • • •

People. Experience. Finance. Facilities. Contractors. Suppliers. Technology.

Likewise, a company product analysis will look at: • • • • • • • • • • •

Performance properties? Features? Price? Service? Benefits? Unique selling point? Why bought? How used? How often? Improvement needed? What and how?

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Information about a company’s competitive position should be used to identify areas for improved performance. For example: • • • • • • • • • • • •

Better quality of service. Awareness of the importance of customer support service. Improved customer focus. Better customer feedback mechanisms. Improved handling of customer complaints. Extent of customer retention. Involvement of customers in the development of new or improved products. More effective pre-sales activities. Improved enquiry and ordering. More effective purchasing and delivery. Better sales follow-up. Improved after-sales support.

Methods for improvement are included in the discipline of Total Quality Management, defined and illustrated in the ISO 9000, 9001 and 9004 and other quality standards. Discussion of these is outside the scope of this book.

4.9  SOURCES OF MARKET INFORMATION Numerous sources of information about markets and customers exist. They are generally grouped under two headings: • Secondary Sources: Published market research reports, government and industry databases, business directories, the internet, government statistics, business surveys, trade journals and newspapers and reference books. • Primary Sources: Customers, industry experts, companies (competitors), professional organisations, government agencies and industry consultants. Customers and industry experts can be very valuable sources of information about markets. The most efficient customers have done their own market research and some of this information is likely to be relevant to a supplier. Industry experts and consultants are likely to have accumulated a vast amount of information about where to search for data. Marketing and salespeople can obtain information about competitors from many different sources. These include: • • • • • •

Customers. Ex-employees. Business directories. Trade directories. Company reports. Annual financial returns.

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• • • • • •

Company literature. Company web pages on the internet. Promotional activities. Media expenditure analysis. Trade journals. Marketing consultants.

Publications, the internet, social media, brochures, promotional material and press releases are readily available sources from which to compile information about competitors. Published industry surveys and market research reports can provide very useful information, although some of these can be expensive to purchase. The accuracy of published information may need to be checked. It is always wise to obtain information from several sources (three is ideal, or more if available), so as to be able to cross-check and disregard information that appears to be either too positive or too negative. Salespeople can find out a lot about their competitors by asking their customers. Questions such as “What are their current prices, discounts and offers? What are their deliveries, promised and actual? Is there any news of new products or services? How does the customer view the quality and performance of their products and services?” could elicit valuable insights. Obviously, a diplomatic approach works best once a strong customer/supplier working relationship has been established. Sometimes, the required customer or market information does not exist, despite intensive searching by market analysts. In these cases there is only one solution: a market survey, as described earlier in this chapter.

4.10  DATA ANALYSIS AND RESEARCH REPORT PREPARATION Analysing the information gained from consumer market research is relatively straightforward. The analyst(s) spend much of their time interpreting group discussions or analysing hundreds of questionnaires generated by large fieldwork programmes. These programmes should have been designed to supply all the answers. With industrial market research, analysts are more often working on a wider range of tasks: • • • • •

The results of desk research. End-user interviews, whether structured, semi-structured or unstructured. Overview interviews, almost always unstructured. Observations. Focus group discussions (occasionally).

Most industrial market research reports draw upon a variety of sources of information. Desk research and fieldwork may be merged within sections of the report to describe a point more fully. An analyst is more usually involved in judgements and interpretations based on limited and pieced-together information. A market researcher is, therefore, faced with analysing data generated from particular research

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techniques and collating and cross-checking the information in a report which meets the survey’s objectives. Desk research generally uncovers large amounts of data, only some of which is relevant. The analyst must first take the numerous types of information and group them into headings appropriate to their possible inclusion and position in a final report. If a problem exists in putting information into a suitable heading, it is probably redundant within the scope of the survey objectives and should be set aside for reference should it be needed later. Data which spans chapters of the report should be cut and pasted into the appropriate sections. The judgements that must be made in this classification and sorting are difficult to delegate. The researcher is the person who must decide the extent to which each piece of information is relevant to the survey’s objectives. The nature of end-user interviews should have been determined at the time the research programme was designed. The larger the survey, the greater the benefits from a structured questionnaire using pre-coded answers. In theory, all answers can be pre-empted, although in practice this is sometimes difficult. For example, precoded answers are easier to establish for the question ‘What did you like?’ rather than for “Why did you say that?” A market researcher needs to be sure, if a question is open-ended, it is to allow for genuine freedom of expression. Analysing the answers to open-ended questions and determining their relevance in a final report can prove difficult. The analysis should establish groups of answers which enable a description of respondents’ attitudes or patterns of behaviour. With the analysis in mind, the researcher should be able to achieve this grouping in a number of ways at the questionnaire design stage. Interviews with people who have an overall view of the market are almost always unstructured, guided by the checklist of open-ended questions. Instead of using a formal questionnaire, the interview is written down, or sometimes recorded or videoed. Fortunately, there are seldom more than a few people who have an overview. Because these interviews often cover a wide range of subjects, it is not always possible to classify data under the chapter headings of a report. Consequently, a market researcher should take one subject at a time, extracting bits from each interview to build up a complete picture. Focus group discussions present an analyst with difficulties of both analysis and interpretation. Listening to and transcribing the discussion is time-consuming. Where there have been a number of groups, it is useful to have assistance in the transcription from someone who has been well briefed. The transcription should be typed in double-space, with the group leader’s contribution clearly identified. All written market research reports should include the objectives, the research methodology, the findings and the conclusions. The findings require a different treatment from the more usual presentation of statistical or factual data. Under each heading within the findings, there should be a statement of the points which emerged from the study and the level of consensus or otherwise. These points should then be supported by evidence, whether data or direct quotations from interviews, wherever possible identifying the occupation and role (but not the name) of the respondent. The author of the report must be sure to balance the quotes against the issues being

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raised. An isolated response may be extremely valuable and justify a heavy emphasis, but other superficial remarks may not be particularly relevant and are best discarded. The survey results can be confined to the chosen sections of the report, while interpretations of the information might best be included in the section on conclusions and recommendations. Unfortunately, the interpretation of group discussions is sometimes questioned by managers and/or sponsors, as it inevitably contains the analyst’s value judgements. This should not to detract from the credibility of the work, as the judgements are based on a synthesis of all the collected views and statements. It is impossible to develop an objective model which eliminates the judgement of a market researcher when analysing and interpreting qualitative data. If the market research is to have any value, confidence should be placed in the insights, understandings and judgements of the researcher. A market research report should have an introduction, which sets out the objectives and methodology of the research, sections pertaining to each subject covered by the study and a final section with conclusions and (possibly) recommendations. Every report has a purpose and an audience, so must be written with these two factors very firmly in mind. All market research reports aim to communicate data, though some may also hope to persuade and advise. A report is the compilation of the many findings which answer the objectives set out in the original proposal. A report is the final product of the researcher’s work. Consequently, market researchers are concerned with seeking information to meet one or more objectives and assembling the findings into a report. An analyst’s role in business is to produce reports which are principally judged by their quality, their format and their contents. Industrial market research reports are different from consumer (retail) market research reports. A quantitative consumer market research report may comprise mainly tables with very little narrative. An industrial market research report contains a good deal of narrative with comparatively few supporting tables and figures.

4.11 SUMMARY Market research involves asking the right questions of the right target audiences, in order to acquire the most accurate and useful information about customers, competitors and markets. Sometimes, this involves simply collecting and analysing information that is already available. On other occasions, it may require preparing detailed questionnaires and conducting in-depth interviews. Understanding customers, competitors and markets is the first step in developing and implementing a sound business strategy to access and profit from one or more target markets. When considering market research, it is imperative that marketing directors, managers and analysts should first assume that all the information they think they need has been collected and analysed and then ask themselves what they are now going to do with that information. Only then will they be able to decide that they don’t actually need some of the information they thought they needed. Then, the work of strategic planning can begin.

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5.1 INTRODUCTION A forecast is a view of the future. Business decisions rely on a forecast. The object of forecasting should be to use information and judgement to minimise uncertainty and to identify and evaluate risk. Unfortunately, a number of the forecasts companies or people are obliged to make will prove mistaken. This does not invalidate the case for basing decisions upon forecasts. Forecasts of some kind are likely to help as a means of determining a future course of action. People generally try to survive and improve, relying on an ability to foresee the consequences of their decisions. In that sense, everyone is a forecaster. Forecasting is an essential discipline in planning and running a business. Success depends, to a large extent, on getting these forecasts right. Many people believe that the future is highly uncertain. Everyone knows that everyone is regularly confronted with uncertainties, so there is a real possibility that they will not make the right decisions. Companies are confronted continually by the need to make decisions. The business environment is changing constantly. Governments and their policies change, new national laws and regulations are introduced, competitors introduce new products or services, customers demand new products or services and global supply chains are disrupted. Some of these changes are unknowable, although some can be foreseen. All companies need to forecast the future level of their sales and revenues. This will require market research to establish the size of and trends in the market, its growth potential, the company’s competitors and the numerous other factors described in the preceding chapter. All businesses will be affected by changes in taxation and interest rates. It is therefore essential to have an understanding of the causes of cyclical fluctuations and to make allowances for those potential variations in building up a set of forecasts.

5.2  METHODOLOGIES FOR FORECASTING Forecasting needs to be approached methodically and scientifically, recognising that some of the information collected by market research may be imprecise. There are few truly dependable sets of statistics describing the past and there can be a wide margin of error in many of the sets in common use. Many people believe that forecasting is more of an art rather than a science. Consequently, the greater a forecaster’s experience and judgement, the better. This does not mean that scientific methods should not be used. The statistical techniques for calculating a trend or a relationship are obviously scientific. DOI: 10.1201/9781003318392-5

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A wide range of business management problems involve forecasting. Forecasts are required not only for the annual budget and the business plan, but also for appraising investment projects, commissioning research, exploiting the results of research, assessing competitors and identifying the potential for acquisitions or divestments. Some business forecasts are derived from a forecast of the country’s economy. A forecast of a specific national market or industry may need to take account of expected changes in national spending power and output. Numerous forecasts are made by banks, stockbrokers and forecasting institutions, and it is possible to use one of these to provide a background forecast for a company’s specific requirements. It is essential, however, for a company to check the assumptions used in a national forecast. It is not difficult to vary some of the assumptions and to modify the statistical picture of the whole economy. Consensus forecasts are also available, compiled from a number of national forecasts. However, these should be treated with caution since the assumptions behind the component forecasts cannot be checked. A forecast of future interest rates may be of use in assisting business decisions. The level of interest rates is the most important factor outside the control of a company. Almost all businesses will be affected by changes in short-term interest rates, either directly or indirectly, because many companies use bank credit to finance all or part of their working capital. Stock and work-in-progress are often paid for from bank loan or overdraft facilities. A rising level of interest rates increases costs while simultaneously tending to depress sales in credit-dependent markets, particularly in end-use retail segments. The overall effect is to produce a protracted slowing of the whole economy with an adverse effect on profits and employment. As a consequence of globalisation and international supply chains, business forecasts need to take a global view of exchange rates, import duties and other tariffs and non-tariff barriers to trade. Global trade in goods and services has increased much faster than national incomes over the last thirty years. Purchasing power parity (PPP) is the estimated exchange rate at which the selling prices of a representative basket of goods and services in two countries are broadly equal. Determining the selling prices in both countries is relatively easy, using government-published indices of consumer prices. The difficulty with PPP is in assessing a starting point, which depends on when the prices in both countries were broadly equal and at what exchange rate. Over a long period of time, at least twenty years, a graph of exchange rate against the estimated PPP should show the phases when the rate is above the PPP to be roughly equal to the phases when it is below the PPP. Consumer price inflation can be forecast with a fair amount of confidence. Where price inflation is higher in one country than in another, its currency will be worth less and its purchasing power will decline. The PPP then provides a useful benchmark of monetary value. Exchange rate movements have an important impact on domestic prices due to the costs of imported raw materials and components. If large enough, changes can be destabilising, distorting business and generating falls in profits, unemployment and recession. Since 1971, movements in exchange rates have been more extreme than with the occasional devaluations and revaluations under the previous fixed exchange rate regime which followed World War II. The bigger the movement in rates,

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the bigger the impact on costs and prices and the bigger the response in changes in interest rates and fiscal policy. A floating exchange rate regime tends to intensify exchange rate fluctuations. The lags between a change in the exchange rate and a change in price inflation are determined by the length of the supply chain from an imported raw material, which may have to be processed, and its movement in and out of manufacturers’ stock and then into the distribution chain. Since some trade prices are on fixed contract, a change in an exchange rate can take up to a year to be reflected in retail prices. This is particularly true of exports of manufactured products where price lists are more likely to be revised at yearly intervals in line with what the specific export market will bear. For international business purposes, it is necessary to construct forecasts for one currency against other individual currencies. Central banks construct a measure of a currency’s movements by compiling an index derived from the daily exchange rates for that currency against the currencies of that country’s main trading partners. These daily figures are weighted by the proportion of its trade against each of its trading partners. The index is compiled by adding the weighted fractions of the trading partner currencies, the end result being known as the trade weighted index. The usefulness of the index is in providing a proxy for the international value of a currency and a measure of the changing competitiveness of that country’s international traders. A long-term historical chart of the index will suggest levels and phases when the currency may have been undervalued or overvalued. When other factors, such as money supply, inflation rates, interest rates, government policy and balance of payments, are taken into account, it is possible to construct a forecast of the trade weighted index and of the principal exchange rates. Climate change is another very important factor in constructing business forecasts. Almost every industry is being affected by global warming, whether on business activities, government policies, finance and insurance, technology developments or consumer behaviours. More data, information and modelling have made forecasting the effects of climate change easier in recent years. It is now becoming increasingly evident that the costs of reducing global warming, mitigating its impacts and adapting to change are likely to increase prices for goods and services over the long-term. Every country’s population and social trends change gradually. Changes from year-to-year are scarcely perceptible and the majority of forecasts pay no regard to these factors. However, over a period of years, the gradual changes add up to something quite significant. The size and age structures of populations change, with important consequences for markets. Equally, social trends, influenced by changing age structures, materialism and political pressures, evolve over long phases. Social change is reflected in lifestyles which also respond to changes in spending power and technology. Forecasts of retail markets need to take account of these subtle changes, constructing predictions of consumer attitudes and spending in addition to social media influences. Individual companies have no control over the spending power of its customers and potential markets. Spending power in a national economy is dominated by households and individual consumers, so personal income is the most important element in spending power. Wages and salaries make the biggest contribution.

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Producers of capital goods sell principally to other businesses. Spending power in those markets is largely generated by company profits and to a lesser extent by funds raised from banks and stock markets. Government spending is another source of spending power, as are companies in other countries which make up the potential export market. Levels of pay are largely determined by supply and demand. (Supply and demand are discussed in detail in Chapter 16.) Where there is a shortage of skilled labour, pay rates will tend to rise faster than average. Across the labour market as a whole, supply is reflected in the figures for the number of people unemployed and looking for work. Demand is indicated by the number of unfilled job vacancies. The balance between unemployment and unfilled vacancies gives a measure of the pressures in the labour market. High unemployment tends to hold pay rates down. An excess of unfilled vacancies will tend to force pay settlements up at a faster pace. The national measures of unemployment and vacancies are far from perfect. Social security policies, which vary from country to country, will have an impact on whether an unemployed person is looking for work. In some cases, persons claiming and in receipt of unemployment benefit are counted, the total being used as a measure of unemployment. One of the main reasons for preparing forecasts is concerned with the outcome(s) of a company’s investment decisions. Major investment projects originate in most cases from a company’s long-term strategy and plans. Plans are constructed to meet the company’s objectives, as defined by the board of directors and senior managers. The strategic plan may identify targets for the return on capital employed, the growth in earnings per share and dividends per share, as well as the prospective share price. It may also include targets for market share of its various products and services and make provision for product development and new products. None of these decisions should be taken in a vacuum. If targets are to be realistic and attainable, allowance has to be made for changes in the operating environment outlined earlier. For example, if price inflation and interest rates have been high, the company will probably have set a high target rate of return on capital employed. Conversely, if there is evidence of a trend towards low inflation and interest rates, then the target rate of return should probably be lowered. If not, the business may suffer from underinvestment, since prospective investment projects will show a lower potential return than the targets laid down by the board. During the last fifty years, one very useful method of forecasting has evolved into a system known as scenario planning. This method involves making assumptions about possible developments in the future and working out what to do if one of those alternative developments was to occur. In business, scenario planning aims to define a company’s critical uncertainties and develop plausible scenarios in order to discuss the impacts and the responses for each one of them. If a company has thought about what could happen, it is more likely to be able to deal with it if it does happen. Most commentators ascribe the development of scenario planning to Herman Kahn through his work for the US Military in the 1950s at the RAND Corporation, where he developed a method of describing the future in stories as if written by people in the future. He used the term “scenarios” to describe these stories. At the same time, Gaston Berger was developing similar methods at the Centre d’Etudes

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Prospectives, which he founded in France. His method, which he named “La Prospective”, was to develop normative scenarios of the future which were to be used as a guide in formulating public policy. During the 1960s, various authors from the French and American institutions began to publish scenario planning concepts. By the 1970s, scenario planning began to be embraced by several large companies, including DHL Express, Royal Dutch Shell and General Electric. The practical use of scenario forecasting to guide strategic business planning was started by Pierre Wack in 1971 in Royal Dutch Shell. The theoretical importance of the use of alternative scenarios, to help address the uncertainty implicit in long-range forecasts, was dramatically underlined by the widespread confusion which followed the first oil shock of 1973. As a result, many of the larger companies started to use the method in one form or another and by 1983 it was reported that “alternate scenarios” were the third most popular technique for long-range forecasting, being used by 68% of the large companies surveyed. The value of scenario planning has been questioned, as there has only been anecdotal evidence offered in support of its value as an aid to forecasting. Most of the evidence has come from Shell and many companies do not make consistent use of the technique. However, taking account of Shell’s well-documented experiences of using it over several decades (where, in the 1990s, Shell’s then CEO ascribed the company’s success to its use of such scenarios), significant benefit can be obtained from extending the horizons of managers’ long-range forecasting in the way that the use of scenarios uniquely does. The process most commonly used by Shell follows six steps: • • • • • •

Determine the drivers for change and define the assumptions. Bring the drivers together into a viable framework. Produce between seven and nine initial mini-scenarios. Reduce these to three scenarios. Draft the scenarios. Identify the issues arising.

The part of the process which is different from most other forms of long-range planning is the actual production of the scenarios. The first stage examines the results of the PEST analysis (see Chapter 2) to determine which are the most important factors that could decide the nature of the future environment within which the company operates. These factors, sometimes called “variables” (because they will vary over the time being investigated), are more often called “drivers” (for change), since this reinforces the forecaster’s commitment to search for those forces that could act to change the future. Whatever the nomenclature, the main requirement is that these will be informed assumptions. Ideally, the first step should be to carefully decide the overall assumptions on which the scenarios will be based. Only then, as a second step, should the various drivers be specifically defined. Many forecasters seem to have problems in separating these steps. Perhaps the most difficult issue is freeing the forecasters from preconceptions. Many will want to look at the medium term, between five and ten years ahead rather than the required longer-term, ten or more years ahead. However, a time horizon

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of anything less than ten years often leads participants to extrapolate from present trends, rather than consider the alternatives which might occur in the future. When, however, they are asked to consider timescales in excess of ten years, they almost all seem to accept the logic of the scenario planning process, and no longer fall back on that of extrapolation. There is a similar problem with expanding participants’ horizons to include the whole external environment. The first stage is also one of selection, because only the most important factors will justify a place in the scenarios. The 80:20 rule also applies, since at the end of the process the attention of senior managers needs to be focused on a limited number of the most important drivers. Experience has proved that offering a wider range of factors simply allows managers to select those few which interest them and not necessarily those which are most important to the company. Also, as scenarios are a method for presenting alternative possible futures, the factors to be included must be genuinely “variable”. They should be subject to significant alternative outcomes. Factors whose outcome is predictable, but important, should be spelled out in the introduction to the scenarios (since they cannot be ignored). The next stage of the process is to link these drivers together to provide a meaningful framework. It may be obvious that some of the factors are clearly related to each other in one way or another. Conversely, some of the possible groups of factors may need to be artificial at this stage. Subsequently, more meaningful links between factors may be found or some of them may be rejected from the scenarios. In the most theoretical approaches to the subject, probabilities are attached to the event strings. This is probably the most (conceptually) difficult step. It is where managers’ and forecasters’ “intuition” (ability to make sense of complex patterns of “soft” data) can play an important role. The intention should be to gradually merge the factors to make between seven and nine larger groupings or “mini-scenarios”. The reason for this may be that it represents some form of limit as to what the participants of the process can visualise. The next action is to identify, very approximately, what is the connection between them. What does each group of factors represent? The fourth stage involves reducing the mini-scenarios/groupings to two or three larger scenarios. There is a practical reason for this, since it has been found that the managers who will be asked to use the final scenarios can only cope effectively with a maximum of three versions. Shell started, more than three decades ago, by building half a dozen or more scenarios, but found that the outcome was that their managers selected just one of these to concentrate on. As a result, the planners reduced the number to three, which managers could handle easily but could no longer so easily justify the selection of only one. As used by Shell in the 1990s, two scenarios should be complementary, as this helps avoid managers choosing just one preferred scenario and reverting into single-track forecasting, thereby negating the benefits of using alternative scenarios to allow for uncertain futures. This is, however, a potentially difficult concept to grasp, where managers are used to looking for opposites. In the Shell approach, the two scenarios were required to be equally likely and between them to cover all the “event strings” or drivers. Ideally, they should not be obvious opposites, so the choice of neutral titles is important. For example, Shell’s two scenarios at the beginning of the 1990s were titled “Sustainable World” and “Global Mercantilism”.

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The scenarios should then be written in the most suitable form for the benefit of the managers who are going to base their strategies on them. Less obviously, the managers who are going to implement the strategies should also be taken into account, because they will need to believe in the scenarios. The form is likely to combine words, graphs and tables of data, with descriptions of the possible alternative futures. The final stage of the process is to examine the scenarios to determine what are the most critical outcomes. These will be the branching points relating to the factors which could have the greatest impact (potentially generating crises) on the future of the organisation. The subsequent strategies will have to address these, because the approach to strategy deriving from scenarios is one which aims to minimise risk by being robust. This means being able to cope safely with all the alternative outcomes of the potential issues. More recently, the scenario planning methodology has evolved into the investigation and development of three potential scenarios: • A most likely case scenario. • A best-case scenario. • A worst-case scenario. When all of the current and possible future drivers of demand have been identified and their impacts on a company have been quantified, they can be combined into a scenario that is considered to be the most likely to occur over the next ten to twenty years. This is not to indicate that this scenario will occur, just that it is more likely than not. The most favourable impacts on the company’s future activities can be combined into the best-case scenario and the least favourable impacts combined into the worst-case scenario. The best-case scenario might describe the results of everything going much better than could be considered, given the current circumstances. Of course, this scenario should not necessarily forecast a supremely golden future in which, for example, all the company’s competitors cease to exist. Similarly, the worst-case scenario should not necessarily forecast an apocalypse which descends into World War III, for example. Fortunately, the future is usually more predicable than many people recognise. In many cases, unless one of the possible changes described above is very significant, a market trend during the last five to ten years (or even longer) is likely to continue for the foreseeable future. This has been particularly true for the lubricants business, as will become apparent in the following sections of this chapter. However, sometimes an event occurs, as the COVID-19 pandemic has illustrated, the effects of which are likely to be very difficult to forecast. Although a future pandemic caused by an unknown new virus was forecast by a number of epidemiological and public health experts, the very significant effects of the SARS-CoV-2 virus on the global economy were certainly not forecast. The expert thinking was that the effects of a new virus would be similar to a human flu, bird flu or swine flu virus. This has turned out to be significantly underestimated.

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5.3  FORECASTING IN THE OIL INDUSTRY The oil industry, and with it the lubricants business, has been beset with problems of forecasting the likely future demand for its products. The sudden and dramatic changes in price or demand for crude oil, whether up or down, experienced in 1973, 1979, 1985, 2008, 2011, 2014 and 2020 have taught many industry analysts one main lesson; expect the unexpected. The variabilities in the price of crude oil are clearly demonstrated in Figure 5.1. The huge variations in the prices of crude oils during the last twenty years, from lows of $18.52 per barrel (bbl) for Brent Blend on 18 January 2002 to a high of $134.12/bbl on 13 June 2008 and back down to $27.76/bbl on 22 January 2016, have been caused by many competing factors. Brent Blend is one of several “benchmark” crude oils. Others include West Texas Intermediate (WTI), Dubai Crude, OPEC Reference Basket, Tapis Crude and Bonny Light. Their prices are all linked by their relative merits and properties in the production of oil products. Although OPEC (the Organisation of the Petroleum Exporting Countries) has tried to keep crude oil prices stable at between $80/bbl and $100/bbl, by agreeing production quotas by member countries, some countries have not always kept to their quotas for geopolitical reasons. At the same time, many countries that produce crude oil are not members of OPEC and tend to produce more when prices are high and less when prices are low. These market responses tend to bring prices back to a more centralised level. Prices for crude oils also influence and are influenced by global and national economies. For example, the financial crisis of 2008 to 2009 had a marked effect on prices, as illustrated in Figure 5.1. From a historical perspective, the episode of rapidly rising and falling crude oil prices was unprecedented in terms of both the speed and magnitude of the movements. Earlier, rapid price rises occurred after the

FIGURE 5.1  Monthly spot price of Brent crude oil, 2006 to 2021. (Pathmaster Marketing Ltd., from data provided by the US Energy Information Administration.)

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Yom Kippur War in 1973 or the Iranian revolution in 1979. The main determinants of the sharp movements in crude oil prices up to the late 1990s were supply shocks. It can therefore be argued that movements in crude oil prices tend to drive the economic cycle, rather than be a consequence of it. The steep decline in oil prices during the 2008 to 2009 recession was triggered by a growing number of signals pointing to a major decline in global economic activity and then exacerbated by the eruption of the financial crisis. The Index of Industrial Production (IIP, excluding construction) fell by about 13% during the recession. This followed the buoyant growth in both global economic activity and crude oil prices prior to the crisis, indicating that there is a strong link between crude oil price movements and the global business cycle. A key factor has also been the more prominent role played by non-OECD countries in driving the global business cycle and determining global oil demand in the presence of limited supply growth. An additional factor, particularly since 2014, has been the growth in the production of shale oil in the US. Shale oil created a boom in US domestic crude oil production, comprising more than a third of the onshore production of crude oil in the lower forty-eight states. As a result, the US became the world’s largest crude oil producer, according to the Energy Information Administration. However, in the last couple of years, it has become evident that shale oil’s era of growth appears to be over. The reason is that even as global oil demand and prices rise, the economics of the shale oil business model continue to not work. The US shale industry has lost hundreds of billions of dollars in the past decade producing oil and selling it for less than it cost to produce. Finally, the COVID-19 pandemic caused a sharp fall in demand for and prices of crude oils at the beginning of 2020. This has now stabilised, with Brent Blend back to $84.98/bbl on 21 October 2021. However, the emergence of further dangerous strains of the SARS-CoV-2 coronavirus in future could again influence the global economy and, with it, the demand for and prices of crude oils. It is quite clear that forecasting the prices of crude oils has been fraught with danger. Since 1980, a number of contributors to the US National Petroleum Refiners Association (NPRA) have attempted to deal with the future demand for US domestic lubricant demand. They provided an excellent framework and testing ground to explore the boundaries of change, the conclusions of which can be grouped collectively into three strategic areas: • Demand growth. • Supply capability. • Base oil quality and performance. Their assumptions fit within one of two broad categories: • Trends continued. • Complex, composite and econometric modelling. Some sets of forecasting assumptions fit both categories. More than half of the forecasters could see nothing more than 1% growth per year, at best, for the US lubricant

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FIGURE 5.2  US lubricant growth versus forecasts, 1970 to 2005. (Pathmaster Marketing Ltd., from numerous sources.)

market. However, when the forecasts are plotted against actual demand, from the time when the forecasts were made, the errors become obvious, as shown in Figure 5.2. To improve on these earlier forecasts, Thom Zaugg and his colleagues in PetroCanada1 developed a method of forecasting lubricant demand which makes use of cumulative probability analysis. The forecasting methodology, which was developed for oil and gas field analysis, is based on cumulative probability theory. It uses outliers (or extremes) as the basis for building scenarios and it weighs the impact of forces which may dramatically change the lubricants business. The author has adapted and refined the methodology and combined it with scenario analysis. It will be explained and discussed in detail in Section 5.7.

5.4  HISTORIC AND CURRENT DRIVERS OF LUBRICANT DEMAND Historically, economic activity has been regarded as the most important driver impacting demand for lubricants. Attempts to link economic activity with lubricant demand have usually been made by reference to either Gross Domestic Product (GDP) or Index of Industrial Production (IIP). The powerful argument which supports the case for making this linkage is that demand for many other products is linked to general economic activity. The link is especially useful when making country-to-country comparisons. Careful analysis, however, suggests that economic activity, however it is measured, is not the only driver of lubricant demand. The progressive divergence between annual growth in US GDP and annual growth in US lubricant demand since

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FIGURE 5.3  US GDP versus lubricant growth, 1981 to 2020. (Pathmaster Marketing Ltd.)

1981 is clear, as illustrated in Figures 5.3 and 5.4. In fifteen years (1981, 1985, 1986, 1988, 1992, 1995, 1997, 1999, 2001, 2003, 2005, 2006, 2007, 2008 and 2018), the economy and lubricant demand moved in opposite directions. In four of the eighteen directionally consistent years, economic growth and lubricant growth differed by multiples. Any general correlation between economic activity and lubricant demand is certainly not a direct one. Many factors which also impact lubricant demand have been examined by a number of analysts in recent years. Nine of eleven key drivers that have been assessed have been found to be linked to the underlying trend of increased performance and quality. The performance and quality trend is, in turn, a function of advancing technology, which places relentless downward pressure on lubricant demand.

5.4.1  Long Oil Drain Intervals and Extended Oil Life An oil drain interval (ODI) is the length of time or number of kilometres or miles between one oil change and the next oil change. In the past for most small engines, the oil was changed at a pre-defined number of miles or kilometres, whether it needed changing or not. Now, for many cars and trucks, the need to change the engine oil is determined by a computer algorithm and depends on how the vehicle has been driven. ODIs can vary considerably depending on the engine, machine or equipment and service. For example, a large diesel engine in central station use, with a relatively large crankcase oil supply, may operate for thousands of hours between oil changes. A steam turbine used for generating electricity may run for several years before the oil needs changing. In these cases, the ODI is determined by regular

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FIGURE 5.4  US GDP versus lubricant growth, 1981 to 2020. (Pathmaster Marketing Ltd.)

testing of the oil and equipment to determine their condition, a methodology known as condition monitoring. Numerous factors can shorten ODIs. These include short-distance driving, highmileage engines, turbo-charged engines, dust, water, flexible fuels, high oil consumption and high oil temperatures. Several other factors can lengthen ODIs, including high-capture efficiency oil filters, long-distance driving, oil and equipment condition monitoring programmes, total fluid management (TFM) programmes and predictive maintenance programmes. Higher operating speeds and temperatures have introduced demands for oils with enhanced oxidation and thermal stability. These trends have required the increased use of synthetic and high-performance engine oils, gear oils, transmission fluids, hydraulic fluids, turbine oils and other oils. These products have excellent oxidation stability, thermal stability and shear stability, so their lifetimes in engines, machines, equipment and systems are much longer than previously. During the last thirty years the increasing requirements for greater energy efficiency, less waste and longer oil lifetimes have exerted considerable downward pressure on the volumes of many types of both retail and industrial lubricants, particularly in Europe and increasingly in North America and Asia.

5.4.2  Low Equipment Maintenance As the costs of servicing and maintaining machines, equipment and systems have risen, many users of these have sought to increase the intervals between maintenance.

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At the same time, equipment productivity and downtime have become important cost issues in industrial manufacturing and transportation. Lubricant condition monitoring and equipment condition monitoring programmes are being used increasingly to predict when maintenance or component replacement is required. These programmes, described and discussed in the author’s second book,1 can be expensive, complex and time-consuming. They are not suitable for all mechanical equipment. Fortunately, for large and expensive machines, items of equipment and systems, they can be extremely cost-effective. Because condition monitoring measures lubricant and equipment parameters to identify trends or changes, the opportunity exists to use the data to predict impending equipment failure. Predictive maintenance analysis uses the measurements to predict when equipment maintenance should be undertaken. Effective condition monitoring programmes allow preventive action to be taken without unplanned downtime, by identifying and detecting equipment failure modes and predicting the rate of progression of deterioration or impending failure. This is called predictive maintenance. The trend analysis, root cause analysis and failure mode and effect analysis methods enable users of lubricants and equipment to predict the future with some degree of accuracy. The approach can also be described as preventative maintenance. The impact on lubricants is that less maintenance means fewer lubricant changes and lower demand for lubricants.

5.4.3 Tight Mechanical Tolerances and Improved Seals With mechanical equipment and systems, tolerances set the allowable deviation from designed dimensions. The use of tolerances helps to ensure that the manufactured components or systems are usable, particularly when the components are part of a larger machine. Not setting a tolerance in a critical area may render a component unusable according to the design intent, as every manufacturing method has a certain level of inaccuracy. For example, turning, shaping, milling and drilling processes in production engineering have average tolerances from ±0.3 to 0.04 mm, while boring has average tolerances from ±0.1 to 0.03 mm and grinding has average tolerances from ±0.04 to 0.004 mm. Defining a suitable tolerance for every component in a machine or system makes sure that the manufacturing company knows to tackle a few specific points in the production process with more attention. This can be the difference between perfectly mating parts and scrap metal. In recent years, more attention has been paid to making machines with tighter and tighter tolerances. This reduces the friction between moving parts, thereby reducing wear, leading to improved energy efficiencies and longer equipment lifetimes. The effect on lubrication and lubricants has been to reduce significantly the levels of blow-by past piston rings in engines in both on-highway and off-highway vehicles and machines, as well as in reciprocating air and gas compressors. The effect is lower oil consumption. Better seal materials and designs have had a similar effect. This driver of lubricant demand is linked to finer mechanical tolerances, but is particularly important

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in turbine, hydraulic and gear systems. Improved mechanical seals have primarily impacted engines, hydraulic systems and compressors, where oil leakage rates are extremely low compared with twenty or more years ago. Lower oil leakage rates also mean lower oil consumption.

5.4.4 Fill-for-Life Lubricants An increasing number of manufacturers and users of lubricants have investigated ways of reducing lubricant usage and saving on maintenance costs by filling their machines or systems with oils or greases for their foreseeable lifetime. These oils or greases are known as “fill-for-life”. Examples include greases used in the wheel bearings and constant velocity joints of cars and vans, fluids used in automatic transmissions and oils used in hypoid gears in vehicle differentials. Obviously, if a system or machine has been filled with lubricant for its lifetime, lower volumes of lubricants are needed. However, the concept can be misleading as, in many cases, fill-for-life fluids are not, in fact, filled for life. Every manufacturer and situation is different. For example, Mazda CX-5 cars require no fluid change for the rear differential, unless it has been submerged in water, it has been used to tow a trailer, driven in sandy, dusty or wet conditions or driven on repeated short journeys. In practice, therefore, if a CX-5 car is driven in nice weather, solely on longer trips on clean roads, the rear differential fluid never needs changing. If the car is used to tow a trailer to a holiday cottage down a dusty road, the rear differential fluid will need to be changed periodically. With modern 6-, 7-, 8- and 9-speed automatic transmissions, the design tolerances and mechanical set-up of the transmission are so precise that, if the transmission develops a fault, it is easier and cheaper to remove the transmission from the vehicle, send it back to the manufacturer for repair and replace it with a new transmission. In these cases, the automatic transmission fluid has lasted the life of the transmission, so it can be described as fill-for-life, even though that life may have been only a few years. In August 2017, Fluitec International released Infinity Fluids’ new turbine oil, a product claimed by the company to be the first of its kind in the market. By effectively removing varnish-producing by-products, Fluitec created a “pure” turbine oil that can dramatically extend the life of the application. Infinity Turbine Oil eliminates the need for varnish mitigation technology during the life of the turbine oil. Its proprietary additive system was designed to not only capture, but also neutralise degradation products to avoid forming deposits. The oil has a Ten-Year Deposit Control Guarantee that effectively backs the turbine oil for years after integration. Fluitec claims that the oil “is the last turbine oil our customers will ever need. As the latest piece of our Fill-for-Life system, it’s not only the environmentally friendly solution but it’s the cost-effective solution as well”. Unfortunately, although it could be better than other turbine oils, it is not really fill-for-life, as a steam turbine would be expected to last for between thirty and forty years. Even so, more fill-for-life fluids in other applications will reduce the demand for oils and greases, so the concept is allied to longer lubricant lifetimes.

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5.4.5 Effects of Current Drivers on Demand for Lubricants Many of the above drivers are also linked to environmental demands, especially where they impact energy efficiency, air emissions, leaks and used (waste) oil. Other significant drivers of lubricant demand are Original Equipment Manufacturers (OEMs) who have required and developed higher performance standards for lubricants. Fuel price increases only accelerate the current trend to improved efficiency. The two factors not related directly to increased performance are vehicle registrations and the impact of increasing world trade. Both of these are within the impact measured by changes in economic activity. The interaction of all these factors can be observed as per capita (person) consumption of lubricating oils and greases. In North America, per capita consumption is four times the world average and is double the average per capita consumption in the European Union. However, the trend line for US per capita lubricant consumption since 1970 has been inexorably downwards, as illustrated in Figure 5.5. A similar trend is observed in France, as shown in Figure 5.6. Whenever economic activity is increasing, the other drivers of lubricant demand are dragging at any prospective increase. This is illustrated in Figure 5.7, which lists a number of selected countries in order of lubricant consumption per capita. India’s lubricant consumption per capita is eleven times lower than that of the US. Developed countries, such as Australia, Canada and Singapore, use a lot more lubricants than developing countries such as Indonesia and Argentina. Although China is now considered to be a developed country, its huge population means that lubricant consumption per capita is comparatively low. The interesting data is that Malaysia uses more lubricants per person than either the UK or France, and not much less than Germany or Russia.

FIGURE 5.5  US lubricant consumption per capita, 1970 to 2020. (Pathmaster Marketing Ltd.)

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FIGURE 5.6  French lubricant consumption per capita, 1993 to 2020. (Pathmaster Marketing Ltd.)

It is worth noting here that some of these countries’ figures have not changed much over the last few years. For example, India’s lubricant consumption per capita was 1.7 kg in 2015 and has risen to only 2.0 kg in 2020. Similarly, China’s lubricant consumption per capita was 5.4 kg in 2015 and is now 5.3 kg. As observed earlier,

FIGURE 5.7  Selected countries lubricant consumption per capita, 2020. (Pathmaster Marketing Ltd.)

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increases in total lubricant demand in many countries are generally outweighed by decreases in total lubricant demand in other countries. The important theme is that each country is different, so forecasts need to be country-specific.

5.5  EMERGING DRIVERS OF LUBRICANT DEMAND To make matters worse, there are a number of emerging new drivers which will begin to impact demand for some lubricants in the next ten to twenty years. All are linked to efficiency and environmental protection.

5.5.1 Climate Change It has become ever more apparent in the last five years that climate change is real and happening now. The latest evidence from the Intergovernmental Panel on Climate Change (IPCC) scientific report is unequivocal. Through its assessments, the IPCC determines the state of knowledge on climate change. It identifies where there is agreement in the scientific community on topics related to climate change, and where further research is needed. The reports are drafted and reviewed in several stages, thus guaranteeing objectivity and transparency. The IPCC does not conduct its own research. IPCC reports are neutral, policy-relevant but not policy-­prescriptive. The Assessment Reports are a key input into the international negotiations to tackle climate change. Created by the United Nations Environment Programme (UN Environment) and the World Meteorological Organization (WMO) in 1988, the IPCC has 195 member countries. The IPCC has three Working Groups, each of which contributes to the Assessment Reports published since 1988. The IPCC is now in its sixth assessment cycle. The Sixth Assessment Report (AR6) will have contributions from its Working Groups plus a Synthesis Report, three Special Reports and a refinement to its latest Methodology Report. The Synthesis Report will be the last of the AR6 products, currently due for release in 2022. The Working Group I (The Physical Science Basis) contribution was published in September 2021, prior to the COP26 Climate Change Conference in Glasgow in November 2021. The headline statements in the Working Group I report are: • It is unequivocal that human influence has warmed the atmosphere, ocean and land. • Widespread and rapid changes in the atmosphere, ocean, cryosphere and biosphere have occurred. • The scale of recent changes across the climate system as a whole and the present state of many aspects of the climate system are unprecedented over many centuries to many thousands of years. • Human-induced climate change is already affecting many weather and climate extremes in every region across the globe. Evidence of observed changes in extremes such as heatwaves, heavy precipitation, droughts and tropical cyclones, and, in particular, their attribution to human influence, has strengthened since the Fifth Assessment Report (AR5).

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According to the report, “observed increases in well-mixed greenhouse gas (GHG) concentrations since around 1750 are unequivocally caused by human activities.” Since 2011 (measurements reported in AR5), concentrations have continued to increase in the atmosphere, reaching annual averages of 410 parts per million (ppm) for carbon dioxide (CO2), 1866 parts per billion (ppb) for methane (CH4), and 332 ppb for nitrous oxide (N2O) in 2019. Each of the last four decades has been successively warmer than any decade that preceded it since 1850. Global surface temperature in the first two decades of the 21st century (2001 to 2020) was 0.99 [0.84 to 1.10] °C higher than 1850 to 1900. Global surface temperature was 1.09 [0.95 to 1.20] °C higher in 2011 to 2020 than 1850 to 1900, with larger increases over land (1.59 [1.34 to 1.83] °C) than over the ocean (0.88 [0.68 to 1.01] °C). It is apparent that human activities will need to change if the effects of climate change are going to be mitigated or reversed. In addition to reduced use of fossil fuels for transportation (see the next section), there will need to be less use of fossil fuels (particularly coal) for electricity generation. This will be reduced demand for turbine oils used in power plants, although it is likely to take some time, possibly until 2040, for the use of natural gas for power stations to be phased out completely. At the same time, demand for gear and bearing lubricants in wind turbines is likely to increase significantly. Demand for lubricants used in hydroelectricity generation may increase, depending on the views of governments and environmental organisations of the merits of hydroelectricity. Demand for hydraulic fluids, compressor oils and industrial gear oils is likely to be relatively unaffected.

5.5.2 Electric and Hybrid Vehicles Increasing numbers of battery-powered vehicles, both on-highway (cars, vans, taxis, trucks, buses and motorcycles) and off-highway (construction, mining, agricultural and forestry machines and equipment), will reduce demand for both engine oils and some of the industrial lubricants used to make conventional combustion engines. Currently, there are two main types of electric vehicles on the world’s roads, plug-in electric vehicles (PEVs, also called battery electric vehicles (BEVs)) and hybrid-electric vehicles (HEVs). A PEV is any vehicle that can be recharged from an external source of electricity and the electricity, stored in rechargeable battery packs, drives or contributes to drive the wheels. An HEV combines a conventional powertrain, usually gasoline or diesel, with some form of electric motor. Three alternative configurations can be used for gasoline-electric HEVs: series, parallel and series-parallel. With series types, the gasoline engine powers a generator, which feeds electricity to either a battery or an electric motor, which then powers the wheels through a conventional hypoid gearbox. The battery can also feed electricity to the electric motor. The speed of the engine is disconnected from the speed of the wheels. In the parallel configuration, either the gasoline engine or the electric motor can drive the wheels, using a double gearbox arrangement. The electric motor is fed from a battery, which is charged separately while the vehicle is stationary. With the series-parallel types, the gasoline engine can either drive the wheels directly or can power the generator indirectly, with the generator feeding electricity

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to either the electric motor or the battery. Again, the electric motor can also drive the wheels, using a double gearbox arrangement. In all three configurations, the gasoline engine can be lubricated using conventional gasoline engine oils. However, the use of newer oils can deliver additional benefits. Hybrid drivetrains take advantage of normal driving to increase efficiency. At lower driving speeds, hybrids can operate exclusively on the battery pack and electric motor. Regenerative braking functions to recharge the battery, by capturing the kinetic energy while slowing down and stopping. Start-stop systems shut down the engine while stationary, cutting down the energy required for idling. Electric-only and gasoline-only power allows the series-parallel design to provide the most fuel-efficient operation. The system can act as a series drive at lower speeds, but then turn to gasoline-only at higher speeds. However, in the parallel and seriesparallel configurations, the gasoline engine is required to “kick in” instantly when the computer control detects the higher speed required. Because response times need to be rapid, lower viscosity engine oils produce less resistance to the engine. Lower viscosity engine oils are also beneficial for the series configuration. Because the engine is not connected directly to the drivetrain, it can be run at a constant speed, to charge the battery pack. Constant engine speed does not put the same stresses on the engine oil as with conventional gasoline or diesel engines operating at variable speeds. Global sales of electric and hybrid vehicles increased significantly in 2021. A total of 2.65 million new PEVs and HEVs were sold world-wide during the first half of 2021, an increase of 168% compared to 2020. However, this increase needs to be put into the context of the COVID-19 pandemic and relative to the low base of the first half of 2020. During the first wave of the pandemic, global sales of electric and hybrid vehicles were down 14% on sales during the first half of 2019, while sales of all vehicles were 28% lower than in 2019. All regions and most countries saw strong increases in electric and hybrid vehicle sales during 2021, with growth rates three to eight times higher than for total light vehicle markets. The strongest growth occurred in Europe, which achieved a 14% share of the global sales of PEVs and HEVs. China now has the largest number of electric and hybrid cars, 5.5 million. A caveat is that half of Europe’s sales are HEVs, compared to 80% pure PEVs outside Europe. The emissions of HEVs depend completely on the charging and driving habits of their users, whatever the manufacturer’s information sheet says. Cumulative global sales of electric and hybrid cars totalled 10.2 million at the end of 2020. At the time of writing (February 2022), it was estimated that the total number of PEVs and HEVs on the world’s roads was around 17 million. However, this is only about 1.4% of the 1.2 billion cars globally. As observed earlier in this chapter, forecasting the future over any period longer than about five years is fraught with difficulty. While the sales growth of electric and hybrid cars is currently very much higher than those for conventional cars, using projected future growth rates, the author estimates that the total number of cars in 2035 could be 1.74 billion and the total number of PEVs and HEVs could be 694 million. This would be 40.0% of the total number of cars, around 50% of which are likely to be hybrid-electric and 50% fully electric. Even when every car sold is either fully

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electric or hybrid-electric, the number of older conventional cars on the world’s roads could still be higher by 2035. Similar observations and conclusions can be made about the world’s trucks and buses. Obviously, these estimates are highly uncertain and will need to be re-assessed every year. The future global and national numbers of electric and hybrid vehicles of all types will depend on the availability of batteries, recycling systems for used batteries and the numbers of charging points for PEVs. Many people in the lubricants business have expressed concern about the future for oils and greases used in cars, vans, trucks and buses. The estimates of future vehicle populations from now to 2035 and beyond should help to allay those concerns. For example, fully electric vehicles and hybrid-electric vehicles will still require the same volumes of greases for wheel bearings as conventional vehicles, and the numbers of these vehicles are forecast to almost double between now and 2035. The same can be said for transmission fluids, almost all of which are likely to be automatic transmission fluids by 2035. The volumes of industrial lubricants (hydraulic oils, compressor oils and greases) used to make electric and hybrid vehicles are unlikely to change much, either positively or negatively, except for the production engineering fluids used to make internal combustion engines.

5.5.3 Hydrogen Power and Fuel Cells It has become increasingly obvious that hydrogen gas has a major part to play in the global drive to decarbonise transportation and heating fuels. This is an evolution, since fossil fuels (coal, oil and natural gas) are hydrogen carriers. It is the hydrogen in fossil fuels which combines with atmospheric oxygen to produce energy. The problem is that fossil fuels also produce carbon dioxide. When pure hydrogen combines with oxygen to produce energy, the only other product is water vapour. Hydrogen is currently produced on an industrial scale, for use in petroleum refining and chemical processes by one of two methods. Steam reforming of hydrocarbons (usually natural gas or coal) or carbon dioxide to produce synthesis gas, a mixture of hydrogen and carbon monoxide, is the precursor to making methanol and other chemicals. The hydrogen produced is also used to make ammonia, by reacting it with atmospheric nitrogen. Catalytic reforming converts petroleum refinery naphtha distilled from crude oil (typically having low octane ratings) into high-octane reformates, which are premium blending components for premium gasoline. The process converts n-paraffins into branched chain iso-paraffins and cyclic naphthenes, which are then partially dehydrogenated to produce high-octane aromatic hydrocarbons. The dehydrogenation also produces significant amounts of hydrogen gas as a byproduct, which is fed into other refinery processes such as hydrocracking. The electrolysis of water is a simple method of producing hydrogen. A low voltage current is passed through the water, and gaseous oxygen forms at the anode, while gaseous hydrogen forms at the cathode. Typically, the cathode is made from platinum or another inert metal when producing hydrogen for storage. This method produces only hydrogen and oxygen. Steam reforming involves the production of significant amounts of carbon monoxide and some carbon dioxide. If these gases are captured and stored (carbon capture and storage, CCS), the hydrogen is called “blue hydrogen”, to distinguish it from

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electrolytic hydrogen which is now called “green hydrogen”. Although the number of facilities currently producing either blue hydrogen or green hydrogen is relatively small, many new projects are being developed. The use of hydrogen as a transportation fuel has a simple basis. The energy density of hydrogen is such that a car can run for 100 km using 100 kg of batteries or 1 kg of hydrogen. Passenger cars are likely to be able to run on just batteries, but it is likely that trucks, buses, trains and other heavy-duty machines will need to use hydrogen power, either alone or in combination with batteries. The hydrogen power could be in the form of either a hydrogen-powered combustion engine or a fuel cell. Hydrogen is an ideal way for storing surplus wind and solar renewable energy that would otherwise be lost. However, the two current problems with hydrogen are the cost of production and the cost of infrastructure. The production cost will fall as the costs of renewable energy, electrolysis (green hydrogen) and carbon capture (blue hydrogen) decrease over time. Hydrogen needs a complete new infrastructure for shipping, delivery and dispensing. The costs and the efficiency losses across this process are significant. Shipping and delivery requires specialty carbon-fibre tanks and compression at 350 bar or 700 bar. Producing liquid hydrogen requires huge amounts of energy. Hydrogen also requires specialty fuelling stations, each costing millions of dollars. Hydrogen fuel cells are getting better, more reliable and lower cost, but there is very little hydrogen infrastructure at present. Most leading hydrogen fuel cell companies have focused on buses, trucks, trains and some marine applications, simply because these applications can be served with centralised hydrogen fuelling infrastructure. Larger scale fuel cells can also be used for power (electricity) generation, although this is likely to become part of the pattern of storage for surplus renewable electricity production, while recognising the inefficiencies of converting one form of energy into another one. The cost of green hydrogen is falling rapidly as the cost of renewable electricity falls and the production of electrolysers moves from bespoke production in highcost countries to mass production. It is likely to become increasingly easy for green hydrogen to substitute for conventional gasoline and diesel fuels. The use of hydrogen as a transportation fuel in combustion engines is unlikely to affect the volumes of engine oils very much, although the properties and performances of oils for hydrogen-powered vehicles may need to be quite different from those of conventional engine oils. With fuel cells, in addition to potentially impacting the demand for engine oils, the use of larger scale fuel cells for power (electricity) generation could impact demand for turbine and other power station lubricants.

5.5.4 Demographics, Economics and Pandemics As noted earlier in this chapter, the COVID-19 pandemic has caused severe shocks to global economics. The effects of this demand and prices for lubricants are discussed in Chapter 16 and the effects on supply chains are discussed in more detail in Chapter 18. Unfortunately, the consensus opinion of virologists, epidemiologists and geneticists is that further pandemics of viruses are inevitable in the future.

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The only questions are when a future pandemic will occur and how medically severe it will be. During periods of increasing country case numbers throughout the COVID-19 pandemic, many governments have encouraged or mandated people to work from home if possible. Obviously, many workers, such as nurses, delivery drivers and shop staff, cannot do this, but many workers, who have access to the internet, can. When many people work from home, car journeys to and from work fall significantly, thereby reducing demand for passenger car gasoline and diesel engine oils. Many people in many countries have found they prefer to work from home for two or three days a week, even if their managers would like them to come into work. Ongoing reductions in demand for lubricants (and fuels) seem likely to continue. Indeed, some workers have found that long daily commutes by car are tiring, so more people are relocating to be within walking or cycling distance from work. The converse of this is when more people work from home and do more of their shopping online, the number of home delivery journeys is likely to increase. This could increase demand for gasoline and diesel engine oils for delivery vans. However, greater numbers of delivery vans are likely to be electric or hybrid, thereby reducing future demand for engine oils, as explained earlier. Of course, as also noted earlier, these trends are likely to occur over a significant number of years, so demand is unlikely to decline rapidly. Another demographic factor in this mix is the potential for future improvements in public transportation, particularly buses and railways. More bus and train travel will reduce demand for passenger car motor oils at the same time as increasing demand for heavy-duty diesel engine oils and railway lubricants. Of course, this is contingent on whether more buses and trains are powered by green electricity or hydrogen fuel cells, either alone or in combination with batteries. The COVID-19 pandemic has had significant impacts on the economies of many countries and has also exposed the fragility of some global supply chains (see Chapter 18) and the cost of transporting goods. Manufacturers and retailers are likely to have to pass on many of the extra costs imposed by the economic impacts of the last few years. Many consumers could experience higher costs for goods and services and reductions in their spending power, in both developed and developing countries. For example, it is possible that some consumers may not be able to afford to buy or run electric or hybrid cars in future, even if the prices for energy do not increase by much. Increasing numbers of people in Africa, South America and parts of Asia may not necessarily raise future demand for lubricants. It is possible, of course, that the impacts of some of these emerging drivers will be relatively minor in the near future.

5.6  FUTURE MARKETS FOR LUBRICANTS Because lubricants are used by almost all industries in all countries, as explained in Chapter 3, the types of lubricants used in almost all markets are likely to be largely unchanged in the future. However, for the reasons discussed in the previous sections, the demand for and hence the volumes of some types of lubricants will change in the future.

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For example, demand for oils used in combustion engines powered by hydrogen or ammonia is likely to increase, probably gradually, as more green hydrogen is produced. Demand for transmission oils and cooling fluids used in electric and hybrid vehicles will undoubtedly increase. Similarly, demand for gear and bearing oils and greases for use in wind turbines is certainly going to increase in the future. Many manufacturers of lubricants have already accepted that demand for oils used in internal combustion engines powered by gasoline or diesel is going to decrease. Another casualty of the switch to electric and hybrid vehicles is likely to be demand for production engineering fluids (metalworking fluids, heat treatment fluids and temporary corrosion preventives) used in the manufacturing of internal combustion engines, depending on increases in the manufacturing of fuel cells. Future changes to the demand for almost all other lubricants and functional fluids, including industrial gear oils, hydraulic fluids, compressor oils, turbine oils, transformer oils and process oils, are likely to depend on the economic, social and other drivers discussed earlier and explored in other chapters. The increases and decreases in demand are almost certain to be country, and even region, specific. One methodology for forecasting these changes in each country or region is explained in the next section.

5.7  LUBRICANT DEMAND FORECASTING 5.7.1 Demand Forecast The forecasting method developed by Thom Zaugg, modified by the author, focuses on a wide range of drivers, all of which could have directionally different outcomes. It then becomes easy to see the collective impact of the total set of demand drivers and allows for rapid testing of various scenarios. The methodology has four steps, which have been used to illustrate how to forecast the US lubricant demand to 2030: • Step 1: Establish a Trends Continued Forecast Range. The range is based on two trends continued forecasts. The trends continued forecast of US lubricant demand to 2030, shown in Figure 5.8, represents the upper limit of the range, while trends continued forecast of lubricant consumption per capita based on the US population forecast (from the US Census Bureau) was used to develop the lower limit of the range. The forecasts for 2030 fall within the range of 6.40 to 7.08 million metric tonnes. • Step 2: Determine an Overall Demand Forecast. The mid-point of the range from Step 1 was used as the start point for this forecast. Each of the drivers of lubricant demand was assessed. Upper and lower ranges were developed for each driver, as well as corresponding estimates of the probability of each factor occurring in the foreseeable future. These are shown in Figures 5.9 and 5.10. It is important to note that the probability estimates for each scenario are illustrations only. Different probability estimates are entirely possible.

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FIGURE 5.8  US lubricant demand trends continued forecast, 2021. (Pathmaster Marketing Ltd.)

• Step 3: Calculate Effects of Probabilities on lubricant demand. The model was used to calculate the effects of the probabilities of the various demand drivers. A Tornado diagram shown in Figure 5.11 illustrates the forecast range for each of the factors used in the sensitivity analysis described in Step 2. (The diagram is called a Tornado because it resembles a familiar weather event.) A cumulative probability chart can also illustrate the impact of the full range of the demand drivers on total lubricant demand.

FIGURE 5.9  US lubricant demand forecast scenario key factors. (Pathmaster Marketing Ltd.)

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FIGURE 5.10  US lubricant demand forecast scenarios. (Pathmaster Marketing Ltd.)

• Step 4: Calculate a Forecast of Lubricant Demand for each of the low, medium and high case scenarios, using the cumulative probabilities of all the demand drivers from Steps 2 and 3. This is most easily done using a spreadsheet in which the cumulative probabilities can be altered (in a “what if” analysis) to evaluate the impacts of each probability in each scenario. This allows the least likely probabilities (on either side of the more likely probabilities) to be tested and, if thought appropriate, ignored. An illustration of this for the US lubricant market is shown in Figure 5.12. In Figure 5.12, for the high case scenario, it was estimated that the total US lubricant market could increase by 0.5% per year, from the low base in 2020 to more near the volumes recorded from 2013 to 2016. For the medium case scenario, the growth rate was forecast to be zero. For the low case scenario, it was estimated that demand would continue to fall by 0.5% per year, even from the low base, to continue the

FIGURE 5.11  US lubricant demand 2020: tornado diagram. (Pathmaster Marketing Ltd.)

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FIGURE 5.12  US lubricant demand scenario forecasts. (Pathmaster Marketing Ltd.)

gradual decline experienced from 2005 onwards. Obviously, these forecasts can be re-calculated every year. If the US lubricant market has rebounded in 2021 towards the 2016 level, a new set of high, medium and low case scenarios will provide a more positive picture. These demand forecasts can be tested against current data from other countries. For example, what if the US per capita lubricant consumption matched the 2020 average of Germany and Japan? How long might this take to occur? Could the US per capita lubricant consumption begin to approach that of Canada? (See Figure 5.7.)

5.7.2 Supply Forecast With regard to lubricant base oil production capacity in North America, there was a considerable divergence of opinion by forecasters from 1980 to 1990. Some analysts believed that capacity rationalisation was inevitable, while others were not sure. It is possible to argue that all the conclusions were valid if they were followed by the statement “it’s just a matter of time”. Thom Zaugg and his colleagues wondered if they could construct a scenario to embrace such divergent points of view. In an effort to address this challenge, they looked at North American base oil production going back over fifty years. They found that North America’s share of “free world” base oil production had plummeted from 70% to 40% during the twenty-year period between 1956 and 1976. This was the period of rapid growth during which world lubricant demand nearly doubled, and additional capacity was built, mainly outside North America, to keep pace with this rapid growth. Between 1976 and 2002, North America’s share of production remained relatively constant. A closer look at base oil production capability showed a relatively stable capacity for Group I base oils, a slight decline in naphthenic base oil capacity and a significant increase in capacity for Group II base oils. Some analysts believed that

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these trends would continue. However, Thom Zaugg thought that the base oil supply question needed to be redefined, because production by viscosity grade and quality is more important than total base oil production. The results from a base oil production study which accounted for more than 80% of North America’s paraffinic capacity found that capacity for high viscosity base oil production was double that of low viscosity neutral base oils in 1990. Significant shifts in base oil viscosity and quality production began to occur in North America following the commissioning of new base oil refineries in Toronto and Lake Charles. By 1998, the Group II base oil production for lighter viscosity grades in North America had doubled. With the concurrent rationalisation of Group I production, Group II base oils accounted for more than 50% of capacity in the 80 to 350 neutral viscosity range by 2000. Six main drivers of base oil production can be highlighted: • Improved energy efficiency in almost all machinery requires lower viscosity lubricants and therefore base oils. • Hydrocracking processes produce superior quality base oils for many applications. • Hydrotreated base oils (Groups II and II) are likely to continue to penetrate traditional solvent refined (Group I) lubricant markets. • Naphthenic base oils are likely to continue to be mainly niche products for specialised applications. • Group I base oils can be replaced by natural oils in biodegradable applications. • Synthetic base oils provide better properties than Groups I, II or III base oils in either or both low-temperature and high-temperature applications. These drivers can be used to calculate a base oil supply forecast for the US lubricant market, using the same methodology as for the demand forecast. An illustration of the scenarios and probabilities for the US base oil supply in the future is shown in Figure 5.13. As before, the probabilities and their effects can be adjusted to reflect changing circumstances in the future. This data has been used to forecast high, medium and low scenario supply of base oils for manufacturing lubricants in the US, as shown in Figure 5.14. In Figure 5.14, for the high case scenario, it was estimated that the total US base oil supply could increase by 0.5% per year, from the low base in 2020 to more near the volumes recorded from 2013 to 2016. For the medium case scenario, the growth rate was forecast to be zero. For the low case scenario, it was estimated that supply would continue to fall by 0.5% per year, even from the low base, to continue the gradual decline experienced from 2005 onwards. Obviously, these forecasts can be re-calculated every year. If the US base oil production has rebounded in 2021 towards the 2016 level, a new set of high, medium and low case scenarios will provide a more positive picture. However, two complicating factors are that there currently is, and has been for many years, a global oversupply of base oils, so that base oils for use in the US can be obtained not only from US refineries but also from many sources in other countries.

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FIGURE 5.13  US lubricant demand base oil supply forecast scenarios. (Pathmaster Marketing Ltd.)

In addition, additives for use in lubricants can also be obtained from many sources in many countries as well as the US. (Global supply chains, including those for lubricants and base oils, are discussed in Chapter 18.) A comparison of the actual and forecast US lubricant demand and the actual and forecast US base oil supply, shown in Figure 5.15, indicates that base oil supply has almost always exceeded total lubricant demand, except for 1996 and 2003. The inclusion of additives, re-refined base oils and bio-based base oils further increases the gap between lubricant supply and demand. It is worth noting here that

FIGURE 5.14  US base oil supply scenario forecasts. (Pathmaster Marketing Ltd.)

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FIGURE 5.15  US base oil supply and lubricant demand scenario forecasts. (Pathmaster Marketing Ltd.)

the US has been a consistent exporter of base oils and additives, mainly to Canada, Mexico, Brazil and Argentina.

5.7.3  Application of the Methodology to Other Lubricant Markets It should be emphasised that the preceding sections are illustrations of how to apply the methodology to forecasting lubricant demand and supply for the whole US market. The methodology can be applied to any other country or any other lubricant market. For example, it could be used to forecast German demand for hydraulic oils, the Japanese demand for hybrid electric vehicle lubricants or the Chinese demand for wind turbine gear oils. Obviously, the demand and supply drivers and their impacts will be different for each country or each lubricant market. What if spreadsheet calculations can be employed for great effect. It should also be emphasised that a forecast is just that. Forecasts need to be updated regularly as circumstances and demand drivers change.

5.8  HOW TO REACT TO UNEXPECTED EVENTS Many organisations have found that scenario forecasting is a very useful way to identify and prepare for “unexpected events”. There are very few events that could be described as totally unexpected. Even the COVID-19 pandemic was not completely unexpected. Virologists, epidemiologists and geneticists had been preparing for a flu-like pandemic for several years, although they did not prepare sufficiently well for a coronavirus pandemic. The speed with which several types of vaccines against

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COVID-19 were developed, tested and implemented was the result of several years of expertly focused research into vaccines and their production and delivery at scale. Scenario forecasting is part of strategic planning, which is discussed in depth in Chapter 14. Scenario forecasting is built on thinking about possible, sometimes highly unlikely, situations or events and then deciding what the organisation could and should do if that situation or event happened in the future. Different situations or events can be positive or negative. For example, what could or should a company do if: • A major breakthrough in battery technology allowed millions more electric and hybrid vehicles to be built. • Rising sea levels caused by climate change flooded large parts of Bangladesh, displacing 50 million people. • The annual rate of building new wind turbines in Europe, North America and Asia increased by 50%. • Israel and Iran engaged in armed conflict, resulting in several other countries deciding to develop nuclear weapons. • All financing, globally, for coal production and use was stopped in 2025. Imaginative thinking and analysis is likely to uncover dozens more possible future situations and events that might need to be planned for. Each manufacturer or supplier of lubricants is likely to need to explore possible business strategies for when an event occurs.

5.9 SUMMARY Forecasting is an essential discipline in planning and running a business. Success depends, to a large extent, on getting these forecasts right. Many people believe that the future is highly uncertain. Everyone knows that everyone is regularly confronted with uncertainties, so there is a real possibility that they will not make the right decisions. Forecasting needs to be approached methodically and scientifically, recognising that some of the information collected by market research may be imprecise. There are few truly dependable sets of statistics describing the past and there can be a wide margin of error in many of the sets in common use. During the last fifty years, one very useful method of forecasting has evolved into a system known as scenario planning. This method involves making assumptions about possible developments in the future and working out what to do if one of those alternative developments was to occur. In business, scenario planning aims to define a company’s critical uncertainties and develop plausible scenarios in order to discuss the impacts and the responses for each one of them. To improve on these earlier forecasts, Thom Zaugg and his colleagues in PetroCanada1 developed a method of forecasting lubricant demand which makes use of cumulative probability analysis. The author has adapted and refined the methodology and combined it with scenario analysis. Many factors affect forecasts. The more general of these include economies, interest rates, exchange rates, inflation and supply chains. With respect to lubricant

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markets, the current drivers of demand that affect forecasts are long drain intervals (ODIs), extended oil lifetimes, low equipment maintenance, tight mechanical tolerances, improved seals and fill-for-life applications. Emerging drivers of lubricant demand include climate change, electric and hybrid vehicles, hydrogen, fuel cells, demographics and pandemics. Scenario forecasting is part of strategic planning, which is built on thinking about possible, sometimes highly unlikely, situations or events and then deciding what the organisation could and should do if that situation or event happened in the future. Different situations or events can be positive or negative.

REFERENCE

1. Zaugg, T D. Forecasting Lubricant Demand, Lecture 3 in “Understanding the Global Lubricants Business” Training Course, Oxford, UK: The College of Petroleum and Energy Studies, November 1997.

6 Consumer Buying Behaviour Retail Lubricants

6.1 INTRODUCTION Understanding consumer behaviour is vital for a retail business, so that it is able to create and develop effective marketing and sales strategies. Retail is the process of selling consumer goods or services to customers through multiple channels of distribution. Retailers usually market and sell thousands of products or hundreds of services to thousands or millions of customers. Because companies make products or offer services for people to buy, all businesses should know as much as possible about who are their potential customers and why they buy products or services. Customers often behave in quite different ways from the ways their suppliers think. Marketing and sales people are likely to find it helpful to be aware of some established generalisations about the way customers decide to buy, before applying new-found techniques to a particular product or business. A consumer is a user of a product or a service, while a customer is a buyer of that product or service. A customer and a consumer may be the same person, but not necessarily. For example, if a mother buys an apple for her son in a supermarket, then she is the customer and her son is the consumer. A customer decides what to buy and completes the purchase. A consumer then uses the product or service for themselves. Conventional descriptions of retail consumer markets often assign a low priority to rational thought. Implicit in the way many companies approach consumer markets is a belief that buying decisions are at least made in a logical sequence. In practice, most retail purchasing decisions involve far less logic than even the most vociferous detractors would argue. Most consumer buying decisions are made at a remarkably low level of consciousness. Some are taken with no apparent thought at all. Buying a chocolate muffin in a coffee shop may be an impulse purchase. Some decisions involve price and money, when comparing which item offers the best value. Other decisions involve considerations of performance, belief, fashion or suitability. Obviously, some retail buying decisions are complex, involving a good deal of logical analysis and considerable financial risk if the wrong decision is made. Examples include houses, cars, colour televisions or washing machines. Very few buying decisions in the consumer market can truly be equated with industrial purchasing decisions and they are the ones that most closely accord with the principle of decision by a buying unit rather than an individual. Buying a colour television is almost always a combined family decision. Retail consumers are different from industrial customers. Marketing and selling to them is different for different types of products. Selling lubricants is not the same DOI: 10.1201/9781003318392-6

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as selling soap powder, milk, apples or chocolates. Newspapers are obviously consumer products but they don’t usually have 5% discount promotions. (They may have other promotions from other retailers, for example, a discount on a holiday when collecting twelve “tokens” from consecutive editions of the newspaper.) Marketing to retail customers involves sending messages to millions of people every day rather than contacting 300 businesses four times a year. Retail consumers can be emotional, unpredictable, instinctive and impulsive. They can be easily confused when faced with shelves full of apparently similar products. Most retail consumers are non-technical and have great difficulty understanding standards or specifications. They are several steps removed from product manufacturers and deal only with retail outlets. They do not have to deal with producers, wholesalers or distributors, except possibly when they have to make a complaint about a defective product or service. (In general, consumer protection regulations in most countries require consumers to complain first to the retailer from whom the product or service was purchased.)

6.2 TYPES AND CHARACTERISTICS OF RETAIL LUBRICANT CUSTOMERS There are many ways in which marketing people can characterise retail customers. Two principal ideas are customer behaviour (including motivations) and segmentation of customers according to common, shared characteristics. To some degree, these ideas are inter-related, but each offers different types of insights into customer behaviour. For example, people who shop for pleasure are known as recreational buyers. Babin, Darden and Griffin1 carried out some of the earliest investigations into retail customer motivations and identified two broad motives: utilitarian and hedonic. Utilitarian motivations are task-related and rational. A customer with utilitarian motives views purchasing as a task that is to be accomplished in the most efficient and expedient way. Hedonic motives refer to pleasure. A customer with hedonic motivations views shopping as a form of escapism, in which they are able to indulge fantasy and freedom. Hedonic customers are more involved in the buying experience. Retailers develop customised segmentation analyses for each unique outlet. (Methods to segment markets are discussed in detail in Chapter 10.) One of the most well-known and widely cited customer typologies is that developed by Sproles and Kendall in the mid-1980s.2,3 Their characterisation of retail customer types has been shown to be relatively consistent over time and in different countries and is based on different customers’ approaches to making purchasing decisions. • Quality conscious or perfectionist: Quality-consciousness is characterised by a customer’s search for the very best quality in products. They tend to shop systematically, making more comparisons and shopping around. • Brand conscious: Brand-consciousness is characterised by a tendency to buy expensive, well-known brands or designer labels. People who score

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high on brand-consciousness tend to believe that the higher prices are an indicator of quality and exhibit a preference for department stores or toptier retail outlets. Recreation conscious (hedonistic): Recreational shopping is characterised by the customer’s engagement in the purchase process. Those who score high on recreation-consciousness regard shopping itself as a form of enjoyment. Price conscious: A customer who exhibits price-and-value consciousness carefully shops around seeking lower prices, store sales or product discounts and is motivated by obtaining what they believe is the best value for money. Novelty or fashion conscious: These people are characterised by a tendency to seek out new products or new experiences for the sake of excitement. They gain pleasure from seeking new things and keeping up-to-date with fashions and trends. These retail customers seek variety. Impulsive: Impulsive retail customers are somewhat careless in making purchase decisions, buy on the spur of the moment and are not overly concerned with expenditure levels or obtaining value. Those who score high on impulsive dimensions tend not to be engaged with the object at either a cognitive or emotional level. Confused (by over-choice): These customers are characterised by being confused by too many product choices, in too many stores or by too much information about competing products. They tend to experience information overload. Habitual or brand loyal: This type of customer is characterised by a tendency to follow a routine purchase pattern on each purchase occasion. They often have favourite brands or stores and have formed habits in choosing. The purchase decision does not involve much evaluation or shopping around.

Some researchers have adapted Sproles and Kendall’s methodology for use in specific countries or cultural groups. Retail customer decision styles are important for retailers and marketers because they describe behaviours that are relatively stable over time and, for this reason, they are useful for market segmentation. Another method of describing retail customers focuses on the behaviours while shopping: • Well-informed: These people have done a lot of research before making a purchasing decision. Marketing managers and analysts should get on to their list of potential products while they are doing their research and provide information that will help them make their purchasing decision. • Showroomer: These customers investigate products in person, but will buy online if they can find a better price. Marketing and sales people should try to shift their focus from price to value, by reminding them that they can

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take home the product immediately, rather than waiting for an online delivery. Marketing and sales people need to check and match online prices. Wanderer: These customers are “just looking around”. Salespeople need to make sure that they feel welcome, let them know they can ask for help and provide them with advice when asked. They should be helped to make a buying decision, but should not be pressurised. On a mission: These customers already know what they want and at what price. Salespeople should make the buying process simple and convenient, give them straight-up answers to any questions, but should not try to up-sell. Confused or indecisive: These people either don’t have enough information or have too much, so they are unable to decide. Salespeople need to find out their specific needs, by asking questions, provide information about the advantages and disadvantages of each product and aim to help and educate the potential customer. Bargain-hunter: These people are driven by price. Salespeople should try to make them feel that they are getting a good deal, sell them on value and higher quality and advise which product will save them money in the long term.

In the lubricants business, one method of characterising retail customers was developed by David Burns4 in Castrol several years ago. He described seven types of motorists and their approach to buying lubricants for their cars: • Passionate: People who have spent a lot of money buying their car, want to make sure that it is maintained to the highest standard and are prepared to pay for everything that is needed to make sure this happens. • Expert: People who are involved in the maintenance of their vehicle and who would probably want to do a lot of this for themselves, rather than pay someone to do it for them. • Diligent: People who are willing to pay for the correct level of service and who would prefer that someone else does the maintenance. • Peace of Mind: People who are willing to pay for some level of service, but who are not really interested in who does it as long as it’s not them. • Dutiful: People whose car is a bit older, who want to maintain it for as long as possible, but who are not really able to pay for a high level of service, so probably do most of the maintenance themselves. • Minimalist: People who will only pay for the minimum level of service necessary to keep the car running. • Lowest Price: People who want to maintain their car but are either unable or unwilling to pay much for servicing. Another set of classifications of retail lubricant customers has slightly different descriptions: • Motoring Enthusiasts: Whether it is changing the oil in a car or paying attention to oil top-up, these people do it themselves, are usually loyal to one brand and are likely to buy higher performance lubricants.

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• Time-Starved Motorists: These people want someone else to do the car’s maintenance, usually as quickly as possible. They want convenience and choice. • Non-Technical Motorists: Because current cars are too complex, these people want an expert to do all the servicing and maintenance. They want service and reliability. • Top-Up Motorists: As this is an emergency purchase, any brand will do from any retail outlet. • Price-Conscious Motorists: These people do their own servicing and, for oil changes, so they will buy the cheapest oil possible. Retail lubricant customers have many distinct characteristics. These range from the type and age of the car they drive, whether it is a Rolls-Royce, Ford, Toyota, Skoda or other make, and what is their main use of the car, business or social, commuting or shopping and long or short distances. Obviously, they can be either male, female, transgender or one of many other groups. Their approach to servicing can be either DIY (Do It Yourself) or DIFM (Do It For Me). Their household income might be high, median or low. The media they use could be television (cable or satellite), radio, newspapers, magazines and/or social media. They may be technophobic or very familiar with many types of technologies. A more detailed discussion of these types of retail customers for lubricants is given in Chapter 10.

6.3  RETAIL CUSTOMER BUYING INFLUENCES Influencing a retail customer to buy a product or service is not always straightforward. It is sometimes difficult to know who is actually the decision maker for the purchase when a customer enters the shop accompanied by someone else. As a consequence, salespeople should assume that everyone who enters a retail shop is a potential customer (known as a prospect). The salesperson might need to determine the age, economic situation and educational status of the prospect. (Their gender, nationality and occupation are likely to be irrelevant.) The location of the customer might be important, since they may have travelled some distance to the shop and might be concerned about returning faulty products. Obviously, their objective in visiting the shop is very important. They might be just looking for new products and may not be considering buying at all. The needs, tastes and preferences of the consumer for whom the products are being purchased drive the buying behaviour of the customer. The pattern of a customer’s buying behaviour can be categorised as: • Place of Purchase: Customers quite frequently divide their place of purchase. Even if all the products they want are available at a shop, they sometimes prefer to visit a number of shops, to compare prices. When the customers have a choice of which shop to buy from, their loyalty does not remain permanent to a single shop. Study of customer’s place of purchase is important for selecting location, keeping appropriate merchandise and choosing a local distributor.

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• Product Purchased: This involves what items and how many units of items the customer purchases. A customer purchases a product depending upon its availability or shortage, his or her requirements, its perishability and storage requirements and ability to pay. This is important for producers, distributors and retailers. Everyday products are bought by a large number of people, while luxury items are purchased by relatively few people. • Time and Frequency of Purchase: Retailers need to keep their working time aligned with customers’ schedules. The time of purchase is influenced by weather, season and location. The frequency of purchase depends mainly on the type of product, the degree of necessity, customer and consumer lifestyles and the degree of influence of the person accompanying the customer. • Method of Purchase: Customers are currently able to pay using cash, a credit card, a debit card (of which there are many types) or direct bank transfer using a mobile phone or other electronic device. For small items, a customer may arrive in a shop on foot or by bus. For larger or more numerous items, they might need to arrive in a car, taxi or van. • Response to Sales Promotion Methods: The more a customer visits a retail shop, the more they are exposed to sales promotion methods. The use of sales promotional devices increases the number of shop visitors-turnedimpulsive buyers. Promotional methods include displays, demonstrations, special pricing and sales presentations. In general, it has been observed that couples buy more items in a single transaction than a man or a woman shopping alone. Many customers devote time for analysing alternative products or services. Also, most customers purchase required and perishable products quickly, but when deciding to invest in consumer durables, they usually try to gather more information about the product. In the past, retail consumer marketing methods focused on detailed planning of product location, pricing and promotion. For example, bread, soft drinks, beer and wine are always at the back of the supermarket or shop and chocolates and magazines are always next to the checkouts. Similar types of products are always in the same aisle, so that consumers can compare pack sizes and prices easily. Promotions are always at the entrance to the supermarket or shop, so consumers can be tempted before they buy what they came to buy. Times have changed with the growth in retail shopping online. Although many of the offline methods are still useful, more and more retail consumers are using the internet. Marketing methods are being updated constantly. Shopping online usually begins with an internet search. At the time of writing (February 2022), there were over 3.5 billion Google searches every day. While Google is the biggest search engine, Bing is the second most used. There are dozens of other search engines, but most are powered by either Bing or Google. For example, Ecosia, Webcrawler, DuckDuckGo, Yahoo Search and Swisscows are powered by Bing and Netscape and Ask are powered by Google. A number of search engines have limited geographical and/or language coverage, while others are focused on specific subjects, such as business, education, enterprise, legal or medical.

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Amazon is another major source of information for online shopping, for both retail and industrial customers. Whether it is searching for products, looking at product reviews or finding locations for bricks-and-mortar shops, it is imperative that marketing managers use the power of the internet to target potential customers. When marketing online, companies should group products of similar value together to enable budgets to be allocated and adjusted in a logical manner. Also, advertisement images should be high-quality and crawlable. Images on a computer screen are the first chance to grab the attention of a prospective customer. The best images have little grain, fine detail and a simple white background so that searchers can focus on the product that’s being sold. Search engine companies have guidelines on the quality of images they accept. Because retail consumer marketing is so competitive, it is very important to include product reviews online. Obviously, products need to be very well-received to earn five-star reviews, which need to be authentic and credible. Surveys have found that almost 90% of consumers say they trust online reviews as much as personal recommendations. A product needs to have at least fifty reviews on one of Google’s third-party approved sites to ensure the reviews show. During the COVID-19 pandemic, in many developed countries, an increasing number of retail customers started buying online, to try to reduce the risk of catching the virus. Retail outlets were forced to adapt, either by expanding their online activities (including home deliveries) or by starting to sell online for the first time. As vaccines became available and more people started to return to shops, once they had received both vaccinations and felt safer, retail outlets had to respond again. The result has been that those retailers that were fastest to adapt became more successful, while other retailers ceased trading. However, some retailers found that some store staff were reluctant to return to their jobs, so a few retail customers have had a less than satisfactory in-person shopping experience. The re-discovery of the pleasures of in-person shopping means that online shopping is unlikely to dominate retail sales in the foreseeable future. Those marketing directors and managers who have devised robust strategies will be able to shuffle their marketing, sales and distribution resources to match customers’ expected buying demands. These retail marketing strategies might be described best as “omnichannel”. For companies with retail outlets (discussed in Chapter 3), it is sometimes advantageous to give customers or prospective customers a reason to visit the outlet. The convenience of online shopping has been hard on many retail companies operating physical stores. Some people who search for a product online would then like to actually inspect the product before they buy it, without going through the hassle of returning items that are not suitable. An in-store discount or offer might persuade these customers to come into the shop. Obviously, companies need to be mindful of online and in-store costs and their respective profit margins. Social media advertising can be used to target marketing activities. Platforms such as Facebook, Instagram, Twitter and others make it particularly easy to find and get in front of the people most likely to buy a product or service. A social media marketing campaign can be tailored to a specific set of prospective customers.

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A number of companies have found that video presentations are a good way of attracting customers, whether online or in-store. There is no better way to bring a product to life than with video, whether it is a simple video showing how to top up a car’s engine oil or something more involved, such as what happens to an oil on the inside of an engine. Some brands have made their products bigger through video or animation. It is also important to understand and plan retail marketing activities for seasonal variations. Retail outlets need to plan their campaigns many months in advance of seasonal peaks. This includes planning advertisement spending, in-store promotions, production schedules and distribution logistics. In the retail lubricants business, larger amounts of engine oils are purchased just before the summer and Christmas holidays, while oils and greases for leisure activities, such as gardening and fishing, tend to be higher in early springtime and late autumn. Every target market is likely to have measurable peaks and troughs.

6.4  CONSUMER PURCHASING DECISIONS Individual customers make numerous decisions every day, some of which are concerned with money. First, they decide whether to save or spend their money. If they have decided to spend, the next decisions involve how much and on what. The basic spending decisions are concerned with food, water, shelter and heating. (With climate change, some people might decide that cooling is more important.) Some people are concerned with health needs, others with prestige. Some people need to acquire possessions. Many older people prefer comfort and security. Some younger people seek experiences of new things and places. Many retail consumer buying decisions are made with very little conscious thought. Some purchases are made on an impulse. Other decisions require investigation, analysis and careful thought. Some of the questions retail consumers ask themselves are: • Money: Can I afford this? Which product offers the better value? Should I buy this, or that? • Performance: Will this work? How long will it last? • Fashion: Are a lot of people buying this? Will I look good? • Fit: Will the colour match the curtains? Is the size too big or too small? • Trust: Have I bought this brand before? Do I believe the salesperson? Is this manufacturer reliable? • Habit: I’ve always bought this brand. Different kinds of customers behave differently in different kinds of buying situations. Most people are confronted with very different kinds of buying problems even in the same type of situation. For example, when a family decides to buy a washing machine, many different factors may be involved in deciding which machine is most appropriate. There could be difficulties in making clear distinctions between the different factors and deciding which are more important. Very few retail buying decisions involve the same amount of thought and evaluation as industrial buying decisions, which are discussed in the next chapter.

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People do not generally have the time to do the same due diligence as companies when buying most products or services. Obvious exceptions include buying houses, cars, holidays or investments. In many cases, retail consumers have much less information on which to base a buying decision. In retail markets, products are often divided into two types: • Fast Moving Consumer Goods (FMCG): These are products that are purchased on a daily or weekly basis, such as groceries, snacks, newspapers, magazines and fuel. Retail outlets must have sufficient stock and regular deliveries. They must strive to maintain customer loyalty. The average volume of product tends to be low and profit margins tend to be small. • Slow Moving Consumer Goods (SMCG): These are consumer products that are purchased infrequently, such as washing machines, laptops, televisions, cars and insurance. Again, retail outlets must have sufficient stock, but also efficient supply chains. They must still strive to maintain customer loyalty. Here, retail consumers rely on knowledgeable salespeople for advice and support. Retail lubricants (those described under automotive lubricants in Chapter 3) are purchased on one of two ways: • As FMCG products when the engine oil warning light comes on or when they hear a noise from an item of gardening or maintenance equipment. • As SMCG products when a car or van needs servicing, either by themselves (Do It Yourself (DIY)) or by a servicing company (Do It For Me (DIFM)) as discussed later in this chapter. Retail customers buying lubricants in many retail outlets have to rely on either brand loyalty, spare parts handbooks or OEM recommendations. While retail customers will usually do a lot of research before buying a washing machine, car or holiday, they might not do as much research on lubricants. It is important for marketing directors and managers of lubricants to understand that salespeople in retail outlets don’t know much about lubricants either. It is also very important to note, as will be described in more detail in later chapters, that marketing and selling retail lubricants is not the same as marketing and selling retail fuels.

6.5  HOW TO INFLUENCE LUBRICANT CONSUMER PURCHASES Many retail consumers purchasing decisions are often the result of habits. Getting people to change can be difficult, but it is not impossible. The decision-making process should be made as simple as possible. One way of doing this is by using “Brain Maps”. These are conceptual groups of related selections that simplify buying decisions. An example to which everyone can relate is the family question, “What shall we have for dinner tonight? Shall we have chicken curry and rice? Then, what do we need to buy or what do we have in

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the cupboard already? Chicken, rice, curry powder, spices, poppadoms and what else? When and where do I need to buy these?” “Families” of decisions are built into “clusters” as an additional means of simplification. Also, decisions may be delegated to other people in the family. It is important for marketing staff to realise and understand that retail consumers do not always buy in the way expected of them. Also, some consumers are much more valuable than others and psychographic research aims to find patterns of lifestyles that may influence buying decisions. It is important to seek brand loyalty only at acceptable levels of sale. Retail consumer buying behaviour when marketing and selling can involve a number of strategies: • Get existing buyers to buy more often. • Persuade them to buy more. • Convert occasional users into regular ones, then get them to increase the frequency of their purchases. • Convince them to use more at a time. • Aim for brand loyalty. • Seek new users from the non-user potential. It should be noted that some of these strategies do not necessarily apply to purchasing retail lubricants. The main retail lubricant consumer buying influences are: • • • • • • • • • • • •

Price. Fitness for purpose. Brand. Packaging. Availability and convenience. Simplicity of choice. Merchandising and promotions. Location of outlet. Trust in car dealer or specialist garage. Trust in quick-change outlet. Warranty and manufacturer’s recommendation. Pre-determined, impulse or distress purchase.

The range of products to which these apply includes engine oils, gear oils, transmission fluids, brake fluids, oil and air filters, wiper blades, spark plugs and car-care products. Several methods can be used to influence retail lubricant consumer buying behaviour, whether in-store or online. A site or regional promotion involving strong pointof-sale material can be very effective, possibly including a celebrity endorsement. A lubricant purchase might be linked to a “vehicle health check”. A price discount, for a limited period, is used in many retail markets. There could be a tie into other products for selected customers, such as a free tin of car wax with every five litres of engine oil.

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6.6  AUTOMOTIVE LUBRICANT SPECIFICATIONS International specifications for lubricants are published by the American Petroleum Institute (API), the Association des Constructeurs Européens d’Automobiles (ACEA), the International Lubricant Standardization and Approval Committee (ILSAC), the Japanese Automotive Standards Organisation (JASO) and the International Organization for Standardization (ISO). National specifications for lubricants are published by many organisations, including Deutsche Institut für Normung (DIN), Association Française de Normalisation (AFNOR), the American National Standards Institute (ANSI) and the American Gear Manufacturers Association (AGMA). A number of original equipment manufacturers (OEMs) publish specifications for automotive lubricants, including Ford, General Motors, BMW, Mercedes-Benz, Volkswagen, PSA and Renault. In Japan, Toyota, Nissan and Mitsubishi publish specifications for their “Genuine Oils”, respectively. Most specifications and oil formulations evolve out of earlier versions. The replacement of previous tests for proof of performance testing and the development of the next engine oil specifications (ILSAC GF-6A and GF-6B, API SP and ACEA 20) have been the main issues for last ten years. The requirements for the previous US gasoline engine oil specification, ILSAC GF-5, were initiated in January 2005. Improvements to the GF-4 specification were required for fuel economy and fuel economy durability, emission system compatibility and robustness of oils, to increase engine durability. The specification was required to be backward compatible, for older engines, but engine types should include turbocharged, supercharged and spark-ignited direct fuel-injected (SIDI) types. A draft specification was presented in February 2007, updated in September 2008 and finalised in October 2009. This specification formed the base for the API SN specification, finalised at the same time. In Europe, the ACEA specifications were first introduced in January 1996. These replaced older specifications. ACEA updates the specifications every two years or so, to take into account developments with engines and vehicle operation. The number of engine tests for oils has increased from an initial eight to a current total of fourteen. The ACEA 16 specifications were scheduled to be updated in 2018 to ACEA 18, but this was delayed to the end of April 2021, first by the need to develop updated tests and then by the global COVID-19 pandemic. The ACEA 21 specifications are separated into three sections: General Requirements, Sequences for Light-Duty Engines and Sequences for Heavy-Duty Engines. The first two sections were published at the end of April, but at the time of writing (February 2022), the third section had not yet been issued. The ACEA 16 specifications (for all three sections) had fifteen pages of listed test methods, test limits and guidelines for service fill engine oils for gasoline and lightduty diesel engines, with and without exhaust aftertreatment devices, and heavyduty diesel engines. JASO publishes international specifications for two-stroke (2T) motorcycle oils (categories FA to FD) and for four-stroke (4T) motorcycle oils (categories MA and MB). Development of the current ILSAC specifications started in July 2012. The new category requires improvements in fuel economy and fuel economy retention, engine

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oil robustness to protect engines in all global markets and adjustment to chemical limits to allow improved performance while maintaining overall durability. Unlike previous categories, the new category consists of two sub-categories; GF-6A and GF-6B. GF-6A is the natural progression from GF-5 and will be backward compatible with earlier categories. It will consist of SAE 0W-20, SAE 0W-30, SAE 5W-20, SAE 5W-30 and SAE 10W-30 viscosity grades. GF-6B is a special category set aside for “SAE 0W-new” and “SAE 5W-new” viscosity grades. It has been agreed that these new grades will be 16, 12 and eventually 8, so they will not be backward compatible with previous categories. The viscosity of GF-6B, required for several new engine technologies, is likely to be too low for older engines. Engine oils for both categories were introduced commercially in May 2020. The API SP specification was introduced on the same date and is equivalent to ILSAC GF-6A with additional fuel-saving requirements. Most car manufacturers are now promoting the concept of “filled-for-life” automatic transmissions, to increase customer satisfaction and to assist with further improving vehicle fuel economy. This is derived from “shudder-free” torque converter clutches and stable friction characteristics. The demand for “filled-for-life” will require significant improvements to automatic transmission fluids (ATFs). Antiwear requirements will need to last for 100 to 150 thousand miles, the oils will need to have exceptional high-temperature viscosity properties combined with good low-temperature fluidity properties and high shear stability in pump and clutch tests. Obviously, motorists do not need to be concerned about “filled-for-life” automatic transmissions. After a significant amount of development work, General Motors introduced its new Dexron-VI specification, which is a significant upgrade from the previous Dexron-III(H) ATF. The new fluid has been designed specifically for six-speed Hydra-Matic 6L80 automatic transmissions, in which new direct clutch interfaces require greater precision to keep interactions consistent. The development of global standards for oils for air-cooled 2T engines continues to progress. At present, around 50% of all motorcycles worldwide are 2T and the current standards for oils are based on the JASO FA, FB, FC and FD specifications. By the early 1990s, requirements for improved engine durability and reduced maintenance led European OEMs to look for even better detergency and higher temperature performance than that specified by the JASO FC, now ISO-L-EGC, category. As a result, a higher detergency ISO-L-EGD category was added, together with a piston skirt deposit index. North American motorcycles are mainly 4T, with the oil system common to the engine and transmission. Worldwide, around 50% of motorcycles are 4T, and this percentage is continuing to grow. The main growth drivers are emissions and noise levels. Most 4T motorcycles use either conventional passenger car motor oils (PCMOs) or oils that meet the JASO MA or MB specifications. Specifications for lubricants for hybrid and electric vehicles are being developed. OEMs have found that the electric motors in drivelines can get very hot and need to be cooled. Automatic transmission fluids are being used for cooling, but there is a need (and an opportunity) for improvement. Currently, there is a shortage of test methods for some of the lubricants for use in hybrid and electric vehicles.

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Depending on the introduction of new regulations, engine oils for hybrid vehicles may need to be reformulated. Of course, when this happens, lubricant market managers may need to adjust their strategies. All of this is very confusing for most motorists and even for many people who market and sell automotive lubricants. A great deal of highly technical chemistry, tribology and mechanical testing is required in order to develop these specifications. (The same applies to the development of industrial lubricant specifications discussed in the next chapter.) Very few motorists understand or are concerned about the differences between a 10W-30 and a 5W-20 engine oil. Instead, they rely either on guidance from the manufacturer of their car or the retail outlet that services their car. Some specialist motorsport shops provide an in-store handbook that lists the types of lubricants recommended for use in each make and model of car, so that DIY motorists can know what they need to buy. However, lubricant marketing and sales people who supply automotive lubricants to OEMs (as initial fill oils) and/or car dealers, “quick lube” outlets or other bulk purchasers do need to understand the technology that lies behind the properties and performance of these automotive lubricants. This is a major reason why marketing and selling lubricants are unlike marketing and selling very many other products.

6.7  WHY LUBRICANT CONSUMERS ARE KEY DECISION MAKERS In industrial markets, a Key Decision Maker is a person who has executive authority to make the decision about a specific purchase. (The detail of this is discussed in the next chapter.) Many lubricant managers, marketing and sales people believe that those retail lubricant consumers who pay other people to service and maintain their vehicles are not Key Decision Makers. The author does not support this belief, for a number of reasons. In almost all cases of a retail lubricant customer deciding to purchase, either: • • • • • •

They choose the lubricant for themselves (DIY). They choose a specific Original Equipment Manufacturer (OEM). They choose a reliable servicing garage (DIFM). They choose a reliable “quick lube” outlet (DIFM). They demand convenience, service and value for money. The “hidden” lubricant purchase is an integral part of the OEM purchase and servicing. (If the oil goes wrong, the vehicle goes wrong.)

In many of these lubricant purchasing decisions, while a motorist may not necessarily choose a specific grade or brand of lubricant, they will look for a quality and performance level that meets their implicit needs. The next few years are likely to see changes to the ways in which retail lubricant customers make purchasing decisions and the need for marketing people to adapt to changes in market segmentation. Although a small number of motorists change their car’s engine oil (DIY), it is possible that some regulators in some countries may decide to ban this practice, due to political pressures on waste and the environment. This will result in the retail lubricant market becoming entirely DIFM.

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With the increasing complexity of vehicles, particularly with the growth in electric and hybrid vehicles, more motorists may decide that their only option is to have their vehicles serviced. Although all electric vehicles will not require engine oils, there will be other lubricants, such as driveline oils, electric motor cooling oils and bearing greases, that will need to be serviced. In the marketplace, the disposal of used engine, driveline and cooling oils is likely to become a more important issue. In many countries, recycling and re-use of lubricants are likely to become more widespread. This will also encourage more DIFM. Future retail lubricant consumer purchasing decisions are also likely to be influenced by the emergence and growth of more people working from home, or in an office much closer to home, as discussed in the preceding chapter.

6.8 SUMMARY Retail consumers buy products and services in numerous ways, from numerous different suppliers, using numerous different buying methods and for a huge range of reasons. Some purchases are impulsive, while others are carefully considered. Some customers are easily confused and require significant support when making purchasing decisions. Marketing and salespeople need to be prepared for any eventuality. There are a variety of retail consumer buying influences and a number of ways in which marketing and sales people can influence purchasing decision-making and decisions. Some consumers are easily persuaded, while others need a great deal of convincing. Marketing and selling to individual retail customers is different to marketing and selling to industrial customers, particularly for lubricants. Segmentation of markets is particularly important. Retail buyers of lubricants can be characterised using different terminology to retail buyers of other products and services. Online retailing is becoming more important in many markets, but this may not be true in the future for retail automotive lubricants. This is due to the slow decline in the numbers of motorists who are willing and able to change the lubricants in their cars for themselves. Even so, the author contends that retail motorists are still Key Decision Makers, because they are able to choose who and when their vehicle is serviced. In many of the lubricant purchasing decisions, a motorist may not necessarily choose a specific grade or brand of lubricant, but they will look for a quality and performance level that meets their implicit needs.

REFERENCES

1. Babin, Barry J.; Darden, William R.; Griffin, Mitch. “Work and/or fun: measuring hedonic and utilitarian shopping value”, Journal of Consumer Research, 20 (4), p. 644, 1994.

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2. Sproles, George B. “Conceptualisation and measurement of optimal consumer decision making”, Journal of Consumer Affairs, 17 (2), pp. 421–38, 1983. 3. Sproles, George B. “From perfectionism to faddism: measuring consumers’ decisionmaking styles”, in Schnittgrund, K. P. (Ed), American Council on Consumer Interests (ACCI), Conference Proceedings, ACCI, Columbia, MO, pp. 79–85, 1985. 4. Burns, David W. Managing Multi-Brands, Lecture in Understanding the Global Lubricants Business, The Oxford Princeton Program, October 2011.

7 Company Buying Behaviour Industrial Lubricants

7.1 INTRODUCTION Identifying, developing and implementing a marketing strategy for industrial customers require an understanding of the nature of buying by companies. The buying behaviours of a company are different from the buying behaviours of retail customers. Industrial buying adds extensions and entirely new dimensions. It entails knowledge of the different types of buying situations that companies encounter, the process that industrial buyers go through in reaching purchasing decisions, how those decisions are affected by different members of the company and the criteria they apply in making purchasing decisions. The buying processes used by companies depend on the level of information and experience that companies have in purchasing specific products and services. When making a routine purchase, buyers have little need for information because of their past experience with the purchasing activity. However, when a purchasing situation is entirely new, the information required may be extensive, because of the company’s lack of experience with the product, the service and/or the supplier. Company buying activity also consists of several stages in the decision-making process. Depending on whether the purchase is routine or new, these stages will vary in their degree of importance. Consequently, effective industrial marketing strategy requires marketing directors and mangers to focus their attention on the type of buying situation a company is facing, where it is in its decision-making process and what criteria various influencers will emphasise in the purchasing decision. The complexity of the buying process in industrial companies is illustrated in Figure 7.1. The main difference between industrial marketing and consumer marketing is the complexity of the buying process. Industrial marketing has four main areas of uniqueness: • A greater dependence on business for its effectiveness. • Product complexity, extending to virtually all economic, technical and personal relationships between buyer and seller. • A high degree of interdependence between buyer and seller. • A buying process that involves numerous people in both buyer and seller organisations. Thirty or forty years ago, the strategic environment for industrial companies was that production and maintenance engineering departments dictated their material needs for production and the purchasing department was simply an administrative function. In practice, purchasing did not source the suppliers and were progress clerks to

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FIGURE 7.1  Purchasing complexity. (Pathmaster Marketing Ltd.)

engineering, budgeting was poor and there was little formal control of costs. Quality and delivery were not accorded top priority and consequently there were few penalties for poor performance by suppliers. In addition, price was not always discussed and the engineering department’s favourite supplier frequently secured the order. More recently, business customers demand a more complete response from suppliers to meet their needs and there is a greater reliance on quality and delivery of supplies. Competitive pricing is an important feature of business purchasing. Many companies have a smaller number of suppliers and business relationships are much more strategic. The result is that buying is a decision-making process which must be managed. In some companies, single sourcing and long-term relationships are more common. With the development of lean manufacturing, just-in-time delivery is commonplace for industrial companies.

7.2  THE INDUSTRIAL BUYING FUNCTION AND PROCESS The buying function is one of the most critical links between a company and its environment. Every company is completely dependent on supplies of goods and services for its existence. In almost all cases, there are usually an adequate number of

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potential suppliers. In many countries, competition authorities will ensure there are at least three or four suppliers of any product or service. However, in every company, there must be a strategy for purchasing, a structure to implement that strategy and to manage the purchasing function. The size of that function depends on the company, the numbers of products and services that need to be purchased and the environment in which it operates. Obviously, these factors lead to a complex function. For industrial companies, there are three main types of buying situations: • A new buy. • A modified rebuy. • A straight rebuy. In each of these situations, the number of stages involved in the decision-making process will be slightly different, for the reasons explained in the previous section. The eight stages divide the process into distinct tasks that are useful for recognising critical decisions and specific information requirements. The stages are: • Recognition of a problem and, therefore, a need and a possible solution. Stage one. • Identification of the properties, performance and quantity of the needed product or service. Stage two. • Detailed specification of the properties, performance and quantity of the needed product or service. Stage three. • Search for and qualification of potential sources the product or service. Stage four. • Acquisition and evaluation of proposals from potential suppliers. Stage five. • Selection of alternative suppliers. Stage six. • Negotiation and agreement on price and delivery of the product or service. Stage seven. • Performance feedback and evaluation of the chosen supplier. Stage eight. With a new buy, the recognition of a problem or need is different from a straight rebuy. It may be initiated by either internal factors or external ones. For example, the purchase by a company of a new piece of equipment may require the purchase of a new type of lubricant. Alternatively, if a competitor launches a significantly improved lubricant, a lubricant supplier may need to respond and need to buy different types of base oils and/or additives. Since both situations are new, purchasing decision makers may lack the experience and product knowledge to make comparisons of alternative products and suppliers. In the new buy situation, decision makers and influencers need to start with extensive problem-solving activities. They need to obtain a range of information in order to explore alternative solutions adequately before a purchase can be considered. A decision tree for a new buy situation is shown in Figure 7.2. By following the sequence of activities that occur in this situation, it is not difficult to uncover the critical decision stages and evolving information requirements of a new buy. In a modified rebuy, a company’s decision makers enter into a situation in which significant benefits, such as improved quality or performance or lower costs, may

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FIGURE 7.2  Company new buy decision process. (Pathmaster Marketing Ltd.)

be achieved from re-evaluating alternative products or services. Although the purchasing decision is likely to be based on well-defined criteria, there may be uncertainty about which suppliers may be able to meet the specific requirements. In such instances, buyers will seek additional information. The re-evaluation of alternative suppliers may be triggered by internal and/or external factors. However, a modified rebuy situation occurs most usually when a company becomes discontented with the performance of a current supplier. The most common buying situation in industrial purchasing is the straight rebuy. When purchases are continuing or recurring, little or no information is required. A routine response is the normal buying pattern. Company buyers usually have welldeveloped selection criteria that have been used and refined over several years. In most situations, as long as delivery is prompt, quality is consistent, service is always available and price is reasonably competitive, companies are unlikely to switch suppliers. Alternative solutions are seldom evaluated. Unlike the series of mental stages in a retail consumer’s purchasing decision process, described in the previous chapter, the industrial purchasing decision process accentuates physical, observable stages, because several people are usually involved in various ways in each stage. As illustrated in Figure 7.2, a company’s purchasing decision process is initiated by the recognition of a problem, need or potential opportunity. This recognition may begin within the buying department, particularly when products become outdated, equipment breaks down or current materials are unsatisfactory in quality or availability. It may also originate in the marketing department or research and development (R&D) department when a manager recognises an opportunity for potential product performance improvement or a customer requires an improved product. A supplier that becomes involved in the company’s buying process at this stage is likely to have a distinct advantage in influencing the final purchasing decision and, consequently, a greater probability of being selected as a supplier. Studies have found that new product ideas often originate with customers. Early involvement

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in the problem recognition stage also offers marketing managers an advantage over competitive suppliers. When a need has been identified, the purchasing company first needs to define the type of product or service, the performance specification and the application requirements. It must then investigate and analyse possible solutions. In the case of technical products, such as lubricants, either the customer, marketing department or R&D will usually prepare a performance specification. (As explained in Chapter 12, it is usually best that the customer and supplier develop the performance specification jointly.) With non-technical products, the purchaser’s user department might determine that products currently in the market could solve the problem. While decision influencers from outside the user department may provide useful additional information, the critical decisions and information requirements at this stage of the buying process are mainly in the user department. Buying influencers may include department managers, engineers and manufacturing people. Also, at this stage, buying influencers may begin to look outside the company for supplier and product information and for assistance in developing product specifications. Many suppliers do not become aware that a business customer is investigating a buying possibility until the company starts its outside search for information. As a consequence of developing a close working relationship with an existing customer, suppliers have a definite advantage before other potential competitors become aware of the purchaser’s needs. When possible solutions to the buying need have been identified and defined precisely, the buying company can begin to search for alternative sources of supply. In turn, this may require one or more potential suppliers to be identified and qualified. The necessary qualifications are likely to vary with the type of buying organisation, the specific buying situation and the decision makers and influencers involved. The outcome of this stage of the buying process is that the decision makers will have determined which suppliers are going to be contacted as potential vendors. The next stage in the process is to request specific proposals from each of the qualified suppliers. These proposals are sometimes called a “Request for Quotation”, or RFQ. This stage and the previous one may happen simultaneously during a straight rebuy situation. Buyers may simply check a catalogue or contact alternative suppliers to obtain the latest information about prices and deliveries. However, when one or more new potential suppliers are involved, several weeks might be spent in exchanging and discussing proposals and counterproposals. The discussions are likely to include levels of inventories that will be required during the year and agreed off-takes of products. The need for information could be extensive and a significant amount of time might be required to analyse proposals and compare products, services and costs. If a company is considering a make-or-buy decision, suppliers’ proposals need to be compared with the cost of producing the needed product (or service) in-house. If the buying company finds that the cost is lower than alternative suppliers’ prices, the buying process stops. Otherwise, one or more offers from competing suppliers are accepted. Many companies prefer to have a number of potential suppliers of key products, to ensure continuity of supply and effective competition.

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Ordering processes are usually established by sending purchase orders to the suppliers and status reports to the using department. Although this stage of the buying process starts with the placing of an order, the process is not actually completed until the ordered product is delivered and accepted for use. The user department does not regard that its problem has been solved until the specified product has been received and used satisfactorily. The effectiveness of a supplier in handling this stage of the buying process is, therefore, very important. The final stage in the purchasing process should consist of a review, whether formal or informal, and feedback of the product and supplier performance. The user department should be able to determine whether the purchased product or service solved the original problem or met the agreed specification. If it did not, suppliers that were evaluated earlier in the buying process are likely to be given further consideration. Feedback that is critical of the chosen supplier or product can lead the members of the decision-making unit to re-examine their evaluations. It has been found that when this occurs, opinions and judgements of previously rejected alternatives tend to become more favourable. It is important to note that it is the decisionmaking process that is the subject of analysis. Some difficulties can arise during a buying process. One of these is known as “creeping commitment”. Here, a sequence of choices is made, each of which eliminates a number of alternatives from further consideration, so that the range of alternatives becomes narrower. At some point, the number of alternatives will have been narrowed to the extent that only a few possible solutions remain feasible. The problem-solving process will continue until a final decision is made. For example, by the time the purchasing department in a car manufacturer has begun the process of sourcing a new engine oil, the engine design engineers are likely to have determined a performance specification that could preclude the abilities of some lubricant companies and additive manufacturers to develop a satisfactory product. In other words, commitment to the final solution is becoming firmer and more specific (“creeping”) with each stage in the decision-making process. Another difficulty is known as the “centre of gravity”, in which a number of stages or combinations of stages in the decision-making process become more critical to final outcome of the purchase decision. Here, the decision makers and influences involved in these critical stages have greater impact than do people involved in other stages.

7.3  METHODS OF EVALUATING ALTERNATIVE SUPPLIERS Irrespective of the range of expectations and objectives, buyers seek to find the best possible source of supply for their identified needs. In repetitive purchasing situations, such as a straight or modified rebuy, where buyers are familiar with current suppliers and the purchase involves a standardised product, it may be a simple matter of choosing a supplier from the list of sources already identified and evaluated. A supplier may even be recommended for selection on the basis of reciprocity considerations. For a new buy situation, or when the purchase involves a substantial expenditure or the quality of the needed product is critical, the selection may involve an extensive search to find a single qualified supplier. When no current source of supply exists,

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it may even require the company to work with an established or recommended supplier to develop the needed product. When a company is seeking to purchase a product or service, it will either contact one of its current suppliers or contact a number of potential new suppliers, as described in the previous section. Obviously, for an existing supplier, there is no need for an evaluation, as the supplier’s skills and abilities will be well known to the company and its buyers. However, if there are a number of potential new suppliers, the company should carry out a comparative evaluation of them, to determine which (if any) of them could be asked to submit a proposal or quotation. Potential suppliers should be aware that their skills and abilities are likely to be compared with those of their competitors. How buyers choose and qualify suppliers depends upon the type of buying situation and the importance of the purchase in terms of complexity and value. When the procurement need is complex or involves a substantial expenditure, it is a common practice for people from purchasing, quality control, engineering and production to evaluate the supplier’s facilities and production capacity. This will help to determine whether the supplier will be able to deliver an uninterrupted flow of product, to evaluate product quality via product samples, to approve technical competency and manufacturing efficiency via plant visits and to verify the supplier’s financial resources. The buyers may even evaluate the supplier’s position in the industry, its progressiveness, its interest in the company’s order and its cooperative attitude. However, qualifying factors may limit a buyer’s choice of suppliers. For example, with an increasing cost of transportation, buyers may limit their choice to local suppliers. If the company’s production is dependent on uninterrupted deliveries, a supplier’s location on a different continent may be of concern should delays occur with shipping or customs clearance. The buying company is likely to list criteria that are important to it, to be able to complete the evaluation. The criteria could include quality, delivery, service support, frequency and reliability of sales representative visits, ability to access the supplier’s senior managers, price and financial status, as illustrated in Figure 7.3. The criteria shown in Figure 7.3 are not exhaustive, as individual companies could have other criteria that are important.

FIGURE 7.3  Supplier evaluation. (Pathmaster Marketing Ltd.)

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The buying company will probably assign a percentage value to each criterion. In the illustration, quality and price are more important than the frequency and reliability of salespeople’s visits. The buying centre staff (see Section 7.5) will then rate each supplier, usually on a scale of 0 to 10, against each criterion, based on the responses they get to questioning of each supplier’s marketing and sales team and information they gather from the marketplace, as described in Chapter 4. Multiplying each rating by the relative value for each criterion will give a comparative score, as shown in Figure 7.3. Adding the comparative score for each supplier will give a total ranking. In the illustration, it is clear that Supplier 2 is superior overall to Supplier 1, most notably when considering delivery and service support, even though both suppliers are equivalent when considering quality and price. Qualification of suppliers does not end with the purchase. The real test of a supplier is the ability to perform effectively and consistently over time. This is the deciding factor as to whether the supplier will continue as a supplier or be replaced. Buyers use both objective and subjective evaluations to rate suppliers’ performances.

7.4 MARKETING AND SALES STRATEGIES AND TACTICS FOR INDUSTRIAL CUSTOMER BUYING The strategies and tactics that should be used by marketing and sales people when an industrial customer or potential customer is engaged in a purchasing decision are significantly affected by both the purchasing situation and the decision-making stage of the customer. Increasing amounts of information are likely to be needed by a company depending on whether the purchase is a straight rebuy, a modified rebuy or a new buy. Additionally, different people in the buying company will be involved in different stages in the decision-making process. It is important to note that not everyone in the buying company may view the process in the same way. For example, an engineer may view a purchase as a straight rebuy, while the purchasing department may view it as a modified rebuy. This could be because the engineer has been working with a trusted supplier or using a trusted product in another part of the buying company. Marketing and sales strategies are likely to be affected most during the first five stages of the buying process. For problem recognition in a new buy situation, marketing and sales opportunities depend upon anticipating, recognising and understanding customer problems, so as to be able to provide the right information and assistance at the right time. However, because problem recognition is largely internal to a buying company, marketing people should use appropriate advertising and creative salespeople to alert prospective customers to potential problems and to convince them of their capabilities to solve those problems. Incumbent suppliers are in an advantageous position for straight rebuy and modified rebuy situations. Maintaining close working relationships with all their contacts in customers’ companies will enable the detection of problem recognition. Maintaining consistent product quality and service will prevent or minimise a shift to a modified rebuy situation. Companies that are not a current supplier need to be looking out for sources of information to detect and respond quickly to any

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developing trends that might lead to a modified rebuy. It has been found that customers, when dissatisfied with a present supplier, often react by contacting alternative suppliers without first attempting to correct the situation with the existing supplier. However, non-incumbent suppliers face a difficult task when attempting to modify a straight rebuy. The purchasing company needs to be convinced that a re-examination of alternative solutions will be beneficial, which requires the customer to spend time and people, meaning money. A non-incumbent supplier’s ability to be involved in a modified rebuy will depend greatly on its reputation for being objective, creative and reliable. During the customer’s stage of determining possible solutions to the problem, marketing and sales people should provide information, technical assistance and examples of solutions used by other customers. With a new buy or modified rebuy, the main marketing task for both incumbent and non-incumbent suppliers is to gain acceptance for participation in the problem-solving process. This depends largely on either the marketer’s current performance or its reputation in the industry. The marketing task for a supplier during a straight rebuy is simply to maintain information flow, to discourage departure from established purchasing processes that might lead to a modified rebuy. When a buying company is determining the characteristics or performance required of a product or service in either a new buy or modified rebuy, decision makers are primarily interested in the total offerings that competing suppliers can provide. Consequently, marketing and sales strategies at this stage phase depend mainly on providing detailed information about product(s), delivery and services. During this stage, a marketer has the best opportunity to influence the preparation of specifications that favour their company’s products or services. For the straight rebuy situation, marketing strategy is essentially the same as in the second stage of the buying process. In the stage of searching for and qualifying potential suppliers for a new buy or modified rebuy situation, non-incumbent suppliers need to be able to demonstrate their capabilities to satisfy the potential customer’s needs. Marketing and sales people, supported if necessary by engineers and product development staff, are likely to need to visit the customer to share product performance, application, logistics, quality control and other relevant information. The potential buyer is likely to evaluate the supplier’s managerial capabilities, general business reputation and financial status. The objective is to convince the potential customer that superior value and/ or significant cost savings are possible. The primary task for a current supplier during a straight rebuy is to maintain performance and communication flow so that the customer will not begin to consider alternative suppliers. When the buying company is receiving and analysing proposals, marketing and sales people should simply assist with explaining the proposal and its abilities to solve the customer’s problem for a new buy or modified rebuy. This may include cooperative involvement in cost studies, product testing and performance evaluation. During this stage, it is also very important for the supplier (particularly in a new buy situation) to determine the relative importance of the various specification requirements to the potential customer. There are three main components for the solution to the problem: what is essential, what is desirable and what has been added

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for clarification? With this understanding, the supplier will be able to emphasise those factors of greatest importance to the customer and avoid designing product characteristics that increase cost without increasing the customer’s value perception. It also allows the supplier to know which specifications are open to value-enhancing improvements. In a straight rebuy, the incumbent supplier should make proposals and quotations when requested to do so. The objective, as in the previous stages, is to maintain quality service to prevent or forestall a shift to a modified rebuy.

7.5 BUYING CENTRES, KEY DECISION MAKERS, KEY DECISION INFLUENCERS AND GATEKEEPERS Successful marketing and sales strategies during a customer’s or potential customer’s buying process address the significant variations in information needs of the people involved in the purchasing decision as it progresses through its various stages. Numerous people in an industrial company may be involved in a buying process. For many purchasing decisions in many industrial companies, these people are sometimes grouped into a “Buying Centre”. A buying centre is an informal, cross-departmental decision-making team for which the principal objective is the acquisition, dissemination and processing of relevant purchasing-related information. People involved in a buying centre are likely to be different for different purchasing decisions. Generally, people in a company become involved in the buying centre because either they have a formal responsibility or they have or can access important information. A number of departments in a purchasing company can be involved in the decision-­making process in a buying centre, although some of them may not always be involved. • Purchasing: Contrary to some popular misconceptions, the purchasing department is not always central to the decision-making process. The purchasing department’s role generally becomes more important during stages four, five and six of the buying process. Purchasing managers and officers are specialists in product buying, close working relationships with suppliers and in negotiation, so they are the main decision makers and influencers in repetitive buying situations. They can also exercise significant influence over selected types of purchases when uncertain environmental, social, political or economic conditions exist or are foreseen. • Manufacturing and Engineering: When a new product is being considered or developed, manufacturing plays a significant role in the early stages of the decision-making process. The departments are responsible for determining the technical feasibility and economic costs of producing end products. Decisions on specifications, parts and materials are approved in these departments. Requirements for equipment needs and costs, together with impacts on current production need to be considered carefully. Continuous feedback to the purchasing department on the performance of suppliers also makes manufacturing a key influencer in the selection and retention of suppliers and the allocation of quantities among suppliers.

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However, manufacturing may not always welcome technical changes, even with obvious improvements, with total enthusiasm. Senior management holds manufacturing primarily responsible for product cost reductions. Changes have a tendency to increase costs in the short term, due to an interruption of the department’s learning curve. Research and Development: R&D department managers and technicians are involved in the initial development of new or improved products and processes. They often set detailed specifications for components and materials, end-product performance requirements and, in conjunction with engineering, manufacturing methods. Because a buying company’s R&D department is likely to have a number of projects in various stages, it is important to marketing staff in supplier companies for two important reasons. The earlier a supplier becomes involved in the development process, the greater the chance of the supplier’s product(s) being incorporated into the customer’s final product. Additionally, by understanding the direction in which customers or prospective customers are moving, marketing managers in suppliers are better able to plan the direction of their own business. Marketing and Sales: When a purchasing decision has an effect on the marketability of a company’s product, such as altering its materials, packaging or price, marketing people become active influencers in the purchasing decision. The purchasing company’s marketing and sales people will want to be assured that the new or improved product or service will be easier to market and sell to their customers. Health, Safety and Environment: In new buy and modified rebuy situations, there is always the possibility that a new or improved product or service could affect, whether positively or negatively, the purchasing company’s health, safety and/or environmental reputation or performance. The HS&E department should be involved in the decision-making process, either to highlight significant improvements or to identify significant issues. In many countries, particularly in Europe, North America and Asia, new or improved products (including lubricants) will need to be assessed and registered for their health, safety and environmental impacts. Management: Senior managers, and even directors, become involved in purchasing decisions when the company is faced with unfamiliar situations not related to day-to-day activities, or when purchasing decisions are likely to have major consequences for the company’s operations and/or profitability. When senior managers are directly involved in a purchase decision, they are also likely to be actively involved in establishing guidelines and criteria for future purchases of similar products or services.

It is worth noting that many small- or medium-sized companies may not have all of these departments, particularly R&D and HS&E, or expertise in some aspects of the purchasing decision-making. These companies may need to hire industry consultants to provide assistance with important new buy decisions. In each buying process, people in some or all of these departments will be either Key Decision Makers or Key Decision Influencers. During all stages of the buying

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process, marketing and sales people in incumbent and non-incumbent suppliers need to find out who are Key Decision Makers and who are Key Decision Influencers. A Key Decision Maker is a person who has executive authority to make the decision about a specific purchase. In a buying centre, there may be two or more Key Decision Makers, all of whom have to agree to the terms and conditions of the purchase. It is unusual to have more than three Key Decision Makers in any buying team. A Key Decision Influencer is a person who, while not actually able to make the decision to purchase, has a significant influence on how and why the decision will eventually be made. In most buying teams, there are likely to be several Key Decision Influencers. In technology-focused companies, particularly in engineering and manufacturing, Key Decision Influencers are likely to be engineers, scientists, quality controllers, information technologists, health and safety specialists and environmental experts. In some situations, Key Decision Influencers may be external to the buying company’s team. Examples include management consultants, technical experts and published authors. A third group of important people for suppliers of products and services to recognise are known as Gatekeepers. These are people who may not be involved in the buying centre but who control the flow of information to the buying centre and, therefore, to the Key Decision Makers and Influencers. Many directors and senior managers in larger companies employ executive assistants, one of whose roles is to filter the information that is passed to the director or senior manager. This may involve sending only selected press releases, published information, letters or e-mails and controlling which salespeople are allowed to meet the director or senior manager. One of the very important tasks for marketing and sales people is to identify Key Decision Makers, Key Decision Influencers and Gatekeepers in each customer’s or prospective customer’s organisation, for each buying situation. This is no easy task. Salespeople have a significant role in these identifications. A Key Decision Maker in one buying situation may only be a Key Decision Influencer in another buying situation. The purchasing department usually has minimum involvement in the early stages of a new buy situation. Middle and senior managers, engineering, manufacturing, R&D and HS&E are the most likely places to find Key Decision Makers and Influencers in the buying process. Industrial salespeople are frequently required to assume an expanded role in finding these people, so as to ensure that the right information gets to the right people. The expanded roles include playing golf, arranging theatre tickets, organising gourmet dinners, going to cricket matches or tennis tournaments and other social events. Effective salespeople find it beneficial to have hobbies or interests that are similar or complimentary to those of Key Decision Makers in customer organisations. Examples of Key Decision Makers and Key Decision Influencers for purchasing and, therefore, using industrial lubricants are discussed in the next section.

7.6  INDUSTRIAL LUBRICANT PROCUREMENT ISSUES As summarised in Chapter 1 and throughout this book, the highly technical nature of lubricants and lubrication is explained and discussed. This applies to the buying of industrial lubricants as much as to their application and use.

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Companies and organisations that use lubricants face the same strategic environment as for all industrial businesses. The causes and drivers for change are numerous: • • • • • • •

Global competition. Cost reduction. Supply chain management. Climate change. Cyber security. Concern for quality products all the way down the value-added chain. Demands being put on industrial customers by their customers and ultimately by retail consumers. • A general need for improved standards by industrial businesses. • Increasing health and safety requirements. • Corporate social responsibility and environmental responsibility. This means that all companies’ purchasing objectives are the same, and are generally known as “The Six Rights”: • • • • • •

Right products. Right quantity. Right price. Right quality. Right time. Right place.

A lubricant supplier must ensure that the right products are delivered to the customer, in the right quantities. This is the responsibility of supply chain management, which starts with the supplier’s lubricant blending plant, involves the distribution logistics and ends with the delivery driver, whether the products are delivered in packs, drums or in bulk. Marketing managers and salespeople need to be able to rely on the skills and processes provided by their colleagues in blending and logistics. Buyers are concerned with the “evaluated price” of a product. Industrial customers do not buy products or services; they buy value, a subject explored in detail in Chapter 16. In evaluating price, buyers consider a range of factors that generate or minimise costs. Questions such as “What amount of scrap or waste will result from the use of the material?” and “How much power will the machine consume?” The proposed purchase of a new lubricant, for example, may be supported by expected improvements in machine productivity or reduced maintenance costs. Price, however, cannot be considered in isolation. A supplier who has a reputation for highquality products and dependable delivery may be awarded a contract even though their prices are higher. The costs of shutting down manufacturing due to faulty equipment or missed deliveries may far outweigh the higher price. Industrial marketing and sales managers should not overestimate the importance of price and they should also know that low bidders often fail to meet other important criteria of buyers.

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Industrial customers search for product qualities that are consistent with specifications and the intended use of the product. They are reluctant to pay for extra quality and are unwilling to compromise specifications for a reduced price. The important factor is consistency of product quality that will guarantee consistency in end products, reduce costly inspections or testing of deliveries and ensure a smooth blending with the production process. When consistency requirements are not met, costly problems are created for the buying company. Marketing people can establish the degree of consistency needed and the tolerance levels acceptable to the customer only through close communication and discussion. The quality of a lubricant is determined in the lubricant supplier’s blending plant, so marketing and sales people again need to be able to rely on their colleagues in the whole supply chain. Buyers of products and/or services need to know that deliveries will be made at the agreed time(s) and to the correct location(s). Interruptions in the flow of parts and materials can cause a shutdown of the production process, resulting in costly delays and lost sales. Physical distribution services can rank second to product quality in influencing the purchasing decision. For important products, to minimise the risk of interruptions in supply, which can be caused by factors such as accidents, fires, strikes or natural catastrophes, purchasing managers are reluctant to rely on a single source of supply. Consequently, they often choose two or more suppliers if possible. When buyers split their purchases between suppliers, a preferred supplier is usually awarded the largest share of the order. Marketing managers and analysts need to understand the policies that customers follow in seeking continuity of supply and develop the marketing strategy around them. The industrial lubricants marketplace is most usually divided into four main product groups, as shown in Figure 7.4. Each group represents the types of lubrication provided by the products in the group. The Key Decision Makers and Key Decision Influencers are different in each group:

FIGURE 7.4  Industrial lubricants market profile. (Pathmaster Marketing Ltd.)

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• Plant Maintenance: With plant maintenance lubricants, the Key Decision Makers are the Works Engineering Manager and the Purchasing Manager. This is because the lubricant purchased must provide a satisfactory performance in the selected application (for example, hydraulic oil in a hydraulic system) and the performance of most of the products in this group is measured against international, national or original equipment manufacturer (OEM) specifications. In most cases, competing products will provide very similar levels of performance, so price can be an important factor in the decision-making. Key Decision Influencers are likely to be the Plant Chemist, the Health and Safety Manager and the Environmental Manager. The former will provide evidence that the candidate products meet the required specification performance and the latter will review and approve (or not) the products’ health, safety and environmental data sheets and registration authorisations. • Production Engineering: In this group of lubricants, the Key Decision Maker is the Plant Production Engineering Manager. Production engineering fluids and pastes must provide the lubrication and/or cooling necessary to produce metallic components of the required quality and precision. Otherwise, they cannot be used to make other products, components, equipment or machines. Key Decision Influencers can include the Applications Engineer, the Chief Chemist, the Works Metallurgist and the Health and Safety Manager, for similar reasons to those outlined for plant maintenance lubricants. The Purchasing Manager is likely to have only a minor role in the decision-making process, advising only on which of two products with identical (or very similar) performances offers the better price. • Engineering Components: Key Decision Makers are the Equipment Design Engineers and Managers, who will decide what types of lubricants need to be used in the equipment and what performance standards or specifications they should meet. The Plant Chemist will be a Key Decision Influencer, advising whether the candidate lubricants have the appropriate chemical and physical characteristics. • Process Oils: Although process oils are not lubricants, they are manufactured in lubricant base oil refineries, so are included in the range of industrial lubricants. For these products, the Key Decision Maker is the Chief Chemist, as the chemical composition of these products is vital for meeting the required performance characteristics. For many of these products, the requirements can be difficult to specify. The Key Decision Influencers are likely to be the Production Engineering Manager and the Health and Safety Manager. The former might want to be assured that the supplier’s deliveries will be consistent and the latter will need to check the health, safety and environmental characteristics of candidate products. Again, price is unlikely to be a significant factor in the decision-making process. The market shares shown in Figure 7.4 are averages across a number of industrial lubricants’ markets in a large number of countries, primarily in Europe, North America and Asia.

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It is evident from the above descriptions that industrial lubricant salespeople need to combine commercial skills with technical product knowledge. Technical service support (discussed in depth in Chapter 13) can be crucial for sales success. In the industrial lubricants market, the buying process is clearly “Multi-Level”. The buying centre could include several of the following people: • Product performance: Applications Engineer, Development Engineer, Design Engineer. • Product quality: Chief Chemist, Laboratory Chemist. • Health and safety: Health and Safety Manager, Hygienist. • Environment: Environmental Manager. • Service support: Laboratory Chemist, Applications Engineer. • Price: Purchasing Manager. Overall, the purchase of an industrial lubricant is usually a committee decision, with the Key Decision Maker(s) having the greatest role. It is, therefore, axiomatic that the supplier’s sales team may need to include a number of people, particularly a salesperson, an application engineer, a service engineer, a formulation chemist and a logistics manager. The customer’s meeting room might need to be large enough to accommodate up to twelve people. Industrial customers that purchase lubricants in large amounts include automotive manufacturers, OEMs, general and component machining workshops, plastics and petrochemical manufacturers, process industries, mining companies, power (electricity) generation companies, fleet owners and operators and the armed forces. When a new industrial process or machine is developed and used, the lubricants that are required to make it function correctly are also being developed. Initially, neither the manufacturer, user nor lubricant supplier is really certain that the required lubricants are correct. The market is, therefore, highly service-intensive, as illustrated in Figure 7.5. There may be minor elements of commodity or semi-­commodity in the market if the new process or machine is very similar in design and function to existing processes or machines and existing lubricants are being applied to the new process or machine. As the market matures and the operation of the process or machine and the lubricants used become better understood, more suppliers of lubricants will be able to enter the market. The market will then become less service-intensive and the lubricants will become more commoditised, particularly as industry specifications or standards are developed. The timeframe over which this occurs could be as long as ten or even fifteen years. Consequently, lubricant marketing and sales people need to discover and understand the maturity of the particular market segment, since it will affect the purchasing decisions of the lubricant buying company. A lubricant supplier’s service offerings and prices are likely to need to change over time, as the purchasing company’s knowledge evolves.

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FIGURE 7.5  Industrial lubricants purchasing model. (Pathmaster Marketing Ltd.)

7.7 SUMMARY Industrial purchasing is a complex organisational decision-making process, so suppliers of industrial lubricants must understand and react to each industrial customer’s procurement issues. Procurement is a critical subject in the strategic planning of a customer’s organisation and buying lubricants is an integral part of this process. The management team in a potential lubricant supplier needs to understand the customer’s organisation and to plan the marketing and sales strategy tailored to the customer in order to succeed in this environment. There are no shortcuts. Marketing managers need to accumulate and analyse a lot of information about each customer or prospective customer. Salespeople need to be able to combine commercial skills with technical knowledge, so as to be able to talk effectively to a number of people in the customer’s buying team.

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8.1 INTRODUCTION Using a Public Relations (PR) agency and an advertising agency for communicating important messages to a target market can be very beneficial for a company. PR activities can help to raise customers’ awareness about a company and its products and services. They can also be used to build or improve confidence in a company. They may even help to counteract a poor company reputation. Corporate reputation is the way a company is perceived by customers, shareholders and stakeholders. PR emphasises the positive aspects of a company and aims to correct any misunderstandings. The first step in raising awareness or improving a reputation is assessing the current perceptions. However, if a poor reputation is the result of poor performance, the company’s focus must be on improving performance. Trying to mislead the market can be very dangerous. Business success depends on more than good products. A poor record of delivering products to customers is likely to lead to a poor reputation. If demand for a company’s product(s) is/are growing, customers may want to know that the company has the capacity to deliver them. If a company’s profits and investments are declining, the market may want to know what plans are being implemented to address this. There are many reasons why customers should be kept informed about a company’s progress. Advertising agencies perform a different, but related function. Advertising is a major marketing communication tool. It is public and tends to simplify, but it can be persuasive and dramatic. As a means of communicating it can be relatively impersonal, although with the increasing use of the internet, it is becoming more personal and target-specific. It can perform numerous functions, including informing, entertaining, persuading, reminding, reassuring, complementing and reinforcing. It may add value to a product by changing customers’ attitudes. Advertising can be defined as any paid form of presentation and promotion, which is undertaken by an identified sponsor. It is both controlled and identifiable. Because it can be non-personal, it is one method of mass communication. It is important to note that with target-specific advertising, the presentation and promotion is not made in person by the salesperson in the presence of the prospective customer. Advertising ranges from television and radio commercials, to newspaper and magazine pages, to pop-ups on web pages, to handbills and to outdoor billboards.

DOI: 10.1201/9781003318392-8

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Unlike with direct personal contact, the recipient of an advertising message is not under any obligation to respond. Publicity and PR activities can lead to “free” advertising. News stories can have high credibility, generally reach captive audiences and are intended to highlight what is thought to be of greatest interest to readers. Unlike advertising, however, the PR “message” is not within a company’s control. Advertisements can have a variety of aims and can vary greatly in content. They can appeal to emotion or reason and can be directed at a number of audiences at more than one level. They can be sponsored by manufacturers, distributors or retailers and be aimed at local, regional, national or overseas audiences. Opinions differ on how advertising works and over how effective it is.

8.2  MARKET COMMUNICATION PROCESSES AND TASKS Salespeople are reminded constantly that “All sales take place in the mind”. The marketing function needs to take a prospective customer from a state of unawareness that the company’s product or service exists to purchase and then satisfaction after purchase. A short verse which emphasises this point is: He who whispers down a well about the goods he has to sell, will never make as many dollars as he who climbs a tree and hollers. (Anonymous) Planning a marketing programme without an understanding of the communication process is difficult. Marketing is primarily a communication activity. Knowing the nature of communication can also help marketing directors and managers to understand their own organisation better and a number of the marketing management problems which can arise. A business can be viewed as a network of communications between the different departments and functions. Because communication can be informative and/or persuasive, the aim is to have some effect upon the attitude or behaviour of the target audience. There are many forms of persuasive communication. Examples include a speaker addressing an audience, an institution appealing for support or negotiators using different tactics during a negotiation. In any communication, there will be a communicator, the sender or source of a message, the message itself, the channel that carries it and the audience that receives it. There should also be some feedback from the audience to the communicator, although this cannot always be assumed. This is illustrated in Figure 8.1. Effective communication is something that does not happen automatically. It needs to be carefully planned. An organisation must identify the internal and the external groups with whom it is or ought to be communicating and decide what messages should be sent via which channels to reach them.

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FIGURE 8.1  The communications process. (Pathmaster Marketing Ltd.)

The order in which the communication tasks should be done is illustrated in Figure 8.2. Each of these tasks will be described in the following sections. Three models are commonly used for marketing communications, as illustrated in Figure 8.3, abstracted from Hugh Walker’s excellent book “Marketing”.1 All three follow the same fundamental stages; getting the attention of customers and prospective customers, getting them to become interested in the product or service, including possibly getting them to try the product or service, and then getting them to purchase. There should be a reason for (an objective) behind every communication. Messages must reflect communications objectives and be tailored to the specific needs of each audience. Customers or prospects are groups having certain common characteristics with whom a business is or ought to be communicating. Their identification and definition require significant care or the wrong message could be sent by the wrong means to the wrong people. When groups have different interests, communications need to be handled carefully. A message aimed at one audience is likely to be picked up by at least some members of other audiences. Consequently, target audiences should be segmented, the methods for which are explained in Chapter 10. The more narrowly defined is the company’s target audience, the easier it becomes to tailor messages and determine channels. Audiences

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FIGURE 8.2  The market communication process. (Pathmaster Marketing Ltd.)

can be subdivided in terms of interest and awareness. The awareness dimension is important as it must precede assessment or evaluation and desired action. Awareness may or may not lead to understanding or interest and subsequent involvement. The market communication task depends on a number of factors: • • • • •

The number of customers and potential customers. Whether these can be reached directly or indirectly. Which distribution channels are being used. The nature of the competition. The stage of development of the market.

FIGURE 8.3  Market communication models.1

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Two main strategies are used in marketing communication: push strategies and pull strategies. Push strategies require marketing staff to identify prospective customers and then make them aware of the product(s) available for purchase, so that salespeople can actively sell to the prospects. This is the case in most industrial marketing. Personal selling is the principle promotional activity. With pull strategies, marketing staff fill the distribution channels with product(s) and then generate demand by advertising directed at consumers. Products are pulled through retail outlets. Part of the marketing activity obviously requires the retailers’ shelves to be stocked before the advertising and promotion start. Pull strategies are generally only used by large companies that have the financial resources for an advertising campaign needed to generate consumer demand. Because all sales take place in customers’ minds, going from unawareness to satisfaction requires a multi-stage process. Different marketing managers in different companies usually prefer one of the models shown in Figure 8.3 over the other two. Fortunately, there is no best way of doing this. What is required is a clear understanding of the objectives to be achieved and ways of measuring their effectiveness. Marketing managers should spend part of the promotional budget researching how well they communicate with their target audience. There are numerous promotional objectives. They can: • • • • • • • • •

Stimulate demand and sales. Provide information to customers or prospects. Correct false beliefs or images. Provide a reminder to customers. Improve brand recognition. Improve market share. Build a favourable perception. Accentuate value. Create a competitive difference.

Although promotional budgets should be measured, it is widely acknowledged that there is no direct correlation between promotions and sales. Advertising and PR may generate a large number of prospects, but salespeople may not have sufficient resources or be able to convert these into sales. Examples of measurable targets for promotions are: • • • • • •

Target retail market: Reach 1 million ABC1 prospects. Achieve a high number of product trials. Persuade 15% of the target market to request a free sample. Target business market: Reach 500 design specialists. Increase market share from 10% to 12%. Raise product awareness by 40% of engineering specialists.

Product advertising should focus on benefits. (Product and service benefits are discussed in detail in Chapter 19.) This is particularly important when a product has

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been improved or a competitor has introduced a product or service with similar benefits. The key questions in a market communication campaign should be: • • • • •

Who is generating the message? What is the message? To whom is the message going to be directed? How is the message going to be transmitted? Will the message be received?

Advertising and PR objectives should be linked closely to marketing objectives. They should be used to undertake specific tasks within an overall marketing framework. The aim is to generate leads that salespeople can follow up and convert into sales.

8.3  THE PROMOTIONAL MIX The promotional mix includes all activities intended to inform or persuade. Promotion is of most importance when a number of similar products are in the market and when a product is new. Promotional mixes change over time. For example, as retailing switches from counter service to self-service, point-of-sale promotion becomes of greater relative importance. A summary of the numerous elements in the promotional mix is provided in Figure 8.4. The target market is also a principal determinant of the promotion mix. Marketing products to businesses is likely to require less advertising and more personal selling than marketing to retail customers. The promotional mix also changes during the course of a purchasing decision. At the awareness stage, heavy promotional effort may be required. Once awareness and understanding have been achieved, publicity and advertising may become less important as potential buyers seek to obtain the more detailed information they require and to discuss their particular requirements with salespeople.

FIGURE 8.4  The promotion mix. (Pathmaster Marketing Ltd.)

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Which of the huge variety of promotional methods shown in Figure 8.4 are used for a specific promotion depends on the factors listed previously. Advertisements in the national or local press and in trade journals have the advantage of being able to be kept by prospective customers until nearer the time of a possible purchase. Although television probably has a greater impact on public awareness, by reaching more people, these advertisements can be difficult to keep for future reference. In any case, with current programme recording technology, it is too easy for potential buyers to “fast forward” through the advertisement breaks on television. Many television programmes are seen when many shops or retail outlets are closed. One advantage of television commercials is that people who see them are able, almost immediately, to switch to a computer and order the product online or investigate competing products and/or competing suppliers. Two significant disadvantages for television are the cost of advertisements and that these cannot be targeted directly to a specific audience. The cost-effectiveness of television commercials is comparatively low for specialist, technically focused products and higher for mass market consumer products. Radio is frequently a much under-valued medium, which is relatively cost-­ effective because it is much less expensive and very flexible. Radio advertisements can be modified in response to audience feedback. They can also be directed at a target audience, particularly when included in a specific type of radio programme, such as day-time chat shows, period dramas or music programmes. Sending information about a company, a product or a service to the published media (the “press”) is another form of promotion. This is known as a “press release”. A company can obtain considerable media coverage of developments by means of press releases, press conferences and/or contact with individual journalists. Editorial comment that is mainly “free” tends to be considered by audiences as more objective than paid for advertising. Of course, a press release is not free for the company, as someone needs to write it and their marketing management needs to approve it. A press release should be tailored to the specific needs and interests of the target audience. Methods for preparing a press release will be discussed later in this chapter. Conferences, exhibitions, roadshows and seminars are all part of the promotional mix. Exhibitions and roadshows can be useful for both retail and business markets, while conferences and seminars tend to be more applicable for business-to-business (b2b) marketing. At an exhibition, a company will be competing for attention with other companies. A stand will need to be eye-catching to attract participants and will need to be interesting to retain attention. Working machines and audio-visual presentations will often enable one stand to penetrate through a confusing haze of competing messages. Having attracted the attention of a potential purchaser, it is important that the stimulated desire for information is satisfied. The stand should be manned by people knowledgeable about the product and enough brochures and manuals should be available to meet an expected demand. It may be desirable not to have all the available information on display and to encourage those manning a stand to distinguish and discriminate between a “professional” leaflet collector, a competitor’s representative and people who are genuinely interested in a potential purchase. Some stands will be better positioned in the exhibition hall and will therefore be more expensive. The size and layout of a stand should reflect the company’s corporate image.

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A roadshow is slightly different for a company, as there may be only one company involved in the roadshow. As a consequence, the interaction with potential purchasers can be more one-on-one and the element of competitors’ espionage is eliminated. However, roadshows can be quite expensive in both money and time. Organising a roadshow can be quite time-consuming. Presentations to conferences and seminars need to be very professional, interesting and targeted. If a company organises a conference or seminar, this can be very time-consuming and expensive. Making a presentation to a conference or seminar organised by a conference management company involves much less time and effort, but needs to be done by an experienced presenter if the company is to be viewed as professional and knowledgeable. It is important to define the audience you wish to address and whether the conference is likely to attract that audience, to determine what you want to present and why, and to refine and practise the presentation. It is also important for the presentation to be balanced and not look like an overt “sales pitch”; otherwise, the target audience may respond negatively. Methods for planning and organising a conference or seminar are outside the scope of this book. Promotion using web pages on the internet is now very easy to organise, very easy to track and increasingly easy for people to block. Marketing using the internet is about getting attention, in addition to providing information. It supports other methods of communication by providing comprehensive information that answers customers’ questions about a specific product or service. Internet marketing can use the networking attributes of the internet, by leveraging community activities that are online, adding to e-mail marketing and exploiting online social media communications. However, when using internet marketing, it is important to note: • When people visit a website, they are already aware of the company, so what they want is information. • Understanding the needs of customers enables a company to provide just the right amount of information about a product or service. • The internet empowers customers, so if they are unable to find what they need on a company’s web pages, they will then search the competitors’ websites. Internet marketing is most useful for products and services that require a lot of information to achieve a sale. The networking effects are also very beneficial for “wordof-mouth” marketing, when several customers start sharing on social media of their experiences of a “wonderful new product or service”. The target audience for internet marketing only includes those people who have access to the World Wide Web, which now includes more than half of the people on the planet. Internet marketing should be integrated into the overall marketing strategy. As a promotional tool, internet marketing does not have the same impact as advertising or PR. Research indicates that people avoid interactive online advertisements, as they do not have the time to look at them and they are concentrating on getting to the web pages that have the information they are seeking. The main advantage of online advertising is the ability to reach niche markets and target the right customers with just the right product. The sometimes overlooked disadvantage is that it is

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now relatively easy for people to use advertisement blocking software, known as “ad blockers”. Social media marketing uses specific platforms to promote a product or service. Terms such as e-marketing and digital marketing have been used, but social media marketing is becoming more popular for both practitioners and researchers. Platforms include Facebook, Instagram, Twitter, MySpace, TikTok, LinkedIn, Snapchat and several others. Most social media platforms have built-in data analytics tools, enabling companies to track the progress, engagement and success of marketing campaigns. Companies can target a range of audiences, including current and potential customers, current and potential employees, journalists and bloggers. When using social media, companies can allow customers and internet users to post user-generated content online, such as comments and product reviews. Social networking websites allow individuals, businesses and other organisations to interact with one another and build relationships and communities online. When companies use social media, people can interact with them directly in a way which can be more personal to users than traditional methods of PR and advertising. Social media platforms act as “e-word of mouth”. The internet’s ability to reach millions of people around the world has given online word of mouth a powerful voice and far reach. The ability to rapidly change buying patterns for products or services to a growing number of consumers is defined as an influence network. Posting and reposting comments or reviews on social media allow more and more people to see the message and to respond. Some social media platforms also rely on advertisements for some or all of their revenues. Social media platforms also include much information about what products and services might interest prospective customers. Semantic analysis methods can be used by marketing people to detect buying signals, such as content shared by people, blogs, reviews and questions posted online. An understanding of buying signals can help salespeople target relevant prospects and enable marketing managers to run micro-targeted campaigns. This is a passive approach to online marketing. Social media is a relatively low-cost source of market intelligence which can be used by marketing staff to track and respond to consumer-identified problems and to detect marketing opportunities. The active use of social media by marketing managers utilises another channel for communication, this time to very specific audiences, in addition to wider PR and advertising. Social media influencers and social media personalities can be used as effective customer engagement tools. This approach is widely known as influencer marketing, because it allows companies to reach a target audience in a more genuine, authentic way via a special group of selected influencers advertising their product or service. The promotional mix also includes a number of ways to try to induce prospective customers to purchase. These include special prices, offers, samples, giveaways and competitions. Reducing the price of a product or service can be funded out of a reduction in profit margins or by giving up a part or the whole of a contribution towards overheads. A substantial reduction may still allow direct costs to be covered. Some retailers may make a business from the sale of reduced-price products, covering the loss

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of margins by the volume of throughput or by obtaining significant economy through bulk purchasing. A premium that offers a substantial saving to a customer can result in a quicker decision to purchase or an additional quantity of purchase. A decision to introduce a premium will depend upon an estimate of the long-term increase in total purchases compared with the immediate revenue foregone. A number of purchases may be necessary before a customer can take advantage of a reduced-price offer or a free product or gift. This approach may help to instil a purchasing habit. A form of premium that may be less attractive to a retailer is one that requires a number of tokens, coupons or labels to be collected and returned. Requiring the collection of too many coupons may fail to motivate or to bore, if the expected return appears too remote. Where a free gift is offered, then sufficient stocks should be available to meet the expected demand. The customer will be alienated if a long delay is experienced. It is an advantage if an incentive offered is related in some way to the product concerned. A number of ways can be used to reduce the price of a product or service. However, marketing directors and managers should be aware of legal restrictions in many countries relating to certain claims. A purchaser could be offered a refund of the purchase price within a defined time in the event of not being completely satisfied with the purchase or the product being faulty. Many countries now have statutory “consumer purchase rights” or “consumer protection rights” relating to returns and refunds. An item could be simply reduced in price for a specified limited period. Again, many countries’ competition authorities have legally enforceable guidelines as to what qualifies as a price reduction compared with a previously advertised or displayed price. An extra quantity of a product might be sold at the previous price, with the packaging labelled as the extra quantity being “free”. Several products could be packaged and sold together at a price that is lower than the price would have been for the individual items. This is commonly known as a “multi-buy discount”. Giveaways include pens, pencils, calendars, wall charts, stickers, bottle openers, tee shirts or even clocks. The purpose of a giveaway is to remind and hence to reinforce a message. The ideal giveaway is relatively cheap, frequently used and, if possible, seen by others. When mass-produced, these can be relatively cheap. The giveaway could present a brand or a company name and could be related to a product. Increasingly however, cheap plastic giveaways are being viewed as very damaging to the environment, since they are easily discarded and difficult to recycle. A giveaway that is pitched at the right level can create goodwill. One that is perceived as too “cheap” or as a “bribe” can be counterproductive. A recipient is likely to be more pleased with a giveaway that is promoted as selectively given to favoured friends and customers than to one which is automatically given away to all contacts or visitors. Once given regularly, a giveaway can be taken for granted. For some potential consumers, seeing is believing. Promotional opportunities exist for showing that a product works by giving these prospects a sample or by demonstrating the product to them. The larger the number of potential customers, the more expensive it will be to provide samples. However, having too few samples may not provide sufficient confirmation that the product meets the needs of the prospective customers. Sampling helps to encourage trial use of a new product and is most

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appropriate in the case of relatively cheap, easy-to-carry items which, if adopted, are likely to be purchased frequently. The cost of a sampling programme can be high, distribution can be complex and the system is open to abuse. However, when used in conjunction with other promotional techniques, it can be cost-effective. Providing samples can induce trial purchase, demonstrate an improvement or advantage that may not be apparent until a product is used in practice, encourage stocking by distributors and reach people who tend to be cynical about a sales message that is not backed up by “facts” or “evidence”. Competitions exist in many forms. Some offer a low probability of winning an attractive prize, while others offer a more certain reward of lower value. The form of competition selected will depend upon what is known about the target market. With a sweepstake, a customer has only to enter the name or scratch the number on a card. With a contest, some form of entry will be required to be submitted and judged. Another form of competition involves asking customers, each time they purchase a product, to submit a suggestion for a slogan or catch-phrase or a drawing or photograph to win a prize. Point-of-sale promotions can be used to reinforce a message or remind potential buyers when there may not be time to put across a new message. A point-of-sale technique can put a new message across which does not need to involve sales staff directly in the demonstration. An effective point-of-sale promotion can exert a strong influence upon a potential customer and can back up other promotional techniques, such as the use of coupons and premiums. A co-ordinated campaign will make use of complementary approaches which reinforce each other and build up as the point of purchase is approached. For example, a banner or an external sign could attract the initial attention of a passing motorist who recognises an image from a television advertising campaign. A prominent window display may then present some further information on the product and draw attention to the existence of some special offer. On entering the retail outlet to obtain further information, the physical route to the shelf location might be “flagged” by arrows or coloured signs. The full extent of the temporary advantage of purchasing on the spot could be clearly presented on a counter card. A customer at the point of making a purchase and confronted by a brand choice is a particularly important public target. In addition to packaging, display stands and cards, special baskets and cardboard figures can be used to attract attention. Suppliers of series of booklets, toys and postcards will often provide stores with swivel display stands upon which their goods can be arranged. In addition to in-store displays, point-of-sale promotion can also be used to attract customers into a shop. Point-of-sale promotions can also influence impulse purchasing. Personal selling as part of the promotional mix is discussed in depth in Chapter 19. Sometimes, when a test marketing programme is planned for a new or improved product (see Chapter 12), it could include an evaluation of different promotional methods. The alternatives (or different combinations) can be compared and their relative effectiveness evaluated prior to the development of a definitive marketing campaign. A large agency may have a media selection model which might be able to compare the effectiveness of different advertising solutions. A variety of programming and

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marginal analysis models may be used to select optimum solutions. Other techniques such as simulation analysis can be used to evaluate probable outcomes. However, a model is only as good as its basic assumptions and the quality of data fed into it. Models that allow the sensitivity of a solution to changes in various input values are particularly useful. The main defect of models is that so many of the factors being modelled are interrelated in complex ways. Where there is a lack of knowledge of how certain key variables interrelate, simulation models have some value in helping marketing people better understand the system they are seeking to model. The models and research analysis can be used to: • Decide promotional messages: Which types of are message are read by which buyers? • Determine advertising media: Which are the best newspapers, magazines or trade journals? • Show the impact of different types of promotion: Which elements of the promotion mix reach the target audience? • Test advertisements: Impact, clarity, durability, comprehension? • Test the effectiveness of promotional campaigns: Measurements of target audience reaction, before and after. Occasionally, the “ratchet” effect appears to operate in marketing. On a trial or test basis, new methods of promotion are tried and existing ones extended, but there can be a great reluctance to reduce expenditure on a long-established method for fear of the possible consequences. In some cases, for year after year, a company might continue advertising in journals and directories, attending exhibitions and publishing catalogues. That the expenditure in question is small might be given as a reason for its continuance. The fact that costs are indivisible is often the reason why marketing resources are not always allocated in proportion to their effectiveness. While it might be possible to adjust the number of catalogues printed or the number of people reached by a direct mail shot, the mounting of an exhibition, the equipping and fitting out of a stand might represent a high fixed cost. There might be a threshold of minimum effectiveness to cross. Packaging can be an underrated component of promotion mix. A product’s container or the way a service is packaged is an element of communication. Packaging serves a number of functions. In addition to protecting the customer and the product, it should attract, interest, impart information, perhaps engender glamour and excitement, but certainly encourage purchase. Packaging should highlight those factors most likely to encourage consumption. It must often meet the needs of several communication channels. For example, it may have to attract attention in both television commercials and point-of-sale display cards. Retail consumers are attracted to certain sizes, shapes and colours and become attached to packaging. For example, with Coca-Cola, for many people, the shape of its bottle came to represent a major part of the product and to symbolise it. Packaging can communicate an image. The same cosmetic could be packaged in square economy packets for the low price mass market and in slim elegant bottles for a high price more select market.

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8.4 ADVANTAGES AND DISADVANTAGES OF COMMUNICATIONS METHODS All the promotional methods have advantages and disadvantages. These are summarised in Figure 8.5. With personal sales, the benefits are: • • • •

A highly effective means of promotion. Personal recommendation provides valuable credibility. Provide high-quality marketing information. Reference customers can be used for other promotional activities.

However, the disadvantages are: • • • •

They can be slow to achieve results. Relies on individual people, whose positions can change. Relies on personal integrity. Distributors can switch allegiances.

With press releases, the benefits are they: • • • • • •

Are relatively low-cost. Can have high credibility; independent comment. Are an important source of information for buyers. Can reach a wide target audience. Can be used to select publications for advertising. Will provide reference material for sales staff.

FIGURE 8.5  Advantages and disadvantages of communications methods. (Pathmaster Marketing Ltd.)

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However, the disadvantages are: • • • • •

There is little control over the editor’s selection. Not all publications will respond. They must compliment the marketing focus. Preparing press releases can be time-consuming. They must be prepared to convey the right messages of interest to readers.

Advertising has a number of significant advantages, including: • The ability to reach a very large target audience, whether locally, nationally or internationally. • Attention grabbing advertisements can be highly memorable and widely discussed by the general public, businesses and even competitors. • Effective advertisements can reduce consumers’ propensities to switch brands, even if they don’t result in increased sales. • Advertisements are particularly effective when they are part of a new product introduction. • Printed advertisements in newspapers, magazines and journals can be seen and acted on long after they have been published. However, advertising also has some real disadvantages, such as: • Prospective customers remember the people delivering the message and the pictures, music or words in the message, rather than the product or service being advertised. • Because consumers may express the type of people they are through their purchases, the image of the product in the eyes of other people may be a crucial factor in the purchasing decision. • Advertising might be viewed as an enticement for someone to buy something they don’t really need. • Poor quality advertisements are likely to seriously damage a company’s brand image. • Advertisements that are technically excellent but which don’t result in purchases may be an aesthetic success but a commercial failure. • Children tend to be less critical of advertisements than their parents, so care needs to be taken to not encourage children to pressurise their parents into buying a specific product. With exhibitions, the benefits are they: • • • •

Reach a relatively large audience; customers, suppliers, the press. Reduce the number of sales calls needed. Increase awareness of the company. Focus marketing campaigns.

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Unfortunately: • • • • •

They can be expensive. Competitors can gain information. They require specific objectives. They can require significant marketing department resources. They require great care in selection.

Using the internet for promotions has a number of advantages: • The potential to reach a huge, global audience; consumers, customers, suppliers, publishers and others. • Advertising can be very targeted to specific customer groups. • It is possible to reduce the number of sales calls needed. • It could increase awareness of the company. • It is likely to focus a marketing campaign. However, the disadvantages are: • • • • •

It can be time-consuming for managers and marketers. Competitors can gain information. It can require significant marketing department resources. It is likely to require great care in selection. It can generate negative publicity

Social media is an increasingly powerful part of the promotional mix. The advantages of using Facebook, Instagram, MySpace, Twitter, TikTok, LinkedIn, Snapchat or other platforms are: • The ability to micro-target very specific customer or prospective customer groups. • Marketing managers can obtain “real-time” information about consumer behaviours and views about the company’s products or services. • Tracking and analysing customers’ opinions, beliefs, attitudes and behaviours are relatively easy, in comparison with other marketing communications methods. • Companies can appear more “human”, through using social channels rather than retail or business channels. • The ability to engage and attract more customers, through wider brand awareness and recognition. Unfortunately, using social media for marketing purposes has a number of significant disadvantages: • Negative posts, reviews or blogs can be very damaging to a company that has not performed effectively.

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• The message(s) to the target audience must be very clear and persuasive. • Social media is very good at spreading misinformation and/or falsehoods, which tend to travel further and faster than accurate information. • Some social media platforms are becoming more tightly regulated, particularly with regard to collecting and sharing sensitive customer information and data. As a result, choosing the optimal mix of promotional methods is not easy and requires considerable thought and marketing experience. On many occasions, trial and error is likely to be the best guide to achieving the desired outcome. Unfortunately, trial and error can be both time-consuming and comparatively expensive.

8.5  ADVERTISING AGENCY SELECTION AND BRIEFING Selecting an advertising agency that can provide the best selection of services, including strategy, creative thinking, consultancy, use of media and integration with other communications activities, is very important for achieving a successful marketing campaign. Important factors to consider are its approach, reputation, previous successes and financial resources. One immediate issue is whether the agency already works for a competitor. This is particularly difficult if one agency is regarded as an industry specialist, with particular expertise in a target market, such as lubricants. The problem can sometimes be avoided if the agency is large enough to have separate teams working for two or more competitors’ accounts. A track record is also very important. Knowing that an agency is able to deliver what it has promised is likely to be high on the priority list. Sometimes, an agency will send a senior team to pitch for a contract, only to then assign a more junior team to do the day-to-day work. When selecting an agency, meeting the team that is actually going to do the work is important. It is also preferable to have the team managed by a senior executive. The relationship between the company and the agency is critical to success. A full-service advertising agency may not be essential for the marketing campaign, especially if the company has experienced in-house resources to handle part of the task. Creative agencies, media specialists or integrated agencies can do some of the specialised tasks. Evaluating an advertising agency involves a number of factors: • Reputation: Does the agency have an established reputation in the company’s target market? • Track record: With what marketing campaigns has the agency been involved during the recent past and how successful have these been? • Client relationships: For which client companies has the agency worked in the recent past and how many of those relationships are long-standing? • Approach: What is the agency’s philosophy and how does it work in practice? • Accountability: How does the agency measure its performance against defined outcomes?

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• Services: Which services can the agency provide and do they match the company’s requirements? • Staff: Does the agency have sufficient experienced staff to handle the assignment? • Finances: What is the agency’s recent financial performance and does it have the resources to sustain an effective level of service for the foreseeable future? According to research by the UK’s Henley Centre, the ten most important factors in the performance of advertising agencies are: • • • • • • • • • •

Understanding the client’s business. Using creativity effectively. Having real creative flair. Getting work done on time. Having a good understanding of the client’s customers. Defining advertising objectives beforehand. Keeping costs within budget. Using research to help its creative work. Being strong with media buying. Being thorough and hard-working.

A full-service agency will handle all aspects of an advertising campaign. These agencies are particularly useful for companies that do not have many internal marketing resources or where advertising is likely to be very important to the success of a marketing campaign. Media agencies handle only media planning and buying. By concentrating on media, these agencies can usually negotiate better deals and have very good relationships with media companies. Some smaller advertising agencies use media agencies to handle that part of the contract. A marketing department should use a media agency if it can do the campaign planning, advertising planning and creative work in-house, but does not have sufficient expertise or resources for media planning and buying. Creative agencies handle only creative work such as copywriting and advertisement design and artwork. This type of specialisation can often achieve more effective advertising than a full-service agency. Three types of creative services exist. These are freelance people or combined writer/art director teams, design consultancies that offer advertising as part of a communications service and specialist creative independent agencies that either have their own design teams or that manage freelance people. For a company in which advertising is a small part of the marketing activity, using a specialist creative agency can achieve effective results. Integrated agencies handle all aspects of an advertising campaign and integrate advertising with other media. There are two types of these agencies. The first are single integrated agencies in which all campaigns are handled by one team. The second are agency groups in which advertising and non-advertising are handled by specialist companies or business units within the group. An integrated agency may

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provide advantages when advertising, direct marketing, publications and sales promotions are equally important to the success of a marketing campaign. The advertising agency contract should include sections and agreements on: • • • • • • • • • •

The scope of the work. The timing of the activities, recommendations and results. Exclusivity for the client company. Payment and remuneration, whether up-front, in stages or on completion. Resources and management of the contract and any sub-contracts. Copyright and ownership of the work. Agency liability and legal recourse. Confidentiality. Inspection of records. A review of the work on completion of the contract.

A comprehensive brief for an advertising agency needs to cover all aspects of the project, including the background, objectives, research, competitors, product information and target audience. If the brief is not prepared properly, the results are likely to be less than satisfactory. The people who prepare the brief should be the same as those who evaluate it. These will include the company’s marketing managers, sales managers, relevant marketing specialists, product specialists and research managers. It can be difficult to deal with objections and criticism from people who do not understand the detail of the brief. It is sometimes useful to include the agency team in discussions about the brief. If the brief is as specific as possible, measuring the results is likely to be that much easier. Although it is not always possible to set a measurable objective, marketing managers should aim to do so. Advertising agencies sometimes argue that results depend on factors outside their control, but it should be possible to identify the communications objectives and then find a way to measure them. The agency brief should have the following sections: • Introduction: The background to the project, the overall aim, the opportunities and threats faced by the company and the general marketing programme. • Pitch timing: The timeframe during which a selected number of agencies will be asked to pitch for the contract. • Objectives: These will include the overall corporate objectives and the specific marketing objectives. The communications objectives and the specific project objectives will be derived from these. The project objectives should be as detailed as possible. • The brand: Whether the product or service is one of the company’s master brands or a subsidiary brand. • The market place and customers: The principal concerns and needs of the target audience, including why they buy, what factors they consider and how they view different products and suppliers.

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• Competitor analysis: Information about which competitors market similar products, how the competitive offerings compare, the product’s key benefits or unique selling points and how competitors are viewed by customers. • Market research: Information on customer surveys, product reviews, customer satisfaction surveys, media coverage, feedback from focus groups and feedback from social media analysis. • Previous campaign activity and results: Outcomes from earlier marketing activities for this product or service or similar products or services. • Mandatory inclusions: Company-specific information that must form part of the project’s objectives. • Product/production lead times: For new product introductions, the timeframe for launch activities. • Internal contacts and procedures: People and processes in the client company who need to be kept informed of progress or problems with completing the project. • Terms and considerations: Standard legal contract requirements. • Budget: The upper limit on company expenditure for the project. The steps required to determine and allocate a budget for promotional activities (whether advertising or PR) are outlined in Figure 8.6. During the course of the project, the advertising agency that is awarded the contract may request or require supplementary information. They may like to visit a blending plant or warehouse, have meetings with salespeople, distributors and trade customers or even visit one or more stores or retail outlets. They might want to look at

FIGURE 8.6  Allocating the promotional budget. (Pathmaster Marketing Ltd.)

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company archives, previous market research and product research and development substantiation and comparisons. They might even want to test competitors’ products. (This should not incur the client company with additional costs.) They should have access to examples of competitor’s advertisements. There may also be requests for brain storming and proposition testing with the client company’s managers. When selecting an advertising agency, there are three common mistakes: • Choosing the wrong size of agency: A large agency may have the resources to support a national or international advertising campaign, but if the client company is relatively small, the agency may assign the contract to a junior team. It may be better to work with a smaller agency where the contract is managed by a senior team. • Choosing the wrong type of agency: The skills and experience of an agency may not correspond with the requirements of the client company. As noted earlier in this chapter, retail consumer marketing is different from industrial business marketing. Agencies also develop expertise in specific markets or industries. Communicating with the lubricants market is discussed in detail in the next chapter. • Relying on a creative pitch: Selecting an agency often relies on the agency’s sales pitch. Although the presentation and subsequent discussion give an insight into the agency’s skills, experience and working methods, they are an imperfect guide to potential performance. The contribution of marketing to the financial performance of a company has been a subject of considerable debate and investigation for many years. Marketers and academics have sought to understand the role of marketing expenses in contributing to the financial performance of organisations. In times of recessions, budget reductions or market contractions, marketing budgets can get reduced substantially. However, companies continue to spend significant amounts of money on the development and execution of marketing programmes. In particular, many marketing managers and executives continue to promote the idea that advertising has the ability to capture a potential customer’s attention, to drive a positive buying attitude and eventually to encourage a purchase. There are two additional opinions. One is that advertising increases profits by creating false product differentiation and raising the entry barriers for other companies. The other suggests advertising has an informative character that can shape the market to be more competitive and distributing the profits to more companies sharing the market. A number of studies have found that advertising undoubtedly affects sales, but the long-term results are not always positive. Nevertheless, the potential benefits of advertising for a company cannot be disregarded, as advertising continues to account for a substantial proportion of the marketing budget of many larger companies in the market. Although there have been many studies to assess the importance of understanding the impact of advertising on sales, there appears to be little consensus on the interpretation and significance of the findings. Results that suggest that there is either no relationship or a very weak relationship between advertising and sales are especially

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controversial, because they question a common belief that advertising is a key element of changes in sales. One of the simplest and most effective ways to find out what role advertising played in a purchasing decision is to ask the customer who made the purchase. For example, with some retail and commercial sales, it is possible to ask a customer whether they remember seeing an advertisement for the product and whether this encouraged the purchase. With an online supplier, the checkout process could include a question about how the customer knew about the website. A web address can be printed at the bottom of each till receipt to encourage customers to complete an advertising survey, possibly with the incentive of being entered into a monthly or quarterly prize draw. Advertisers may also use promotions that contain a unique identifier to help companies compare the effectiveness of two or more advertisements. The agency includes a coupon with a specific discount code in one advertisement in one publication and a different discount code in a different advertisement in another publication. By tracking the codes as customers redeem their coupons, the agency (and company) can determine which advertisement generated the most sales. Companies can obtain similar results by including different telephone numbers in different advertisements and measure the number of calls customers make to each number. Agencies track online traffic by advertising different website addresses in different publications. The different addresses redirect to the main business site and the company tracks how much incoming traffic comes from each of the referring web pages. It is important to link this traffic to specific sales volumes. Occasionally, the relationship between advertising and sales performance is subtle. Many customers decide to purchase products for nuanced reasons, such as familiarity with a brand. Brand advertisements don’t promote a particular product, but provide information about the company that markets the product and help to clarify its brand identity. Market researchers measure the effectiveness of brand advertising by asking customers about which advertisements (whether on television, by radio, in magazines, on the internet or in social media) they can recall. If they do remember an advertisement, the researcher can then ask follow-up questions to find out how the consumer perceived the advertisement and their perception of the company or brand. One of the metrics advertisers use to measure the effectiveness of advertising is the conversion of visits, to a retail store or to a website, to sales. It is difficult to determine exactly what drives a consumer to make a purchase, but measuring a company’s conversion rate immediately before and after an advertising campaign helps to assess the effectiveness of its advertising and in-store promotions.

8.6  PUBLIC RELATIONS AGENCY SELECTION AND BRIEFING Selecting and briefing a PR Agency is very similar to selecting and briefing an advertising agency. The methodology is virtually the same. A key difference is in the costs of advertising, in terms of internal company costs, agency costs and advertisement costs, compared with PR costs, in terms of company time and agency time. PR tend to be less expensive than advertising, but may also be less effective at communicating messages to target audiences. Another difference is that a PR agency contract tends to be more open-ended than an advertising agency contract.

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An external agency can take a more objective view of a company’s press material and help to make it more appealing and relevant to the published media. Their writers may have more experience with writing for the publications which a company wants to use to communicate with the marketplace. This means they can tailor material for specific publications and help to ensure that the material is published. However, a PR agency’s writers may not have much product knowledge and may need considerable guidance in order to achieve successful results. If a company supplies complex technical products, it may be better to keep the preparation of technical press releases and articles in-house. The PR agency can then be used for corporate press releases. PR can be important in a number of business scenarios. When a company has undergone a significant change, when it is about to enter a new market or introduce new products or services or when it is building key account or business relationships with an important segment of the market, news of these activities should be broadcast as widely as possible. PR is also valuable when research shows that customers are not aware of the company’s key strengths or the company has a poor reputation in one or more areas that are important for commercial success. Building a PR plan and briefing an agency need to involve: • • • •

Setting objectives. Defining the messages that need to be communicated. Integrating PR activities with other marketing activities. Gathering information on target media (newspapers, magazines, television and radio). • Planning who will prepare what and by when. • Implementing the plan. • Evaluating the results, in terms of successful activities and responses from the target audiences. The responsibility for PR should be the company’s Press Office, a single point of contact for all communications. Depending on the size of the company, the Press Office might consist of a single person or might involve a Senior Press Officer who has several assistants responsible for specific tasks. The Press Office regularly handles the “media” and reports to senior management but is in daily contact with the Marketing Department. The office must be able to respond promptly to queries from the press or the public and the response must be done with care and precision. On occasions, the company may not wish to comment, but should whenever practicable. All requests for information or comment from the public or the press to any manager or employee must be channelled through the Press Office, to ensure that the company’s messages to the public are consistent and clear. All companies need to be on the lookout for things that can go wrong with a PR agency contract. As with advertising agencies, a contract and agreement are essential. All legal requirements must be observed. Tight control of the budget must be maintained, short cuts avoided and regular reviews of agency performance conducted. Communication programmes should be co-ordinated for maximum effect.

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The Press Office should maintain regular contact with the agency and should work on facts, not subjectivity. It is worth noting again that agencies are inclined to over-promise. Also, agency staff move jobs too. Changes will impact on the budget and the lead times, and senior company executives may occasionally try to interfere.

8.7  PUBLIC RELATIONS AND PRESS RELEASES Journalists in newspapers, magazines, television and radio are always looking for “stories” that will interest their target audience and help them to sell their “media” to that audience. Sending a press release, article or advertorial to the right person in the right format is a way of gaining great publicity for a company. While it is easier to prepare a single press release, for distribution to several publications, a company is more likely to get its information into print or on television or radio if several similar press releases are prepared tailored to each type of media. Getting news printed is usually easier than getting coverage on television or radio, as news coverage on both tends to go to the “top” (that is, of most interest to viewers or readers in the opinion or judgement of the news editor) stories. For printed news, reading previous items in newspapers and magazines, and studying publishers’ readership data, is likely to identify the type of material that is likely to be included in future editions. Sending a press release to a news editor will not necessarily ensure it gets printed or broadcast. While the “news” may be of interest to readers, viewers or listeners, there may not be enough space in the next edition, the release may have missed a copy deadline or a competitor’s news may be more interesting. The editor may have decided that the “news” is not really appropriate for the publication. A brief chat (either in-person or over the telephone, but never by e-mail) with the editor could be used to find out why, and what might be more suitable in future. The types of information in a press release include new products or services, company developments, customers’ successes, industry awards and appointments or promotions. An effective press release should contain genuine news, rather than thinly disguised advertising. The essentials for a good press release are: • Topicality: The editor should be helped to sell the magazine, journal or television or radio programme. • Promptness: PR should be used in conjunction with other marketing activities. • Presentation: A good press release should be no more than two or three pages of double-spaced type. • Packaging: Company contact names and details must be included. It is important to get a number of basics right for all press releases. It is vital that the story is strong, that it is to be sent to the target publication(s) and that it has a clear title or heading. The story must be summarised in the first paragraph, must be concise (all words that are not essential should be removed) and sentences should be short. The layout should be a simple as possible. Any limitations on the use or timing

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of the press release should be highlighted clearly, for example, “not for publication before …. (time and date)”. An interesting photograph or diagram can be included, if appropriate. Quotations are useful and are used frequently by editors. Most importantly, the release should be sent to a named contact, most usually now by e-mail. The most important information should be included in the early paragraphs. If an editor is short of space or time, the release will be cut as simply and quickly as possible, most usually from the bottom upwards. For newspapers and magazines, publication deadlines should be checked with the publisher and the release sent at least a day before the deadline. It is also imperative that the “news” is current and not “out-of-date”, as editors will spot this very quickly. Getting the timing right is relatively easy for a daily or weekly publication, but more difficult if the magazine is only published monthly. For television and radio “news”, it is always today’s news. A feature article is a longer form of press release. They are generally between 500 and 2,000 words, most often to be published in a magazine or journal. Articles may be on technical, business or industry developments or to provide readers with practical or topical information. They allow a company to demonstrate its expertise and professionalism to a wide audience. Again, they should be typed double-spaced, contain photographs and/or diagrams and should only be sent to one publication. The length and topic of the article should be discussed with the editor beforehand. As before, checking publication dates is important.

8.8  PUBLIC RELATIONS AND PUBLIC IMAGE Good publicity is likely to enhance the credibility of any marketing message. Good PR can improve the image and reputation of both a company and its products. According to the Collins English Dictionary, PR is “The practice of creating, promoting or maintaining good will and a favourable image among the public towards an institution or public body”. The Institute of Public Relations defines PR as “The planned and sustained effort to establish and maintain good will and mutual understanding between an organisation and it’s public”. PR communication is two-way. Effective PR communication tends to be highly selective, tailoring messages to the specific needs and interests of carefully defined audiences. Ideally, each recipient of a PR message would receive an individually tailored communication. A company’s PR activities involve both internal and external communications, including public affairs, shareholder relations, employee relations, financial PR, corporate image and media communications. To some extent, PR can be used in conjunction with other marketing communications methods, such as advertising. People make perceptions, judgements and assumptions about a company from one or more of the following contacts: • • • •

Switchboard. Order reception. Delivery drivers and vehicles. The reception area.

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Salespeople. The company logo, brand and letterhead. Advertisements. Attitudes to staff, suppliers and customers. The internet. Social media.

Publicity can be free but can sometimes be unfavourable. It is difficult to control and it is usually easier to influence good publicity than bad publicity. Good publicity can spread a company or a product name and can make recipient groups more favourably disposed towards a company and the purchase of its products or services. PR activities can encourage good publicity and seek to minimise the damage done by bad publicity. It is certainly not true that “all publicity is good publicity”. Planning and implementing effective PR are likely to reduce the chances of failing to react to bad publicity and of missing opportunities for good publicity. To a large extent, a company can control the “news” it puts out. In the absence of a company’s own message, an alternative message, possibly inaccurate and misleading, may emerge. Publicity requires good stories. News is expensive to obtain and can be scarce. Good publicity is not going to be easily achieved by a company that is both inactive and has little of interest to say. Publicity can however, when it occurs, be dramatic and reach large audiences. Greater consumer awareness, dealer interest and requests for information can follow a news item. Consistent publicity on a particular issue can do a great deal to build or to harm an image or a reputation. Typical PR activities include: • • • • • • • •

Writing and distributing press releases. Writing and blogging for the internet or a company’s intranet. Preparing presentations and speeches. Creating and implementing special events designed for public outreach and media relations. Social media promotions and responses to negative opinions online. Writing pitches (which are less formal than press releases) about a company and sending them directly to journalists. Conducting market research about a company or the company’s messages. Preparing crisis PR strategies.

There are critical differences between PR, spin and propaganda. Historically, spin was interpreted to mean overt deceit that is meant to manipulate the public, but since the 1990s it has shifted to describing a “polishing of the truth”. Many people now believe that spin refers to providing an interpretation of information meant to sway public opinion. Companies may use spin to create the appearance that the company or other events are going in a slightly different direction to that in which they are actually going. Good PR practitioners now view spin as a derogatory term, interpreted to mean blatant deceit and manipulation. Skilled practitioners of spin are sometimes called “spin doctors”.

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Propaganda was originally a neutral term for the dissemination of information in favour of a specific cause. However, during the 20th century, the term acquired a thoroughly negative meaning in developed countries, meaning the intentional dissemination of often false, but certainly “compelling”, claims to support or justify political actions or ideologies. Now, propaganda is regarded as information which is used primarily to “influence” an audience and further an “agenda” which may not be “objective” and may be presenting “facts” selectively. This is intended to encourage a particular perception, or by using “loaded language” to produce an emotional rather than a rational response to the information that is presented. Propaganda is often associated with material prepared by governments, but activist groups, companies, religious organisations, the media and individuals can also produce propaganda. There are six essential ingredients or values for good PR and public image: • Honesty: Upholding the truth and accuracy of all facts in the case and presenting those statements to the target audience. • Advocacy: Serving the public interest by acting as responsible advocates and by presenting ideas, facts and viewpoints to aid informed public debate. • Fairness: Conducting business honourably with all audiences, including employees, competitors, stakeholders, media and the general public, in addition to respecting all opinions and the right of free expression. • Expertise: Becoming and staying informed of the specialised knowledge required to be PR professional, such as building understanding, credibility and relationships with various audiences and industries. • Independence: Providing unbiased information, while being accountable for all actions. • Loyalty: Staying dedicated to the client company while remembering that there is a duty to also serve the public interest. PR is more than just communication. It must integrate with company business strategy, marketing strategy and sales activities. With regard to the widely held view that “there is no such thing as bad publicity”, a few examples from recent years should banish this myth: • Enron and Arthur Andersen: Enron was founded in 1985 by the merger of two natural gas transmission companies, Houston Natural Gas Corporation and InterNorth Inc. After the company lost exclusive rights to gas pipelines, it became an energy trading company and was very profitable initially. However, as Enron faced increased competition, the company’s profits shrank rapidly. Under pressure from shareholders, company executives began to rely on dubious accounting practices, including a technique known as “mark-to-market accounting”, which allowed the company to write unrealised future gains from some trading contracts into current income statements, giving the illusion of higher current profits. In addition, the troubled operations of the company were transferred to “special purpose vehicles”, which enabled their losses to be kept separate from Enron’s declining

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profits. Throughout these years, Arthur Andersen served as Enron’s auditor and as a management consultant. As the details of the accounting frauds emerged in the media, the stock price of the company plummeted from a high of $90 per share in mid-2000 to less than $1 by the end of November 2001. Arthur Andersen, one of the world’s top five accounting firms, came under intense scrutiny by regulators and the media and eventually lost almost all its clients. The damage to its reputation was so severe that it was forced to dissolve itself. In addition to federal lawsuits, hundreds of civil suits were filed by shareholders against both Enron and Andersen. Enron filed for bankruptcy in 2002, taking with it $60 billion in assets. • On 24 March 1989, the Exxon Valdez, an oil tanker owned by Exxon Shipping Company, struck Bligh Reef in Prince William Sound, Alaska and spilled 37,000 tonnes of crude oil over the next few days. The tanker’s captain and senior officers were blamed for the spill. After spending $2 billion cleaning up the spill and a further $1 billion to settle related civil and criminal charges, Exxon was subjected to numerous court proceedings, eventually all the way to the US Supreme Court, which finally imposed $507.5 million in punitive damages. All of this occurred in the media spotlight. Exxon’s actions were deemed worse than negligent, but less than malicious. It is still considered the worst oil spill world-wide in terms of damage to the environment. • Toyota sticking accelerator pedals: Reports began to emerge in 2009 that the accelerator pedals in some Toyota vehicles were getting stuck fully on. In 2014, Toyota paid $1.2 billion to avoid prosecution for covering up information about problems with “unintended acceleration” that the US Federal Bureau of Investigation (FBI) said Toyota “knew was deadly”. However, careful investigation found that on many occasions, drivers who reported that their accelerators were stuck were mistakenly pressing it down while thinking they were pressing the brakes. Data from many of the “black boxes” from cars involved in incidents of unintended acceleration showed that in most cases, the brakes were never touched. Unfortunately, the media, instead of alerting drivers to the potential dangers of confusing the accelerator with the brake, focused on Toyota’s cover up, the scary and unpredictable software in cars and the possible role of floor mats in jamming the accelerator pedal. • Takata airbag recall: Takata, founded in 1933, was a Japanese manufacturer of automotive parts. The company began making airbags in 1988 and by 2014 had a global market share of 20%. In 2013, a series of deaths and injuries associated with airbag inflators manufactured by the company’s Mexican subsidiary led Takata to initially recall 3.6 million cars equipped with such airbags. Reports indicated that the problems may have begun a decade earlier, with faulty airbags placed in some Honda models starting in 1998. In June 2014, Takata admitted its Mexican subsidiary had mishandled the manufacture of explosive propellants and improperly stored chemicals used in airbags. Identifying vehicles with defective airbags was made more difficult by the failure of the company’s US subsidiary to keep

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proper quality control records. Takata used ammonium nitrate to create a small explosion to inflate air bags. The chemical can deteriorate over time when exposed to high heat and humidity and burn too fast, blowing apart a metal canister and hurling shrapnel. (Permanent replacements don’t use ammonium nitrate.) By 2015, at least twenty-five people had been killed and hundreds injured world-wide by Takata airbags. About 100 million airbags were required to be recalled by global regulators and almost all automotive manufacturers, the largest such recall in history. In June 2017, Takata filed for bankruptcy, and was later acquired by Key Safety Systems. • Volkswagen diesel emissions: In September 2015, the United States Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to Volkswagen Group. The agency had found that Volkswagen (VW) had intentionally programmed turbocharged direct injection (TDI) diesel engines to activate their emissions controls only during laboratory emissions testing. This caused the vehicles nitrogen oxides (NOx) output to meet the US standards during regulatory testing, but emit up to forty times more NOx in real-world driving. VW deployed this software in about 11 million cars world-wide, in model years from 2009 to 2015. Regulators in multiple countries began to investigate VW and its stock price fell in value by a third in the days immediately after the news. Several senior VW executives either resigned or were suspended. VW announced plans in April 2016 to spend €16.2 billion (US$18.3 billion) on rectifying the emissions issues and to refit the affected vehicles as part of a recall campaign. In January 2017, VW pleaded guilty to criminal charges and signed an agreed Statement of Facts, which drew on the results of an investigation Volkswagen had itself commissioned. The statement set out how engineers had developed the defeat devices, because diesel models could not pass the US emissions tests without them, and deliberately sought to conceal their use. In April 2017, a US federal judge ordered VW to pay a $2.8 billion criminal fine for “rigging diesel-powered vehicles to cheat on government emissions tests”. • Lion Air and Ethiopian Airlines plane crashes: The Boeing 737 MAX is the fourth generation of the Boeing 737 aircraft, with more fuel efficient CFM International Leap engines. The first aircraft was delivered to Malindo Air in Malaysia in May 2017. However, following two crashes suffered by Lion Air Flight 610 and Ethiopian Airlines Flight 302, in which all passengers and crew were killed, all 737 MAX aircraft were grounded world-wide in March 2019, until Boeing implemented changes to its flight control system and pilot training. Boeing suspended production of the 737 MAX in January 2020. As of December 2019, Boeing had received 4,932 firm orders and delivered 387 aircraft. However, by March 2020, 150 of those orders had been cancelled by various airlines and the longest ever grounding of a US aircraft was estimated to have cost Boeing $18.6 billion so far. The plane was finally re-certified to fly by the US Federal Aviation Administration

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(FAA) in November 2020 and by the European Union Aviation Safety Agency (EASA) in January 2021. As of August 2021, 1,336 of the original orders for the plane had been cancelled. Marketing promotions that go wrong can often generate bad publicity. Examples include production problems or product shortages during a new product launch, problems with warehousing, stock control or distribution during a campaign and inadequate training of salespeople and/or distributors. On a few occasions a promotion has been so successful that redemption coupons or competition prizes cannot be honoured. One promotion featured a holiday voucher that was worth five times the cost of the product. The result was that a huge number of customers bought the product just to get the holiday, which cost the manufacturer so much money that they were forced to cancel the promotion early.

8.9 BENEFITS OF EFFECTIVE ADVERTISING AND PUBLIC RELATIONS When done properly, advertising and PR can provide a company’s marketing activities with numerous, often mutually reinforcing, benefits. Effective advertising and PR will increase the awareness of a company’s brands, products and services. Advertising and PR keep a company in the minds of customers, so that they think of it when looking for a product or service. They are also likely to improve a company’s brand positioning “image”. One particular example of this in the lubricants business is “Mobil 1”, an automotive engine oil on which first Mobil and then ExxonMobil have spent a significant amount of money to great effectiveness. Another significant benefit of effective advertising and PR is the ability to attract prospective customers. For retail customers, advertising in newspapers and magazines and on television and radio is likely to get more people into a shop. For industrial customers, advertising and PR are likely to generate more leads for a company’s sales force to follow up. When launching a new product, advertising and publicity, in conjunction with other promotional activities, is essential for marketing and sales success. For existing products, innovations and improvements need to be communicated to the target market to create awareness and interest. This is particularly important when business customers need to be updated about a product that will help them to provide better products for their customers. Effective PR and advertising will also enable a company to differentiate itself from its competitors. When different companies’ products are either nearly identical or similar in performance, persuading customers of the excellence of one product is likely to reap commercial benefits. This is important in the lubricants business when many products are manufactured to meet an international or Original Equipment Manufacturers (OEM) specification. Informative and well written press releases and journal articles are likely to be able to educate business customers and can be the topic of a follow-up sales visit.

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For companies suffering from an outdated or poor perception among customers or prospective customers, advertising and PR, if applied correctly, can transform opinions, thereby creating a more favourable impression. For companies that are wholly or partly online, advertising can attract people to a page where they can be converted from a visitor into a customer. In addition, pay-per-click advertising can bring in online sales almost immediately, with buyers prompted to act as soon as they see the advertisement and click on it. Content marketing is a powerful marketing technique, which can be given more impact using advertising. Content can be shared on social media and then boosted with an update, to get the content seen more widely, encouraging more click throughs and engagement with the content. This will help improve a company’s position with most internet search engines. Advertising and PR can help to amplify word-of-mouth marketing, the most powerful of marketing communications. In many countries, around 80% of small companies report that they get most of their customers through word-of-mouth recommendations. Effective advertisements and magazine articles can be used to prompt word-of-mouth comments, particularly on social media with satisfied customers ready to praise high-quality products or services.

8.10 SUMMARY One of the key aspects of marketing and selling any product or service is the ability and effectiveness of a company to communicate information to and receive information from existing customers and prospective customers. The communication is a two-way process. It is important that messages are received and understood by the customers, so getting feedback from them is also fundamental to success. Advertising and PR are the main two ways with which to communicate with a target market. Within both methods, there are a number of approaches that a marketing department can use. Using agencies to do either or both tasks can help to make the communication more effective.

REFERENCE

1. Walker, Hugh, Marketing, Pan Management Guides, Pan Books Ltd., London, p. 75, 1986.

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9.1 INTRODUCTION Because marketing to retail lubricant customers is very different from marketing to industrial lubricant customers, the methods of communication can be, although not always are, different. The ways in which lubricant marketing and sales managers are able to communicate with customers and prospective customers are also changing, as a consequence of many factors. The numerous methods of communicating to a market, together with their respective advantages and disadvantages, were explained and discussed in Sections 8.2 and 8.4 in Chapter 8. This chapter considers specific ways of communicating to lubricant customers in both retail and industrial markets. Lubricant market communications are changing and adapting for many reasons. The growth of electric and hybrid vehicles, of many types and sizes, will alter the advertising and promotional methods that should be used in the future by lubricant suppliers. The increasing use of online shopping, the internet and social media will also affect lubricant market communications. Many countries have introduced regulations that aim to protect retail customers from unwanted or intrusive communications. The effectiveness of television advertisements is also being questioned by marketing directors and managers. All these developments and trends for lubricant market communications are explored and discussed in this chapter.

9.2  RETAIL LUBRICANT MARKET COMMUNICATION In general, marketing and sales managers have used pull strategies in the retail market for lubricants, to inform and educate motorists, motorcyclists, farmers, gardeners and recreational users of oils and greases. Other buyers of automotive lubricants, such as fleet operators, car, van, truck and bus original equipment manufacturers (OEMs) and automotive workshop owners and operators, are informed in the same or similar ways to industrial users. In the past, lubricant marketers would place advertisements in newspapers and magazines to alert customers of the special features or benefits of a particular engine oil, grease or other type of lubricant. For example, Mobil has advertised in magazines and newspapers, “What if the last 75,000 miles never happened to your engine?” with a photograph of a very clean camshaft and tappets. Also from Mobil, “All these oils would love to say they give you the best engine protection”, with a picture of twenty cans of oil from numerous suppliers, followed by “But only one can” and a picture of a quart bottle of Mobil 1. Castrol has done the same type of advertisement. DOI: 10.1201/9781003318392-9

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“Save your car’s soul. It’s more than just oil. It’s liquid engineering”. Shell’s Pennzoil Platinum® brand of engine oil is promoted as “Fully synthetic. Made from natural gas. Designed for complete protection for top engine performance”. In many developed countries, there are fewer advertisements for retail automotive lubricants now, as fewer motorists change their own engine oil in their car or van (see Chapter 6). Almost all manufacturers of retail lubricants do not seem to bother with advertisements in newspapers or magazines, even in specialist motorsport magazines. For the same reason, there are now fewer advertisements for retail automotive lubricants on television. In addition, for almost all programmes on television, with the use of video recorders and set-top boxes linked to the internet, many viewers record programmes and watch them when it is more convenient for them to do so. This allows them to “fast-forward” through the advertisements, thus negating the effort made by marketing and advertising people to make and pay for the advertisement. With the most popular television programmes (those that reach the largest audience), competition for advertising slots is intense. As a consequence, the cost of a thirty-second advertising slot becomes prohibitively expensive for many companies. This is not necessarily the situation with advertising on the radio. It is not currently possible for listeners to “fast-forward” through radio advertisements. Unfortunately, this does not mean that radio listeners will actually listen to the advertisement. Because there is no visual stimulus, in order to be effective, radio advertisements must create immediate awareness and be very memorable. The use of sounds in radio advertisements is often used as a way of creating a visual image in the mind of a listener. Three places where advertisements for automotive lubricants are displayed prominently are around racing car and bike circuits, on racing cars and bikes and around major sports grounds. These advertisements compete for space with tyres, watches, airlines, vehicle manufacturers and other sponsors of sports. Whether these advertisements persuade anyone to buy a particular brand of oil or grease is a matter for debate. One segment of the retail lubricant market (see the following chapter) may be persuaded, although motorists in that segment are likely to have significant experience and expertise as to which brand’s performance and properties meet their needs. In future, an increasing number of motorists, particularly in Europe, North America and Asia, will not be able to either change or top up the lubricants in their electric and hybrid cars and motorcycles. They will need to rely on their car dealership or specialist service centre. Influencing their choice of lubricants is likely to become increasingly difficult. Sending individual motorists a letter, leaflet or brochure in the post (mail) has been a communication method, known as “direct mail”, used by many companies for some time. However, this tends to be very expensive due to higher costs of postage and printing letters, leaflets and/or brochures. There is also no guarantee that the letter will not immediately be put in the rubbish/trash bin. A similar method of communicating with retail consumers is to put a leaflet or brochure inside a consumer magazine. Since most consumer magazines are for fashion, home, gardening, finance or celebrity gossip, leaflets for automotive lubricants are unlikely to reach much of a target audience. The expense is likely to prohibit this for suppliers of retail

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FIGURE 9.1  Information sources for direct mail and telephone marketing. (Pathmaster Marketing Ltd.)

lubricants and the leaflets will probably be binned without having even been read. An alternative to a letter addressed to a named person, some companies are resorting to a letter addressed to “the homeowner”. These types of letters are unlikely to be of much value to a retail lubricant supplier, as there is no guarantee that the homeowner has a car, lawnmower, boat or other item of equipment that needs lubrication. A less expensive communication method for individuals is to call them on the telephone. This is called “telemarketing”. There are many sources of information for direct mail and telemarketing, listed in Figure 9.1. The main difficulty is whether the information is either accurate or up-to-date. Unfortunately for both direct mail and telemarketing, more people in many countries are taking steps to protect their privacy and personal information. Since May 2018, the European Union (EU) has enforced the General Data Protection Regulation 2016/679 (GDPR), which was adopted in April 2016. This is a law which involves privacy and data protection in the EU and the European Economic Area (EEA). It is an important part of EU privacy and human rights laws, particularly the Charter of Fundamental Rights of the EU. It also covers the transfer of personal data outside the EU and EEA areas. The main aim of GDPR is to improve individual people’s control and rights over their personal data together with simplifying the regulatory environment for international businesses. People are known as “data subjects”. GDPR applies to any organisation, irrespective of its location and the data subjects’ residence; that is, it handles the personal information of individuals inside the EU and EEA. Because the GDPR is an EU Regulation, not an EU Directive, it is immediately legally binding and applicable, but does provide flexibility for certain aspects of the regulation to be adjusted by individual EU countries. Article 5 of the GDPR sets out the main principles of data protection responsibilities for businesses and other organisations: • Lawfulness, fairness and transparency: All personal data must be processed lawfully, fairly and in a transparent manner. • Purpose limitation: Data must only be collected and processed for legitimate purposes which are specifically and explicitly stated by the company or organisation.

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• Data minimisation: Only data which is relevant for the purpose required should be collected and processed. • Accuracy: Reasonable steps should be taken to ensure that data remains accurate and is kept up-to-date. • Storage limitation: Data should not be kept for any longer than is necessary (unless it is being processed for archiving purposes in the public interest, for scientific purposes or for statistical or historical purposes). • Integrity and confidentiality: Data must be kept securely and technical and organisational measures should be put in place to protect it from hackers, etc. • Accountability: Data controllers (people in the companies or organisation who collect and manage data) must be able to demonstrate compliance with all the GDPR principles. In practice, these principles mean that individual people need to give consent for their personal data to be collected and processed by companies and organisations. GDPR has become a model for many other laws worldwide, including in Argentina, Brazil, Chile, Japan, Kenya, Mauritius, South Africa, South Korea and Turkey. The UK has retained the law in identical form, despite no longer being an EU member state. The California Consumer Privacy Act (CCPA), adopted in June 2018, has many similarities with the GDPR. It appears likely that other countries will adopt laws similar to GDPR in the future. While it appears more difficult to communicate with individual motorists using newspaper advertising, direct mail and telemarketing, it may also be easier to communicate with them using the internet. Many companies that market lubricants are putting huge amounts of information about their products on their web pages. Educational videos are also being uploaded. All this information can be found using the numerous search engines, such as Google, Bing, Ecosia, Webcrawler, DuckDuckGo, Yahoo Search, Swisscows, Netscape and Ask, as explained in Chapter 6. They can also be accessed using LinkedIn and YouTube. Monitoring website clicks is being used by many more companies, by means of cookies. These are small files that websites put on a PC to store information about a person’s preferences. Cookies can improve the browsing experience by allowing sites to remember preferences or by allowing the person to avoid signing each time a website is visited. Unfortunately, some cookies may put a person’s privacy at risk by tracking sites that are visited. There are several types of cookies: • Strictly necessary: These are required for the website to function properly and in most cases cannot be switched off. They are usually only set in response to actions made by the user, such as a request for services, setting privacy preferences, logging in or filling in forms. The browser can be set to block or alert the user about these cookies, but some parts of the website will then not work. They do not store any personally identifiable information. • Website use measurement: These allow website visits and traffic sources to be counted, enabling the company to measure and improve the

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performance of the website. They help the company to know which pages are the most and least popular and see how visitors move around the site. All information these cookies collect is supposed to be aggregated and thus anonymous. • Communications and marketing: These enable the company to show marketing messages and first-party advertisements. Tracking these cookies allows the company to measure the effectiveness of its social media presence. They might be used by the company to group the user into a target market segment with people who have similar interests. • Personalised advertising: The company’s advertising partners may use these cookies to build a profile of the user’s interests and to show them relevant advertisements on other websites. Although they do not directly store personal information, they are based on uniquely identifying your browser and internet device. If these cookies are not allowed, the user is advised that they will experience less targeted advertising. The last three types of cookies can be set to either “on” or “off” by the user. Most websites will remember the cookie choices made using the browser and internet device next time the website is visited. Some browsers will also remember the user’s choices for all websites. Unfortunately, more and more users of websites are deliberately turning the last three types of cookies off, so that their browsing cannot be tracked or measured. Also, a larger number of cybersecurity computer programs can be set up either to block browsing history or to remove traces of internet use every day. As a result, marketing managers who rely on “clicks per page” feedback may not be getting a complete view of their internet traffic. At the time of writing (February 2022), Google had announced plans to replace cookies with a new tool, called Topics. This is intended to keep people’s identity hidden from advertisers. Google Chrome’s browser will include code that monitors the websites a person visits and collects information about their interests. It will store this information for only three weeks and will categorise individuals using a list of 300 “interests”. When visiting a website, the browser will allow advertisers to access three of the topics, chosen at random, so they can select which advertisements to show. The website and advertiser will be unable to access any personal information. Some advertisers may not like this more limited access to people’s information, so may choose to use other browsers. Some people may not want the “interests” to be categorised and may decide to use more privacy-focused browsers, such as Brave. Social media may also be a very useful medium for advertising. It has become quite common for “social media influencers” to promote products or services on Facebook, Twitter, Instagram, WhatsApp and other internet platforms. Many people are now helping their fellow consumers by uploading videos on to YouTube, to show people how to do things. This also enables people to promote specific products or services. TikTok is the most recent social media platform, having been launched in 2017. It is a video-focused service owned by the Chinese company ByteDance. It is known

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in China as Douyin. TikTok hosts a diversity of short-form user videos with durations from fifteen seconds to three minutes. It was launched in most markets outside of mainland China but became available worldwide only after merging with another Chinese social media service, Musical.ly, in August 2018. TikTok overtook WhatsApp and Instagram in 2021 in the time users spend viewing it. Its success comes from its algorithm and the data on which it is trained. Because it is a simple, one-video interface, it always knows exactly what a user is watching. The algorithm is able to match viewers with content creators. TikTok is further developing the “pay-per-click” business model pioneered by Google and Facebook, by enabling brands to work with creators to make potentially viral content. In addition, TikTok now permits people to purchase products directly by tapping a shopping tab on a video. However, an increasing number of countries are now introducing laws aimed at protecting people from the harmful effects of social media communications. The harmful effects include fraud, hate crimes, the sale of illegal products, people smuggling, genuinely threatening communications and knowingly false communications. Obviously, reputable companies would never use social media to cause harm. Unfortunately, people who experience such harms from disreputable sources may be tempted to stop using social media altogether. As more retail users of lubricants become familiar with the utility of social media and more lubricant companies use social media to communicate information and promote products, these platforms are likely to overtake other methods of advertising. Whether they will prompt more retail consumers to buy or request specific brands of automotive engine oils is another matter. However, they may be very useful for advertising other types of retail lubricants, such as oils and greases for use in horticultural and recreational equipment.

9.3  INDUSTRIAL LUBRICANT MARKET COMMUNICATION Communicating with industrial lubricant customers is much easier and more effective than with retail lubricant consumers. In general, buyers of industrial lubricants are more knowledgeable about lubricants and lubrication. Some buyers may be just as knowledgeable as many lubricant salespeople and some may even be more knowledgeable. The market for industrial lubricants encompasses all the industries described in Chapter 3 (see Figure 3.1) as well as marine, mining, railroad and large agricultural co-operative customers. The methods that marketing and sales people should use for industrial lubricants also extend to communications to car dealers, service centres and fleet owners for automotive lubricants. In general, industrial lubricant marketing and sales people should use push strategies, as explained in Chapter 7, for communicating with customers and prospective customers. Almost all the difficulties of communicating to retail lubricant consumers described in the preceding section do not apply to industrial lubricant customers. It is generally assumed that business owners and managers are very familiar with marketing and sales tactics, since they will be using the same or similar tactics to communicate with their customers.

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Industrial lubricant marketing directors and managers should consider using the full range of promotional methods available: • Advertising: General advertising in specialist magazines and journals to promote corporate messages and brand image. Technical advertising to inform industrial customers and prospective customers about lubricant performance and benefits. Advertising in newspapers and on television is likely to be expensive and not particularly cost-effective. Advertising on radio may not reach the most appropriate target audience. • Press Releases: To editors of specialist magazines and journals as part of a new lubricant product introduction. More companies are using press releases rather than advertising, particularly in industrial markets. • Literature: Technical articles in specialist magazines to promote brand image and to explain new and updated products. Brochures for use by salespeople and to leave with Key Accounts. Booklets about complete ranges of oils and greases for use in specific industries, to explain their properties and performance and how to use them as part of customer support service. Technical books to promote industry image and professional competence. • Direct Mail: Targeted mailshots to named Key Decision Makers and Key Decision Influencers in selected companies, as part of either general promotional activities or with information about new or updated lubricants. Sources of information for mailshots are summarised in Figure 9.1. • The internet: The use of web pages for general promotion and product information. Websites for business users can have password-protected pages for each current customer, for a company’s confidential information, technical guidance and customer support. • Social Media: Use of “Influencers” and “Contacts” on social media to enable word-of-mouth promotion of brand image and lubricant product performance. LinkedIn is particularly effective for company communication. • Films and Videos: For use on web pages and social media and at exhibitions, seminars and training courses for lubricant product information, selection, application and condition monitoring. • Exhibitions: Targeted promotion at selected exhibitions for companies and organisations that use industrial oils and greases. While these can be expensive and time-consuming for marketing and sales people, they can be very effective for promoting brand image. • Seminars and Conferences: Organising or attending industry-specific seminars and conferences enables communication and networking with current and prospective customers. In-company seminars are a form of customer support training. • Trade Associations: Membership of industry-specific trade associations enables participation in the development and introduction of lubricant industry standards and specifications. This participation can be very useful in the early development of new or improved lubricants and with contacts with current and prospective customers.

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The effectiveness of each of these promotional methods should be evaluated regularly. The advantages and disadvantages of all these methods of communication were discussed in the previous chapter. Specific types of industrial lubricants will need to be promoted to specific types of customers. For example, it is unlikely to be very effective to promote steam and gas turbine oils in an exhibition for mining equipment used in underground mining. Here, promotion of rock-drill oils, compressor oils, hydraulic fluids and conveyor greases is likely to be much more effective. Marketing and sales managers in every lubricant company should select those market communication methods that are most appropriate to the range of lubricants they are aiming to sell. As discussed in other chapters, many lubricant manufacturers have decided to focus on specific target markets. The numerous forms of advertising have important roles in the marketing of industrial lubricants: • • • • • • • •

They can reach Key Decision Makers and Key Decision Influencers. They can create awareness about brand image and lubricant performance. They will enhance sales calls. They can help to increase sales efficiency, by focusing sales discussions and negotiations. They will support marketing channels. It is not possible for salespeople to make contact with all the people who may be involved in a company’s purchasing decision. It is an effective way of reaching inaccessible or unknown buying influencers. It is an important method of creating and maintaining demand among distributors.

Industrial lubricant advertising media include trade publications, business publications, business directories, social media, direct mail and websites. For the reasons discussed in the preceding section, telemarketing may no longer be appropriate for companies in many countries.

9.4 THE ROLE OF SALESPEOPLE IN LUBRICANT MARKET COMMUNICATION A company’s sales force has a central role in activating the marketing idea, so salespeople are an important part of the marketing promotion and communicating mix. This is a major difference between retail marketing and industrial marketing. It requires marketing and sales directors and managers to understand the environment in which industrial salespeople operate and the functions of sales management Marketing and sales people have different, but complimentary, roles in the marketing and sales process. The respective roles in the sales process are summarised in Figure 9.2. It is important to understand that the roles help each other, with the ultimate aim of making the sale. The synopsis in Figure 9.2 summarises the discussion in Section 2.4 of Chapter 2. Marketing is about opening deals, while selling is about closing them. One without the other is ineffective.

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FIGURE 9.2  Marketing and selling roles in the sales process. (Pathmaster Marketing Ltd.)

Personal selling is very important in lubricant markets. Salespeople are the dominant method in industrial marketing communication strategy, particularly for lubricants. Effective sales presentations are particularly good at conveying product and company information to prospects and customers. Good salespeople are able to develop and maintain customer rapport. Most importantly, good salespeople are able to provide feedback on the effectiveness or otherwise of market communication methods. More specifically, as noted in earlier chapters in this book, industrial lubricant salespeople must have a good knowledge of both lubricants and lubrication in order to be effective. Practical methods for achieving this are explained and discussed in Chapter 19.

9.5  LUBRICANT ADVERTISEMENTS AND PRESS RELEASES As noted in Chapter 8, a successful advertisement for lubricants: • • • • • • • • • • •

Has a high degree of visual magnetism in order to catch a reader’s attention. Is aimed at the right target audience. Invites the reader into the picture. Promises an operational or financial benefit and backs it up. Does not focus on features. Has the correct balance between technical and commercial information. Presents the sales proposition in a logical sequence. Speaks “person to person”. Is easy to read and understand. Emphasises the service, not the source. Reflects the company’s character.

This is especially true for industrial lubricant advertisements. It is less true for retail automotive lubricants now, for the reasons explained earlier.

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FIGURE 9.3  Magazines and journals for lubricant advertising and press releases. (Pathmaster Marketing Ltd.)

Press releases should have similar characteristics to those of advertisements, in that they need to catch the attention of an editor or publisher. While they do not need to present a sales proposition, they should be easy to read and understand, is aimed at the right target audience and has the correct balance between commercial and technical information. It is worth emphasising again that editors and publishers of magazines are always seeking to market and sell their publication to a target audience and anything that can help them to do that is likely to be welcomed. It is now common for a press release to include a suitable photograph or picture. Examples of English-language magazines and journals for advertising lubricants, particularly industrial oils and greases, are listed in Figure 9.3. This list is not exhaustive and does not include Chinese, Japanese, Russian or other language magazines and journals, nor academic publications. Obviously, some magazines and journals will be more suitable or appropriate than others for certain types of lubricants. Marketing managers will either know which publications to use or will very quickly learn. As will be discussed in Chapter 19, salespeople should ask their current customers which magazines and journals they read most. The list of publications in Figure 9.3 is also very appropriate for targeted press releases.

9.6  FINDING OUT WHAT WORKS AND WHAT DOESN’T Measuring the effectiveness of market communication is particularly important for identifying which methods work best for which target audience. It has been said by many observers that “half of market communication is wasted, but many marketing managers don’t know which half”. Fortunately, there are a number of methods by which the effectiveness of a specific market communication method can be evaluated. As explained in the previous chapter, market communication is a two-way process, which requires feedback from the target recipient(s). The evaluation methods are usually grouped into two types:

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communication effect research and sales effect research. Both can be done before and/or after a particular method of communication is used. Both are sub-sets of general market research discussed in Chapter 4. Communication effect research (also called copy testing) is used to determine whether an advertisement, press release, mailshot, leaflet or social media influencing is communicating successfully. There are several ways to do this: • Direct Rating: Target recipients are asked rate the advertisement, mailshot, press release or other communication method for its impact on a scale of 0 to 10. When done before the communication is released, direct rating will confirm whether it is likely to be effective and successful. When done after the communication, it will identify whether it has been effective. • Questionnaire and Answer: This is similar to the direct rating method, but involves a set of questions and an analysis of the answers. It is usually used only before a communication is implemented. A draft of the communication together with some pertinent questions is sent to target customers or experts of market communication. The answers and opinions are then analysed to evaluate whether the proposed advertisement, mailshot, press release or web page is adequate or not. • Recall and Recognition: This method is almost always done after a communication has been released. Customers and prospective customers are asked whether they can remember having seen or heard a specific communication and to recollect its message. Communications in which a majority of people cannot remember them or their messages are almost certain to have been ineffective. • Focus Groups: These are slightly less expensive than either direct rating or question and answer methods, as they group 20 or so people, whether customers or prospective customers, in one place. This allows for a variety of opinions and enables discussion of good and less good aspects of the particular communication. They also save market and sales analysts’ time and money. • Theatre Tests: Arbitrary consumers are invited to watch a potential new television show or listen to a new radio programme, which include several advertisements. Before viewing or listening, they are asked about their brands of preference in different categories. After viewing or listening, they are asked to choose a preferred brand. The potential changes in preferences measure the target advertisement’s power to persuade. Sales effect research helps to measure the effectiveness of a market communication using changes in sales figures. The effectiveness is evaluated using response rates, toll-free phone numbers, product surveys, questionnaires and recognition tests. Sales effect research involves four methods: • Historical Data: Market and sales analysts can calculate the impact of market communication methods on sales with historical data, using advanced statistical techniques. These correlate past sales with past communications.

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The degree of correspondence can be either on a current or on a lagged basis. When the sales of a product or service have increased following the implementation of a specific market communication, then that communication can be considered to have been highly effective. • Clicks per Page: Using web traffic analysis tools supplied by Google, Edge and other search engines can be a useful way of evaluating the effectiveness of internet advertising. However, in the case of retail users of lubricants, as noted earlier, the data may not be completely representative if a large number of people have switched the tracking cookies off. Conversely, looking at the browsing history of current industrial lubricant customers on their private pages of a company’s website can be very instructive. • Social Media Followers: Evaluating and comparing the numbers of followers of social media influencers are likely to provide a good guide as to which sites to pay for a targeted market communication. Social media influencers are very keen to announce and update their numbers of followers. • Experimental Research: Some market and sales analysts measure the impact of market communication on sales with the help of experimental research. The method involves dividing the whole sales territory into three or four sub-areas based on some type of uniform criteria. In each sub-area, the specific market communication is employed in a different amount. In one sub-area, it is used X times; in other sub-areas, it is used 2X, 3X or 4X times. This analysis is done with the intention of trying to find out the difference and impact of increased market communication efforts. Some of these measurement methods are more expensive than others. Unfortunately, marketing directors and managers need to decide whether to spend a bit more money finding out what works and what doesn’t, as opposed to watching half the market communications budget being wasted. Most of the measurement methods are applicable to automotive, industrial, marine, mining, railroad and other markets for lubricants. Some are more applicable than others to some markets. For example, focus groups are likely to be more useful for automotive lubricants, while historical data might be more useful for industrial lubricants. Measuring spending on each market communication method and its effectiveness is critical to determining one of the costs of customer acquisition. A marketing department’s key performance indicators (KPIs) can be a very important contributor for this. (KPIs are explained and discussed in depth in Chapter 14.) KPIs allow market and sales analysts to track how much traffic is generated by market channel, how many conversions occur and how long it takes to turn those conversions into paying customers. Salespeople can help with many of these measurement methods. They can be involved with finding target recipients for direct rating, recall and recognition and theatre tests, can identify high-profile social media influencers and can help to analyse sales data. They can also ask current industrial lubricant customers for opinions and advice about a future communications activity. (Unfortunately, this has the potential to alert competitors to the possible launch of a new lubricant.) As with

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many other aspects of marketing and selling lubricants, marketing and sales people need to work very closely to achieve the best outcomes.

9.7 SUMMARY Because marketing to retail lubricant customers is very different from marketing to industrial lubricant customers, the methods of communication can be, although not always are, different. The ways in which lubricant marketing and sales managers are able to communicate with customers and prospective customers are also changing, as a consequence of many factors. Lubricant market communications are changing and adapting for many reasons. The growth of electric and hybrid vehicles, of many types and sizes, will alter the advertising and promotional methods that should be used in the future by lubricant suppliers. The increasing use of online shopping, the internet and social media will also affect lubricant market communications. Many countries have introduced regulations that aim to protect retail customers from unwanted or intrusive communications. The effectiveness of television advertisements is also being questioned by marketing directors and managers. In general, marketing and sales managers have used pull strategies in the retail market for lubricants, to inform and educate motorists, motorcyclists, farmers, gardeners and recreational users of oils and greases. Communicating with many retail users of lubricants is becoming harder, because many fewer people are buying oils and greases. Communicating with industrial, mining, marine, agricultural and other users of lubricants is much easier. The push strategies used by marketing managers include advertisements, press releases, literature, direct mail, the internet, social media, films, videos, exhibitions, seminars, conferences and trade associations. Salespeople have an important role in lubricant market communications. Personal selling is very important in lubricant markets. Salespeople are the dominant method in industrial marketing communication strategy, particularly for lubricants. Effective sales presentations are particularly important in communicating information. Measuring the effectiveness of market communication is particularly important for identifying which methods work best for which target audience. It has been said by many observers that “half of market communication is wasted, but many marketing managers don’t know which half”. A number of methods can be used to evaluate the effectiveness or otherwise of each method of market communication.

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10.1 INTRODUCTION Creating a successful marketing strategy can depend on the abilities of a marketing department to identify, analyse and evaluate attractive segments of a market. Most marketing executives believe that a company should not try to provide all types of products and services to all types of customers, everywhere. Instead, it should try to allocate resources only to those customers or prospective customers whose needs correspond with the strengths of the company and where it has one or more competitive advantages. The first consideration for a marketing director is whether to segment or not to segment. Depending on a company’s philosophy, resources, product type or market characteristics, it may decide to develop either an undifferentiated or a differentiated marketing strategy. In the former, the company does not segment the market and develops a product or service that meets the needs of the largest number of buyers. In the latter, the company targets one or more market segments and develops separate offers for each segment. In retail markets, it is difficult to find examples of undifferentiated strategies. Even products such as salt and sugar, which were initially treated as commodities, are now highly differentiated. Consumers can purchase cooking salt, table salt, sea salt, rock salt, kosher salt, mineral salt, herbal or vegetable salts, iodised salt, salt substitutes and many more. Many types of sugar are available: cane sugar, beet sugar, raw sugar, white refined sugar, brown sugar, caster sugar, sugar lumps, icing sugar (also known as milled sugar), sugar syrup, invert sugar and a number of sugar substitutes. Each of these products is designed to meet the needs of specific market segments. For example, invert sugar and sugar syrup are sold to food manufacturers for use in the production of conserves, chocolates and baked goods. Retail customers buy refined sugar and brown sugar as sweeteners, while caster sugar and icing sugar are mainly used in home cooking. There are five main strategic approaches to market segmentation: • No segments: An undifferentiated strategy for mass marketing. • One segment: A focused strategy for niche marketing to a specific segment. • Two to ten segments: A differentiated strategy that concentrates on a manageable number of segments. • Ten to fifty segments: A differentiated strategy that involves a company in marketing a number of product types to many target markets. • Hundreds of segments: Hypersegmentation, in which a company markets products that tend to be customer-specific. DOI: 10.1201/9781003318392-10

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A number of factors are likely to affect a company’s segmentation strategy: • Company resources: For smaller companies, a concentrated strategy may be more effective, while larger companies may be able to adopt a more differentiated strategy. • Product variability: For highly uniform products, a less differentiated strategy may be more appropriate, but where products can be differentiated, segmenting markets usually pays dividends. • Product life cycle: For a new product, the launch version should probably be targeted at one specific segment. Later, the product range can be targeted at other segments, depending on the commercial success of the launch product. As more competitors enter the market, it may be necessary to differentiate. • Market characteristics: When all buyers have similar tastes or are unwilling to pay a premium for different quality, then undifferentiated marketing may be appropriate. • Competitive activity: When competitors apply differentiated or concentrated market segmentation, using undifferentiated marketing may prove to be fatal. A company should consider whether it can use a different market segmentation approach. Market segmentation leads to target marketing which then leads to product positioning in that market.

10.2  MARKET SEGMENTATION Market segmentation is the first of the three steps that eventually enables a company to maximise its return on investment. Attractive segments of a market must be identified and evaluated, target segments selected and decisions made about how to compete in those segments, before product and/or service positioning and marketing mix strategies can be developed. A segment is defined as each of the parts into which something is or can be divided. The segments do not have to be of equal size and, in practice, are rarely even of approximately similar sizes. When segmenting a market, analysts often look for ordinary characteristics among customers or prospective customers, including shared needs, common interests, similar lifestyles and other variables which are discussed later in this chapter. The overall aim of segmentation is to identify “high yield segments”, which are likely to be the most profitable or to have the potential to grow. These can then be selected for special marketing attention, as “target markets”. Marketing people should assume that different market segments require different marketing strategies and tactics, such as different offers, prices, promotions, distribution or some combination of other marketing variables. Market segmentation should also aim to develop profiles of key segments in order to better understand their needs and purchase motivations. Insights from segmentation analysis are subsequently used to support marketing strategy development and planning. Many marketing analysts

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use a methodology known as “STP” (Segmentation, Targeting, Positioning) to provide the framework for planning marketing objectives. Segmentation has been more widely practised in retail markets than in industrial markets, although this is beginning to change as more reliable data about markets becomes available. While a number of approaches can be used to segment a market, the variables that are selected for the most useful analysis must be: • Measurable: Numerical data should either exist or be collectable from either primary or secondary information sources. • Relevant: The information should impact on decision-making for a significant number of potential customer groups and should relate to important differences. • Operational: The information should be related to differences in customer requirements and buying behaviours and should enable the preparation of marketing approaches with respect to products, prices, communication or distribution. The resulting choices of segments should be sufficiently large and profitable (relative to the company’s size and resources) to warrant attention and should be sufficiently different to enable distinctive marketing programmes. Many ways can be used to identify a market’s segments, as illustrated in Figure 10.1. Segmenting by product type can be used to optimise the manufacturing capacity of the company. Segmenting by customer type enables a company to focus on specific product types or groups. Segmenting by customer size allows a company to optimise the effectiveness of its salespeople. Segmenting by market geography enables a company to optimise its distribution systems and the location(s) of its salespeople. Segmenting by economic or business sector allows a company to profit from growth in the specific segments. Once the measurable, relevant and operational variables have been identified, marketing analysts need to define the macro profiles of each resulting segment.

FIGURE 10.1  Market segmentation. (Pathmaster Marketing Ltd.)

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When this has been done, the micro profiles of macro segments need to be defined. Macro and micro variables will be discussed in more detail in Section 10.5. They tend to be used more widely for industrial markets. Retail markets tend to be segmented most usually on the basis of demographic or psychographic variables. Each of the segments needs to be evaluated in terms of profitability and competitiveness, in order to identify markets which should and should not be targeted. From this, decisions can be made about market coverage and whether this should be undifferentiated, differentiated or concentrated. This will allow the selection of target segments. A magic formula for segmenting a market does not exist. Marketing people are likely to have to try different segmentation variables, either alone or in combination. Segmentation variables must be based on characteristics that are easily identified, understood and distinct.

10.3  PRODUCT POSITIONING Irrespective of which market segments are chosen, every company should develop a strategy for positioning its products and/or services in each segment. This strategy must enable the company to clearly differentiate itself or its products and services from competitors. Regardless of competitors’ strengths or weaknesses, each competitor operating within a selected market will occupy some distinct position in the minds of prospective customers. Positioning starts with a product or service. Positioning is not what a company does to a product, but rather what it does in the minds of customers or prospective customers. Success in any market, whether retail or industrial, depends on the company’s ability to create a position in the minds of customers and prospective customers. This is accomplished through careful control of the marketing mix variables, based on the company’s distinctive competencies and competitive advantages. Product or service positioning strategy in industrial markets is more difficult and subtle than in retail markets. This is because of the differences in the way positioning strategy is communicated. In retail markets, positioning strategy is achieved primarily using advertising. In industrial markets, it is achieved mainly through personal selling, publicity, exhibitions and trade shows, in addition to advertising. It is also dependent on the company’s performance, both through product performance and through customer service. In order for a company to differentiate its products and services from those of its competitors so as to take advantage of its specific competencies, it must develop a unique position within the market. In the retail lubricants market, for example, Shell has developed a unique position, worldwide, by ensuring that all Helix-branded engine oils are sold in the same yellow-, blue- or silver-coloured plastic bottles, for equivalent product performance. Positioning strategy in retail markets is normally applied by promoting functional or psychological product characteristics, making it easier for shoppers to identify specific brands or product names. In industrial markets, several variables may be used in developing positioning strategy. Product variables include performance, benefits, quality, reliability and price. Other variables can be superiority in pre- and

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post-sale services, abilities to solve customer problems, abilities to train and help customers or abilities in developing new methods and technologies. Several questions need to be answered before a successful positioning strategy can be developed, as the company has to be committed to the strategy. Although the questions might be straightforward, they may be difficult to answer and may require the company to evaluate its competitive advantages honestly and fully. Specific questions include: • What position does the company occupy currently? Because positioning strategy concerns what is in the minds of customers and prospective customers, it is essential to determine what that is at present. It is much easier to work with what is already there than it is to develop an entirely new strategy. • What position does the company want to occupy? This requires the company to evaluate either strengthening its current position or moving to a new position that will best serve it over the long term. While it is possible to compete successfully with an industry leader, many smaller companies either learn or discover that this can be very difficult or, occasionally, impossible. • With which competitors does the company want to compete? This involves the company in developing a positioning strategy from the point of view of its competitors. Positioning strategy needs to be selected in an area that no one else already owns. • Does the company have the resources and skills to execute the selected positioning strategy in the long term? Because markets can change over time, it is important for a company to determine its basic position and be prepared to implement it. A successful positioning strategy is cumulative, taking advantage of advertising, publicity, other promotional tools and personal selling over the long term. • Does the company match the selected positioning strategy? When developing a positioning strategy, a company must be able to align its resources, skills, promotions, sales and customer services to its defined position. Product positioning, therefore, requires a company to develop a product/market position for each selected market segment and to develop a marketing mix for each target market.

10.4  SEGMENTATION CRITERIA Numerous ways can be used to segment a market. Each type of company is likely to need to segment a market using different criteria, as the segments should be relevant to the skills and experience of the company. Not all market segmentation criteria are relevant and useful for every company. For example, a lubricant manufacturer is unlikely to gain much by distinguishing between vegetarian and non-vegetarian customers, whereas for a food manufacturer, this may be one of the most important market segmentation criteria. Some of these criteria may need to be combined for specific companies. Market segmentation criteria can be based on demographic, geographic, psychographic (behavioural), firmographic (industry and business) and other (less often used) variables.

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Demographic segmentation is based on consumer-demographic characteristics, on the assumption that customers and prospective customers with similar demographic profiles will exhibit similar motivations, interests, lifestyles and therefore buying patterns. It also assumes that these characteristics will generate similar product/brand preferences. In practice, demographic segmentation can potentially use any variable collected during a country’s census. The most widely used demographic variables and their typical sub-divisions include: • Age: In years; under 5, 5 to 10, 11 to 15, 16 to 20, 21 to 25, 26 to 35, 36 to 45, 46 to 55, 56 to 65, 66 to 75 or over 75. • Gender: Male or female. (Sometimes now also LGBT+ or no-gender.) • Marital status: Single, married, divorced or widowed. • Family life-stage: Young single; young married with no children; young family with young children, older family with children, older married with no children living at home, older living alone. • Family size: Number of dependents: 0, 1, 2, 3, 4 or 5 or more. • Income level: Sub-divided into groups of country currencies. • Home ownership: Renting, own home with mortgage, home owned outright. • Occupation: Professional, self-employed, semi-professional, clerical or administrative, tradespeople, farmer, manual labourer, student, home worker, unemployed or retired. • Religion: Protestant, Catholic, Muslim, Jewish, Buddhist, Hindu, other or non-religious. (This grouping is usually country-specific.) • Ethnic group: White, Black, Asian, African, Aboriginal, British, French, European, American, Chinese, Australian and numerous other categories. • Education: Primary school, secondary school, college degree, university degree, post graduate or higher degree. • Social class: Also known as socio-economic group: A, B, C, D or E or I, II, Ill, IV or V. In practice, most demographic segmentation uses a combination of demographic variables. Using multiple segmentation variables frequently requires an analysis of databases using complex statistical methods, such as cluster analysis or principal components analysis. These types of analyses require very large sample sizes. However, such data-collection and analysis are expensive for most companies, so they purchase data from commercial market research firms, many of whom have developed proprietary software to interrogate the data. Demographic market segmentation is most often used for retail markets. Some demographic segments are now known by their popularised and often country-specific labels, which include: • YUPPY: Also known as YUPPIE. Young, Urban/Upwardly mobile, Prosperous, Professional. Such people tend to be well-educated, careerminded, ambitious, affluent and free spenders. • MUPPY: Also known as MUPPIE. These are Middle-aged, Upwardly Mobile, Prosperous and Professional.

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• GLAM: Greying, Leisured and Moneyed. These are retired older people who are asset rich and with a high income. They tend to spend more than average on recreation, travel and entertainment. • WASP: White, Anglo-Saxon and Protestant. Such people tend to be highstatus and influential, with business, political, entertainment or artistic backgrounds. • DINK: Double (or dual) Income and No Kids. This couple, whether married or not, tend to exhibit discretionary expenditure on luxury goods, entertainment and dining out. • SITKOM: Single Income, Two Kids, Oppressive Mortgage. These people tend to have very little discretionary income and struggle to make ends meet. • TWEEN: A young person, ten to thirteen years old, who is too old to be considered a child, but is only just a teenager and too young to be considered an adult, so they are “in between”. Geographic segmentation divides markets according to their location. They can be segmented as broadly as continents or countries and as narrowly as towns or districts. Typical geographic variables include: • Country: For example, Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, the UK, the US. • Region: North, North-west, Mid-west, South, East, Central. • County or state: Surrey, California, Burgundy, Catalonia, Hesse, Siberia, Hubei, Maharashtra. • City or town: New York, London, Paris, Singapore, Shanghai, Mumbai, Cape Town, Rio de Janeiro. • Size of population: Under 5,000; 5,000 to 10,000, under 1 million or any other relevant number of customers or potential customers. • Climate: For example, Mediterranean, Temperate, Sub-Tropical, Tropical, Polar. • Population density: For example, central business district (CBD), urban, suburban, rural, regional. The geo-cluster approach (also called geo-demographic segmentation) combines demographic data with geographic data to create richer, more detailed consumer profiles. This is a consumer classification market segmentation method designed for consumer profiling purposes. It classifies residential neighbourhoods on the basis of census and lifestyle characteristics obtained from a wide range of sources. This allows the segmentation of a population into smaller groups defined by individual characteristics such as demographic, socio-economic or other shared socio-­ demographic characteristics. Some marketing managers and analysts consider geographic segmentation to be the first step in international marketing, where they must decide whether or not to adapt their existing products and marketing programmes for the unique needs of distinct geographic markets.

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Several suppliers of software market proprietary geo-demographic programs for commercial use. Geographic segmentation is widely used in direct marketing campaigns to identify areas which are potential candidates for personal selling, letter-box distribution or direct mail. Geo-cluster segmentation is widely used by governments and public sector departments such as urban planning, health authorities, police, criminal justice departments, telecommunications and public utility organisations. Psychographic segmentation, which is sometimes called psychometric or lifestyle segmentation, is measured by studying the activities, interests and opinions of customers. It considers the personalities and characteristics of types of people and the external influences to which are most responsive. Psychographics is a very widely used basis for segmentation, because it enables analysts to identify tightly defined market segments and better understand consumer motivations for product or brand choice. Typical psychographic market segmentation criteria are: • Leader or follower: People who lead a group or set an example for others compared with people who follow the leader or the example. • Extrovert or introvert: Outgoing or socially confident people compared with shy or reticent people. • Achievement-oriented: Risk-taking or risk-averse. • Independent or dependent: People free from outside control compared with people who rely on someone or something. • Right-wing or left-wing: Conservative, reactionary, liberal, socialist or communist. • Traditional or experimental: Resistant to change versus willing to try new ideas, products or services. • Socially conscious or selfish: People who want to help others compared with people who only want to please themselves. It is obvious from these psychographic characteristics that this type of market segmentation is only useful and practical for retail consumer markets. Behavioural segmentation divides consumers into groups according to their observed behaviours. Many marketing analysts believe that behavioural variables are superior to demographics and geographics for identifying market segments. Some managers and analysts have suggested that behavioural segmentation is replacing demographic segmentation. Typical behavioural variables include: • Purchase occasion: Regular occasion, special occasion, festive occasion, gift-giving. • Benefits sought: For example, economy, quality, service level, convenience, access. • Method of use: Specialist, generalist, no experience, requires assistance. • Frequency of use or purchase: Light user, heavy user, moderate user. • Quality level needed: High quality, average quality, single-use, long-life, robust. • User status: First-time user, regular user, non-user.

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• Buyer readiness: Unaware, aware, ready to buy. • Buyer attitude: Enthusiast, indifferent, hostile, price conscious, quality conscious. • Adopter status: Early adopter, late adopter, laggard. • Loyalty status: For example, loyal, switcher, non-loyal, lapsed buyer. It is important to note that these descriptors are only commonly used examples. Marketing managers and analysts customise the variable and descriptors for both local conditions and specific applications. An example of behavioural segmentation for the retail lubricants market is shown in Figure 10.2. Other types of segmentation, such as attitudinal, generational, cultural or technically adept, are sometimes used, but only for specific retail markets. Segmenting industrial markets is more straightforward than segmenting retail markets. Businesses can be segmented according to a number of criteria, such as: • • • • • • •

Type of business. Industry classification. Size of business. Financial strength. Location. Structure. Sales volume.

The most widely used segmentation criteria used in business-to-business (b2b) markets are location (geographic) and type of business (firmographic). Geographic

FIGURE 10.2  Example of types of retail lubricant customers. (Pathmaster Marketing Ltd.)

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FIGURE 10.3  Understanding industrial business customers. (Pathmaster Marketing Ltd.)

segmentation enables a company to focus on specific countries, regions or cities. Firmographic segmentation is similar to demographic segmentation, in that the target market is segmented based on features such as company size, industry sector or location usage rate, purchase frequency, number of years in business, ownership factors and buying situation. An example of segmenting business customers appropriate to the industrial lubricants business is shown in Figure 10.3. Other segmentation variables and their use in lubricants markets are discussed in more detail later in this chapter and also in Chapter 13. In order to segment markets appropriately, many larger companies combine the most relevant segmentation criteria for both the company and its products and services. This multiple criteria market segmentation approach invariably leads to more precise, better-defined, target markets. In summary, the main criteria for identifying a target market segment are: • Homogeneous: Customers assigned to a segment are similar in some relevant manner, such as needs or characteristics. • Heterogeneous: Each segment comprises customers who are relatively unique when compared with other customers in another segment. This demonstrates that the customers in the whole market have been divided into segments of differing needs. • Substantial: The segment is sufficiently large in terms of sales and profits to justify the company’s attention, so that it meets the threshold for financial return on the investment.

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• Accessible: The company must be able to reach the segment, particularly with regard to effective communication and distribution. • Actionable: The company must be able to implement a specific marketing mix for each segment and the number of segments must be aligned to its resources and abilities. • Responsive: Each segment should respond better to a specific marketing mix, rather than a generic offering.

10.5  MACRO AND MICRO VARIABLES Macro segmentation approaches the task on the basis of differences between industries and companies, such as size, location or product application. Many companies manufacture products and services that can be supplied to different, even dissimilar, industries or businesses. Marketing managers in these companies need to have a clear understanding of the similarities and differences between these industries in order to achieve effective market segmentation and target marketing. Significant differences may also be present within an industry. For the industrial lubricants market, examples of macro segmentation variables are: • Products: Engine oils, hydraulic fluids, plant maintenance fluids, metalworking fluids, greases, marine lubricants. • Industries: Automotive, agriculture, mining, transportation, manufacturing, construction. • Company size: Turnover, number of machines or vehicles, volume of lubricants used. • Geography: Region, distance from a blending plant or distribution warehouse, suburban/urban/rural. Many companies market products and services that can be used by a large number of end-users. Retail customers may differ from industrial customers, but many products may be suitable for both types. For example, many types and grades of greases can be used in automotive, industrial, mining and marine applications. Also, many products are used in several different ways, so marketing managers and analysts can segment on the basis of product application. Companies have different demographic characteristics. Larger companies have different purchasing requirements, such as volume purchasing and quantity discounts, and are likely to respond differently to marketing campaigns compared to smaller companies that purchase in smaller quantities. As a result, when markets are segmented on the basis of company size, larger manufacturers may not want to supply to smaller companies because their low volume needs cannot be served profitability. Alternatively, smaller manufacturers may not want to supply larger companies, as their volume requirements may mean that the supplier is serving just one customer.

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The location of customers can also be an important segmentation variable. With Lean Manufacturing and Just-in-Time delivery requirements, manufacturers of components may want to supply only customers located within easy distance of warehouses or distribution centres. Customer location also impacts sales force organisation and deployment. (This is discussed further in Chapter 15.) Micro segmentation approaches the task on the basis of differences in criteria that are more directly related to the purchasing decision-making process and the behaviours of people involved in the decision-making. Micro segmentation allows a marketer to sub-divide macro segments further, through identifying and evaluating specific organisational, purchasing and other criteria. Examples of organisational micro variables in the industrial lubricants market are: • Customer situation: Stage in customer’s product life cycle. • Customer interaction: Dependence on supplier of customer, comparison of customer’s knowledge with supplier’s knowledge. • Innovation: Innovative business or market follower. • Capabilities: Extent of operating, technical or financial capabilities. Examples of purchasing micro variables in the industrial lubricants market are: • Purchasing situation: New buy, modified re-buy, straight re-buy, stage in decision-making process. • Inventory requirements: Material requirement planning, Just-in-Time manufacturing. • Importance: Cost, usage factors, time. • Policies: Market prices, tenders, leasing. • Criteria: Supplier reputation, customer support (technical) service, reliability, flexibility. • Buying centre: Key decision-makers, key decision influencers, gatekeepers. Retail businesses are similar in many respects to industrial businesses in that they can be segmented using similar criteria. Typical micro variables can be grouped as follows: • Willingness to pay for technology and service: • Standard: Basic specification products and suitability to do business. • Enhanced: Technical and customer service support and advice, together with enhanced technology products. • Type of business relationship: • Deal: Only meet customer’s needs; minimal involvement. • Passive: Trusted supplier provides advice. • Active: Business partnership with problem-solving and consultancy from supplier. • Total: Outsourced business solution with full integration of supplier and customer.

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10.6  TARGET MARKET SEGMENTS AND VALUES Evaluating the commercial attractiveness of each market segment involves a great deal of judgement, as mathematical formulae for doing so do not really exist. Fortunately, a number of considerations can be used to assist in evaluating market segments for overall value and attractiveness. Answers, preferably with numerical values, to a number of questions can be useful. • How large is the market? The size of a segment can be measured by the number of customers or prospective customers, although sales value or volume are better measures. • Is the market segment sufficiently substantial to be profitable? Again, sales value or volume compared with costs to access the segment is likely to be a good indicator. • Is the market segment growing? The higher the growth rate, the better, while static or contracting segments are unlikely to be attractive. • What are the indications that growth will be sustained in the long term? • Is the segment stable over time? The segment must have sufficient time to reach a desired performance level. • To what extent are competitors targeting this market segment? • Do buyers have bargaining power in the market? • Are substitute products available? • Can a viable position be defined in order to provide differentiation from any competitors? • How responsive are members of the market segment to the marketing programme? • Is this market segment accessible, particularly with regard to promotion and distribution? • Is this market segment aligned with the company’s philosophy? • Does the company have the financial resources and commercial skills necessary to enter this market segment successfully? • Does the company have prior experience with this market segment or similar market segments? The hierarchy of these questions for evaluating the attractiveness of a market segment is summarised in Figure 10.4. The retail lubricant market segmentation shown in Figure 10.2 was used to determine the percentage of customers and prospective customers in each segment (as a proxy for segment attractiveness), the results for which are shown in Figure 10.5. Many of the sources of information for market segmentation are essentially the same as for market research, as summarised in Chapter 4. These can be supplemented using a number of company internal sources, including customer transaction records, customer relationship management (CRM) databases, in-house surveys and customer self-completed questionnaires or feedback forms. Useful additional

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FIGURE 10.4  Market segmentation approach. (Pathmaster Marketing Ltd.)

external sources include data-mining techniques, observed purchase behaviours and open-access market research reports. When considering the retail lubricant market segments shown in Figures 10.2 and 10.5, a lubricant marketing company might consider introducing a multi-brand strategy to target specific segments. Such a strategy might have three brands with

FIGURE 10.5  Example retail lubricant segment value, percentage of customers. (Pathmaster Marketing Ltd.)

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differing product performance levels (and commensurate pricing policies). The three brands might be: • Brand 1: High-performance specification, great brand awareness, lots of social opportunities (motor sports and others), good contact and support for dealers and distributors and high profitability. • Brand 2: Full specification oils, reasonable brand awareness, but good offers and services, including equipment and financial packages for dealers. • Brand 3: Basic specification oils at good prices, limited brand image, limited services for dealers beyond the product. The position of each brand in the identified segments is shown in Figure 10.6, for example. Obviously, every marketer of retail lubricants is likely to have a different market segmentation, brand strategy and brand positioning. When mapping brands to segments, a company should align its resources, skills, market share and competitive advantages to customers and prospective customers’ needs and characteristics. An example of what this means is shown in Figure 10.7. In this example, the company’s most obvious strength is in the “Involved” segment, with some strengths in the “Experts”, “Conscientious” and “Do it myself” segments. It might be prudent for the company to minimise efforts in the “do it for me” segment. Another benefit of doing this segment analysis is to identify where improvements (correcting weaknesses) can be made, assuming resources permit.

FIGURE 10.6  Example of brand positioning. (Pathmaster Marketing Ltd.)

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FIGURE 10.7  Example of mapping brands to segments, company scores out of 10. (Pathmaster Marketing Ltd.)

10.7 SUMMARY Many different ways can be used to segment a market. Market segmentation is the first of the three steps that eventually enables a company to maximise its return on investment. Attractive segments of a market must be identified and evaluated, target segments selected and decisions made about how to compete in those segments, before product and/or service positioning and marketing mix strategies can be developed. Markets can be segmented by product type, which allows manufacturing capacity to be optimised. They can be segmented by customer type, to enable salespeople to focus on specific products and/or services. They can be segmented by customer or market size, which enables the sales force to be optimally effective. Markets can be segmented by geography, which allows the optimisation of distribution facilities and the disposition of the sales force. They can be segmented by economic sector, to enable a focus on segments with high growth and/or profit potential. Market segmentation methods raise a number of key questions for marketing directors and managers: • • • • • • •

What are appropriate market segments? Can relevant macro segments be identified? Can relevant micro segments be identified? Can market profitability be determined? Can competitive positions be determined? Can detailed market data be obtained? What is the cost-effectiveness of alternative segmentations?

The answers to these questions will provide a marketing department with the critical information required to develop an effective and profitable marketing strategy and plan.

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11.1 INTRODUCTION Most motorists who buy retail automotive lubricants do not know very much about engine oils, gear oils, automatic transmission fluids or greases, as has been noted in earlier chapters. They usually need guidance from one or more sources about which lubricant(s) to use in their vehicles, vans, motorbikes, boats, caravans or other items of equipment. These sources, as discussed in Chapter 6, include car dealers, specialist motoring shops or repair workshops. They can also find information on the backs of retail engine oil packs, automotive gear oil packs or grease containers. Lubricant suppliers know this, so they use pull marketing strategies to entice motorists to look at their packs of lubricants on the shelves of the retail outlets. A pack might have printed on it that the oil meets the requirements of BMW xxxx specification, so a driver of a BMW car might conclude that this oil will be suitable in his or her car. As a consequence, packaging can play a significant role in the marketing and selling of retail automotive lubricants. Colourful packs that can be easily differentiated from competitors’ packs will help motorists to find the oil they have been advised to use. Packaging for automotive engine oils can also be valuable in terms of ease of use by motorists, particularly when pouring oil into the engine oil filler. When automotive lubricant packages have been designed and coloured with a specific supplier’s identity and logo, this is likely to encourage brand loyalty by motorists. Almost all marketing activities seek to maximise brand loyalty among retail consumers.

11.2  RETAIL BRANDS AND THE USE OF BRANDS Historically, a brand was defined as the sum of the functional and emotional characteristics, both tangible and intangible, that a consumer ascribes to a product or service. For example, a brand is the difference between a bottle of flavoured fizzy water and a bottle of Coca-Cola. The characteristics are exemplified in a name, symbol, trademark or design, or any combination of these. With the growth of the internet, the definition of a brand has started to be extended. Many online brands have almost no tangible characteristics. It can be argued that Amazon, Google, Facebook and other similar brands exist purely in virtual reality. In addition, the concept of branding can no longer be restricted to products and services. Film stars, politicians, musicians and others have realised that success can depend on their abilities to market themselves as brands. DOI: 10.1201/9781003318392-11

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For many companies that market and sell retail consumer products and services, brands are their principle source of competitive advantage and their most valuable strategic asset. If there were no brands, many consumer products and services would be undifferentiated and sold only on price, according to the laws of supply and demand (see Chapter 16). Brands enable companies to influence demand actively, by encouraging consumers to base purchasing decisions on other factors in addition to price. Brands and branding have a number of important characteristics. They: • • • • • •

Help consumers distinguish between competing products. Assist product or service recognition. Conjure images of attributes. Trigger expectations. Can be associated with quality and consistency. Often represent a considerable investment over a period of time.

A critical factor in creating powerful brands is a company’s ability to differentiate its product and/or services elements from those of its competitors. Key elements in the creation of a brand are product proposition, product positioning and product identity. Brand managers can use product design, packaging and advertising to create and manage a brand. It is very important for a company to monitor its brand equities over time, particularly with respect to brand awareness and brand image. In retail markets, brands are important for a number of reasons. Brands are used: • • • • • • •

For customers who do not understand technical features. To facilitate easy decision-making. To extend product life cycles. To position a product in the market. To launch new products. To link products in the range. To promote customer loyalty.

Many retail consumers think more about how a product looks rather than how it works or performs. This is where product design is important for building a brand. The most obvious examples of this in recent years are Apple’s iPhones and Dyson’s vacuum cleaners. For products that are sold in boxes, bottles or cans, packaging and the look of a pack are important brand elements. Innovative and colourful packages can make a product stand out on supermarket, convenience and do it yourself (DIY) store shelves. This can be an important differentiator when retail outlet shelves are becoming increasingly crowded. The same effect applies to websites such as Amazon that sell identical or similar products from many different suppliers. Advertising is also an important element in brand building and brand recognition. Print, broadcast media and the internet are very cost-effective ways to reach mass audiences in addition to having the power to influence consumer purchasing

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decisions. The press is a particularly effective medium for communicating complex messages and television advertisements can be very persuasive by integrating pictures and sounds. It is worth noting that, while printed and television advertisements can be flicked through or fast-forwarded, radio advertising cannot. Although it is difficult to prove a statistical relationship between branding and sales, due to the number of variables involved, it is possible to demonstrate relationships between advertising and brand awareness and between brand image and sales. For these reasons, most retail marketing managers will monitor brand awareness, brand loyalty and brand equity. Monitoring brand image will ensure that the product-differentiating elements a company is attempting to communicate are being received accurately by consumers. One reason for doing this is to ascertain to what extent brand equity can be leveraged into new products or new ranges of products. During the last thirty years, there have been numerous trends in the use of brands. Examples of these include: • • • • • •

Globalisation: Coca-Cola, McDonalds, Apple. Brand management: Ikea, Panasonic, Ford. All company activities support the brand: Sony, Virgin, Samsung. Strong company image: BMW, Mercedes-Benz, Toyota. Brands identified with products: Hoover, JCB, Heinz. Own-labels as brands: Carrefour, Wal-Mart, Tesco.

The term branding was coined by Interbrand, a brand consultancy company, which was founded in 1974. Initially, the company was a product-naming consultancy based in New York. Throughout the 1970s and 1980s, offices were opened internationally. The company was acquired by the Omnicom Group in 1993. It now provides branding services such as brand valuation, new product development, brand naming, legal searches and graphic design. Having coined the term “branding”, Interbrand pioneered brand valuation in the late 1980s, changing the way the world thought of brands, from trademarks to valuable business assets. Interbrand prepares an annual “Best Global Brands” report, which was published in BusinessWeek until 2009. Interbrand assumed sole authorship in 2010. To qualify, brands must have a presence on at least three major continents and must have broad geographic coverage in growing and emerging markets. The report describes and discusses the latest global trends and drivers of brands and branding and lists the top 100 brands by brand value. Soundly based on modern business valuation principles, the foundations of Interbrand’s valuation technique remain unchanged. The methodology was the first to be awarded the International Brand Valuation Standard ISO 10668 Certification. The company’s holistic approach involves strategists, designers and economists. The valuations are based on three main principles: • Leadership: Direction, alignment, empathy, agility. • Engagement: Distinctiveness, coherence, participation. • Relevance: Presence, trust, affinity.

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FIGURE 11.1  Top consumer brands, 2021. (Interbrand.)

The global top 40 brands in the 2021 report are listed in Figure 11.1. It is worth noting that there are no oil or gas companies in the global top 100 brands in 2021 according to Interbrand. The only oil company to appear in the top 100 list in recent years has been Shell, which was at 97 in 2019 (brand value $4.8 billion) and 89 in 2018 (brand value $5.3 billion). Shell’s brand value according to Interbrand has been declining slowly since 2014. During the same period, Apple’s brand value has increased from $170.3 billion in 2015 to $408.3 billion in 2021.

11.3  RETAIL LUBRICANT BRANDS In view of the absence of any oil company in the global top 100 brands, it is perhaps not surprising that the author contends that there are very few genuine brands of lubricants. Oil companies’ brands seem to be more correctly associated with corporate brands, rather than product brands. The author notes a few possible exceptions, including Mobil 1. Castrol might also be considered a sub-brand of its parent company, BP. Most lubricants have names rather than brands and many lubricant “brands” are associated with automotive fuels. There are almost no internationally recognised lubricant brands. Examples of retail automotive engine oil product names include: • Amsoil: Signature Series, XL, OE. • Castrol: GTX, Magnatec, Edge. • Elf: Evolution.

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Exxon: Ultra, Ultron. Fuchs: Titan. Mobil: 1, XHP, Super. Pennzoil: Motor Oil. Petronas: Syntium. Quaker State: Motor Oil, High Mileage, Advanced Durability Oil. Shell: Helix. Texaco: Havoline. Total: Quartz, Gold, Silver. Valvoline: SynPower, VR1, Maxlife, All Climate.

Many of these manufacturers of retail automotive engine oils suggest that their product names are brands. Most motorists are likely to regard the manufacturer’s name as a brand, although Interbrand might disagree even with this. The association of a retail automotive engine oil manufacturer’s name with a brand is more likely to be true in Japan, where the country’s car manufacturers market their own brand “genuine oils”. It is also becoming evident in Europe and North America, where, for example, Amazon has started to sell AmazonBasics Engine Oils on its websites. Because AmazonBasics is associated with a wide range of unrelated products and Amazon is a global top 100 brand, it might be construed that AmazonBasics is a sub-brand of Amazon. Lubricant company marketing managers probably need to conduct regular (perhaps annually) market research to measure brand awareness, brand recall and/or brand recognition by retail motorists. It is possible this research might discover that motorists are able to recall advertisements or promotions for lubricant product names as perceived “brands”.

11.4  RETAIL LUBRICANT PACKS AND PACKAGING Lubricants are delivered to customers either in bulk or packaged in containers of many different types. Packaging can serve a number of purposes: • • • •

To protect the product and maintain its quality. To stop the product impacting other products and the environment. To provide units of the product that are easily manageable by users. To help promote the product.

In retail consumer marketing particularly, the promotional aspect aims to make the product stand out on a store shelf or website and say “buy me” to the customer walking down the store aisle or searching the internet. Many retail packages, especially perishable foods, expensive products and drugs, must be tamperproof to the extent that the consumer can determine whether the package contents have been altered or contaminated. The choice of packaging materials is also influenced by concerns for environmental protection. Containers that can be recycled, or are made of recycled materials, are being used increasingly. This is also true for retail lubricant packaging, particularly for comparatively high-value synthetic lubricants.

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Packaging can play an important role in reducing the security risks of transportation, handling, displaying and selling. Packages can be made with improved tamper resistance, to deter manipulation, and they can also have tamper-evident features that indicate that tampering has occurred. Packages can be engineered to help reduce the risks of package pilferage or the theft and resale of products. Some package fabrication is more resistant to pilferage than other types and some have pilfer-indicating seals. Counterfeit consumer goods, unauthorised sales (diversion), material substitution and tampering can all be minimised or prevented with such anti-counterfeiting methods. Packages may include authentication seals and use security printing to help indicate that the package and contents are not counterfeit. Packages can also include anti-theft devices such as dye-packs, RFID (radio frequency identification) tags or electronic article surveillance tags that can be activated or detected by devices at sales or retail exit points and require specialised tools to deactivate. Using packaging in this way is a means of retail loss prevention. Retail lubricant packaging has a number of roles in addition to those listed previously. Different sizes of packs aid delivery of small quantities to specific points of use. All of these will identify the lubricant type and grade and will assist with branding and promotion. The attributes of retail lubricant packs are that they should be easy to manufacture, should be easy to fill and empty, should be robust, must be inexpensive relative to the price of the final, packaged, product and may need to be either re-usable or recyclable. Numerous types of automotive lubricant packaging are used: • • • • • •

5, 4, 2, 1 and ½ litre plastic bottles. 1 gallon, 1 quart and 1 pint plastic bottles. 5, 1 and ½ kg tinplate cans or plastic tubs. 205 and 25 litre drums; steel or plastic. 180 and 25 kg pails; steel. 250, 500 and 1,000 litre Intermediate Bulk Containers (IBCs); plastic.

The smaller containers are aimed at retail motorists, while the larger drums, pails and IBCs are aimed at fleet owners, car dealerships and service and repair garages. (Some retail motorists buy 25 litre drums of engine oil, for several oil changes or for several vehicles.) With the smaller pack sizes in the retail automotive engine oil market, there are at least four segments for developing the value of retail lubricant sales: • • • •

Right pack size for the right occasion. Oil top-up. Oil trade up. Do it for me (DIFM).

Numerous examples of the right pack size for the right occasion exist in retail markets. Large boxes of Kleenex tissues are used in households, extra-large boxes are for industrial workplaces and pocket-sized packs are for ladies’ handbags and picnic baskets. In Europe, Coca-Cola sells 150 millilitre cans as mixers for bar drinks for

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individuals, 330 millilitre cans for individuals to drink now, 1 litre plastic bottles for use at home by a heavy user or a small group and 2 litre plastic bottles for family sharing at home or a party. There are four distinct occasions when different market segments purchase retail engine oil packs: • Planned do it yourself (DIY) oil change: Mileage or date led. • Planned maintenance oil top-up: Requiring regular checks. • Prompted oil top-up: Before a long journey or after a reminder from advertising or promotion. • Emergency: When the oil-warning light comes on. The relationship between the buying occasions and the engine oil pack sizes is quite straightforward. Motorists who experience an oil-warning light are most likely to buy either a ½ litre or 1 litre plastic bottle from the nearest retail outlet for emergency top-up. One litre plastic bottles are purchased for planned top-up, as are 2 litre plastic bottles which also provide some more oil for next time. Four litre and five litre plastic bottles or tinplate cans are purchased for DIY oil changes, while 25 litre drums are purchased for multiple oil changes. Knowing which customers purchase which packs in which sales channel allows the right pack sizes to be stocked in each channel.

11.5  LUBRICANT PACK LABELS AND LABELLING Labels can be used to communicate how to use, transport, handle, recycle and/ or dispose of the package or product. Labels can also be used for track and trace purposes, particularly if there are batch numbers on the label. Labels on packages may indicate the package’s construction material, particularly for plastic packages, with a symbol. Labels can also be used by marketing departments as part of the promotion of a product, to encourage potential buyers to purchase the product. Package graphic design and physical design have been important and constantly evolving phenomena for several decades. Marketing communications and graphic design are applied to the surface of the package and often to the point-of-sale display. Most packaging is designed to reflect the brand’s message and identity. There are also legal requirements for labels, to comply with international legislation, to comply with national legislation and to comply with consumer protection regulations. Labels may display health and safety information, as well as used product and package collection and recycling guidance. For lubricants, labels will usually indicate what to do in the event of a spillage. There may also be methods for disposal of used oil. It is worth noting that new oils are generally non-hazardous, while in many countries, used oils are usually classified as hazardous. (A discussion of this is outside the scope of this book.) There are two main types of labels for lubricants, those for small packages (plastic bottles and tinplate cans) and those for large packages (drums and intermediate bulk containers (IBCs)).

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FIGURE 11.2  Influence of retail automotive engine oil packaging on branding. (Pathmaster Marketing Ltd.)

For small-pack labels, the front side is the “face of the product”. This will have the product’s brand name, with distinctive and sophisticated product design, artwork and colouring. Examples of the front side of several different bottles of automotive engine oils are shown in Figure 11.2. Note that each of the bottles has a different shape and handling features. With the back (rear) side of these bottles, there will be specific product information, including major international, national and original equipment manufacturers’ specifications and/or approvals. The label will also include legal and disposal information. The labels will either be printed on the bottle or can be using flexographic, offset or digital printing or be printed on durable adhesives. For large-pack labels, the “label” will be a simple, generic design, with the lubricant’s product name and grade. There may be health, safety and environmental information, although this is more likely to be included with the accompanying safety data sheet. The drum or IBC is likely to have the company’s distinctive colour scheme and the “label” will be applied to either the top or side of the drum or IBC using thermal transfer printing. In many regions, labels for small packs are likely now to be multi-lingual. That is, the information on the back of the package will be in many different languages. This enables lubricant manufacturers and marketers to supply the same product in all those countries on the label, enabling bigger print runs and lower costs. It also allows uniformity of branding. For example, Mobil 1 is known worldwide. (The front side of the pack is “neutral” (often English)). An example of a multi-lingual label in Europe is in English, French, German, Italian, Dutch, Danish, Swedish, Norwegian, Finnish, Polish and Czech. Obviously, with so many languages, the information is quite brief and the printing is quite small. In Asia, an example of a multi-lingual label is Chinese, Japanese, Malay, Thai, Indonesian and English.

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Multi-lingual labels are also used on occasions for commercial and industrial lubricants that are distributed widely or for slower moving products and grades. Marketing managers in some countries prefer to retain labels in their national language only, for reasons of national identity or security.

11.6  INFLUENCE OF LUBRICANT PACKAGING ON BRANDING Illustrations of the influence of retail automotive engine oil packaging on branding are shown in Figure 11.2. The front sides of all eight packs clearly display the product’s name and lubricant manufacturer, in addition to the oil’s viscosity grade. However, differences between the branding on the packs are evident. For example, the oil company “Sinopec” is much more prominent on the pack than the product name “Justar J400”. Conversely, on the Havoline pack, “Texaco” is smaller than the product name “SF Engine Oil”. “Castrol Edge” is prominent on both packs shown in Figure 11.2, while each pack is different in shape and handling characteristics. The pack on the left-hand end of the top row is a 1 gallon US bottle of 5W-20 viscosity grade engine oil, while the bottle next to it is a 4 litre UK bottle of 5W-30 viscosity grade engine oil. Clearly, the marketers of these engine oils are seeking to differentiate their product from those of their competitors. All the packs have high design content as part of the brand identity. Although Figure 11.2 is black and white, the packs colours are also linked to the manufacturers’ brand identities. For example, in the author’s experience internationally, Shell Helix Ultra bottles almost always are silver-coloured (in various shades), while Shell Helix standard bottles are usually yellow. Texaco Havoline bottles are usually dark grey or black in colour. One aspect of retail automotive engine oil packaging and branding that could be a little puzzling to salespeople and motorists is the lack of a link between lubricant brands and vehicle manufacturers’ brands. Figure 11.1 shows that Toyota, MercedesBenz, BMW, Honda and Hyundai are all top 40 global brands. Perhaps retail automotive engine oils could be linked to these major brands, given that no oil company is in the top 100 of global brands and even Shell’s brand is valued at less than one tenth of Toyota’s brand. There are two very important reasons for the lack of this linkage. The first is that competition laws in many countries do not permit a vehicle manufacturer to promote, endorse or recommend one lubricant supplier’s products. Provided that an engine oil meets the OEM specification for a specific vehicle model, that oil may be used in that vehicle without affecting the manufacturer’s warranty or servicing requirements. All engine oils that meet the specification are able to compete on equal terms. The second reason is that vehicle manufacturers are very unwilling to be seen by motorists to “dilute” their very valuable brand with a much less valuable brand. There is one notable exception to this. Motor sport teams, whether Formula One, MotoGP or many others, proudly display the brand of lubricants used in their cars or motorbikes. For example, Lewis Hamilton’s Mercedes has large Petronas signs on both sides, Sebastian Vettel’s Ferrari has Shell logos on it and Alex Marquez’s Honda displays the Repsol logo. Dozens of other companies’ logos are displayed on

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everyone’s racing car or motorbike, because the companies are sponsors of the teams and pay lots of money to do so, as part of their marketing promotions.

11.7  WASTE PACKAGING PLASTIC AND PACKAGING RECYCLING Sanitary landfills, in which layers of refuse alternate with layers of soil, are the favoured method of disposing of solid waste in many countries. However, concerns over the sustainability of such land use have encouraged efforts to dispose of various materials by recycling them for re-use or to derive some positive benefits. Paper, glass and aluminium containers have been recycled to some extent for many years, and plastic recycling has become more common. Several technical and economic problems are encountered in the recycling of plastics. They fall into two general categories: • Identification, segregation (or sorting) and gathering into central stations: Since plastics used in packaging form a highly visible part (approximately 20% by volume but less than 10% by weight) of the waste stream, most recycling efforts have focused on containers. Almost all bottles, food trays, cups and dishes made of the major commodity plastics now bear an identifying number enclosed in a triangle together with an abbreviation. In addition to such labelling, some consumers are encouraged to return empty beverage containers to the place of purchase by being required to pay a deposit on each unit at the time of purchase. This system helps to solve two of the major problems associated with economical recycling, since the consumer seeking return of the deposit does the sorting and the stores gather the plastics into central locations. An added attraction of deposit laws is a notable decrease in roadside litter. • The economics of recovering value: Although thermoplastics can be recycled more readily than thermosets, there are inherent limitations on the recycling of even these materials. First, a recyclable plastic may be contaminated by non-plastics or by different polymers making up the original product. Even within a single polymer type, there are differences in molecular weight. For instance, a supplier of polystyrene may produce a material of high molecular weight for sheet-formed food trays, since that forming process favours a high melt viscosity and elasticity. At the same time, the supplier may offer a low-molecular-weight polystyrene for the injection moulding of disposable dinnerware, since injection moulding works best with a melt of low viscosity and very little elasticity. If the polymers from both types of plastic are mixed in a recycling operation, the mixed material will not be very suitable for either of the original applications. Another complication to the recycling of plastics is the mixing together of pigments or dyes of different colours. Yet another is the problem of quality control. Almost all plastics change either slightly or greatly as a result of initial fabrication and use. Some, for instance, undergo changes in molecular weight due to cross-linking or chain scission (breaking of the chemical bonds that hold a polymer chain together).

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Others undergo oxidation, another common reaction that can also change the properties of a plastic. For all the foregoing reasons, recycled plastics will almost always have certain disadvantages in comparison to virgin plastics. Most thermoplastics are therefore recycled into somewhat less-demanding applications. For example, high density polyethylene (HDPE) from thin-walled grocery bags may be converted into thickwalled flowerpots, polyvinyl chloride (PVC) recovered from bottles may be used in traffic cones and polyethylene terephthalate (PET) recovered from beverage bottles may be washed, dried and melt-spun into fibrous filling for pillows and clothing. Waste plastics that cannot be separated by polymer type can be made into plastic “timber”, extruded slabs that are suitable for applications such as industrial flooring and park benches. The heterogeneous composition of plastic timber makes it inherently weaker than the original polymers. Other recycling processes that make use of mixed plastics are pyrolysis, which converts the solids into a petroleum-like substance, and direct incineration, which can provide energy for power plants or industrial furnaces. Almost all countries now have government targets for recycling waste packaging. The main problem currently is that facilities to recycle waste plastic do not have the capacities to handle all the waste plastic that is collected. According to the World Bank, in 2010, the rates of plastic waste recycling varied from 5% to 42% of plastic waste produced, with a global average of only 16%. Globally, 62% of waste plastic was sent to landfill or incineration without energy recovery and 22% was incinerated with energy recovery. Global production of plastic was 368 million metric tonnes in 2019, of which around 40%, or 147 million metric tonnes, was for plastic packaging, mainly for food packaging, drinks bottles and plastic shopping bags. In 2019, China had a total share of approximately 31% of the global production of plastic materials, which made it the world’s largest plastic producer. Much of the plastic used in packaging was for single use. Plastic bottles for lubricants accounted for a very small percentage of the global market for plastic packaging. In Europe, packaging and packaging waste are regulated under the European Community (EC) Packaging and Packaging Waste Directive (94/62/EC), which entered into force in December 1994. Under the Directive, all Member States were required to meet specific standards and targets. As a result, all European countries have now instituted national regulations that include standards for the type and quality of packaging and targets for the recovery and recycling of packaging waste. The regulations place obligations on certain businesses to recover and recycle specified tonnages of packaging waste, based on the amount of packaging handled by the business. An estimated 41.5% of plastic packaging waste was recycled in the European Union (EU) in 2018. In seven EU Member States, more than half of the plastic packaging waste generated was recycled. With regard to the shipment of waste from the EU, Regulation (EC) 1013/2006 was published in June 2006. This was amended by Delegated Regulation (EC) 2020/2174 which includes a new entry for hazardous plastics waste (entry A3210) in Annex VIII and two new entries for non-hazardous plastic waste in Annex II (entry Y48) and

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Annex IX (entry B3011). These changes became effective on 1 January 2021. The regulation specifies which types of waste plastic can and cannot be shipped within EU Member States. It also specifies conditions for the export of plastic waste from the EU to third countries and the import of plastic waste into the EU from third countries, both of which require prior written notification and consent. The 2019 United States Post-Consumer Plastic Recycling Data Report indicated that a total of 1.9 million metric tonnes of post-consumer plastic sourced in the US was recovered for recycling. Post-consumer plastics in the report included bottles, non-bottle rigid plastics, film and other plastic packaging, but not foam. The North American production of plastic packaging in 2019 was around 28 million metric tonnes, most of which was produced in the US. This suggests that only around 8% of waste plastic packaging was recycled in the US in 2019. In November 2021, the US Environmental Protection Agency (EPA) published the 2021 National Recycling Strategy to tackle major recycling challenges faced by the nation and to create a stronger, more resilient and cost-effective municipal solid waste recycling system. The 2021 strategy was also the first time the EPA’s recycling strategy addressed the climate impacts of producing, using and disposing of materials and focused on the human health and environmental impacts of waste and wasterelated facilities in overburdened communities, reflecting the Agency’s commitment to delivering environmental justice. The National Recycling Strategy includes five strategic objectives with specific actions to strengthen the US recycling system: • Improve markets for recycled commodities through market development, analysis, manufacturing and research. • Increase collection of recyclable materials and improve recycling infrastructure through analysis, funding, product design and processing efficiencies. • Reduce contamination in the recycled materials stream through outreach and education to the public on the value of proper recycling. • Enhance policies and programmes to support recyclability and recycling through strengthened federal and international coordination, analysis, research on product pricing and sharing of best practices. • Standardise measurement and increase data collection through coordinated recycling definitions, measures, targets and performance indicators. However, the strategy does not appear to include any targets for achieving specified recycling rates. In California, the mandatory plastics recycling rate of 25% was raised to 30% in January 2001 and to 35% in January 2003. There is some doubt as to whether these recycling rates were ever achieved. Part of the problem was that China stopped accepting what it called recyclable garbage in 2018, including postconsumer plastic waste, for recycling. This has forced many countries to massively expand their own waste packaging recycling facilities. During the last thirty years, several major US oil companies tried to implement engine oil bottle recycling programmes. Chevron set up an oil bottle recycling programme on the north-west coast to collect its own bottles and recycle them into new Chevron bottles. While the programme was a technical success, it was not

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economic. Amoco had a pilot programme in Chicago in the early 1990s, Exxon experimented with oil bottle collection and Sun had a pilot bottle recycling programme in Philadelphia, but none of these programmes succeeded. At the end of 1999, North America had three engine oil bottle recycling programmes. A grant from the EPA was used to start a pilot programme in two South Carolina counties in 1996. The oil bottles are collected from homes and drop-off centres, separated, ground into flake and sold to KW Plastics in Troy, Alabama. The second programme, project GEORGE, was operated by Fixcor with a grant from California. The project collected the oil residue from the bottles and processed the plastic without the use of water, chemicals or detergents, using a methodology patented by Allied Signal. Although initial testing in California was completed, the project needed financial support to continue. The Alberta Used Oil Management Association, in Alberta, Canada, was the third programme, funded by an industryoperated recycling fund generated by a handling charge on lubricating oil materials. AUOMA collected used oil, filters and bottles, charging 5 cents (Canadian) per litre or kilo for waste oil; 5 cents per litre for containers and 50 cents or $1 per filter. This programme was reported to be succeeding and expanding across Alberta. The main observation from the programmes to date is that oil bottle recycling as a standalone process is not economically sustainable unless there are financial incentives for motorists. Collection is the primary difficulty and waste oil in the bottles presents special problems because not all HDPE-recycling companies that can recycle coloured bottles can recycle oil bottles.

11.8 ALTERNATIVE PACKAGING AND METHODS OF DELIVERING LUBRICANTS Lubricants do not have to be delivered to retail consumers in either plastic bottles or tinplate cans. Several alternative packaging or delivery methods have been used in the past or could be used in the future. For example, in Australia and the US in the 1960s, automotive engine oils were sold to motorists on service station forecourts in 1 pint or 1 quart glass bottles. These bottles were kept in a forecourt stand, were used only for oil top-up and the empty bottles were returned to the stand, to be refilled at the end of the day from a 55 gallon drum (US) or 44 gallon drum (Australia) located at the back of one of the service bays. In those days, most motorists had their cars serviced, so oil changes were done by a qualified mechanic. In addition, self-service for fuel had not been introduced, so refilling the oil bottles was generally done by one of the pump attendants. The obvious problem with using glass bottles was if one was accidentally dropped on the floor by a mechanic or attendant. The potential benefits of adopting this method in the future are that the glass bottles can be re-used over and over again, in addition to being much easier to recycle than plastic bottles. In order to encourage as much re-use of packaging as possible, a number of retail outlets in developed countries are currently trialling the use of refillable containers. The concept of refillable containers is not new. Up to the 1980s the milkman used to deliver milk in 1 pint glass bottles and collect the empty bottles, which were then cleaned, sterilised and refilled. Several companies have provided beauty and

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cosmetic products in refillable containers for many years. The concept is now being expanded to food and drink products. One such company is Loop, a subsidiary of TerraCycle Inc., a US recycling business headquartered in Trenton, New Jersey. TerraCycle’s main business is a volunteer-based recycling platform to collect non-recyclable pre-consumer and postconsumer waste on behalf of corporate donors or municipalities to turn it into raw materials to be used in new products. Loop is a circular platform that transforms the packaging of retail products from single-use disposable to durable, feature-packed containers. The key thesis behind the strategy is that it is not possible to simply recycle our way out of the waste packaging crisis. The company aims to eliminate the problems with packaging rubbish and recycling, as well as removing the need for consumers to clean containers before returning them. Consumers can return empty containers by scheduling a free pickup online or returning them at retail partners’ participating locations. Loop hygienically cleans and sanitises the empty packaging that is returned, so they are ready for re-use, instead of ending up as waste after a single use. By partnering with leading retailers from grocery to restaurant chains to beauty stores and many more, Loop is able to leverage their scale and distribution to bring consumers the products they want in the most convenient way, both online, and in-store. The company contends that re-usable packaging enables innovative features and unparalleled design, so that consumers experience everyday products in a new way. In partnership with major brands and retailers, Loop is available in the US, Canada, the UK, France and Japan. At the time of writing (February 2022), Loop was in the process of expanding internationally, including Germany and Australia. Many local companies in many countries have begun to offer similar schemes for retail consumers. The global growth in electric vehicles appears likely to change the way in which lubricants are supplied to motorists (and even fleet operators). The lubricants used in electric vehicles are either filled-for-life, as in greases in wheel bearings, or are very difficult to either change or top-up. Almost all lubricants and fluids used in electric vehicles must be serviced by a qualified mechanic. As a consequence, these lubricants will be delivered to vehicle workshops in bulk, not in plastic or tinplate (or glass) bottles for use by individual motorists. Retail consumers will also have electric motorcycles, lawnmowers, hedge trimmers, snowmobiles and many other types of tools and equipment. Almost all of these will either be lubricated for life or only need small amounts of specialist lubricants. Part of the shift to packaging for electric vehicles is likely to involve technology, such as containers with a lock-out system which only permits a specific fluid to be used in a certain vehicle. Industry analysts are not sure how much service fill volume there will be for electric vehicle fluids, because most products are likely to be factory-fill, with products shipped to assembly plants in either drums or IBCs. In addition, there is an environmental benefit to the decline in sales of lubricants in 1 litre, 4 litre, 1 quart or 1 gallon containers, nearly all of which end up in a landfill. With more motorists having their electric vehicles serviced in specialist garages, an eco-friendly cycle can begin. Empty drums and IBCs can be returned from the specialist garage to the lubricant manufacturer, cleaned, repaired and re-used.

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It is also possible in future that governments around the world will enforce bans on retail motorists doing their own oil changes, as part of regulations and policies to facilitate as much re-use and recycling of materials as possible. It is becoming increasingly evident that the impacts of climate change are likely to influence the ways in which governments, societies and individuals think about and respond to environmental pressures.

11.9  RETAIL LUBRICANT BRANDING AND SALES In Chapter 10, the methodology and reasons how and why specific retail lubricants are targeted at different segments of the retail automotive market were explained. Both pull and push marketing strategies are used to achieve this targeting. Lubricant branding is part of both strategic methods. However, as explained earlier in this chapter, lubricant brands are not particularly strong in retail markets in comparison with the major retail brands, such as Apple, Amazon, Microsoft, Google and others. Many lubricant product names could rely mainly on their parent oil company brands, except obviously for the large number of independent manufacturers of oils and greases. One way of discovering the impact of a lubricant brand or product name on sales would be to measure changes in market share over time. The largest lubricant manufacturers do this routinely and the results are kept very confidential. Published market surveys occasionally reveal some of this information. Fuchs Petrolube SE’s Annual Report lists the top 15 global suppliers of lubricants, by volume. The lists for selected years from 2000 onwards are reproduced in Figure 11.3. The information tends to indicate that lubricant branding does not have a very large effect on the position of a company in the top 15 suppliers. Although there were some changes in position between 2000 and 2011, for example, with Lukoil

FIGURE 11.3  Top lubricant manufacturers, by volume. (Fuchs Petrolub SE Annual Reports.)

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slipping from 8 to 11 and Petronas climbing from outside the top 15 to number 13, in recent years, the positions have changed very little. From 2011 to 2019, Sinopec was consistently at number 7 and Fuchs was consistently at number 9. These positions changed in 2020, with Sinopec climbing to number 5, Fuchs climbing to number 8, Total slipping to number 6 and Idemitsu slipping to number 10. It is probably worth noting that Shell has consistently been at the top of the list in recent years, which is not very surprising, given that Shell is the top oil company brand, globally, as determined by Interbrand. The lists indicate that there has been very little change in market position among the major lubricant brands. This further suggests that there is not much influence of branding on total lubricant sales. Given that automotive lubricants account for between 40% and 60% of the market for lubricants in different countries, the link between total retail automotive lubricant sales and branding appears to be weak. Of course, because products are aimed at different segments of the retail lubricant markets, the link between branding and individual product sales could be very strong. For example, Mobil 1 is recognised globally as a high-performance engine oil and sales of this product are reported to be higher than they might otherwise be, due to high levels of promotion of the product. (The author wonders how many motorists know that Mobil 1 is an ExxonMobil product.) Retail lubricant marketing managers should be measuring the links between product branding, product promotion, sales and profits. The author knows that the most successful lubricant companies do this regularly.

11.10 SUMMARY Retail automotive lubricant packaging design and construction are important factors in product branding and brand identity. Lubricant manufacturers spend considerable effort to differentiate their retail packs from those of their competitors. Lubricant packaging plays a very important role in providing manageable units of delivery to retail customers, while protecting the contents from contamination and fraudulent substitution. Different pack sizes are used for different occasions, whether emergency oil top-up, regular oil top-up or routine oil change. Package labels provide retail motorists with product branding, product name, product use information and regulatory and environmental information. The future global growth in electric and hybrid vehicles is likely to change the relationship between automotive lubricant sales and branding and packaging. Fewer motorists could be unable or unwilling to purchase lubricants in retail outlets and either change or top-up the oils in their vehicles. Lubricant manufacturers may need to review their reliance on automotive packaging as a marketing and sales strategy and place more emphasis on relationships with OEMs and specialist automotive garages. There is some evidence that branding and packaging have only a limited effect on a company’s total sales of retail automotive lubricants, although it is possible that the most well-known lubricant brands achieve higher sales and profits than other products. Overall, however, lubricant suppliers’ brands are not as valued as the leading global retail brands.

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12.1 INTRODUCTION Marketing and sales activities have a major contribution to make in the development of a new product. Drivers of new products include customers and competitors. (Other drivers for new products are discussed later in this chapter.) As described in Chapter 4, knowing and understanding the requirements of customers and the activities of competitors will provide valuable information for deciding about the development of one or more new products. However, not all potential new products can or should be developed at the same time. Managing a portfolio of products involves deciding which are the highest priority with regard to profit potential and so should be tackled first. A successful new product development is vital for business success. Product portfolio management includes the ability to select which current development projects are highly likely to become tomorrow’s winners. Product portfolio management also involves resource allocation. In business, when shareholder and stakeholder value and achieving more with limited resources are important, marketing, sales and technology resources are too scarce to waste. Many tools, some quantitative, some graphical and some strategic, can be used to help choose the best portfolio of development projects.

12.2 THE PRODUCT/MARKET MATRIX AND PRODUCT LIFE CYCLES Before deciding to develop a new product, a company might first like to consider why a new product is required. There are many reasons why a new product might be required, the first of which is the poor sales, and therefore profits, of an existing product. Reasons for a product’s poor sales and profits include an uncompetitive price, a low selling price, it is difficult to produce or is produced in uneconomic batches, its technology is inferior, it is over-engineered or it is too costly to produce and market. Also, competitors may dominate the market or the customers’ requirements are not as expected. Because of these numerous reasons, a number of alternative corrective actions might be considered and evaluated. These could be to reduce the product’s cost, increase its price or reduce its price (depending on which reason applies), improve the product’s performance, increase promotional spending, increase the sales effort or change the distribution channels. An additional strategy might be to develop new markets for the product. DOI: 10.1201/9781003318392-12

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Only after evaluating all these alternatives might a new product development programme become attractive. Then, a number of key questions should be answered: • • • • • • • • • • •

Why should someone want to pay money for a new product or service? Who would want to? At what price? How many or how much? How often? Who are our competitors? What is (are) our competitive advantage(s)? What is (are) our unique selling point(s)? Do we have the right skills and experience? Do we need any help? From where or whom can we get help?

It is worth noting here that there are comparatively few types of new products: • • • • • •

New-to-the-world products. New product lines. Additions to existing product lines. Improvements to existing products. Repositionings. Cost reductions.

New-to-the-world products account for a relatively small percentage of the global market, as illustrated in Figure 12.1. Examples of completely new products include Sony’s Walkman and 3m’s Post-it-Notes. Even the mobile phone is an adaptation of earlier corded phones, in which the cord was replaced by a battery and an aerial. Most new products are developments of existing products. Product development means marketing and selling new products into existing markets. This is illustrated by the product/market matrix shown in Figure 12.2. In business, selling existing products into existing markets is called market penetration. Selling existing products into new markets is called market development. Selling new products into new markets is called diversification. If a new product is commercially and technically successful, it will begin a process known as a product life cycle. A product’s life cycle has five distinct phases, shown in Figure 12.3: • • • • •

Embryonic Growing. Mature. Ageing. Decline.

Because each stage is affected by different competitive conditions, each stage requires different marketing strategies if optimum sales and profits are to be achieved.

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FIGURE 12.1  Typical share of new product types. (Pathmaster Marketing Ltd.)

FIGURE 12.2  The Product/Market matrix. (Pathmaster Marketing Ltd., adapted from Boston Consulting Inc.)

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FIGURE 12.3  The product life cycle. (Pathmaster Marketing Ltd.)

The concept of product life cycles has attracted more attention in retail consumer markets than it has in industrial customer markets. Fortunately, it is still very useful as a valuable planning tool for both markets. However, it should be recognised that its usefulness results from viewing it as a dependent variable rather than a determining one. Marketing strategies should be directed not at the stage of a product’s life cycle, but at the factors that govern it. Careful analysis enables marketing managers to determine where a product is in its life cycle and to develop marketing strategies aimed at the governing factors. In the embyonic stage, product acceptance can be rapid in consumer markets and significantly slower in industrial markets. Some industrial products require considerable market development before reaching an appreciable growth stage. Product acceptance in an industrial market is affected by how the product fits into a buyer’s total use system. During the latter period of the embryonic stage, marketing and sales managers need to be prepared to meet vigorous competition. When competitors realise that a new product is gaining market acceptance, they are highly likely to introduce a similar product in order to capture a share of the developing market. When the potential for rapid product acceptance exists, planning should focus on keeping well ahead of all entering competition and marketing strategies should focus on market development. As a product begins to enter the growth stage, the emphasis on product strategy needs to shift to improving product design, improving distribution service and lowering price. This is because increasing product demand, accompanied by accumulated production experience, will begin to lower costs substantially. As market demand increases, product design and other aspects of the product offering must be changed to meet both low-end and premium market segment needs. Further, when product availability is weak, competitors are encouraged to enter the market.

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Unfortunately, too many companies tend to overlook the need to lower price as costs decrease. When prices are lowered as costs decrease, it has been found that emerging competition is not as strong as when price is allowed to lag decreases in cost. When a product has reached maturity, buyers have found suppliers whose offerings satisfy their needs and they are neither searching for new suppliers nor paying much attention to the promotion of other offerings. Marketing strategy, therefore, should be directed towards keeping current customers satisfied and looking for opportunities to find new buyers or to enter new markets through product modification and changes in other marketing mix variables. It should be noted, however, that unless buyers perceive substantial benefits in product modification, increases in promotional efforts alone are seldom effective. In the ageing stage, a product’s growth rate fluctuates, the number of customers and prices are stable, customer loyalty is strong and competitors are unlikely to try or want to enter the market. In fact, competitors with comparatively low market shares are likely to quit altogether. Further development of the product is unnecessary. A product’s decline is signalled when changes in customer needs and changes in technologies or production methods create better product offerings. The product’s sales and profits start to decrease markedly. When a product enters the decline stage, marketing managers are faced with the choice of phasing the product out or embarking on a milking strategy in which marketing expenses are sharply reduced, to increase current profit margins. Product descriptors for each of the five life cycle stages are shown in Figure 12.4. The descriptors provide useful indicators of where any product is in its life cycle. Accounting records can be particularly informative. Trend information for the past three to five years on unit and monetary sales, profit margins, total profit contribution, return on investment, market share and prices should be collected. Recent trends in the number and nature of competitors, their market share rankings and their product performance advantages should be examined. Short-term competitive tactics, notably new product introductions or plant capacity expansions, should be evaluated. Previous life cycles of similar products can be analysed. All this information can then be used to forecast product sales and profits for the next three to five years. Sales to profit ratios tend to improve as products enter the

FIGURE 12.4  Product life cycle phases. (Pathmaster Marketing Ltd.)

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growth stage, begin to deteriorate as they enter maturity, fluctuate during the ageing stage and deteriorate rapidly in the decline stage. An estimate of the number of profitable years remaining in the product’s life cycle can then be used to determine where the product is currently.

12.3  THE NEW PRODUCT DEVELOPMENT PROCESS 12.3.1 Organisation For New Product Development It is highly unusual for one person to develop a new product all by themselves. Even for a completely new business idea, the inventor is likely to seek some assistance from family and friends, a business adviser, a website designer and/or a bank manager. For most companies, a combination of people from a number of departments is likely to be most effective in developing a new product. Companies may decide to establish a new product committee, a new product development unit, a new product development manager or a new product venture team. Alternatively, the company may rely on a product manager to bring together the people he or she thinks will be needed to complete a specific project. Several sources of ideas for new products are used by companies: • Employees: Research and development, marketing and sales, production, finance and/or management. • Customers: New processes, new specifications or new requirements from their customers. • Competitors: Product introductions. • Industry: Technology spread, new markets or new technologies. • Governments: New regulations or new policies. With regard to the lubricants business, there are many types of new lubricants that have been introduced during the last thirty years. These include: • • • • • • • • • • • •

Lower viscosity. Higher viscosity index. Lower volatility. Wider operating range. Longer operating life or drain interval. Fill-for-life. Biodegradable. Recyclable. Environmentally friendly. Non-toxic. Synthetic. Part-synthetic.

Some of the new lubricants combine several of the above performance properties. For example, a number of new lubricants have been synthetic, with a high viscosity

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index, longer drain interval and wide operating range. Others have been non-toxic, biodegradable and environmentally friendly.

12.3.2 Idea Generation Most manufacturers of products and services suffer not from a shortage of ideas, but from the challenge of separating the very good ideas from the less good ones. Any initial product idea should be aimed at solving a specific problem or providing defined customer benefits and the idea should support and enhance the company’s overall strategic mission. Ideas for new product come from various sources, both inside and outside a company. Within a company, the most likely sources of new product ideas are sales, marketing, manufacturing, new product development groups and management, although any member of staff has the potential to suggest a good idea. Outside sources include distributors, independent researchers, competitors, government agencies and existing as well as potential customers. The stages in going from an idea to a commercial product are illustrated in Figure 12.5. During the last thirty years, idea generation and innovation within a company have been known as “intrapreneuring”. It involves encouraging and enabling employees within an organisation to develop new product ideas and see them through to profitability. Companies encourage intrapreneuring by allowing staff to select themselves as intrapreneurs, not requiring them to turn their projects over to others and allowing

FIGURE 12.5  New product development process. (Pathmaster Marketing Ltd.)

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them to make major decisions personally. Intrapreneurs are able to use resources as they choose, even those from outside the company, are given time and money to pursue their product developments and are allowed to take risks and make mistakes in the process. They are encouraged to make small accomplishments, are not required to achieve sizeable gains and are allowed to work in small teams composed of people throughout the organisation. Because of these numerous freedoms, intrapreneuring violates many bureaucratic principles and practices. Therefore, without senior management support, it will have little hope of success. Successful new product ideas are focused on satisfying some particular customer need. Customers should usually be in the best position to recognise a need and should be the first to request a solution. Research studies, however, indicate that some companies use customer ideas in developing new products, while others do not. A possible explanation is that it takes a long time to develop new products from original ideas, so that by the time many new products have been developed, the source of the original idea has been forgotten. New product development can be inspired by technological change as well as customer need. However, product development should not lead to companies emphasising either a technological focus or a customer focus. The emphasis should be placed on achieving the proper co-ordination between the two areas. An effective Research and Development (R&D) programme must be based on several directing inputs. First, it should be concerned with satisfying the needs of specific customers or markets. Very few companies, however, have the capacity, or even the desire, to satisfy all the diverse needs in their target markets. Thus, a set of criteria must be developed to screen for desirable business opportunities and some person or team must be assigned this screening responsibility. Second, an R&D programme should be aimed at satisfying “generally known” needs in the target market(s). For example, all operators of air compressors want compressor oils that have longer operating lifetimes, although some of them are unwilling to pay the resulting higher prices. These needs may also be described as latent, not having been satisfied by any other source. Satisfying latent needs gives the company the prestige of being first and a lead over competition in developing production volume and efficiency. Third, an effective R&D programme should also attempt to expand upon those technologies that represent the company’s strengths. One of the factors leading to a product’s potential success is the utilisation of technology that has already been proven in the manufacture of other products. Technologies can become obsolete, however, just as products do. It is therefore necessary to evaluate which customer needs will be considered, to choose a technology capable of satisfying those needs and to recognise when the technology and needs are no longer compatible. Industrial marketing managers must be especially sensitive to the changing needs of industry leaders, particularly if the industry is an oligopoly. When a few users or original equipment manufacturers (OEMs) represent a large portion of an industry’s buying power, a supplier cannot afford to dissatisfy, let alone ignore, their needs. It should not be assumed, however, that current industry leaders will remain dominant. Thus, industrial marketing directors and managers not only face the challenge of

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satisfying current industry leaders; they must also monitor and spot future industry leaders. This is a difficult task because future leaders often emerge in conjunction with, or because of, new technologies. To support a strategic thrust, business objectives and marketing strategy must precede product development. The company must first decide what business it wants to be in and what quantitative goals it seeks to achieve. For example, a company may decide that each new product must be capable of sustaining a 15% compound growth rate over its life cycle while generating a 25% pre-tax return on assets. They should either aim to duplicate competitive products or those that arise from unique design or production techniques that would afford a differential cost and/or performance advantage. The growth criterion forces marketing staff to search out the most promising business opportunities. The demand for differential advantage minimises “me-too” products while increasing the probability that products would be aimed at providing a measurable satisfaction level in specific applications and the profitability criterion serves as the cornerstone for financial analysis.

12.3.3 Idea Screening Screening tries to eliminate those ideas that are likely to fail, tries to recognise those with promising potential and helps to optimise the remaining stages of the development process. It is important that the output of the screening stage (the number of ideas sent forward) be within the company’s ability to act. Most businesses are not limited by the input of ideas, but by the resources (time, money and/or staff) required to develop and successfully commercialise them. The screening process (sometimes called gate-keeping) needs to be rigorous. The input information must be sound. Data integrity means that the market information found in the market research stage (see Chapter 4) needs to be reliable and robust to scrutiny. A scoping stage can be used as a preliminary market, technical and business assessment. Then, a business case can be constructed, involving much more detailed market research data, competitor analysis, technical assessment and manufacturing evaluation. The process for screening should involve a menu of specific deliverables for each gate, defined “go or kill” and prioritisation criteria, identified gate-keepers per gate, clear gate outputs and possibly “rules of engagement” for the gate-keeping team.

12.3.4 Idea Evaluation Even those ideas that pass the screening stage require further evaluation. If the idea originated internally, market need and potential will have to be determined. If the idea stems from a specific customer need, and the market criteria have been satisfied, it will have to be determined if the idea can be transformed into a physical product. When product ideas satisfy both market and product criteria, the company should rank the ideas in order of importance. This ranking will vary with marketing strategy and business conditions and can be based on any combination of market, product and financial criteria. For example, the primary emphasis could be strengthening of market position, increased sales volume, improved profits, business diversification or a broader product range.

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12.3.5 Agreement Between Marketing and Product Development Departments Many companies, particularly smaller ones, have no formal process for evaluating product ideas. Additionally, they do not research the market to determine commercial feasibility before starting product design work. Given the increasing cost of product development and the increasing rate of technical and product changes, both of which make product failures more costly, this intuitive approach could be regarded as unnecessarily risky. A potentially more profitable approach involves a written agreement between the marketing and R&D departments regarding the eventual product, in addition to the pre-requisite research and evaluation. This agreement can be called a tentative data sheet, performance goal or product description. The marketing department should define these in terms of customer benefits, or what the product’s attributes are expected to do for the user. These should be classified as essential, desirable and trade-offs. Essential benefits do not allow for compromise, representing the critical advantage(s) of the product. Desirable benefits remain so only if they do not detract from the essentials. Trade-offs are benefits that tend to have an impact on each other. Price and total performance level are common tradeoffs and these may very well have to be renegotiated before the development process is completed. Marketing inputs must be based on specific knowledge of customer needs, competitors’ capabilities and general market conditions. As a result, marketing staff should limit their description of the physical product to those items essential for customer satisfaction or competitive positioning. Product development staff in the R&D department should be left free to utilise technology in whatever fashion will optimise performance and profitability. The agreement should help to protect R&D staff from constant changes in product performance goals or specifications.

12.3.6 Preliminary Business Analysis After the above work, the company should have acquired sufficient information about customers, competitors, volume potential, tentative pricing, technology, investment level and estimated production cost to make a first-pass financial analysis. This analysis should be used to determine whether or not the initial idea should become a product. The conversion of an idea into a product can be a significant portion of the total development cost, particularly for companies that require an elaborate pilot facility to prove production feasibility. In these instances, the preliminary business analysis is of major consequence. Other companies, whose development costs are relatively insignificant, may choose to skip this stage entirely on the basis that most of the numbers come from conjecture, forecast and guesswork. Some research, however, indicates that managers consider financial criteria the most important screening factors and are not likely to ignore them at this stage of the process. Companies can face limits on resources, forcing them to prioritise and to drop some otherwise promising projects. Combining the business analysis with other selection criteria provides the company with a means of choosing the best projects

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for further development, while the other projects are either dropped or are put on hold for later development, assuming that customers’ need and market and economic conditions have not changed in the meantime.

12.3.7 Product Development and Testing During this stage, R&D will convert the product idea into a physical reality, proving technical feasibility, while manufacturing will confirm or negate its ability to produce the product within the cost estimates and performance guidelines previously established. When product samples are available, marketing staff will approach selected customers to verify that the product’s attributes do indeed satisfy specific application requirements. It is also important to reaffirm the market potential that was estimated earlier. During an extended development process, such as one that consumes a year or more, significant changes can occur in market and economic conditions, competitive capabilities and customer priorities. A product idea that was very promising a year ago may be virtually obsolete today. Given the pragmatic and profit-oriented nature of industrial buying decisions, price plays a major role. In industrial markets, therefore, price should be an important design criterion, in addition to product performance, quality and other factors discussed in a previous presentation. Many companies, however, allow price to be a random effect rather than a specific goal. In these companies, costs are allowed to drive selling price rather than a target selling price in the market dictating a maximum acceptable cost. In many markets, both industrial and retail, target selling prices are dictated by competitors’ selling prices for similar products.

12.3.8 Test Marketing This phase involves the evaluation of the product by major potential users. Salespeople should have already identified these customers and all of the people who will evaluate the product and make or influence the buying decision. Acceptance of a new product by major users is neither automatic nor a rapid process regardless of the product’s merits. A new component, for example, may require redesign of the end equipment to make full use of the cost or performance advantage. The OEM may not have personnel immediately available to do the redesign work. The production manager may convince other decision makers that it would be unwise to disrupt a smooth-running production line, since potential cost savings could be offset by lower product quality or reduced yields (due to the impact of change on production workers). Even if the decision is reached to make the necessary changes on a limited quantity basis, final approval may rest on the results of field tests. In other words, test marketing of the product could depend on test marketing potential buyers’ products. Such delays might be interpreted as a gloomy prospect for a new industrial product. On the contrary, if a product addresses an important need and satisfies it well, market acceptance will almost certainly follow. Because time delays involved with test marketing can easily stretch to months, a new product supplier may face a period during in which production capacity is in place, but no sizeable demand develops. Since some customers will have purchased limited quantities for evaluation purposes, the subsequent

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delay gives the impression of a market failure, a very brief growth followed by decline. Actually, the growth phase of the product life cycle has not yet begun.

12.4 FORMULATING AND DEVELOPING A NEW AUTOMOTIVE LUBRICANT Automotive engine oils are the most frequently reformulated types of oil and among the most complex, and so serve as a good example for the principles which can be applied in general to most types of lubricants. The steps involved in formulating and developing a new or improved lubricant are illustrated in Figure 12.6. These steps follow the same basic pattern as for any new or improved product, discussed in the preceding section.

12.4.1 The Specification This is the starting point of the formulation and development process and covers both the physical and chemical properties and the performance requirements, particularly in terms of test passing criteria. For an engine oil, the performance may also be expressed loosely in general terms such as “turbocharged passenger car diesel engine oil”. There may be other physical or chemical limitations such as maximum zinc or phosphorus levels, and there may be appearance requirements, such as clear and transparent or dyed red. International specifications for lubricants are published by the American Petroleum Institute (API), the Association des Constructeurs Européens

FIGURE 12.6  Developing a new lubricant. (Pathmaster Marketing Ltd.)

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d’Automobiles (ACEA), the International Lubricant Standardization and Approval Committee (ILSAC), the Japanese Automotive Standards Organisation (JASO) and the International Organization for Standardization (ISO). National specifications for lubricants are published by many organisations, including Deutsche Institut für Normung (DIN), Association Française de Normalisation (AFNOR), the American National Standards Institute (ANSI) and the American Gear Manufacturers Association (AGMA). A large number of OEMs publish specifications for lubricants, including Ford, General Motors, BMW, Mercedes-Benz, Volkswagen, PSA, Renault, MAN, Volvo, Cummins, Caterpillar, Siemens, Parker, Bosch Rexroth, Atlas Copco, Ingersol Rand, General Electric, Rolls Royce, Mitsubishi and many more. Most specifications and oil formulations evolve out of earlier versions, and some ideas on a composition for the new oil usually exist based on prior technology. In the case of multigrade engine oils, the viscosity improver may have a greater effect on the engine cleanliness than the detergent or “performance” additives have on the viscometrics, and therefore the physical properties of viscosity at high and low temperatures are normally considered first. A “dummy” or best guess performance additive treatment is used for this initial work. Drivers for new lubricants, whether automotive, industrial, agricultural, mining, marine or other applications, include: • • • • • •

OEM specifications. Industry specifications. Environmental issues. Health and safety issues. Improved energy efficiency demands. Revised or new applications.

Recent examples of these drivers include electric vehicles, extended oil lifetimes, biodegradability for oils used in outdoor applications and elimination of potentially harmful components or additives.

12.4.2 Choice of Base Oil(s) Conventional solvent-refined paraffinic, API Group I, base oils have been predominant in automotive engine oils for many years. However, with increasing performance requirements from engine and vehicle manufacturers, synthetic and hydroprocessed base oils, API Groups II, III, IV and V, are being used increasingly and are essential components for meeting many current specifications. An increasing number of lubricant marketing companies have found the ability to describe an engine oil as containing synthetic base oils a valuable aid to marketing and sales. The “synthetic” base oils used in automotive engine oils are API Group III hydroprocessed mineral oils, polyalphaolefins and esters (both diesters and polyol esters). The reasons for including some or all of these in a formulation may range from a desire to promote a quality image and justify a higher price, to an inability to meet specification requirements without their use. Currently, such requirements include

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the restrictive volatility limits for SAE 0W, 5W and 10W multigrade oils contained in specifications such as those of the ACEA, API and ILSAC specifications. Which base oil or oils to use as the basis for an automotive engine oil formulation needs to be decided first. The same applies to automotive gear oils, automatic transmission fluids, industrial gear oils, hydraulic oils, turbine oils, air compressor oils and refrigerator oils. In some cases, for example, aviation gas turbine oils and natural gas compressor oils, there is little or no choice for base oils. For example, all current aviation gas turbine oils are based on polyol esters, most usually having a kinematic viscosity of 5 cSt at 100°C.

12.4.3 Choice of Viscosity Index Improver For an automotive engine oil, the most important criteria in the selection of a viscosity index improving additive are the level of shear stability and the level of diesel engine oil performance required. These are in conflict. Diesel engine oil performance is generally degraded by high polymer content, but improved shear stability is achieved by reducing the molecular weight of the polymer, while using a higher treat rate (dosage) of polymer to provide the required viscosity improvement. The thermal stability of polymers is also important. Polyester VI improvers may be less suitable for severe diesel engine oil performance. For the most severe performance requirements, long chain polymers with minimum side groups are used. They should be of the highest molecular weight which will permit the shear stability targets to be met. Ethylene-propylene and styrene isoprene copolymers are used most commonly in modern formulations, although new polymer types are being developed continually. Polymethacrylate VI improvers tend to be used in industrial lubricants, particularly multigrade hydraulic oils and industrial gear oils. It is important that the VI improver does not cause excessive low-temperature thickening, which is likely to cause problems in the mini-rotary viscometer (MRV) or cold cranking simulator (CCS) tests. To formulate an automotive engine oil that meets the physical requirements, the viscosity and volatility of the various base oils, the thickening ability and shear stability of the viscosity index improver and the influence of the pour depressant need to be determined. From this information, trial blends can be constructed using a dummy detergent additive package and submitted for tests against the specification. A typical, but not mandatory, order of testing would be: Property: Kinematic viscosity at 100° Pour point CCS dynamic viscosity MRV dynamic viscosity

Shear stability High-temperature high-shear viscosity

If Failing, Modify: Base oils, viscosity index, improver treat rate Pour point depressant Base oils, viscosity index, improver type Base oils, viscosity index, improver type, pour point Depressant Volatility, Base oils Viscosity index improver Molecular weight Viscosity index improver type and/or molecular weight

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Descriptions and explanations of the various tests listed above can be found in “Lubricant Analysis and Condition Monitoring”, Chapters 6 and 7.1

12.4.4 Developing the Dispersant/Inhibitor (DI) Package Modifications to existing formulations of automotive engine oils may be required if there have been significant changes in the base oils, the viscosity improver or in the performance specification requirements. The DI packages developed by each of the four major lubricant additive manufacturers differ slightly, but all contain a mixture of dispersants, detergents, anti-wear additives, oxidation inhibitors and corrosion inhibitors. The type and treat rate of dispersant(s) are normally set by the specification that has to be met for sludge performance. A number of engine tests are used to test for sludging in engines. A dispersancy credit may be available from the use of multifunctional dispersant viscosity modifiers to permit a reduction in overall additive treat rate. Dispersants of good thermal stability are required for diesel performance, but the concentrations used are normally set by the sludge requirement. The thermal stability of a dispersant depends on the chemical type, its purity and the manufacturing method. Originally, basic metal sulphonates were the principal soot-suspending components (detergents) in diesel engine oil formulations. However, with the development of highly over-based sulphonates and the incorporation of dispersants into diesel oils, they are now seen primarily as a source of alkalinity. Base number (BN) can now be 400 or higher, while at the same time the soap content has tended to decrease. Magnesium sulphonates are sometimes now preferred to calcium, because they have lower ash levels for a given BN and the steel corrosion performance is superior. Sodium sulphonates have even better rust performance and lower ash, but can require extra anti-wear treatment due to their extreme affinity for metal surfaces. High treat rates of sodium-based additives have also been known to cause corrosion of aluminium pistons once these are de-oiled for servicing or test rating. The sulphonate molecule has a tendency to be pro-oxidation, so formulations containing high levels of sulphonate detergent require extra amounts of oxidation inhibitors. Phenate and salicylates detergents have been used increasingly in automotive engine oil formulations. (Salicylates can be regarded as analogous to phenates, although with their extra carboxylic acid group, they have two valencies available for bonding to metals, usually calcium.) Both these additives are powerful inhibitors and contribute a great deal to deposit control in diesel engines, especially in the upper piston areas. They also assist in preventing oil oxidation and thickening, particularly in their sulphurised forms. Phenates are available at several levels of BN, from un-neutralised alkyl phenols (which are mildly acidic and react with some of the BN present from other additives) to 250 BN versions. The most popular additive is a 250 BN sulphurised calcium phenate. In the past, zinc dialkyldithiophosphate (ZDDPs) compounds were used to provide the principal anti-wear and anti-oxidant properties of engine oil formulations. The chemical structure affects the anti-wear potency and the chemical stability of an individual ZDDP, and with four alkyl groups to every zinc atom, many variations of structure are possible. In general, lower-molecular-weight and secondary alkyl types

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are less stable but have higher anti-wear activity, while high-molecular-weight primary types are more thermally stable but as a consequence have delayed or reduced anti-wear action. The former would tend to be used for speciality gasoline engine oils and the latter for diesel engine oils. The older aryl (phenol-based) ZDDPs, which for a time were used extensively in diesel engine oils, are not now generally used, having been replaced by stable longer chain primary types made, for example, from C7 to C9 alcohols. ZDDPs contribute to the ash level of a formulation, but a greater concern is their phosphorus contribution. Phosphorus is considered to be an exhaust emission catalyst deactivator, and many specifications now include maximum phosphorus limits. The current limits for viscosity increase in some engine tests, coupled with phosphorus and ash limitations, mean that with most conventional base oils, an oil anti-oxidant additional to any ZDDP is needed. There are many supplemental anti-oxidants commercially available, with the traditional oil anti-oxidants such as hindered phenols and aromatic amines most commonly used. Mixtures of two or more different anti-oxidant chemistries are often particularly effective because different oxidation mechanisms can be inhibited by each type. Many current automotive engine oil formulations now contain a combination of ZDDP, hindered phenol and amine anti-oxidants.

12.4.5 Evaluating and Finalising the Formulation Before a new engine oil formulation can be considered ready to be marketed, it must first be tested against the required specification in a number of bench and engine tests. The very high cost of engine tests requires that care be taken in the order in which tests are run, so that late failures do not require re-running too many tests with a revised formulation. Recent changes to pass/fail criteria (“statistical testing”) and rules for “reading-across” of prior results after minor changes have made design of a test programme both more important and more difficult. Explanation of these ways in which these tests are conducted and evaluated is beyond the scope of this book, but comprehensive information can be found on the API and ACEA websites and from each of the four main manufacturers of engine additive oil packages, Lubrizol, Afton, Infineum and Oronite. Normally, the first properties to be considered are the physical properties, controlled by base oil selection, the use of synthetic or other special base oils, and the viscosity index improver and pour point depressant additives. At this stage, a “performance package” or “DI package” is chosen for the commencement of testing. The knowledge of the formulator with regard to the performance of existing packages and the individual and combined responses of the components available when used in the various testing environments is crucial here. The formulator ideally should have response curves obtained from statistical testing for the key additive components. The availability of this information and the formulator’s ability to use it both to decide on the initial package and then to modify it as necessary will very much determine the success and cost-effectiveness of the formulation programme. When the physical properties have been adequately met, testing proceeds to the performance targets which are normally associated with standard engine tests.

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For some tests, there may be low-cost screening tests available, run either in simple laboratory equipment or in engines which are not qualified for approval testing. Tests are best run in order of increasing cost, so that if a test fails and the formulation has to be changed, it is the cheaper tests which have to be repeated. However, if new technology is being developed or a new quality level is being formulated, then those tests expected to cause problems would be run first in order to avoid late failures in a testing programme. In such cases, test order becomes a matter of personal judgement by the formulation chemist and his or her manager. If a formulation change has to be made, it may not always be necessary to re-run all the earlier engine tests. For example, if there was a late failure in a major diesel engine test, then depending on the specific changes made, a certifying authority may allow “read-across” to a new formulation where the changes consist of small additions of already-present components or an uptreat in the total additive package. For example, it might be argued that a small dispersant addition would be generally neutral with oxidation and rust tests unaffected, while sludge control would be improved. Conversely, an addition of extra sulphonate would improve the rust and the sludge performance but could possibly adversely affect the oxidation performance, and such tests would have to be re-run. In the case of a phenate addition, the oxidation performance would be improved, the sludge probably unaffected, but the rust performance might be harmed. A general increase in the amount of the total additive package used is normally considered beneficial, but care must be taken that restrictions such as maximum ash or phosphorus contents are not exceeded. As soon as the broad structure of the new formulation is known, a representative blend can be made and subjected to tests such as corrosion resistance, anti-foam performance and others. Problems in these areas can often be fixed by the addition of compatibility agents, but it must be determined that a formulation can be blended before starting on expensive engine tests. The task faced by an additive supplier, who must preferably incorporate the additives into a single concentrated package, is considerably more difficult than that of a lubricant manufacturer who may be prepared to blend the oil from individual additive components. Most engine oil formulations are, however, blended from whole or partial packages provided by the additive manufacturers. The foregoing descriptions on formulation may suggest that a formulator needs no more than a recipe book, some response curves and a few designed experiments to carry out these tasks. If so, the challenge has been understated. The interactions between components are extremely complex. Although some generalisation (such as effect of temperature or acid attack) will be equally relevant for different engine environments, nearly every new engine test brings unexpected challenges and is seldom introduced without lubricant reformulation. Usually, it is not too difficult to meet the requirements of a single engine test in isolation. It is the combination of requirements that causes most problems. Conflicts and compromises can be caused by sludge performance versus corrosion inhibition or anti-wear performance, the US versus European or Japanese specifications or dispersancy and detergency versus anti-foam performance. At the time of writing (February 2022), the European ACEA specifications for light-duty gasoline and diesel engine oils included eleven different engine tests and

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for heavy-duty diesel engine oils there were six different engine tests. With the US API and ILSAC specifications, those for light-duty gasoline and diesel engine oils, there were eight different engine tests and for heavy-duty diesel engine oils, there were eight different engine tests. A skilled lubricant formulator will know the ingredients and interactions but still occasionally fail to meet technical targets, irrespective of any cost constraint. The successes, like those of a master chef, sometimes seem to owe a little to art as well as a lot to science. Once all the engine and performance tests have been passed and the required specification targets met, many automotive OEMs will require that a new engine oil be evaluated in one or more field trials. For example, Mercedes-Benz currently requires evaluation of a new engine oil in two different field trials, one of which takes two years and the other of which takes three years.

12.5 FORMULATING AND DEVELOPING A NEW INDUSTRIAL LUBRICANT The general methodology for developing a new or improved industrial lubricant is essentially the same as for an automotive engine oil, with some differences. It is still expensive and time-consuming. Choosing the most suitable base oil(s) and additives is usually relatively easy. Once an initial “best guess” formulation has been selected, the first step is to test it in simple, low-cost laboratory tests. A wide number of tests are performed to assess the physical or chemical properties of lubricants. Tests for physical properties include: • Kinematic viscosity (Capillary viscometer, low shear). • Low-temperature viscosity: Brookfield viscometer (Pumpability), CCS (Crankability), MRV (Pumpability). • High-temperature viscosity: Tapered Bearing Simulator (High Temperature High Shear, HTHS), Ravenfield viscometer. • Pour point. • Flash point: Pensky Martens Closed Cup, Cleveland Open Cup. • Volatility: NOACK, Gas Chromatography (GC, simulated distillation), Airjet, Distillation. • Foaming tendency and stability. • Density (Specific gravity). Tests for chemical properties include: • Acidity or alkalinity: Acid Number, Neutralisation Number, Base Number. • Sulphated ash. • Elemental analysis: Flame photometry, Atomic absorption (AA) spectroscopy, Inductively coupled plasma (ICP) emission spectroscopy, X-ray fluorescence (XRF) spectroscopy. • Infra-red (IR) spectroscopy.

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Again, descriptions and explanations of the various tests listed above can be found in “Lubricant Analysis and Condition Monitoring”, Chapters 6 and 7.1 It is particularly important to emphasise here that the only way in which to determine whether a lubricant will satisfactorily lubricate the machinery or equipment for which it was designed is to use it in that machinery or equipment for a number of years. The purpose of the development tests is to identify those candidate formulations that are unlikely to work in practice. The cheapest and quickest tests are done first. Candidate formulations that pass these tests are then subjected to longer, more demanding (and inevitably, more expensive) tests. After laboratory tests come bench tests, such as: • Oxidation resistance: IP 280, IP 306, ASTM D943, ASTM D2893, PDSC (ASTM D6186), TEOST (ASTM D6335). • Thermal stability: Panel Coker (FTM 3462). • Shear stability: Diesel injector (IP 294), Tapered roller bearing. • Corrosion resistance: Steel (IP 135, ASTM D665), Copper (IP 154, ASTM D130), HTCBT (ASTM D5968). • Anti-wear, load carrying or extreme-pressure properties: Timken (ASTM D2782), Falex (ASTM D2670), Four-ball (ASTM D2783), Pin-on-Disc, FZG (IP 351). Then come machinery or equipment tests. For industrial lubricants, there are numerous machinery and equipment tests required to meet OEM specifications. For hydraulic oils, the most commonly used tests include those in vane pumps, piston pumps, the FZG gear rig and a simulated hydraulic system. Industrial gear oils will need to pass the highest load stage in an FZG gear test. Most industrial lubricant formulation laboratories will like to test a new or improved air compressor oil in either a stationary rotary screw compressor or a stationary piston compressor rig. Steam turbine oils are not usually tested in laboratory equipment, but pass straight to evaluation in a “real” turbine system. The same applies to refrigerator compressor oils, reactive gas compressor oils and transformer oils. At the conclusion of these tests, many OEMs require that a new oil undergoes one or more field trials, which can last between one and three years. The purpose of Figure 12.6 is to show that if one or more tests is/are failed at any stage of the process, the only solution is to make modifications and then start the process again from the product formulation stage. If the test failure has been particularly significant, the process may need to be started afresh from either the base oil selection or additive selection stages. Too many corrections or modifications add to time and cost. It is not uncommon for the entire process to take two or three years from beginning to end. In some cases, particularly for new automotive engine oils, the process can take five or six years. Blending plant managers and supervisors need to be aware that developing and testing a new lubricant formulation is a complex, demanding, time-consuming and expensive exercise. Even small errors in blending the precise amounts of components

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in any formulation can have significant consequences for the eventual performance of the lubricant in practice.

12.6  INTRODUCING THE NEW LUBRICANT TO THE MARKET Launching a new product successfully is crucial to the success of a business and requires careful planning. The promotional methodologies are similar to those described in Chapter 8, with a few added complications. Internal communication is very important, as many people will need to support the launch, particularly senior managers. All products need to compete for attention by salespeople and distributors, so a new product will be no different. Incentives may be needed to give the new product a vital push during the early stages of the launch. The launch process is likely to go through a number of stages: • Internal communications. • Pre-launch activities, to ensure that distributors, resellers and/or retailers have the right resources and knowledge to market the new product effectively. • Launch events, at national, regional and local levels. • Post-event activities, to enable salespeople and retailers make the most of the event(s). • Launch advertising and other promotional activities. A launch plan and guide will help everyone to understand the new product and the programme of activities. The guide should explain: • • • • •

Why the new product is being introduced to the market. How it fits into the company’s business strategy. Who is likely to buy the product. What new business opportunities the new product will create. How competitors are likely to respond to the product.

It is essential that the guide describes and explains the benefits of the new product for prospective and existing customers, so that salespeople are able to articulate these and sell actively. (See also Chapter 19.) This is likely to require specific training for the sales team. The sales team is critical to the success of a new product launch. They need to be committed to the product, so that they are able to communicate enthusiastically and knowledgably with customers. The new product will form only part of their sales targets, so their commitment is particularly important. However, introducing a new product is risky. Salespeople should not be tempted to oversell a new product to try to ensure a successful launch, as this may lead to eventual dissatisfaction by customers. It is the long-term success of a product that determines a company’s position in the market. Considerable effort goes into a product launch and it is very important that marketing and sales momentum is maintained until the product is firmly established. Otherwise, sales may decline after the launch to the point at which the product fails to recover.

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12.7  LUBRICANTS AND FLUIDS FOR NEW APPLICATIONS At the time of writing (February 2022), OEMs, lubricant additive manufacturers and research organisations were very busy developing and testing new lubricants and functional fluids for use in a range of new automotive, industrial, marine and agricultural applications. Electric and hybrid vehicles of all types (cars, vans, trucks, buses and motorcycles) are at the top of the list. The methods used to develop and test these new lubricants and functional fluids are no different to those described earlier in this chapter. The main difficulty, however, is a paucity of earlier lubricants and functional fluids from which to develop new tests and products. The history of lubricant development has tended to be evolutionary rather than revolutionary. In other words, most new lubricant formulations tend to be built on the experiences of earlier formulations. With regard to electric and hybrid vehicles, OEMs, both old and new, have taken significantly different approaches to the mechanics and lubrication of the vehicles. While gasoline or diesel engines made by different OEMs tend to be very similar (albeit differing in size and power output), having been gradually refined over the last hundred years, there is no similar blueprint for either electric or hybrid power units for vehicles. For example, three alternative configurations can be used for gasoline-electric hybrid vehicles: series, parallel and series-parallel. With series types, the gasoline engine powers a generator, which feeds electricity to either a battery or an electric motor, which then powers the wheels through a conventional hypoid gearbox. The battery can also feed electricity to the electric motor. The speed of the engine is disconnected from the speed of the wheels. In the parallel configuration, either the gasoline engine or the electric motor can drive the wheels, using a double gearbox arrangement. The electric motor is fed from a battery, which is charged separately while the vehicle is stationary. With the series-parallel types, the gasoline engine can either drive the wheels directly or can power the generator indirectly, with the generator feeding electricity to either the electric motor or the battery. Again, the electric motor can also drive the wheels, using a double gearbox arrangement. Electric vehicles, however, have an electric motor connected to a battery pack. The electric motor drives the vehicle’s wheels through a drivetrain that is similar to that of an automatic transmission. Because the electric motor and battery pack get hot when powering the vehicle, they must be cooled by a circulating cooling fluid. Some OEMs have decided to keep the cooling fluid circuit separate from the driveline lubricant circuit. Others have decided to try to combine the two circuits, using a combined cooling and lubricating fluid. With the gradual replacement of conventional gasoline and diesel engines in cars, vans, motorcycles, trucks and buses, it is almost certain that the internal combustion engines of many off-highway vehicles, such as logging machines, construction equipment, mining haulpacks and farm tractors, will eventually be replaced by batteries. Hybrid engines may be an interim solution, but the only engines that are likely to remain as internal combustion could be those running on biogas for electricity generation. The new lubricants and functional fluids developed for transportation vehicles will eventually be used or modified for the off-highway applications.

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In the author’s opinion, for all the above examples, the development and testing of new lubricants and functional fluids is likely to involve many successes and failures until optimum solutions are found by trial and error. This is likely to take some time. Developing and testing new lubricants and functional fluids is never “easy”.

12.8 SUMMARY Developing a new lubricant is complex, time-consuming and expensive. A company’s marketing and sales department has a leading role in identifying the need for a new lubricant, establishing the performance requirements required by customers or prospective customers, monitoring the development process and launching the new product into the marketplace. Unless the new lubricant is correctly and effectively marketed during the embryonic stage of its life cycle, it is unlikely to proceed to its growth and maturity stages and achieve the forecast sales and profits. While ideas for new lubricants can arise from many sources, it is the marketing and sales managers who must manage the new product development process.

REFERENCE

1. Whitby, R. David. Lubricant Analysis and Condition Monitoring, CRC Press, Boca Raton, FL, 2021. ISBN 978-1-031-15669-9.

13

Customer Support Services as a Marketing Aid for Lubricants

13.1 INTRODUCTION Customer support service, more commonly known previously as technical service, is a concept that has only been applied realistically to industrial marketing, primarily due to the much greater technical expertise of industrial customers. A much more limited form of technical service is used in retail markets, but it is most usually called after-sales service and often only involves product repair and maintenance in the event of breakdown within the warranty period. In most companies that manufacture products for industrial markets, there is an ongoing debate about technical service. The technical department usually insists that it is essential if the business is to be successful and the finance department usually considers it to be an unnecessary expense. Reality usually lies somewhere between these two extremes and the positioning will depend on the company’s marketing strategy. In most companies, the marketing and sales department usually accepts that technical service can be beneficial in support of commercial activities, and will therefore usually insist on controlling the type and extent of customer support service offered. With lubricant suppliers, if the marketing strategy is to be simply a purveyor of lubricants, then customer support service requirements are minimal, possibly limited to only providing information about the properties of the lubricants. If, at the other extreme, the strategy is to enter into the specialist areas of lubrication and use this market to enhance the company’s image, then technical service can be a major element in the marketing mix. This chapter explains and discusses the various aspects of customer support service and offers guidelines on its use as an effective marketing aid.

13.2  SCOPE AND LIMITATIONS OF CUSTOMER SUPPORT SERVICE Customer support service almost always means different things to different people. However, when it is used as a marketing aid, it is what the customer perceives as being service. Technical service must always be in support of the marketing role and no service should be offered without first studying all the implications. The golden rule for any technical service must always be that it has to be quick and accurate. A quick response to a request is important because often a plant stoppage and loss of production are involved, so a delay in responding may also result in a dissatisfied customer, DOI: 10.1201/9781003318392-13

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who calls in a competitor, leading to a loss of business for the original supplier. An accurate response is equally important, because the supplier’s reputation depends on it and because wrong information or advice could lead to a costly claim. Keeping this simple rule in mind, and the expertise of the manpower available, will influence a decision on the particular services that a lubricant company can offer. What is usually offered is a form of after-sales service on the product sold. However, service can be given without the sale of any product. For example, discussions with an Original Equipment Manufacturer (OEM) on the lubrication of their equipment or a lubrication survey and rationalisation scheme for a prospective customer would both qualify as (prospective) customer support service. Both have the long-term objective of increasing sales and therefore can be viewed as being in support of the marketing role. Possibly the simplest form of customer support service is just to supply the properties and performance characteristics of the lubricants being marketed. These are usually given in individual product sales leaflets and sometimes in booklets covering all products. At the other extreme, there are companies now offering complete lubrication maintenance services, including the supply and application of the lubricants. In between, there is a wide range of services that can be offered. Examples of these are illustrated in the next section.

13.3  TYPES OF CUSTOMER SUPPORT SERVICE FOR LUBRICANTS As indicated above, there is a range of customer support services that lubricant suppliers can provide. Starting with the simplest and cheapest, these include: • Product Data: Supplying information on the physical properties and performance characteristics of oils and greases. This can be done either in printed brochures, folders of printed pages or in computer spreadsheets or databases. • Application Data: Technical advice on the correct application of lubricants for various types of equipment, usually in pamphlet or booklet form. • Equipment Manufacturer’s Recommendations: A list of lubricants recommended or approved by Equipment Manufacturers for use in their specific types of plant and equipment. Again, this can be supplied either in a folder or as a computer spreadsheet or database. • Analysis of Lubricant Samples: Analysis of samples following product quality complaints, or in the investigation of a machine failure. • Lubricant Condition Monitoring: A service provided to carry out regular analyses of lubricants in customer’s equipment and to advise on its condition and suitability for further use. • On-Site Analysis: The analysis of lubricants at the customer’s premises using a portable field test kit. These test kits could also be made available to selected customers on loan, for their own use. • Machinery Health Monitoring: The analysis of lubricant samples to monitor wear particles. Techniques normally used are spectrographic analysis,

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ferrographic analysis and magnetic plug debris analysis. Some companies also offer vibration and noise analysis. Lubrication Training Seminars: Usually in-house seminars to teach customer’s lubrication staff and engineers about the correct application and use of lubricants in their equipment. Problem-Solving and Troubleshooting: Assistance to customers with the investigation of lubricant-related operating problems or failures. This requires a significant amount of technical expertise from the lubricant supplier’s research, development and engineering departments. Diagnosis of Machine Component Failures: A special laboratory service to provide metallurgical examination of machine components to determine the cause of failure. This also requires considerable engineering and chemistry expertise. Flushing Services: In newly erected large circulating oil systems, or old systems which are being serviced or recommissioned, removal of debris and sludges is essential before filling with a new charge of oil. The flushing service involves the supply of a flushing oil and assistance with running the operation from start to finish, including organising collection and removal of the used flushing oil. Electrical Oil Services: Large transformers are transported without oil and have to be filled on site. The service involves the use of a special mobile electrical oil treatment unit to dry, filter and deaerate the oil before charging it into the transformer. The unit can also be used for the treatment of used transformer oil on site to improve its electrical characteristics. On-Site Treatment of Lubricating Oils: Some companies provide a service for the filtration, cleaning and polishing of system oils on site. This service is normally restricted to large hydraulic systems and turbines.

Whether some or any of these services should be offered by a lubricant supplier depends on the company’s customers and their abilities to benefit from the services. Most lubricant suppliers provide product data and application information. Only some offer most or all of the above services. This aspect of customer support service is discussed further in the following sections. The most comprehensive type of customer support service for lubricants that is being provided now by many suppliers of lubricants is called “Total Fluid Management” or TFM. This is sometimes known as Chemical Management. It involves the supply, stocking, use and control of all fluids used in a manufacturing plant, together with their removal from machines and processes for disposal. The fluids include all lubricants, such as production engineering fluids, hydraulic oils, slideway oils, gear oils, compressor oils and industrial greases, heat treatment fluids, cleaning fluids and corrosion protectives. TFM contracts may also involve filters and filtration equipment and laboratory services for testing and monitoring the fluids. In many cases, TFM may also include the practices of disposal itself. This means that fluid management will involve many different departments in a company, many of which may wish to protect their “turf” jealously.

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The TFM system does not finish at this point, but goes further, to assign who will take any remedial action that may be necessary. Specific actions could include: • • • •

Correcting a fluid property. Changing and disposing of a spent fluid. Identifying that a different type of fluid is required. Establishing whether a change to the fluid management system is required.

Effective fluid management programmes contain instructions on who is to be responsible for initiating actions, performing them and confirming that they have been completed, as well as the time schedules to complete them. Training may be required so that areas highlighted by monitoring can be brought under control and can be maintained in this manner subsequently. An important outcome of fluid monitoring is identifying the need to renew fluids and establishing fluid change frequencies. It can also determine when filters need to be changed. These can then be incorporated into fluid change schedules based on production down-time windows, thereby avoiding unplanned, production halting, stoppages. The benefits of a TFM contract to a user of lubricants are that the management and control reside with the fluid supplier, which is more skilled and knowledgeable than the user, thereby enabling the user to focus on its core competences. Negotiating a TFM contract requires considerable expertise on the part of the fluid supplier, as a great deal of attention needs to be given to specifying which company will be responsible for every aspect of the contract, including for when anything goes wrong. A customer will almost always be asked to pay for TFM as part of the supply of lubricants and fluids. In addition to any of the above services, some suppliers of oils and greases to large industrial companies will offer surveys of lubricant application and use. These surveys are discussed in the next section.

13.4  LUBRICATION SURVEYS Lubrication surveys are an order of magnitude more expensive and technically demanding than other types of customer support service. They are another reason why marketing and selling lubricants is different to marketing and selling many other types of products and services. There are four types of lubrication surveys: • Lubricant Selection Survey: Is the standard and simplest method of providing lubrication data for the lubrication of equipment in a customer’s premises. It involves making an inventory of all the equipment, with the corresponding recommended grades of oil and/or grease. • Rationalisation Survey: This is an extension of the Lubricant Selection Survey where the total number of recommended grades is rationalised to reduce to a minimum number of different grades which can be used to give satisfactory lubrication.

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• Planned Lubrication Maintenance: This is a further extension of the Lubricant Selection Survey. In addition to the inventory of plant and the lubricants to be used, the following are also recorded: • Method of application. • Frequency of checking. • Quantity to be applied. • Oil filling capacities. • Oil change intervals. This data forms the basis of the planned programme for lubrication. The necessary documentation can be either printed copy or computer database. • Planned Industrial Lubrication: This is a package of specialised lubrication services tailored to meet a specific customer’s needs. In addition to a Planned Lubrication Maintenance Scheme, it can also include advice or services of any of the following: • The design of lubricant storage, including tanks, barrels and packages. • Supply of tanks and storage racks. • Handling and distribution in the factory. • Supply of distribution and dispensing equipment. • Dispensing lubricants to machines. • Disposal of dirty oils. • Mixing and testing cutting fluids. • Disposal of swarf. • Reclaiming cutting oil from swarf. • Testing of lubricants. • Training of lubrication staff. • Stores procedures. • Investigations into machine problems. Clearly, the scope of each type of survey differs and they become more expensive to perform as the complexity increases.

13.5 OBJECTIVES FOR PROVIDING CUSTOMER SUPPORT SERVICE The prime objective for providing customer support service must always be related to maximising sales. There are many reasons given for offering technical service but not all can be justified in the context of supporting the marketing role. Many are entered into without sufficient thought and planning being given to the full implications involved. Technical resources are a valuable asset and should be used wisely to give maximum financial return. When used in the role of providing technical service, lubrication engineers and chemists can be a valuable asset in several areas.

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13.5.1 Increased Contribution Nowadays, capital investment by industry is high, involving the use of highly sophisticated equipment and the need to achieve maximum returns on capital by operating machines for long periods with minimum down-time for repair and maintenance. The customer is therefore looking for reliability, and lubrication is a very important element in this respect. The cost of the lubricant is not usually their main concern, provided they have a high-quality product and a reliable technical backup service to go with it. A service which is quick to respond and can offer sound advice gives “added value” to the lubricant being used, for which industrial customers are usually prepared to pay.

13.5.2 Increased Volume In addition to giving an increased contribution by virtue of the “added value”, technical service should also increase the potential volume. Technical service has also been shown to increase volume from the small buyer sector of the market. Small factories seldom have a lubrication engineer or anyone who knows very much about lubrication, so they often rely entirely on the lubricant supplier for technical advice. It may be considered that the contribution from sales to the small buyers does not justify the expense of providing technical service. This has to be a marketing decision, but it should not be overlooked that some small businesses grow into larger ones which have a reputation for loyalty to their established suppliers. Care should be taken, however, to ensure that resources are not over-stretched resulting in a poor standard of service. If small volume buyers are supplied through agents or jobbers, it is important to ensure that they are adequately trained to give the necessary service.

13.5.3 Security of Tenure All businesses benefit from security of tenure and it should always be the aim of the sales force whenever possible to secure a customer with a supply contract. Not only does this close the door to competitors, but it considerably eases programming of the blending plant and improves efficiency. Contracts are not easy to obtain, however, although a customer is more likely to agree if they believe they are getting the bestquality products backed up by a technical service on which they can rely. Tender for specification business does not usually come into this category since the emphasis is normally on product specification and price. There are exceptions, however, and the value of offering technical service should not be overlooked if it is in the marketing strategy to go for this type of business.

13.5.4 Brand Image A strong brand image is the aim of most companies, because it is the image perceived by the customer. Brand image in industrial markets comprises a number of factors, but essentially it is based on reliability. Technical service in this context can be a two-edged weapon. If the service is good and reliable, it can be a very effective

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image builder but, if the service is low and unreliable, it can have a strong adverse effect on the company image. Proper planning of technical services is essential if this is to be avoided. One reason often put forward for providing customer support service is to match competitors. This can be a justifiable reason if it can be shown that the business has been lost to that competitor, or that they have gained business from elsewhere, because of the service they are offering. However, matching the competitor’s service does not always have the desired effect of regaining lost sales and can produce the result of being branded as a follower and not a leader. Any competitive service should wherever possible be better than the competitor’s, or have some unique feature. The need to copy a competitor should very seldom arise, however, if the use of technical services is considered in the planning stage of the marketing strategy. For this to be of very real value, the technical department should be represented in discussions about the marketing strategy. Too often, the marketing strategy is considered to be the sole prerogative of the marketing and sales department.

13.5.5 Other Benefits of Technical Service In addition to the areas already discussed, a customer support service function can be of further benefit to a marketing organisation. Success in a highly competitive technical market depends on being ahead of the market and having new products available for when they are required. This means having advanced knowledge of new equipment being developed and the manufacturers’ requirements for the lubricants. Since the development and testing of new lubricants is a lengthy process, waiting for the announcement of new equipment to appear in the technical press, before starting work on product development, has left it far too late. Regular contact with the OEMs by experienced R&D staff is the best way to obtain this information and has the advantage of obtaining an early approval for any newly developed lubricants. Contact by the field sales force is seldom as effective since usually they are not equipped to talk technically in the depth or detail necessary. Accurate technical feedback on product performance in the field, and accurate reporting of any failures, is important if product development is to be successful in meeting the market trends. This is an additional role where technical service staff are most effective.

13.6  BALANCING THE COST OF CUSTOMER SUPPORT SERVICE Providing a customer support service can be expensive. The actual costs depend on the type of service given. Without careful planning and control, it is difficult to balance the costs of providing a technical service with the benefits to marketing and sales, but it is essential if technical service is to be cost-effective. The tendency too often is for the technical department to become involved in advice or troubleshooting, resulting in customer support service “give-away”. Technical service giveaway is service which does not provide a commensurate sales return. In almost all commercial transactions, there comes a point at which providing increased levels of service does not produce any further sales volume or contribution to profits. This is illustrated in Figure 13.1. On the left side of the chart,

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FIGURE 13.1  Customer support service value for money. (Pathmaster Marketing Ltd.)

the minimum amount of technical service is provided, such as just supplying product technical data. This could be typical of some specification business where the unit contribution is low and there is no added contribution or “added value” for technical service. The result is that the level of contribution is relatively small, but is still larger than the cost of supplying the service. As the amount of service effort increases, towards the middle of the chart, so does its cost, but this is more than outweighed by the additional sales volume and contribution to profits. Here, the customer support service is being used to generate higher profits. The desired balance, where good planning and control ensure that the technical service given is profitable and contributions are high, has been achieved. On the right side of the chart, the levels and costs of customer support service are even higher, but this has not led to any additional sales or contributions to profits, because the service has not been properly planned and controlled. Unlimited customer support service has been given without considering the true benefits to marketing, resulting in technical service giveaway and reduced unit contribution. The costs of customer support service come under two headings: • Hardware costs: These will depend on the services being offered and can include items such as storage tanks, dispensing equipment, portable test kits and, of course, technical literature and documentation. In some companies, these last items are considered to be sales literature and this cost then comes out of the advertising or publicity budget. Since there is control over the equipment supplied, this element of the cost is usually the easier to manage.

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• Manpower costs: These are fixed by the number of staff employed but, since the technical service function often uses manpower from the marketing technical resources, it is often difficult to establish if the technical service element is being cost-effective. Some companies have partly overcome this problem by charging for certain types of customer support service, particularly where the service is being given to a non-buyer. Typical types of service would include planned maintenance schemes, oil condition monitoring, used oil analysis and supply of tanks and dispensing equipment either on sale or on loan agreement. As described previously, TFM contracts involve a number of people, products and services and can be very expensive. These contracts are often associated with large manufacturing companies that use a lot of lubricants and fluids.

13.7  DECIDING WHO RECEIVES CUSTOMER SUPPORT SERVICE Customer support service is expensive and therefore should not be squandered or offered without first establishing whether it is necessary in the context of the marketing role or, in fact, if the customer actually wants it. It has been known for sales staff to open their presentation to a prospective customer by listing all the customer support services the company has to offer. All customers will receive some form of technical service even though it may only be the properties and characteristics of the lubricants and advice on their correct use. Before offering other forms of technical service, it is important to determine its relevance in achieving the aim of maximising sales and profits. A guide in this respect can be obtained by evaluating the marketing mix pattern for that particular customer. It is often wrongly assumed that a marketing mix pattern is an evaluation of the factors considered important by a customer which persuade him or her to buy a particular brand or type of product. As discussed in Chapter 3, the following are considered to be the main elements of a marketing mix: • • • • • •

Brand reputation. Representation. Pricing/Discount/Credit. Service. Product Quality/Performance. Sales Promotion/Advertising.

Subconsciously, everyone uses a market mix when they purchase any item and, of course, the pattern will vary depending on the particular item. Most people are concerned with the price, but the brand name and service offered may be the main reasons why they decide on a particular product. Alternatively, a good advertising campaign may be the reason. The reasons for buying a particular brand of lubricants follow the same pattern, and it is important that sales staff determine this marketing mix pattern for their customers to establish the priority given to customer support service in relation to the other elements. Salespeople tend to allocate a marketing

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mix pattern to a company but, in fact, it usually belongs to an individual within that company who makes the decision as to which lubricants are purchased. It is important to know who this person is. Usually, engineering staff will always place service at the top of their priority list but they may not have the authority to decide from whom the lubricants are purchased.

13.8  ORGANISATION OF CUSTOMER SUPPORT SERVICES To be effective and efficient, customer support services must be organised and not allowed to just happen. The extent of the services offered will, of course, be determined by the allocated budget. It must be stressed again that it is better to limit the amount of service given and to do it efficiently, rather than to over-stretch resources, resulting in poor service. The organisation of available customer support services can be influenced by a number of factors.

13.8.1 Marketing Strategy The marketing strategy should not only decide if technical service is to be used to support marketing but also the resources which are to be allocated to this function. In the strategy planning stage, it should also be agreed which are to be the target areas for customer support service. For example, it might be decided to use it primarily to increase market share in a specific industry such as steelworks or mining, rather than to use it as a general service to all branches of industry.

13.8.2 Types of Industry The types of industry to be serviced will influence the services required and the skills necessary to operate those services satisfactorily. It is important if targeting specific industries that the technical staff responsible for operating the service should be specialists in those industries and be familiar with the manufacturing processes as well as the equipment. Some of the larger industries can be very demanding in manhours required for service and it is known for some large steelworks to be allocated one technical service engineer with his or her own office on site. It is more usual, however, for one engineer to be responsible for two to four steelworks, depending on their size and geographical location. Operating specialised technical services can be manpower-intensive and this should be given careful consideration before offering this type of service. If the specialist skills are not available or customer support service resources are limited, it may be advisable to concentrate on general industry and vehicle fleet operators. These types of customers are normally less demanding, allowing a wider coverage and giving greater flexibility of operation. Flexibility is particularly important, to give coverage when staff are on holiday or off work due to sickness. This aspect can present problems with specialised customer support services, particularly when there is only one specialist. It can result in a customer calling in a competitor if they have an urgent problem.

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13.8.3  Location of Industry The geographical location of industry within a country can have a significant influence on the number of staff required to operate a customer support service and the cost of providing that service. In countries where industries tend to be allocated together in specific areas, the use of customer support services can be more costeffective by allowing service engineers and chemists to spend more time face-to-face with customers and the minimum amount of time travelling between them. In this situation, the service engineers and chemists can usually operate from a regional office with the benefit of better liaison with sales staff and easier communication for customers. In small countries, it may be possible for all service engineers and chemists to operate from the company’s head office. In large countries, particularly those where communications are not good, the organisation of customer support services is more difficult and poses more problems. Industry is usually much more widely dispersed and if the marketing strategy is to target industries requiring specialised services, this could entail employing a number of specialist service engineers and chemists if a quick and reliable service is to be provided. Service to general industry and fleet operators does not usually require the same depth of expertise but, since they will be required to operate on their own, they will need to be experienced. These additional requirements will increase the cost of giving customer support service and therefore the need for accurate planning becomes more important.

13.8.4 Communications and Geography Good communication facilities are a valuable asset to a customer support service function, enabling a quick response to a customer’s request for assistance and also for obtaining urgent backup information when required. Almost all service engineers and chemists are now equipped with mobile phones and laptops (or tablets) and many also have internet access at home. In countries where these facilities exist, and particularly where they also have an efficient transport system, it is often possible to base the specialist service engineers and chemists in one central location. This not only reduces manpower costs but also gives greater flexibility to the organisation. It is now used by some of the larger lubricant companies on an international basis. In some companies, this has been extended to form an international skills pool. In countries where the communication facilities, transport system, geographical location or merely size do not allow this type of organisation, the type and extent of the service offered may have to be limited. This of course will depend on the geographical location of the industries, which has already been discussed.

13.9  CUSTOMER SERVICE REPORTING AND CONTROL There has been considerable debate over many years about whether the management control of the customer support service should be in the marketing and sales department or the research, development and technical department.

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FIGURE 13.2  Customer support service reporting and control. (Pathmaster Marketing Ltd.)

In the author’s opinion, this debate is not very important, as both departments are highly likely to need to work closely to provide the service. The lines of communication are illustrated in Figure 13.2. The arrows between each of the functions are double-headed, to indicate regular two-way communication, an indication of effective co-operative working. Eagle-eyed readers will observe, however, that there is no direct communication in Figure 13.2 between the new product development function and field salespeople. There is a particularly good reason for this. Good salespeople, as discussed more in Chapter 19, will always try to alert existing or prospective customers to new products. All announcements about new products need to be managed by marketing and sales managers, to ensure that salespeople do not over-promise. New product developers are always enthusiastic about the expected wonderfully improved performance properties of a new lubricant. However, as was discussed in the preceding chapter, developing a new lubricant can take many months or years and there are likely to be setbacks along the way. If a new product development chemist or engineer alerts a salesperson to the possible imminent introduction of a new lubricant for a specific application, there is a real danger that the salesperson will advise one or more customers about the launch, leading to raised expectations by the customers. They may even alert the lubricant supplier’s competitors. However, if the product development encounters a setback lasting even a few months, the customers’ raised expectations are likely to be dashed. This is not a good marketing and sales strategy. Consequently, new product developers should not be

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allowed to talk directly to field salespeople. Announcements about new or improved lubricants should only be made when the product is fully ready to be commercialised.

13.10 SUMMARY Commercial and technical support for customers is a very useful aid to marketing and selling. Many types of customer support services can be provided, ranging from quite simple and low-cost to very complex and expensive. Customers need to pay for the service they receive and a lubricant supplier needs to balance the cost of the service against the contribution to sales and profits. Deciding which customers should receive which services is not straightforward and needs to be integrated with the lubricant supplier’s overall marketing and sales strategy. Organising customer support services depends on the types and locations of the industries to which the lubricant supplier markets products. Managing and controlling customer support services are very important. The aim should always be to maximise sales and profits.

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14.1 INTRODUCTION A business strategy is the search for a sustainable competitive advantage in the marketplace. It can be defined as the combination of all the decisions taken and actions performed by a company to accomplish its business goals and to secure and maintain a competitive position in the market. A business objective without a strategy is simply a dream. Any company that is in, or enters, a market without a carefully thought-out strategy is taking a gamble on succeeding. Business strategy is a part of a business plan. While the business plan sets the goals and objectives, the strategy gives a company a way to fulfil those goals. The three key elements of a business strategy are: • Where are we now? • Where do we want to go? • How are we going to get there? The choice of strategy will depend on the size and nature of the company. Some companies are simple and consist of only one business activity. Other companies are complex, with the group consisting of many businesses. Some of these businesses may be closely related, for example, by using the same or similar technologies, while others may be competing in entirely separate business areas, in terms of both technologies and markets. The more complex companies may need three levels of business strategy: corporate, business unit and functional. In many companies, there could be a need for multiple strategies at various levels, as a single strategy is likely to lack sufficient detail at the operational level. Corporate level strategy is a long-range, action-oriented, integrated and comprehensive plan developed by senior managers and directors. It is used to determine business products and services, company growth, takeovers and mergers, diversification, integration and new areas for investment or divestment. Business unit level strategy relates to each part of the company’s business, such as marketing, manufacturing, logistics, procurement and research and development. These strategies are developed by business unit managers, who convert corporate mission and vision into concrete strategies. Functional level strategy, developed by front-line managers or supervisors, involves decision-making at the operational level for specific products and services. DOI: 10.1201/9781003318392-14

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The main part of a company’s present strategy is a result of previously initiated actions and approaches, but when market conditions change unexpectedly, the company requires a strategic response to cope with the contingencies. To be able to handle market and/or competitive changes, a part of the business strategy is formulated as a reasoned response. For a single business, most strategic decisions affect the business in one of three main ways. First, whether the business, while maintaining its focus, should conserve its resources and retrench or should increase its resources and expand its activities. Second, whether the strategic positioning of the business in relation to products, services, markets and competitors should be changed. Third, whether the level of resources invested in a part of the business and the focus on using those resources should be changed, for example, by investing more resources in production, marketing, research and development or staff. Where a company consists of more than one business, corporate strategy also involves whether to withdraw resources from one of the businesses to invest in another business that offers better opportunities. Additionally, should individual businesses be mainly autonomous or should they aim to seek substantial synergy through joint activities, for example, by sharing research and development or joint export marketing. Corporate strategy cannot be taken by an individual business or division. These decisions are corporate because they involve competition between business units for resources, whose allocation will significantly affect the performance of the company as a whole. It is not easy to develop and implement the best corporate strategy. Good corporate strategy is good common sense. Unfortunately, good common sense is less apparent when the strategy is being developed compared to after it has been implemented. Everyone is fallible and even the best managers and strategists make poor strategic decisions. Strategies need to be thought through carefully and updated regularly. In summary, a company’s business strategy is a description of how the company plans to achieve its goals and improve and sustain its position in the marketplace. The description needs to be relatively brief, between thirty and fifty pages and tables, and should not be a lengthy book that few managers or employees will read or understand. A marketing strategy should be based on a company’s strengths, its competitors’ weaknesses and its customers’ needs and wants. The methods of SWOT and PEST analyses were explained and discussed in detail in Chapter 2. All marketing decisions are strategic. Strategic marketing takes account of the competitive nature of a company and keeps its efforts focused. As will be explained later in this chapter, each company’s marketing efforts should be goaldirected and the company needs to be sure that the goals (objectives) it is seeking to achieve are the ones it wants to achieve. A strategic marketing plan helps to ensure that the company is doing, or about to do, the right activities. The marketing plan helps the marketing staff and salespeople to do those activities as effectively as possible. All businesses encounter problems. A marketing strategy will investigate these problems, will identify possible solutions and how to implement them and will then

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set out the objectives to be aimed at. The objectives must be SMART (Specific, Measurable, Achievable, Relevant and Time-based). They must also be easy to communicate, as everyone in the company who needs to work to achieve them needs to understand and commit to them.

14.2  STRATEGIC ANALYSIS According to Michael Porter,1 competitive strategy must grow out of a sophisticated understanding of an industry and how it is changing, In any industry, whether it is national or international, the nature of competition is embodied in five competitive forces: • • • • •

The threat of new entrants. The threat of substitute products or services. The bargaining power of suppliers. The bargaining power of buyers. The rivalry among the existing competitors.

The strength of the five forces varies from industry to industry and determines longterm industry profitability. In industries in which the five forces are favourable, such as soft drinks, mainframe computers, database publishing, pharmaceuticals and cosmetics, many competitors earn attractive returns on invested capital. Industries in which pressure from one or more of the forces is intense, such as rubber, aluminium, many fabricated metal products, semiconductors and small computers, are ones where few firms are very profitable for long periods. The five competitive forces determine industry profitability because they shape the prices companies can charge, the costs they have to incur and the investment required to compete in the industry. The threat of new entrants limits the overall profit potential in the industry, because new entrants bring new capacity and seek market share, pushing down margins. Powerful buyers or suppliers bargain away the profits for themselves. Fierce competitive rivalry erodes profits by requiring higher costs of competing, such as for advertising, sales or research and development, or by passing on profits to customers in the form of lower prices. The presence of close substitute products limits the price competitors can charge without inducing substitution and eroding industry volume. The strength of each of the five competitive forces is a function of industry structure, or the underlying economic and technical characteristics of an industry. Buyer power, for example, is a function of things such as the number of buyers, how much of a company’s sales are at risk to any one buyer and whether a product is a significant fraction of buyers’ own costs which leads to price sensitivity. The threat of entry depends on the height of the barriers to entry, such as brand loyalty, economies of scale or the need to penetrate distribution channels. Every industry is unique and has its own unique structure. In pharmaceuticals, for example, barriers to entry are high because of the need for huge fixed research and development costs and economies of scale in selling to clinicians. Substitutes for an effective drug are slow to develop and buyers have not historically been

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price-sensitive. Those suppliers who sell mostly commodity drugs have little influence. Finally, rivalry has been moderate and focused not on price cutting that erodes industry profits but on other variables such as research and development that tend to expand overall industry volume. The existence of patents has also slowed competitive imitation. Industry structure in pharmaceuticals has been highly favourable to profitability, supporting sustained returns on investment among the highest of any major industry. Industry structure is relatively stable but can change over time as an industry evolves. The consolidation of distribution channels that took place in a number of European countries in the 1990s, for example, increased buyer power. The industry trends that are the most important for strategy are those affecting its underlying structure. Companies, through their strategies, can also influence the five forces for better or for worse. The introduction of computer information systems in the airline industry, for example, raised barriers to entry by requiring investments totalling hundreds of millions of dollars. Industry structure is significant in international competition for a number of reasons. First, it creates differing requirements for success in different industries. Competing in a fragmented industry such as clothing requires greatly differing resources and skills from competing in commercial aircraft. A nation provides a better environment for competing in some industries than others. Second, industries important to a high standard of living are often those that are structurally attractive. Structurally attractive industries, with sustainable entry barriers in areas such as technology, specialised skills, channel access and brand reputation, often involve high labour productivity and will earn more attractive returns to capital. Standards of living will depend importantly on the capacity of a country’s companies to successfully penetrate structurally attractive industries. The attractiveness of an industry is not reliably indicated by size, rapid growth or newness of technology, attributes often stressed by executives and by government planners, but by the industry’s structure. A final reason why industry structure is important in international competition is that structural change creates genuine opportunities for competitors from a country to penetrate new industries. New strategies can reduce barriers to entry and reduce previous competitors’ advantages. How a country’s environment points the way or pressurises its companies to identify and respond to such structural changes is particularly important to understanding international business success.

14.3  THE NEED TO PLAN Businesses are dynamic, as are the commercial and competitive environments in which they operate. No one expects every event described in a business plan to occur as predicted, but the understanding and knowledge created by the process of business planning will prepare the company for any changes that it may face, and so enable it to adjust quickly. Preparing a business plan gives a company an insight into the planning process. It is the thinking process in preparing a plan that is important to the long-term success of a business, and not simply the plan that comes out of the process.

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Plans are needed because the world changes, sometimes slowly and sometimes very quickly: • • • • •

Products and markets mature and decline. Technologies improve. New businesses emerge. New competitors develop. The momentum of past success slows.

Preparing a comprehensive business plan takes time and effort. Many strategic planners have found that between 200 and 400 man-hours are needed, depending on the nature of the business and how much data has already been gathered. However, such an effort is essential if a company is both to crystallise and focus its ideas and to test its resolve about entering a market or expanding its business. Once completed, the business plan will serve as a blueprint to follow which, like any map, improves the user’s chances of reaching their destination. Effective planning is, therefore, critical to the ultimate success of a company. Unfortunately, insufficient senior management time is spent in strategic planning in many companies. Numerous studies over several decades have found that too much senior management time is spent dealing with the present, as illustrated in Figure 14.1. Many senior managers deal currently with monitoring and controlling operations, preparing budgets, managing crises and fighting fires. What these managers should be doing is looking at the future, by planning, analysing, evaluating and developing strategies and preparing for change. The business planning process, which will be discussed in depth in the following sections, is illustrated in Figure 14.2. (A marketing and sales plan follows exactly the same process.) A business plan has to be specific to each company’s situation and time. Most importantly, a business plan is not just a document, to be produced and filed. Business planning is a continuous process. The business plan has to be a living

FIGURE 14.1  Management time allocation. (Pathmaster Marketing Ltd.)

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FIGURE 14.2  The marketing planning process. (Pathmaster Marketing Ltd.)

document, in use constantly to monitor, control and direct the progress of a business. That means it should be under regular review and will need to be amended in line with changing circumstances. Before preparing the plan, managers need to review previous business plans (if any) and their outcome(s). This review will help highlight which areas of the business have historically proved difficult to forecast. For example, are sales difficult to estimate and, if so, why? A business plan must have a purpose, defining the key business assumptions on which the plan is based. The most widely used way of doing this is by way of SWOT and PEST analyses (see Chapter 2 and also later). The strategies adopted by a business will be largely based on the outcome of these analyses. A good strategic business plan will look between three and five years into the future. It is normal for the first year of the plan to be set out in considerable detail. This one-year plan, or budget, will be prepared in such a way that progress can be regularly monitored (usually monthly) by checking the variance between the actual performance and the budget, which will be phased to take account of seasonal variations. The budget needs to show financial figures, such as profit and loss, cash flow and working capital, and non-financial information, such as people numbers, product output and order book. Budgets can be produced for business units, departments or operating divisions, as well as for the whole company. Budgets for the forthcoming period are usually produced before the end of the current period. While it is not usual for budgets to be changed during the period to which they relate (apart from the most

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extraordinary circumstances), it is a common practice for revised forecasts to be produced during the year as circumstances change. Planning is a team process that requires psychological ownership and commitment by everyone in the company. A business plan is not just the output from either strategic planners or senior managers and directors. Everyone in a company should be able to be involved in the information gathering and data analysis of the planning process, to a greater or lesser extent. Everyone needs to know, “If you haven’t participated in the development of the plan, it isn’t yours, it’s theirs”.

14.4  MARKETING PLANS AND ACTION PLANS The process of developing any business plan is to set out the vision, mission, objectives, strategies and then plans: • Vision: A very short statement that provides a concrete way for employees to understand the meaning and purpose of the business. • Mission: A short (two or three sentences) summary of the primary aim(s) of the business. • Objectives (or Goals): These describe destinations. Where is the company going? • Strategies: Set out the means chosen to achieve the objectives. How is the company going to get there? • Plans: Constitute the operations for getting to the destination using the chosen means. Plans form the detailed execution of the strategy. Writing a vision statement for a company is an intimidating task. It must define the company and, most importantly, its future. It must not be relegated to a forgotten poster on a wall in the office reception. The vision statement needs to explain what a company most hopes to be and to achieve in the long term. A vision statement is not the same as a mission statement. Vision statements are future-based and meant to inspire and give direction to employees of the company, rather than to customers. An example of a vision statement comes for the author’s local major hospital: “World class care for our community”. The mission statement should seek to give the managers, employees, shareholders, suppliers and customers of the business a clear sense of purpose and direction. These statements should identify which customers, what products and services, what benefits and what competitive advantages. These statements are based in the present and should be designed to convey why the business exists to both members of the company and the external community. When developing a marketing strategy and plan, the next thing to do is to establish what the marketing and sales people are going to do and why. This means, setting the objectives. They can be wide-ranging or specific, for example, by getting staff to think about, understand and be more involved in either marketing or selling or by completely re-thinking the direction the company needs to take. Objectives must be measurable; otherwise, they are not objectives. Descriptive terms, such as maximise, minimise, increase, establish and penetrate, may be used only if quantitative

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measures are attached to them. Quantitative measures are money, numbers, percentages or times. A SWOT analysis, described in Chapter 2, is a general method that can be applied to many management functions and activities, but is particularly suitable for strategic and marketing planning. It provides a framework for identifying and analysing strengths, weaknesses, opportunities and threats and is an impetus to assessing a situation and developing suitable strategies and tactics. It is a basis for identifying core competences and provides the evidence for, and the cultural key to, change. To summarise from Chapter 2, SWOT is: • Strengths: What skills, facilities and/or processes do we have that our competitors don’t? • Weaknesses: What skills, facilities and/or processes do our competitors have that we don’t? • Opportunities: Which market segments or businesses can we expand into, to our commercial advantage? • Threats: What external factors could hurt us in the future? It is critically important to be rigorously honest. The reasons why will become clear later in this section. Performing a SWOT analysis should not be viewed as easy or quick. It is important to involve the most appropriate contributors. This is important because the final results will arise from evaluations, consultations and discussions, not just personal opinions, however expert. A combination of specialists and innovators, who have the abilities and enthusiasm to contribute, is usually ideal. Staff of different levels should be considered. Between six and ten people involved in the analysis is likely to be sufficient. When the team has been assembled, the next task is to allocate the research and information gathering activities. Initial preparation is important if the subsequent analysis is to be effective and it should be divided among the SWOT team. The preparation can be done in two stages. Exploratory work is followed by data collection and then detailed work is followed by a focused analysis. Gathering information on strengths and weaknesses needs to focus on the internal company factors of skills, resources and assets, or lack of them. Gathering information on opportunities and threats needs to focus on external factors in the business environment, such as market, economic or social trends, over which a company has little or no control. An analysis of competitors can be used to compare and contrast strengths, weaknesses, opportunities and threats, as illustrated in Figure 14.3. If compiling and documenting the SWOT analysis take place in meetings of the team, exploiting the benefits of workshop sessions may prove useful. This can encourage participants to discuss information and share openly what they think, without fear of criticism. The facilitator of these sessions has a key role in enabling time for the free flow of thoughts, but not too much. For example, spending about thirty minutes on strengths should be sufficient, until the next session discusses any new information. It is important to be specific, evaluative and analytical at the stage of compiling the SWOT lists. Simple descriptions are insufficient.

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FIGURE 14.3  SWOT analysis. (Pathmaster Marketing Ltd.)

Strengths can relate to the company, to the environment, to public perceptions, to market shares and/or to people. People strengths include specific skills, capabilities and knowledge that provide a sustainable competitive advantage. (It should be remembered that people can move between companies, so any advantages might be transitory.) Organisational strengths can include capital investment, effective cost controls, customer loyalty, extremely high-quality processes or systems and exemplary corporate social or environmental responsibilities. Compiling weaknesses should not constitute an opportunity to criticise the company, but should elicit a completely honest appraisal of how things are at present. Key questions include: • Is there a lack of new products or services? • Are there products or services whose market share is declining and, if so, why? • What obstacles are preventing progress? • Are there effective systems for monitoring success or failure? • Is the company competitive in its chosen markets and, if not, why? • Which elements need strengthening? • Are there any real weak links in the value chain? • Do our staff lack an awareness of the company’s mission, objectives or policies? • Is there high staff turnover or absenteeism and, if so, why? It is not unusual for people issues, such as poor communication, lack of motivation, poor leadership, too little delegation, lack of trust or silo management, to feature among the major weaknesses of a company.

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Listing opportunities requires an analysis of socio-economic, political, environmental and demographic factors, to identify and evaluate benefits that might arise for the company. A PEST analysis (see Chapter 2 and later in this section) is likely to be very useful to this part of the SWOT analysis. Examples of opportunities include the availability of new technology, the opening of new markets, a new government, new programmes for training, changes in interest rates, changes in social media, improved methods of monitoring quality and weaknesses of competitors. It is very important to accept that many opportunities are only available for a limited time, probably no more than two years, and that competitors are likely to have spotted the same opportunities. Threats are the opposite of opportunities. With a change in emphasis or perception, any opportunity could become a threat. For example, a new government could be either an opportunity or a threat, depending on its policies and priorities. Other threats could be higher unemployment, new environmental legislation, political instability in overseas markets or variations in exchange rates. The COVID-19 pandemic was a particularly good example of an opportunity for some companies, for example, Amazon and Google, and a threat for other companies, such as small restaurants and hotels. A wide-ranging view of all external influences should be taken. It is important to prepare a worst-case scenario. Weighing threats against opportunities should not involve pessimism, but should consider how possible damage might be minimised or eliminated. Most external factors are, in fact, challenges and whether staff perceive them as opportunities or threats is often a very useful indicator of staff morale. Once the SWOT lists have been compiled, facts and ideas need to be sorted and grouped in relation to objectives. During the compilation, all thoughts and ideas should be recorded, to enable proper discussion and evaluation. It may be necessary for the SWOT team to select the five most important items from the list in order to gain a wider view. Clarity of objectives is key to this process, since evaluation and focus will be required. Although some aspects may require further information or research, a clear picture should start to emerge in response to the objectives. The SWOT analysis will then be ready to be used in the subsequent strategic planning. During the SWOT analysis, it is very important to not disguise weaknesses, to not simply list errors and mistakes, to not allow the discussions to revert to a blame-game, not to be honest about strengths and to not ignore the outcomes at the later stages of the planning process. For example, having high-quality staff is not a strength. Every good and successful company has high-quality staff. In addition to the SWOT analysis, a PEST analysis provides very useful additional information, as summarised in Chapter 2. The four factors in a PEST analysis are: • Political: How the government intervenes in the country’s economy. These factors include tax policies, trade regulations and tariffs, import restrictions, employment law, environmental law and political stability. Political factors may also include products and services which the government aims to provide or be provided (known as merit goods) and those that the government does not want to be provided (known as demerit goods). In addition, governments have a high impact on the health, education and infrastructure of a country.

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• Economic: Factors which greatly affect how companies operate and make decisions. They include economic growth, exchange rates, inflation, interest rates, taxes and recessions. Exchange rates can affect the costs of exporting products and the supply and prices of imported products in an economy. Interest rates affect a company’s cost of capital and, consequently, to what extent a company can invest and grow. • Social: Factors that include a country’s population growth rate, age distribution, culture, health, safety and environmental consciousness and career attitudes. Significant trends in social factors affect the demand for a company’s products and how that company operates. For example, an ageing population may result in a smaller and less-willing workforce, thereby increasing the cost of labour. Companies may need to modify several corporate strategies to adapt to social trends, such as recruiting older workers, people with disabilities or people from ethnic minority groups. • Technological: How technology can either positively or negatively impact the introduction of a product or service into a marketplace. These factors include technological advancements, life cycle of technologies, the role of the internet and the spending on technology research by the governments and national or international organisations. They can determine barriers to market entry, minimum efficient production levels and influence research and development, innovation and production outsourcing decisions. Extending the analysis to PESTLE means including a number of other factors in the business environment, some of which may already have been included in the basic PEST analysis: • Legal: Factors such as employment laws, consumer protection laws, discrimination laws, anti-competitive (anti-trust) laws and health and safety laws. These factors can affect how a company operates, its costs and the demand for its products and services. • Environmental: Factors such as weather, climate and climate change that may affect a number of industries, including farming, tourism and insurance, and activities such as shipping and transportation. • Demographic: Factors that include gender, age, ethnicity, knowledge of languages, disabilities, mobility, home ownership, employment status, religious belief or practice, culture and tradition, living standards and income level. • Regulatory: International, national, trade association and manufacturers’ standards, specifications, systems and/or codes of conduct. The factors used in a PEST analysis are likely to vary in importance for a company depending on its industry and the products and services it markets and sells. Also, factors that are more likely to change in the future or more relevant to a given company will carry greater importance. Large, multinational companies are likely to have found that SWOT and PEST analyses need to be done for each separate business unit or division.

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FIGURE 14.4  The business environment. (Pathmaster Marketing Ltd.)

A SWOT analysis can also be extended, if necessary, to a company’s business environment. An illustration of this is shown in Figure 14.4. The company’s SWOT analysis can be performed using information provided by one or more of its customers. Figure 14.4 shows this as double-headed arrows between the company and two customers. Obviously, both customers are competitors, so there is unlikely to be any communication about business strategy between them. The customers may also share a business analysis with their customers and with one or more of the company’s competitors. It also follows that the company’s competitor is unlikely to have direct contact with their customer’s customer, so there is no direct link shown there. Exchanging strategic business information between a supplier and a customer is part of the increasingly important supply chain partnerships, discussed in Chapter 18.

14.5  MARKETING AND SALES STRATEGIES When developing marketing and sales strategies, it is vitally important to use strengths, to stop weaknesses, to exploit opportunities and to defend against threats. This will allow a company to create many possible strategies. This means: • • • •

Making strengths better. Analysing weaknesses, to eliminate them. Recognising opportunities, to profit from them. Identifying threats, to prepare a defence.

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Products, like people, have life cycles. As discussed in Chapter 12, a product begins with an idea, undergoes research and development and, if it is found to be useful and potentially profitable, is produced and introduced to the marketplace. The term product life cycle refers to the stages starting when a product is introduced to the market and finishing when it is removed from the market. Companies that understand and monitor each of their products’ life cycles are more likely to generate more revenues and profits. Those that don’t may experience an increase in their marketing and production costs, ultimately leading to the limited shelf life for their product(s). The introductory stage of a product’s life cycle is the most risky, because many truly new products fail during this stage. The failure comes only after the investment of substantial time and money in research, development and production. Consequently, many companies prefer to wait until a competitor has launched a new product successfully and then copy the success. Many of the most successful products are kept in the mature stage for as long as possible, undergoing minor updates and redesigns to keep them differentiated. Coca-Cola is the best example of this, its mature stage having lasted for well over one hundred years. Another very good example is Volkswagen’s “Beetle” car, which was first introduced to the German market in 1938 and was manufactured in various forms and sold worldwide until 2003. Marketing and sales strategies and plans, therefore, must be linked to the stage in the life cycle of each product, since the tactics will be different. Several questions need to be answered. Where is the product in its life cycle? What is the role of the product in the portfolio? Where is the product in the strategy matrix? What is the goal for the product in the future? What methods need to be used to achieve this goal? What resources will be needed? What performance measures are required? A summary of the essential marketing and sales strategies and plans for each stage in a product’s life cycle is shown in Figure 14.5. The main methods by which these strategies can be implemented are: • Develop the Market: Create demand for a brand new product by exploiting a new opportunity. • Penetrate the Market: Increase market share by lowering prices, broadening product range, adding services or increasing promotional spending. • Promote New Products: Develop, broaden or replace products aimed at the present market. • Seek New Markets: Sell existing products in new locations or for new applications. • Rationalise the Market: Focus on most profitable products and segments or on higher volume segments. • Maintain Products and Market Share: Grow at industry average rate, decrease working capital and increase cash flow. • Develop New Products for New Markets: Invest in new technology or new production to widen the customer base. • Rationalise Distribution: Prune to most efficient network, based on customer location and buying volume.

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FIGURE 14.5  Marketing and sales strategies for each life cycle stage. (Pathmaster Marketing Ltd.)

• Reduce Costs: Lower raw material costs, lower production costs, rationalise product range or reduce overheads. • Improve Operating Efficiency: Use new technology, processes, equipment or operating methods. Then, the marketing plan for each product is to review the current market position, analyse the opportunities and key issues, develop a marketing strategy, define the goals (objectives) for the product, prepare action programmes, estimate revenues and profits (or introductory losses), identify controls, prepare a contingency plan and integrate the marketing plans into the company’s main business plan. Preparation of the marketing plan should involve selecting the elements of the marketing mix, setting targets for each element, defining staff responsibilities, preparing a detailed plan to achieve the targets, establishing key performance indicators (KPIs; see the next section) and monitoring progress. Action plans ensure that all members of the team know what actions they are responsible for, how the resources are allocated and what constitutes success or failure. Action plans based on a SWOT analysis will have common themes: • Strengths: List and describe accurately. What are the likely results? How should the company capitalise on them? Who will be responsible for action? Set a date for implementation. Set a date for review. • Weaknesses: List and describe accurately. What are the likely effects? What can the company do to correct them? Who will be responsible for action? Set a date for implementation. Set a date for review. • Opportunities: List and describe accurately. Are they immediate or in the future? How should the company exploit them? What are the likely results? Who will be responsible for action? Set a date for implementation. Set a date for review.

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• Threats: List and describe accurately. Where do they arise from? What are the likely consequences? What can the company do to minimise them? Who will be responsible for action? Set a date for implementation. Set a date for review. Preparing action plans is the last step in the marketing and planning process. It is incumbent on marketing and sales managers to monitor and assess both the actions and their outcomes. Practical sales tactics to implement the actions are explored and discussed in Chapter 19.

14.6 KEY PERFORMANCE INDICATORS AND KEY SUCCESS FACTORS Key performance indicators (usually abbreviated to KPIs) are things a company must watch closely: • • • •

To ensure survival. To achieve competitive advantage. To monitor progress against the plan. To decide when the plan needs to be revised.

KPIs are measures that quantify management objectives, to enable the measurement of strategic objectives. Specifically, KPIs help to determine a company’s strategic, financial and operational performance, particularly when compared to those of other companies within the same business sector. KPIs can be financial, such as net profit, gross profit margin, net profit margin, revenues, cost of sales, current ratio or quick ratio. They can also be more anecdotal, for example, measuring employee retention rates, staff sickness, number or percentage of repeat customers, quality of customer experience, foot traffic in a retail outlet or number of clicks on each page on a website. KPIs will vary between companies and between industries, depending on the performance criteria. As an example of a KPI, the current ratio focuses on a company’s liquidity, measured by dividing its current assets by its current debts. A financially healthy company typically has sufficient cash in hand to meet its financial obligations for the current twelve months. However, different industries rely on different amounts of debt financing, so a company should only compare its current ratio to those of other businesses within the same business sector, to ascertain how its cash flow compares with those of its peers. An appropriately developed and implemented set of KPIs includes a programme of regular reviews, during which managers and staff assess the results. No matter how positive an indicator is, it needs to be analysed and assessed so as to be able to repeat or even strengthen the performance. No single KPI alone explains how a situation happened or how to improve. However, a well-defined set of KPIs can include numbers that point to where conditions deteriorated and how they can be improved. Armed with these insights, team members can take action to strengthen the leading indicators and drive improved future results.

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A simple way to check whether a KPI can be used properly or offers meaningful data is to make certain it is SMART (Specific, Measurable, Achievable, Relevant and Time-based). KPIs must be linked to a company’s strategic goals. Managers use the indicators to assess whether the company is on course as everyone works to achieving those goals. A sales team might measure new revenues, total revenues, new customer capture, conversion rate of prospects to customers, effectiveness of sales visits, average deal size and deal pipeline size to assess progress. A customer support team might measure the minimum, maximum and average waiting times for customers’ phone calls, the minimum, maximum and average times for resolving customers’ queries and the percentage of customers that give positive reviews of customer satisfaction. The marketing department might measure response rates to customer surveys or advertisement recall, and evaluate the contribution of marketing-generated sales leads to total revenues over time or the rate of increase in internet-generated enquiries. The production department usually measures the efficiency of processes and quality of products. The human resources department might measure staff wellbeing, rates of absenteeism or industry comparative pay rates. It is not easy to develop a high-quality set of KPIs. The objective is to identify measures that can meaningfully communicate the achievement of key goals. Some KPIs are lagging indicators, while others are leading indicators. Lagging indicators measure performance in a period in the past. Financial metrics are typical examples. As the standard disclaimer warns, past performance does not guarantee future performance. Leading indicators contain guidance about future results. For example, an increase in orders for automotive components suggests a rise in new car, van or truck production and sales in the near future. In most companies, the goal is to have the right balance of leading and lagging KPIs. When choosing which KPIs will offer the most valuable business insights, a few questions may help to keep the preparation focused. Are these KPIs: • • • • •

Clearly defined? Simple to understand? Derived from a valid strategy? Relevant, both now and in the future? Derived using factors or quantities that the company can fully control or influence? • Fully reflective of the business process? • Focused on improvement? • Able to provide rapid feedback? KPIs are more useful when they reveal trends over time, rather than taking one KPI in isolation. Keeping them precise, simple and relevant can reward a business with useful insights and guidance. There are several pitfalls when developing or implementing KPIs. If the company’s strategy and/or objectives are not clear, its indicators are likely to tend to focus exclusively on financial outcomes. Over-reliance on financial KPIs can lead to an unbalanced and incomplete view of a company’s health.

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KPIs regarded as important by one part of the company may not be viewed as important by other units, departments or divisions. In larger companies, it may be important to develop strategies and objectives for different business units or departments and to define KPIs specific to each of them. If managers’ or employees’ compensations are tied to any of the key targets of performance indicators, conflicts of interest and considerable bias could be built into the process. Accurately measuring and reporting indicators may be difficult or impossible if the internal reporting system to support them isn’t in place. A healthy process for identifying and implementing KPIs includes a requirement that the managers and other contributors should regularly revisit and revise the measures. This fine-tuning process requires the time and diligence of everyone involved. Key success factors (usually abbreviated to KSFs) are those factors that will enable a company to answer the very important question, “What does success look like?” If a company is going to succeed, its business plan must identify those factors that will be critical to its success. While many different factors can enhance a company’s success, KSFs are differentiated by the fact that if the company does poorly in any one of them, its business is likely to fail in the long term. KSFs will vary depending on the type of business and the activities the company is planning to do. Four different categories of KSFs have been identified: • Industry KSFs are related specifically to a company’s industry or market. • Strategy KSFs are related to a company’s competitive strategy. • Environmental KSFs are related to technology or economic changes affecting the company’s business. • Temporal KSFs are related to organisational changes and requirements. An example of how a specific industry has its own KSFs would be those in manufacturing. Here, KSFs could include high utilisation of fixed assets, quality product manufacturing, low-cost production efficiency, high labour productivity, adequate skilled labour, low-cost plant locations, low-cost design and engineering and/or flexibility in manufacturing a range of products. With pricing, many companies simply price their products or services in a passive manner, such as using a standard mark-up over supplier costs or pricing them according to what competitors are charging. If a company’s competitive strategy includes higher profit margins, then pricing becomes crucial. In this case, KSFs could include basing prices on a relative perceived value for each customer in each situation, setting prices to market demands while considering costs rather than basing prices on costs, increasing inherent value in products or services to justify higher prices and/or constantly tracking costs, prices and margins. Chapter 16 includes a detailed discussion of pricing policies for lubricants. The more a company knows about its competitors, the easier it is to identify KSFs. This information helps to develop industry KSFs. This will also help a company to determine its strategic KSFs, in how it will compete with competitors, for example, with lower prices, faster delivery or a better marketing campaign to appeal to customers.

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Six areas should be considered for setting KSFs for a company, business unit or department: • People: Who needs to be recruited or promoted? • Resources: What specific skills, technology or assets will be required? • Innovation: What unique ideas or innovations does the company have and how will these be developed? • Marketing: How will customers be attracted, become engaged, persuaded to purchase and be retained? • Operations: How will quality standards be met and improved? • Finance: What finance or investment is required? When writing the business plan, the KSFs must include detailed plans on how they will be accomplished and measured. Measurement is usually done with the KPIs. Three examples of effective KPIs are: • The number of new customers converted from prospects to purchasers per week, for the next three months. • The percentage increase in net profit margin each month, for the next twelve months. • The increase in the number of visits to the company’s website each month, for the next twelve months. Similarly, three examples of effective KSFs are: • The installation and commissioning of a new customer service call centre, to achieve improved customer support service. • The conversion of a blending plant to fully automated operation. • The development and roll-out of a staff health and well-being policy and plan. Many more similar KPIs and KSFs might be prepared by every company, but it is very important to establish that they are key to the company’s success. Having any more than about six to eight KPIs and the same number of KSFs is likely to be counter-productive, as there could be a lack of focus on what is important.

14.7  COMMON PLANNING PITFALLS The most common mistake made by strategic or business planners is to set goals (objectives) that are not SMART. This applies particularly with objectives that are viewed by employees as unachievable or not fair. Employees, especially salespeople, might be tempted to cut corners, pressurise customers or even resort to unethical behaviours. Goals that are excessively specific or difficult to achieve may result in staff trying to lie or even commit fraud. When under pressure, people often do not effectively analyse information that could otherwise keep their behaviours ethical. This problem is exacerbated by confirmation bias, the tendency to seek out facts that back up their pre-existing preferences, ideas or actions.

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Another very common mistake is having no clear mission. If a majority of employees do not understand, and therefore are unable to commit to the company’s mission, they are likely to have some difficulties in achieving the objectives that are set for them. If the stakeholders, including customers, suppliers and investors, do not understand what the company is trying to achieve, the marketing communications are likely to be more difficult. If a company is unsure of where it is going, it is unlikely to get there. A business or marketing strategy and plan is likely to contain flaws if there is a lack of sound planning assumptions or the business assumptions or projections are unrealistic. As the common saying goes, a house of cards is likely to fall down. Also, a plan that is based on unrealistic financial assumptions may suffer from having insufficient resources to achieve the goals that are set. Poor market research and weak competitive analysis will lead to the preparation of a plan that has insufficient reliable information upon which to base sound business decisions. The market research and business environment analysis phases of preparing an achievable strategic plan are more important than the phase of writing the plan. The lack of a technology forecast is likely to exacerbate this problem with plan preparation. A very important pitfall in strategic planning is inadequate plan monitoring. Because the world changes, the effects of those changes on the plan and its actions must be evaluated on a regular basis. This does not mean that the plan needs to be updated every week, but it does need to be reviewed at least monthly and certainly every quarter. Also, if there is no clear way to update the plan, this will cause problems as the world changes. Lastly, and just as importantly, because the plan needs to be communicated to everyone who is going to be involved in any of the actions required, a communications breakdown between managers and staff will cause major problems. It is also vitally important that the plan is fully supported by senior managers, and everyone should know that.

14.8  BENEFITS OF STRATEGIC PLANNING A number of important benefits can arise from preparing a business strategy and plan. The strategy concerns the next three to five years, while the plan is the detailed implementation of the strategy for the next twelve months. The systematic approach to planning enables a company or business unit to make mistakes on paper, rather than in the marketplace. For example, one business unit found out that, at the price they proposed charging for a new product, they would never recover the overheads or achieve breakeven. They had to re-think the methodology and cost structure of manufacturing the product. Once completed, a business plan will enable a company to feel more confident about its ability to establish itself or to introduce a new product or service in the marketplace. The plan may even compensate for a lack of capital and experience, provided of course there are other factors in the company’s favour, such as a sound business proposition and a sizeable market opportunity. The business plan will show how much money is needed, what it is needed for and when and for how long it is required.

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As under-capitalisation and early cash flow problems are two important reasons why new business activities fail, it follows that companies with a soundly prepared business plan can reduce these risks of failure. They can also experiment with a range of alternative viable strategies and so concentrate on options that make the most economic use of scarce financial resources. A well-prepared strategic plan encourages systematic thinking ahead by everyone involved in its preparation. Effective and honest SWOT and PEST analyses require careful thinking, based on facts and not opinions or biases. This thinking enables better responses to sudden new developments, favourable or otherwise. Good strategic planning will encompass sound scenario planning. The best action plans enable better co-ordination of a company’s resources, whether people, finances or processes. Because everyone knows what everyone else is doing or going to do, the lines of communication will be that much more effective. This is part of supply chain management processes, discussed in detail in Chapter 18. A very important benefit of a strategic plan is that it identifies the performance standards required for monitoring and control. These are the KPIs and KSFs, discussed earlier in this chapter. These will also sharpen the guiding objectives and policies. One of the most important benefits of preparing and implementing a sound strategic plan is that the process allows staff to share in and contribute to the company’s goals. This includes everyone in the company, from the Chairman, Chief Executive Officer and Senior Managers to the Personal Assistants and Receptionists.

14.9 SUMMARY Effective strategic planning is difficult to do, time-consuming and vitally important to the success of any company. The process of preparing a sound strategy and plan involves a number of stages, each of which must be completed as rigorously and honestly as possible. The first time a company or organisation attempts to prepare a strategic business plan, the result is highly likely to contain mistakes and flaws. At each subsequent attempt at updating the plan, the earlier mistakes and flaws will have become apparent and can be corrected. That may still leave mistakes that have not yet become evident. In the author’s experience, by the fifth or sixth revision, the strategy and plan is likely to be much more sound and achievable. Strategic plans must be reviewed and updated regularly. They must be monitored constantly. Updates must be done at least annually, preferable every six months. A three- to five-year forward strategy and an annual action plan, with budgets, will provide a company with the most appropriate goals that are SMART. The most important aspect of strategic planning is the quality of thinking that goes into the preparation of the strategy and plan. A plan is just a written document; it is the planning that is critical.

REFERENCE

1. Porter, Michael E. The Competitive Advantage of Nations, The Macmillan Press Ltd, London and Basingstoke, 1990, pp. 34–36.

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15.1 INTRODUCTION Profitable marketing and selling in any company require effective organisation and management. How a company or department should be structured is one of the debates that has no right or wrong answers. The search continues for the perfect organogram. Managers, task forces and committees that spend too much time trying to invent the best reporting relationships are likely to be distracted from the real business of the day-to-day running of the company and to be wasting their time. The defects of hierarchical company structures have been documented by many experts. Horizontal communications are difficult, feelings of status and privilege tend to be reinforced and procedures often become institutionalised. It even occurs commonly in nature, without the presence of committees to nurture it. Unfortunately, none of the efforts to find a substitute has succeeded. The hierarchy has great merits of its own, including the stability and order it brings to businesses and the security and opportunities for personal growth it provides for many employees. Consequently, managers might make the best use of their time by focusing on making the hierarchy work better and counteracting its deficiencies. A few simple, practical guidelines can be used to pursue this goal. The first is not to keep changing the structure. Human and working relationships take time to develop and settle down. Any significant change in a company’s structure and reporting relationships takes about two years to start bringing benefits. Too often, newly appointed senior managers make their first step a review of the reporting relationships. The uncertainty created by the arrival of the new manager is compounded by the upheaval of a new organisation and by more new appointments. Two years later, the company is wondering why the expected results have not materialised. Unless the structure is fundamentally inappropriate for the business goals the company is trying to achieve, it should be made to work as effectively as possible. The second guideline is to define everyone’s jobs and contributions. This is likely to be more productive than to play musical chairs with the company’s structure. A common cause of failure in business is that too many people are not aware of what, in objective terms, the company requires of them. Going from one state of confusion, leading to a loss of motivation and energy, to another similar state by reshaping the company without defining the jobs of the employees, is unlikely to achieve much. DOI: 10.1201/9781003318392-15

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Whatever the structure, managers should make sure that each person knows what is expected of him or her, by defining: • Contribution: What is the unique contribution or role that is expected of the post-holder in helping the company to meet its corporate objectives? This should be a few sentences only. • Accountabilities: In which sections of the company’s performance is the post-holder going to be assessed? This list should reflect the seniority of the employee. • Criteria and standards: Against which criteria and standards will the results of the post-holder be measured? How will the company decide whether he or she is successful? All posts can have measurable standards. • Decision authority: What can the post-holder decide and not decide? This should not be too restrictive. Allowing employees to decide specific things is called delegation. Managers should be able to delegate effectively, as no manager has the time to do everything required of them. Defining jobs is a powerful device for improving outcomes. When staff know what they have to achieve, and why, and the limits on their freedom to decide and get on with the job, they are likely to produce more. (Staff that do not produce or achieve more need either more management or training.) Once the process has been started, job definitions need to be updated regularly. The third guideline is to ignore the myth of “span of control”, an idea that has constrained thinking about a company’s structure. Conventional thinking is that no manager should have more than six or seven people reporting to them. This has frequently resulted in very deep hierarchies, with multiple reporting layers, producing an impression of distance between junior and middle managers. The best managers are able to manage teams of up to twenty people who report directly to them. It is more sensible to develop a flat, shallow hierarchy which speeds communications to the operational level and to enable feedback up to the strategic decision-­ making levels, while accepting the slight risk that senior managers may have to involve a few more people in their decision processes. A benefit is that decisions made at senior levels are likely to be based on reality, rather than on wishful thinking about how the business operates. Evidence shows that cross-functional decisions are of higher quality than solo decisions. This means that the emphasis should be on the senior manager’s ability to direct the group decision process, rather than changing the company structure. The fourth guideline is to use informal groupings. Any hierarchy will always experience difficulties in encouraging the upward flow of information about the real situations that people have to handle at operational levels. Also, hierarchies tend to have better systems for vertical information flow than lateral. Informal groupings in addition to cross-functional working, to speed lateral communications as well as reverse feedback, should be encouraged. Operational managers tend to know more about the real state of the business in terms of current issues. They are an invaluable source of ideas and information, which the hierarchy will stifle if it is allowed to. Involving operational managers in the company’s decision-making processes will

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improve staff motivation and the quality of the decisions. One way of arriving at really effective solutions to a problem is to select a team of busy, successful people, give them the problem, send them to a meeting room in the office or a hotel and tell them not to come back until they have a solution which will be implemented by the Board. The final guideline is to fill the gaps and eliminate the overlaps. Too often, there are crucial tasks for which nobody seems to be accountable, or which are claimed by several people or functions. The results of this include frustration, inefficiencies and, often, conflict. At each level, starting with the company’s senior management, the business contributions and goals should be defined, together with all the tasks needed for their achievement. They should be arranged into cohesive groupings, based on the technical and management skills and resources needed. This should be cascaded all the way down the hierarchy, involving key people at every stage.

15.2  MARKETING DEPARTMENT ACTIVITIES AND DEVELOPMENT In any company, the marketing department plays a pivotal role in the company’s strategic business planning. Successful planning at both the corporate level and the business level depends on the ability of the marketing department to generate ideas for new product development, to identify and evaluate new market opportunities, to develop detailed marketing and sales plans, to implement and evaluate ongoing results, to take corrective action where necessary and to determine when a business activity is no longer viable. However, since the success of marketing planning depends significantly on the activities of other functional areas, marketing’s role in the strategic planning process involves analysing and interpreting company and market requirements to enable corporate management to decide how best to respond. Each business unit within a company relies on marketing as the main system for monitoring opportunities and developing marketing objectives and plans for achieving that company’s objectives. Consequently, to perform their role in the strategic planning process, marketing managers must assess the current market situation and determine forces that will affect the market situation during the future planning period. Situational analysis is the information gathering stage in which marketing managers assimilate and assess external market-related information and internal company-related information to assist each business unit in identifying opportunities and threats to make the best of its differential advantages. Current and potential market opportunities, marketing objectives and marketing plans cannot be determined without knowing where the company is currently in its overall marketing environment. The marketing department, therefore, has a daunting number of tasks, most of which are alternatives under several headings: • Product planning and development: Distinguish each product from that of the company’s competitors, as viewed by customers. Develop an “undifferentiated” marketing strategy by offering only one product and attempting to attract all buyers. Develop a “differentiated” marketing strategy, by developing separate products and marketing programmes for each market

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segment. Create new uses for existing products, through improved performances and/or exclusive benefits. Diversify into new markets with new products, either through acquisition of companies or through internal development of new products. Establish product leadership through development of quality products. Develop new products for potential commercialisation, beating competition to the marketplace and establishing a reputation for innovation. Manufacturing: Communicate with the production department to ensure timely delivery of products to the supply chain. Ensure the production department is able to manufacture new products efficiently, so as to maximise profit margins. Ensure the production department understands the quality standards required by customers. Encourage the production department to implement quality improvement wherever possible. Distribution and logistics: Identify warehouse locations for products that enable quick delivery to each distributor and customer. Provide additional outlets to reduce distribution costs per sale. Use only one warehouse to minimise inventory control problems. Promotion: Use “push” strategies to encourage dealers, distributors and company sales force to move the company’s product, utilising good margins, bonuses, services, advertising and promotional subsidies. Use “pull” strategies to stimulate customer demand through increased brand, concept and product acceptance. Maximise advertising and promotion coverage to increase volume, which will permit mass production and distribution. Address advertising and promotion to key customers and “best” prospects to maximise the benefits of these expenditures in a limited market segment. Sales and services: Expand geographic area of operations to penetrate high-potential regions not currently targeted. Reshape distribution channels, including dealers, distributors, agents and the company’s sales force, to satisfy market-buying preferences more closely. Develop more competent sales force and/or dealership or distributor organisation. Train the sales force to improve its knowledge of the company’s products and customers. Employ target marketing to identify and reach high-potential customers and prospects. Maximise reciprocal purchases with suppliers where prudent. Increase sales effort on most profitable products and customers. Pricing and prices: Set low prices for new products to discourage competitive entry into the market. Set low prices for products to encourage high sales volume, which permits mass production and low unit cost. Set high prices to achieve maximum profitability, accepting that prices can always be reduced. Provide minimum “additional” services to permit lower prices. Provide high-quality customer support services to gain additional sales. Price parts, service and repairs at cost or with slight markup to gain maximum goodwill. Price products to obtain principal profit on original sale rather than on follow-up service and parts. Price services to recover the cost of providing them. Integrate service cost into product price. Offer quantity discounts to encourage larger unit purchases.

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Not all marketing departments in every company will be able to undertake all of these activities. Their abilities to do so will depend on the size of the company, the company’s business strategy, the type of industry and market, the size of the market, the company’s product range and numbers of different types of products, the customer support services required and the financial health of the company.

15.3  BUSINESS FUNCTIONS AND SILO ORGANISATIONS Most companies that employ more than about fifty people are likely to have a number of departments. These are likely to be: • • • • • •

Management. Finance and accounting. Operations, including manufacturing. Marketing and sales. Research and development. Human resources.

Very large companies will have several business units or operating divisions, all of which will have these departments. Grouping staff into these departments is a very practical way in which to organise particular skills, experiences, knowledge and activities. For example, the skills required in the finance department are very different from those required in the human resources department. Unfortunately, in some companies, these departments do not always communicate with the other departments in the most effective and efficient way. These companies are described as silo organisations, as shown in Figure 15.1.

FIGURE 15.1  Silo organisations. (Pathmaster Marketing Ltd.)

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Silos in farms are designed to store large amounts of grain, while keeping different materials, such as wheat, barley and corn, completely separated. In business, organisational silos have the same effect. They prevent resources and information from being shared among departments and teams. When employees interact poorly with people outside their “silo”, it becomes difficult for the company to function as effectively as possible. A tight-knit department that works well together can provide significant advantages for a company. However, organisational silos can be like fortresses within a company and eventually cause serious problems that might not be noticed until the damage is done. For example, if the production department does not communicate effectively with the marketing and sales department, the latter may find out too late that a production problem has occurred, that has led to a shortage of product ready for selling. An organisational silo can be made up of people in one department, such as accounting or sales. A silo can also extend across departments to include similar types of staff, such as administrative assistants or managers. Silos often separate higher-level managers from front-line people, such as salespeople or production workers. Silos can be geographical, as in the case of workers in different offices squaring off against each other and the head office. An organisational culture that allows or encourages silos is likely to see its information systems and data disrupted or compromised. In many cases, organisational silos are resistant to change, operating to prevent easy access to the information they hold and throwing up barriers to change and to co-operation. Silos make it difficult for communication and collaboration to occur across departments or business units. Each group works to protect its own interests. A number of signals can reveal the existence of silos within a company. Mid-tosenior level managers are unaware of major initiatives being undertaken by other departments or groups. It sometimes makes sense for initiatives to have limited spread, but if participants are unaware of important activities, there may be a silo mentality. A department may feel underprepared for the transfer of a project or activity from another department. For example, the marketing department might receive a request, with a short deadline, from a customer to develop a new product unaware that a product with the required performance has been in development for some time in the research and development department. Communications from directors and senior managers are freely cascading down to staff, but bottom-up communication is limited or non-existent. If few actionable suggestions are filtering up from levels below management, this is a warning that silos have taken root. These examples of a silo mentality all have the same root cause. Departments, or individual managers, are taking ownership of resources competitively, rather than collaboratively. This can lead to anything from power struggles to launch delays to product recalls. One of the most serious consequences of silo organisations is that senior management acts a postbox (mailbox), transmitting messages between departments. The potentially damaging result of this is that the messages may get distorted, whether unintentionally or deliberately, during the transfer process. Many people are aware of the game of “Telephone”, also called “Chinese Whispers” or “Russian Gossip”, when the message as finally received is not the same as the message that was sent originally. In the game, a group of people gather in a circle or in a line. One person

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thinks of a sentence and whispers it into the ear of the person next to him or her, who then whispers it to the next person, until it reaches the last person. The last person says out loud the sentence that he or she heard. Usually, this is funny because after so many people have whispered the sentence, it has morphed into something different to when it started. No company sets out with the intention of building organisational silos. However, to some extent, silos are a potential result of the methods of managing a company. It makes sense to group expertise in a classic departmental hierarchy, divided by functional groups. Silos only become damaging when each department or team focuses on its core duties and functions to the exclusion of others. If collaboration is not promoted and encouraged, essential business functions can become fragmented. Fortunately, by being familiar with the warning signs and taking action quickly if silos start to form, senior managers can keep information, ideas, solutions and resources flowing freely. Early action against organisational silos is particularly necessary for start-up and growing companies. The larger the organisation, the harder silos are to overcome, so it is important for managers to spot if they are starting to form. The marketing department in a company has a very important role in stopping silos from forming and, if they are already evident, of breaking down barriers. Marketing managers are responsible for communication, both within the company and externally to customers and the marketplace. As noted in the preceding chapter, when preparing a business strategy, the marketing department is pivotal in bringing numerous sources of information together to create a strategic planning team. Part of this work is communicating a common vision and widespread understanding of the company’s goals and how each department supports them. Individuals and teams need to understand how they contribute to the “big picture”. It is also important for individuals to understand how other individuals and teams contribute as well. This encourages team members to think of departments as links in a chain, instead of as separated silos. The marketing department can also help to create and encourage cross-functional liaisons, as illustrated in Figure 15.2. This means giving mid- and lower-level managers the freedom to talk to their peers in other departments, whether in person, by phone, by e-mail or virtual meetings. Obviously, more senior level managers should be “kept in the loop” (informed) of the outcomes of those interactions. The liaisons can be tasked with encouraging communication between multiple departments working on a project, most usually in the form of monthly meetings. This should lead to closer working relationships, which will ultimately encourage resource sharing, as compared to resource defending or hoarding. Cross-functional training is also useful for breaking down silos. While specialisation is a good thing (each member of a team should be the best at what they do), team members should understand how their peers do their work. By training employees on skills and tasks that don’t officially fall to them, they will get a clearer picture of what exactly their colleagues are doing every day. That training will help individuals know when resources or information might be of help to other departments. Cross-functional training also helps career development, by exposing staff to multiple functions within the company. Employees can get a better sense for what other

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FIGURE 15.2  Effective organisations. (Pathmaster Marketing Ltd.)

aspects of the company suit their skills and interests and future managers will gain a better understanding of overall business strategy. The author has written previously1 about the benefits of communication and understanding of job functions between lubricant marketing managers, blending plant managers and lubricant formulation chemists. Knowing the operations and problems associated with each activity is very important to understanding how to achieve the most cost-effective outcomes for users of lubricants. One very important task for a marketing department is to plan and implement new product introductions to the marketplace. Organising a multi-functional team to perform the planning and implementation is highly likely to make the product launch more successful. A launch team will typically have at least one member or representative from each core department involved, such as engineering, production, marketing, sales and customer service. Developing inter-departmental relationships through close collaboration on such teams will deter any silo mentality. Team members will be able to see the crucial role each individual and group play in a successful launch, making it less likely that resource and information guarding will occur.

15.4  INFLUENCES OF COMPANY SIZE The marketing department in a small or start-up company will be very different to one in a large company or business unit. In the small company, there will be fewer people and a probable focus on only one or two products in one or two market segments. A small company may only have four or five people in a marketing and sales department, as illustrated in Figure 15.3, and there may not even be a marketing manager. The department may consist of a sales manager, two salespeople and

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FIGURE 15.3  Marketing in a small company. (Pathmaster Marketing Ltd.)

a market analyst. Strategic planning may be done by the managing director, the sales manager and the finance director, using input from the market analyst. Promotional and pricing matters might be controlled by the sales manager. In a medium-sized or growing company, a sales director may have a sales manager and a marketing manager reporting to him or her, as shown in Figure 15.4. The sales manager may have a team of four or five salespeople and the marketing manager may have a strategic planner, two market analysts and a promotions and communications officer. Pricing policies will be the responsibility of the sales manager. A senior salesperson might be involved with marketing planning, using customer feedback. Note that the growing company now has a research and development department, which will be able to contribute to strategic and marketing planning. Start-up, small and growing companies are likely to focus on sales rather than on marketing. This helps to establish customers, purchases and revenues. As the company grows, marketing activities become gradually as important as sales. This is illustrated in Figure 15.5, where a marketing director is responsible for both marketing and sales activities. The marketing department has a sales manager,

FIGURE 15.4  Marketing in a growing company. (Pathmaster Marketing Ltd.)

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FIGURE 15.5  Marketing in a market-focused company. (Pathmaster Marketing Ltd.)

an advertising manager and a market development manager, each of which is likely to have teams of up to ten or so people. In larger companies, the marketing and sales department will be responsible for the complete range of marketing activities, as shown in Figure 15.6, and discussed in Section 15.2. Staff in the department will be involved in sales planning, strategic and market planning, market research, new product development, market development, product and service pricing, customer support service, advertising, promotions, conferences, seminars and exhibitions, web design, sales performance measurement and, most importantly, selling.

FIGURE 15.6  Illustrative marketing and sales department activities. (Pathmaster Marketing Ltd.)

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15.5  ALTERNATIVE MARKETING ORGANISATIONS The marketing department activities listed in the preceding sections may need to be focused in different ways depending on the type of industry in which the company is involved. There are four types of market focus: • • • •

Functions: Requires a functional organisation. Geography: Requires a geographical organisation. Products: Requires a product management organisation. Customers: Requires a market management organisation.

The organisations’ needs for each of these types of market focus are illustrated in Figures 15.7 to 15.10. With functional marketing, each of the managers in the marketing department concentrates on their activities, respectively, with the marketing director concentrating on co-ordinating and managing the overall functional operation. While each of the managers has a specific set or responsibilities, the sales manager has the greatest functional focus, being responsible for the total selling function. A functional marketing department focuses on all the products and customers, all the time. With geographical marketing, in which customers are segmented by location, the national sales manager needs to have regional sales managers, each of whom will have a regional sales force. Which salespeople should be assigned to which region or customer type is discussed in depth in the next section. It may also be advantageous to organise the other marketing activities segmented by region. For example, the business planning manager might have market analysts who are assigned to gather and evaluate information from a specific region. With product management marketing, a general sales manager will need product sales managers, each of whom will have product sales representatives. The market development manager will need a product manager, who will need to have managers for each group of products. The advertising manager might require communications’ officers who specialise in specific types or groups of products. With product/customer marketing, illustrated in Figure 15.10 (which does not show the other marketing department functions, so as to save space), the general sales manager has sales managers responsible for specific customer and product types. Figure 15.10 illustrates a type of marketing department organisation

FIGURE 15.7  Organisation for functional marketing. (Pathmaster Marketing Ltd.)

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FIGURE 15.8  Organisation for geographical marketing. (Pathmaster Marketing Ltd.)

specific for the lubricants business. Each of the automotive, industrial, marine and special products sales forces focuses on specific types of customers and products. In this illustration, the customer service manager reports to the general sales manager. However, as suggested in Chapter 13, this does not necessarily have to be the case. Each lubricant marketing company will need to decide for itself which of the possible alternative structures is most appropriate for its business. Figure 15.10 could have included production engineering, aviation, mining, greases or other industries and product groups. The organisational possibilities are endless.

FIGURE 15.9  Organisation for product management marketing. (Pathmaster Marketing Ltd.)

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FIGURE 15.10  Organisation for lubricant product/customer marketing. (Pathmaster Marketing Ltd.)

15.6  ALTERNATIVE SALES FORCE ORGANISATION Organising and managing a sales force is critical to achieving maximum sales in a cost-efficient way. However, a McGraw-Hill survey2 found that the average salesperson spent only 39% of his or her time in front of customers or prospective customers. Travel and waiting times accounted for 32%, reports, paperwork and sales meetings accounted for 24% and service calls made up the remaining 5%. Sales managers frequently attempt to improve sales force effectiveness through administrative functions, but tend to neglect methods to improve sales force deployment. Effective deployment requires decisions about the size of the sales force, territorial design and the organisation and allocation of the selling effort. Sales managers need to be business managers of territories, districts and regions. Numerous ways can be used to organise a sales force. With a territorial sales force, each salesperson has an assigned, exclusive territory. Measuring sales is easy, the salesperson has clear responsibilities and travel expenses are small. The salesperson has a high profile in the territory and sales planning is easier, with information technology assistance. However, this organisation tends to be less suitable to modern methods in modern markets. With a product-structured sales force, every salesperson needs to have significant expertise in the product range. Each salesperson has a high profile in the market, but there is the potential for duplication at accounts and there are extra costs in selling products. This is particularly true with larger industrial customers, which are likely to need to purchase many types of lubricants. Sales measurement is difficult and products sold in this way need a differential advantage. Otherwise, products can become commodities. Also, there is the potential for restricted expansion in the marketplace due to product application limitations. A customer-structured sales force exploits clearly identified customer needs and provides improved market intelligence. As with the above organisations, the sales

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force has a high profile in the market and perceived expertise, so customers tend to be loyal, enabling repeat sales. The total sales force cost is potentially lower. However, each salesperson needs to have a broad knowledge of products and applications. This organisational structure allows improved measurement of market penetration and better understanding of market development. Also, new product opportunities are easier to identify and exploit. However, extensive travel may be involved in order to cover potential opportunities. Deciding which of these alternative sales force organisations is more effective for a company requires an analysis of workloads and returns on time invested. Unfortunately, this can require the collection and processing of large amounts of data. During the 1980s, several sales force decision models were developed that make the task of sales force deployment more manageable, although many of them were applicable to specific types of selling situations. Effective deployment of a sales force requires: • Estimating the total market sales potential by geographic region and customer types. • Adjusting these estimates to reflect the company’s sales potential. • Compiling these adjusted estimates into sales estimates for specific customers in geographical areas. • Evaluating trends that may affect potential sales. • Determining how many salespeople will be needed to achieve projected sales (workload analysis). • Assigning salespeople to territories and customers. Many sales directors and managers group salespeople into one of four categories. Account representatives visit established customers, maintaining contact, scheduling appointments, making presentations and understanding account requirements. They close sales by building rapport with the accounts, explaining product and service capabilities, overcoming objections and helping to prepare contracts. Product salespeople sell specific types or ranges of company products and provide advice to existing and prospective customers about products, applications and services. They expand sales in existing accounts by introducing new products and services and developing new applications. They recommend new products and services by evaluating current product results and identifying customer needs to be met. Both these types of salespeople identify market potential by qualifying accounts and contributing information to marketing strategy by monitoring competitive products and reactions from accounts. Sales engineers provide technical knowledge of products and their applications and benefits. These salespeople are found most often in industrial businesses, where technical skills are highly likely to be required to achieve sales targets. Service engineers and chemists provide support services to customers to facilitate or maintain sales. The skills and experience required for a service engineer or chemist, particularly with respect to lubricants and lubrication, were discussed in depth in Chapter 13.

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All salespeople should be able to explain product or service benefits in a clear and structured way. It is important that salespeople have the ability to build relations with customers, have a professional appearance, good negotiation skills and the ability to work towards sales goals and targets. Selling lubricants often involves the skills and experience of a team of salespeople, particularly for retail and industrial business customers. Team selling combines the activities of salespeople with other people in the company, to provide a specialised, yet unified, sales effort. Lubricant salespeople are supported by other people in the company, including service engineers, application (mechanical) engineers, product development chemists, logistics staff, market research staff, health, safety and environmental staff and marketing managers. It is critically important that members of the support team do not interfere with the sales negotiation and that all members of the team are working towards the same goal. Achieving maximum sales also involves assigning the correct salespeople to appropriate territories. If all salespeople were of equal ability and all territories of equal potential, salespeople could be assigned to territories on a random basis. Unfortunately, different salespeople have different skills and experiences and territories rarely are of equal potential. Sales managers could assign a territory with a lower potential to a more able salesperson, to make the overall outcomes more equal. However, this may demotivate capable salespeople and may cause them to resign and move to a competitor. If more able salespeople are assigned to territories with higher than average potential, the results are often much higher revenues. Unfortunately, this may discourage salespeople who are less able, so the overall result may be lower total revenues. The optimum solution is to try to create territories which have approximately equal potentials and allow the more capable salespeople to stand out. Although this may lead to slightly lower short-term profits, it will eventually lead to higher longterm ones, since it is likely to motivate the whole sales force to achieve better results. Sales managers should consider each salesperson’s skills, experience and personality when assigning them to a specific territory. Territories differ in their distribution of large, medium and small accounts. Some salespeople are better at handling small accounts; others are better at handling large accounts. Territories may also differ in the types of industries they contain and some salespeople may be more knowledgeable about those industries. Some salespeople may be more effective in one part of the country than in another. Organising and managing a company’s sales force also involve analysing their routes within their territories. Careful scheduling of each salesperson’s route can produce substantial reductions in travel time and costs. It is also likely to increase the time they spend in front of customers and prospective customers. Fortunately, there are computer programs to assist in this task. These are based on either linear programming, integer programming, non-linear programming, heuristic programming or branch and bound methods. A discussion of these programs is outside the scope of this book, but they all provide good solutions to the problem. The issues involved in deciding where to locate salespeople and customer support engineers and chemist are illustrated in Figure 15.11, for an industrial lubricant sales force. The illustration shows that there are no right or wrong answers. Salespeople

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FIGURE 15.11  Industrial lubricant sales force options. (Pathmaster Marketing Ltd.)

can be either or both direct and indirect, located in the field or in head office (or both), either generalised or specialised and either technical or non-technical. The same applies to customer support engineers and chemists, some of whom might be integrated into the technical sales team. Each supplier of industrial lubricants will have their own best solution to the problem.

15.7  MEASURING MARKETING AND SALES PERFORMANCE Everything a company does in business must have a measurable return on investment (ROI). This is particularly true for all forms of online or offline marketing or sales. The written and visual content a company uses to communicate with the market (or pays to have communicated) must be tested and measured to find out whether it has been successful. Measuring marketing and sales performance makes use of the KPIs and KSFs discussed in Chapter 14. The metrics that can be used for marketing are different to those that can be used for selling. The most commonly used KPIs for measuring marketing performance include: • Brand awareness. • Market engagement.

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Lead generation. Website traffic. Customer acquisition. Conversion rate. Customer retention (loyalty). Cost per lead. Lead management and nurturing. Sales revenues. Repeat customers. Repeat website visitors. Thought leadership. Budget effectiveness. ROI.

Brand awareness, market engagement, customer retention and thought leadership can be evaluated using market surveys. Lead management and nurturing, sales revenues and repeat customers are measured from sales feedback. The conversion rate is the proportion of customers that take a specific desired action, such as making a purchase or signing up for an e-mail list, whatever the marketing department wants them to do. The cost per lead measures how much it costs to gain a new lead. Calculating this metric requires adding all the costs involved (advertising, promotion, website design, e-mails and others) that contributed to gaining the lead. Budget effectiveness and ROI are closely linked. To calculate a net contribution to the company from marketing and sales, total marketing expenses are subtracted from gross sales revenues. Total marketing expenses include advertising, other promotion costs, customer service, distribution margins, packaging, information costs, cost of credit to customers, sales force expense and marketing department salaries. ROI can be calculated by dividing net profit by the total investment and then multiplying by 100. For online marketing, another set of KPIs might be more appropriate for measuring performance: • • • • •

Increase or decrease in weekly, monthly and/or annual website traffic. The days of the week and the times of day that generate the most traffic. The countries from which most traffic comes. The number and increase or decrease in repeat visitors. How many visitors are from mobile devices and how many are from desktop devices. • The most frequently and least frequently visited webpages. • The average time spent per page and/or per session. It is important to track how much website traffic a company gets from its marketing and advertising campaigns. A range of marketing analytical software is available to track website traffic, including Ahrefs, SEMrush, Crazy Egg, Adobe Analytics and MarketingCloudFX. Some focus on a specific marketing channel, such as social

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media or e-mail, while others offer more varied functionality. Discussion of these is beyond the scope of this book, but an internet search will find the most appropriate computer programs for individual companies. One very important method of measuring marketing success is customer relationship management (CRM) sales tracking. CRM is a process in which organisations, including companies, administer their interactions with customers, typically using data analysis to study large amounts of information. CRM systems compile data from a range of different communication channels, including websites, phone calls, e-mails, live chat, marketing materials and social media. They allow companies to learn more about their target audiences and how to best cater for their needs, thus retaining customers and driving sales growth. CRM may be used with past, present or potential customers. The first CRM was designed by Siebel Systems in 1993. Other suppliers, including PeopleSoft (acquired by Oracle), Navison, SAP, Salesforce and Infusionsoft, followed. The first open-source CRM system was developed by SugarCRM in 2004. Operational CRM in companies has three main components: • Sales Force Automation: Is used in all stages in the sales cycle, from initially entering contact information to converting a prospective customer into an actual customer. It implements sales promotion analysis, automates the tracking of a customer’s account history for repeated sales or future sales and co-ordinates sales, marketing, call centres and retail outlets. It prevents duplicate efforts between a salesperson and a customer and also automatically tracks all contacts and follow-ups between both parties. • Marketing Automation: Focuses on easing the overall marketing process to make it more effective and efficient. CRM tools with marketing automation capabilities can automate repeated tasks, for example, sending out automated marketing e-mails at certain times to customers, or posting marketing information on social media. The goal with marketing automation is to turn a sales lead into a full customer. CRM systems today also work on customer engagement through social media. • Service Automation: Focuses on direct customer service technologies, by which customers are supported through multiple service channels, such as phone calls, e-mails, knowledge bases, ticketing portals, frequently asked questions and more. Customers are served better on the day-to-day sales process with CRM systems. With more reliable information, customers’ demand for self-service from companies decreases. If there is less need to interact with the company for different problems, customer satisfaction level increases. Eight benefits of CRM have been recognised to provide value drivers: • • • • •

Enhanced ability to target profitable customers. Integrated assistance across channels. Enhanced sales force efficiency and effectiveness. Improved pricing. Customised products and services.

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• Improved customer service efficiency and effectiveness. • Individualised marketing messages are also called campaigns. • Connecting customers and all channels on a single platform. For marketing KPIs to be integrated in the company’s management and to ensure consistency and reliability across the marketing mix, they must meet four minimum requirements. Marketing outcomes should be measured from the customers’ points of view, all marketing activities need to be included, the metrics should be repeated over time and statistical and technical criteria required of all measurement systems should be met. Marketing campaigns are typically integrated across all channels, such as print, radio, television, e-mail, websites and social media. These channels are measured together to understand the overall effect on target markets. To ensure meaningful comparisons among activities, brands, markets and time periods, companies might use a common scale to analyse performance metrics. Using different measurements to evaluate different communications activities, competitors and markets do not allow direct comparison and result in lost synergies. Companies using formalised methodologies continually gather and monitor marketing data to understand where the marketing plan is strong and where it needs improvement. All measurement systems should take into account accuracy, repeatability, reproducibility, bias, data shifts and data drifts. Measurement error must be quantified so that managers can react to changes in conditions, but not to changes due to measurement variation. The metrics used for sales are data points that represent an individual’s, team’s or company’s performance. They help track progress towards goals, prepare for future growth, adjust sales compensation, award incentives and bonuses and identify any strategic issues. Examples of sales KPIs for a company or marketing and sales department are: • • • • • • • • • • • • •

Total revenues. Revenues by product or product group. Revenues by territory. Revenues by market. Percentage of revenues from new business. Percentage of revenues from existing customers, from cross-selling, upselling, repeat orders or expanded contracts. Market penetration. Year-on-year growth rate. Average lifetime value (LTV) of each customer. Net Promoter Score (NPS). Number of sales lost to competitors. Percentage of sales representatives attaining 100% or more of sales target. Cost of selling as a percentage of revenues generated.

The average lifetime value of each customer tells a company how much the customer is worth to it. It can be calculated by first multiplying the average purchase value by

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the average purchase frequency to determine the customer value, per year. The customer value can then be multiplied by the amount of time the customer stays with the company to calculate the customer lifetime value. Determining LTV may take several years. However, another useful metric is to determine whether each customer’s annual value is increasing or decreasing. NPS is the percentage of customers rating their likelihood to recommend a company, a product or a service to a friend or colleague as 9 or 10 (“promoters”) minus the percentage of customers rating this at 6 or below (“detractors”) on a scale from 0 to 10. Respondents who provide a score of 7 or 8 are referred to as “passives” and enter into the overall percentage calculation. The result of the calculation is expressed without the percentage sign. It is a management tool used as a measure of customer satisfaction and has been shown to correlate with revenue growth relative to competitors. For individual salespeople, other measures of performance are more appropriate. Almost all salespeople will be set revenue targets or sales quotas. However, to be able to meet those targets or quotas, they need to be given process metrics and activity metrics. These may need to be monitored weekly or monthly by their sales manager, who will then amalgamate them into the sales team’s metrics. Process measures are important because they help to understand whether the output goals are likely to be achieved. This means understanding whether the sales team is doing the right things with the right people at the right time and in the right way. Pipeline metrics are very good examples of process measures. If a company has healthy sales pipelines, it is highly likely to achieve its output goals. Example KPIs for individual salespeople can include: • • • • • • • • • • • •

Number of phone calls and e-mails to customers and prospects. Number of qualified leads. Number of meetings with customers and prospects. Events, exhibitions and/or conferences attended. Number of referrals received. Conversion rate of leads to prospects. Conversion rate of prospects to customers. Number of deals closed. Days from lead to closed sale. Numbers of new customers. Amounts and percentages of discounts given. Completed annual sales plan and quarterly updates.

The company’s CRM system should track most of these metrics automatically. It is important to note the difference between sales qualified leads (SQLs) and marketing qualified leads (MQLs). The latter have been found through marketing activities and the former through sales activities. The relationships between opening deals and closing them were discussed in Chapter 2. The transition from MQLs to SQLs and then to closed sales can only be achieved through close co-operation between marketing and sales. The final closure is always due to the skills, experience and persuasion of salespeople.

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There can be problems with many of the activity measures. They can be gamed. For example, there is no reason that a salesperson should not be able to achieve a specified number of phone calls or e-mails, but that does not mean that the salesperson has had impactful conversations with customers or prospects. Activity metrics can become ends in themselves when salespeople lose track of why there are activity metrics, instead focusing on those metrics. Also, some salespeople try to tie the activity metrics to the output metrics, when they are more closely related to the process metrics. They should be able to understand the cause and effect relationships in the activity metrics and the only way to do this is to tie them to process metrics. It is also possible that by focusing too much on the metrics, salespeople do not pause to consider how to improve their performance. Consequently, when the output goals are changed, salespeople may just look at the numbers without thinking about the most effective and efficient processes to achieve those output goals. It is very important to note that not all of the above KPIs or KSFs need to be used when measuring marketing or sales performance. In any specific situation, the most appropriate five or six KPIs or KSFs are likely to be sufficient to determine success or otherwise. Lastly, and very importantly, is the issue of salespeoples’ compensation. In most companies, compensation is based on attaining certain goals (performance and others), the value of a role to the company and affordability. As a company starts to separate what is measured and how it is measured for each role in the organisation, it becomes much easier to develop fair compensation plans for each role. Some companies mistakenly tie the ability to drive performance solely to compensation, thereby missing the opportunity to leverage all the levers that drive performance. People are driven to accomplish things and to achieve for a whole number of reasons, not just based on compensation. Money is important to everyone in a company, not just sales. Everyone wants fair compensation for what they do, but that isn’t the only thing that drives their performance.

15.8 SUMMARY The organisational structure required to achieve effective marketing and sales is likely to be unique to every company. There is no single right structure. For every company, the most suitable structure will depend on the size of the company, its stage of development, the industry and market in which it operates, the number and types of products and/or services it markets and sells, the style and effectiveness of its management and the degree of co-operation between departments, business units or divisions. There are no right or wrong answers.

REFERENCES

1. Whitby, R. David. Lubricant Blending and Quality Assurance, CRC Press, Boca Raton, FL, 2019. ISBN 978-1-138-60593-0. 2. Parry, C. Robert. Managing Salespeople, Second Edition, Reston Publishing Company, Reston, VA, 1982, p. 149.

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16.1 INTRODUCTION The pricing of products and services is an indispensable part of marketing strategy. Prices must be carefully interrelated to the company’s product, manufacturing, distribution and communication strategies. Every marketing manager has the challenging responsibility of blending the various elements of the marketing mix to ensure that the total offering is not only responsive to the needs of the market, but also provides a return consistent with the company’s profit objectives. This is not an easy task. From a marketing perspective, price represents the value that customers place on a product at some point in time, but different groups of customers will perceive product value differently. They may also place different values on the range of attributes that make up the product offering, such as durability, innovative design or ease of use. In addition, a marketer’s task is made more complex because pricing decisions must consider costs, market demand, competition and national regulations. Pricing decisions also influence channel decisions and relationships, because they affect the profit margins of distributors and the commissions of manufacturers’ representatives. The complexity or otherwise of distribution systems affects prices to customers, whether retail or industrial. Evaluating all these elements can be quite difficult. The competitive and economic environments can change unexpectedly. However, for a company to achieve its commercial goals, its marketers need to base pricing strategy upon sound criteria, being both proactive and reactive. This requires anticipating future developments while responding quickly and effectively to changes in markets. Price must be viewed as a part of the product offering as well as a separate element in the marketing mix for two reasons. From a buyer’s perspective, the cost of the product or service must be weighed against product quality, delivery and supplier service. From a seller’s perspective, the price charged determines the profitability of product and provides the margins necessary to support other aspects of the product offering, such as after-sales service and customer support assistance. In industrial markets, price is only one determinant of the economic impact that a product or service will have on an industrial buyer. Buyers are concerned with the price of a product compared with the total cost of owning and using the product. In addition to the seller’s price, these costs include the cost of installing capital equipment, inventory carrying costs for parts and materials, possible obsolescence (due to manufacturing or engineering process changes) and order processing costs. Other, less apparent costs can be production interruption caused by product failure, late delivery or poor technical support. This distinction between cost and price is important and should not be overlooked by industrial marketers. Price simply measures the amount of the customer’s capital investment while cost is a reflection of a product’s efficiency. A high price may be offset by cost savings in the use of a product, while DOI: 10.1201/9781003318392-16

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a low price may lead to higher operating expenses, shorter product life expectancy and other increased costs.

16.2  PRICES AND SUPPLY AND DEMAND As outlined in Section 4.5 in Chapter 4, the “law” of supply and demand is a theory that explains the interaction between the sellers of a product or service and the buyers for that product or service. The theory defines what affects the relationship between the price of the product and the willingness of people to either buy or sell the product or service. It is the main model of price determination used in economic theory, in that the price of a product or service is determined by the interaction of supply and demand in the market. The resulting price is referred to as the equilibrium price and represents an agreement between producers and consumers of the product or service. In equilibrium the quantity of a product or service supplied by producers equals the quantity demanded by customers. The quantity of a product or service demanded in a market depends on the price of the product or service and potentially on many other factors, such as the prices of competing products or services, the buying power and preferences of customers and seasonal effects. In a basic economic analysis, all factors except the price are often held constant and the analysis examines the relationship between various price levels and the maximum quantity that would potentially be purchased by customers at each of those prices. The price/quantity combinations can be plotted on a curve, known as a demand curve, with price represented on the vertical axis and quantity represented on the horizontal axis. A demand curve almost always slopes downwards from left to right, reflecting the willingness of customers to purchase more of the product or service at lower prices. Any change in non-price factors would cause a shift in the demand curve, whereas changes in the price of the commodity can be traced along a fixed demand curve. The quantity of a product or service that is supplied to a market depends on the price obtainable for the product or service as well as potentially other factors, such as the prices of substitute products or services, the production methods, the availability and cost of labour and other production factors. In a basic economic analysis, the relationship between various prices and the quantity potentially offered by producers at each price is analysed, again holding constant all other factors that could influence the price. Those price/quantity combinations can be plotted on a curve, known as a supply curve, with price again represented on the vertical axis and quantity represented on the horizontal axis. A supply curve usually slopes upwards from left to right, reflecting the willingness of producers to sell more of the product or service when prices are higher. Any change in non-price factors would cause a shift in the supply curve, whereas changes in the price of the commodity can be traced along a fixed supply curve. Markets equate demand and supply through the price mechanism. If buyers wish to purchase more of a product or service than is available at the prevailing price, they will tend to bid the price up. If they wish to purchase less than is available at the prevailing price, suppliers will bid prices down. There is, therefore, a tendency to move towards an equilibrium price. The tendency is known as the market mechanism and

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FIGURE 16.1  Supply and demand curves. (Pathmaster Marketing Ltd.)

the resulting balance between supply and demand is called a market equilibrium. This is illustrated in Figure 16.1. When customers want to buy more of a product or service at a specific price, this is referred to as an increase in demand, which can be represented as the demand curve being shifted to the right, as shown in Figure 16.2. In the diagram, this raises the equilibrium price from p1 to p2 and the equilibrium quantity from q1 to q2. (A movement along the curve is described as a “change in the quantity demanded” to distinguish it from a “change in demand”, which is a shift of the curve.) The increase in demand has caused an increase in the equilibrium quantity and a higher equilibrium price. The increase in demand could come from changing tastes and fashions, incomes, price changes in complementary and substitute goods, market expectations and/or number of buyers. If the demand decreases, the opposite happens, shifting the curve to the left. The equilibrium price will decrease and the equilibrium quantity will also decrease. The quantity supplied at each price is the same as before the demand shift, reflecting the fact that the supply curve has not shifted, but the equilibrium quantity and price are different as a result of the change (shift) in demand. When production efficiency changes or when raw materials, components or labour become more expensive, the supply curve shifts. If a better or cheaper way of producing a product is developed, a producer will be able to increase its supply and the supply curve will shift to the right. Conversely, if the input availabilities or costs increase, this will shift the supply curve to the left, as shown in Figure 16.3. In this case, a producer may have to limit supply, so that the quantity available goes down, from q1 to q2. Buyers facing limited supply may then bid up the price, from p1 to p2.

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FIGURE 16.2  A shift in demand. (Pathmaster Marketing Ltd.)

FIGURE 16.3  A shift in supply. (Pathmaster Marketing Ltd.)

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The equilibrium quantity decreases as customers move along the demand curve to the new higher price. As a result of a supply curve shift, the price and the quantity move in opposite directions. If the quantity supplied increases, the opposite happens. The equilibrium price will decrease and the equilibrium quantity will increase as consumers move along the demand curve to the new lower price and associated higher quantity demanded. The quantity demanded at each price is the same as before the supply shift, reflecting the fact that the demand curve has not shifted. But due to the change in supply, the equilibrium quantity and price have changed. As a result, the laws of price adjustment are: • When supply exceeds demand, the market (equilibrium) price will fall. • When demand exceeds supply, the market (equilibrium) price will rise. • If there is excess demand, customers may be unable to buy all they wish to buy. • If there is excess supply, companies may be unable to sell all they wish to sell. • If, at the current price, there is excess demand, some customers may offer to buy at a higher price, in order to obtain some supply. Companies may decide to raise prices, to generate higher profits. • When supply and demand are balanced, there is no incentive for the price to change. To summarise the laws of supply and demand: • There is only one price at which the quantity demanded equals the quantity supplied; equilibrium is unique. • Only at the equilibrium price will the market price remain constant. • When the demand or the supply curves shift, the equilibrium price and the quantities will change. • The market is stable in the sense that forces exist to move the price towards its market-clearing level. The effects of these “laws” on the prices of both retail and industrial lubricants are explored and discussed later in this chapter. The numerous factors that affect the demand for lubricants and the supply of lubricants were explained and discussed in Chapter 5. Lubricant marketing directors and managers will need to maintain a close watch on the demand and supply of their products, as this will strongly influence price setting mechanisms. It is also worth emphasising again that each country, region or market is likely to be different, so demand, supply and prices are also likely to be different.

16.3  PRICES AND COSTS The cost of producing, marketing, distributing and selling a product establishes the lower boundary (often called the “floor”) for an intended selling price. The product will not generate any profits unless these costs are covered. Unfortunately,

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a number of different types of cost may need to be considered when planning a selling price: • Fixed costs: These remain constant over a reasonable range of output. Typical examples include rates, rent, insurance and managerial salaries. As product volumes increase, the average fixed cost per unit will decrease, since the total cost is being spread over a greater unit volume. • Variable costs: These change in direct proportion to the level of product output. They include raw materials and direct labour. The average variable cost per unit is often relatively high for the first few units produced. As production and marketing efficiencies improve, the variable cost per unit decreases, eventually reaching a low point, which is the optimum production level from the standpoint of variable costs. Beyond the optimum volume point, variable cost per unit will rise as inefficiencies develop. • Semi-variable costs: These fluctuate with changes in output but not in direct proportion to amounts produced. They have both a fixed and a variable component. Typical examples include equipment repair and maintenance costs. • Direct costs: These are fixed and variable costs that are directly related to a specific product or market. They include advertising, selling expenses, warehousing and transportation. • Indirect costs: These are fixed or variable costs that can be associated with and indirectly assigned to a product or market. Production overheads, quality control and customer service are usually considered indirect costs. • Allocated costs: These are costs that support a number of activities but cannot be objectively assigned to a specific product or market. They are usually allocated across business units by some arbitrary criterion, such as sales volume per business unit or division. Corporate overheads (directors, personal assistants, receptionists, cleaners and others), corporate advertising and promotion and corporate legal expenses are allocated costs. • Sunk costs: These are costs that have already been incurred and cannot be recovered. They are contrasted with the other types of costs (often grouped as prospective costs), which are future costs that may be avoided if action is taken. A sunk cost is a sum paid in the past that is no longer relevant to decisions about the future. While economists contend that sunk costs are no longer relevant to future rational decision-making, many people often take previous expenditures into consideration when making future decisions about expenditure. Correctly identifying and analysing these costs is essential in making profitable pricing decisions. A marketing manager should determine which costs are volumedependent, which products or markets generate the costs, and where opportunities for additional profits might exist. When fixed costs make up a large proportion of the total product cost, prices should be set to maximise the use of operating capacity. Until fixed costs are covered, a company will be losing money. Once covered, each incremental sale can

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contribute to profits. Conversely, when variable costs are relatively high, pricing to maximise the contribution margin (selling price minus variable costs) is very important to generating profits. Under certain circumstances, a company may decide to price a product at less than its full cost. For example, during a recession, a company with high fixed costs may set prices to cover variable costs and make some contribution to fixed costs, in order to keep its plant in operation. This is often called “survival pricing”. Such pricing strategy may also be used in the short term to secure an exceptionally large order, to penetrate a specific customer or to gain market share. In these cases, it is “pre-emptive” or “predatory” pricing, which may be illegal under competition law in many countries. Beyond the short term, when a company has excess capacity, management tends to ignore allocated costs as long as the price received for an additional order covers more than its direct cost and makes a contribution to overheads. However, in the long term, all costs must be covered if a company is to survive. The specific type and level of cost to be used as the basis for unit price is subject to change, depending upon the situation under which price is to be determined. Therefore, care must be exercised to ensure that all relevant costs, those that bear directly upon the current pricing decision, are considered. In addition, marketing and sales people who set product prices need to understand the concept of marginal revenue and cost. Theoretically, a company should continue to increase production volumes and sales as long as the total cost of producing the last unit does not exceed its selling price. Beyond this point, the product will start to be unprofitable. In practice, it can be quite difficult to determine actual cost trend lines, as opposed to spurious aberrations, and even more difficult to maintain sales at the optimum level. Futhermore, the marginal revenue theory must be balanced against the learning curve concept, which contends that the company’s variable costs will decline as quickly (or as slowly) as total volume accumulates. If the company rejects business opportunities based on current costs, and these opportunities are seized by a more aggressive competitor (whose current costs might be equal), the competitor will drive its costs down more quickly and eventually be in a position to command industry pricing, and thereby, profits. People who set prices can use two different sources of information in estimating costs, accounting records plus engineering and manufacturing estimates. Accounting records on cost are useful where past experience can be applied to the pricing decision. Engineering and manufacturing estimates are used when no cost precedent exists. Based on knowledge of the production technology involved and the product specifications set by engineering, cost estimators determine the optimal input combinations to produce any given output. Costs are then formulated by multiplying each input by its price. Engineering estimates are very useful for determining the costs of new products where historical data necessary for a statistical cost analysis are unavailable. If enough information can be gathered via historical records, multiple regression analysis can be used to aid the estimation process. This approach is particularly useful when products share production and/or marketing costs. Once the total-cost function has been estimated, then marginal cost, the cost influence of order size or multiple product mix, and other factors can be extrapolated.

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Many companies tend to set prices based on their costs alone, adding some acceptable increment for profit. Such an approach has advantages. It can be relatively simple to calculate. For a low-cost producer, cost-plus pricing can be a very competitive strategy. However, the trade-off for such simplicity may be lost profits, due to the difference between what customers are charged and what they would be willing to pay. Cost-plus pricing fails to consider the customer’s perception of value, the degree of differentiation from competition and the interaction of volume and profit. Since costs vary over time and fluctuate with volume, they must be considered in relation to demand, competition and the market share objectives of the company. Competition sets the upper limit on prices. A very useful rule of thumb says that, as performance increases so does cost, but not necessarily in direct proportion. Higher performing products are likely to cost more to make, because they use better raw materials and/or the method of their manufacture in more complicated. However, their marketing, distribution and selling costs may be the same as those for lower performing products. For lubricants, this is illustrated in Figure 16.4. Higher performing lubricants, such as synthetic lubricants, are likely to require more expensive base oils and additives, be more expensive to test and have higher marketing and formulating costs, but be no more costly to blend, package, transport, monitor, service and sell than lower performing lubricants. A very important concept when discussing pricing policies is to understand “added value”. When a salesperson, or sales team, is making a sale, “price” and “cost” are the same thing. The cost to the customer is the same as the price asked by the seller. During the transaction, price equals cost. However, between transactions, price and cost are not equal. This introduces the concept of a “value-added chain”, or “market chain”. The market chain for lubricants is shown in Figure 16.5. All products go through market chains and many market chains intersect. Lubricants start with base oils and additives, progress through product formulating companies and on to marketing and sales companies and end up being used by retail, industrial and other customers. When lubricants are used by original equipment manufacturers (OEMs), for example, those companies will also be using steel, aluminium, rubber, copper, glass, electronic and other components from other market chains.

FIGURE 16.4  Lubricant costs. (Pathmaster Marketing Ltd.)

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FIGURE 16.5  Market chain for lubricants. (Pathmaster Marketing Ltd.)

At each stage in a market chain, companies are supposed to be making profits. They are supposed to be using their skills, experience and resources to turn the input components into more valuable outputs, so that they can charge their customers a higher price than the cost of the inputs. As a consequence, between transactions, companies are supposed to be adding value, so that selling price equals input cost plus added value. Several factors can be used, generally collectively, to determine the price of a product or service: • • • • • • • •

Prices of competitive products or services. Effectiveness and availability of acceptable substitutes. Strength of demand. Elasticity of demand. Price/volume relationships. Volume/cost relationships. Quality, reliability, expertise and service factors. Psychological factors.

It is the last two price determinators that provide the added value of a product or service. This is why market chains are also called value-added chains. Unfortunately, numerous examples exist where companies have been found to have destroyed value

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in a market chain. These companies tend not to survive for very long or need to completely change the way(s) in which they do business. Strength of demand refers to how intensely customers want or need to buy a product or service. Prices for products or services can be set higher when there is a strong demand from the marketplace. Conversely, if market demand for a product or service is relatively weak, prices will need to be set lower in order to entice prospective customers to buy. Elasticity of demand is the degree to which the effective desire or need for a product or service changes as its price changes. In general, people desire things less as those things become more expensive. However, for some products, a customer’s desire could drop sharply even with a little price increase and, for other products, it could stay almost the same even with a big price increase. Economists use the term elasticity to denote this sensitivity to price increases. More precisely, price elasticity can be calculated as the percentage change in quantity demanded when there is a 1% increase in price, holding everything else constant. Price elasticities are almost always negative, although analysts tend to ignore the sign even though this can lead to ambiguity. Volume/cost relationships were discussed earlier in this section. They are likely to influence price/volume relationships. Products produced in bigger volumes are likely to cost less to produce per unit, so can be priced accordingly to achieve either optimum or maximum profits.

16.4  PRODUCT PRICING STRATEGY When analysing and deciding a product pricing strategy, simplistic approaches do not exist. Pricing decisions involve multiple factors and consideration should be given to the interactions between: • • • • • •

Customer demand. The nature of derived demand. Competition. Cost and profit relationships. The market’s reaction to and perception of price. Regulations.

Each of these factors is independently and jointly significant in a pricing decision. The demand for almost all industrial products is derived from the demand of some retail end-product. Consequently, marketing people might need to consider where the company is in a marketing (value-added) chain when trying to influence the immediate industrial demand rather than stimulating demand in a consumer market. The industrial market is diverse and complex. Each product might be used in many different applications or in differing amounts across individual companies and market segments. The importance of a product to buyers’ end-products may also vary. As a result, potential demand, sensitivity to price and potential profitability differ across market segments. Therefore, when setting price to influence demand,

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industrial marketers must understand how products are used, recognise the potential customer benefits, examine the costs of owning and using the products and determine product values from the customer’s perspective. As discussed in Chapter 7, when evaluating competing suppliers, company buyers assess the benefits of each supplier’s total offering in relation to the price quoted. However, the various Key Decision Makers and Key Decision Influencers are likely to differ in their assessments of product benefits and value. Product benefits may be functional, operational, financial or personal. This is discussed in more detail in Chapter 19. Functional benefits entail product design characteristics that might appeal to technical people, while operational benefits focus on attributes such as reliability and consistency, which manufacturing and quality control people regard as important. Financial benefits include favourable credit terms and cost-saving opportunities that are important to purchasing managers. Personal benefits involve factors such as reduced risk, organisational status and personal job satisfaction. In addition to assessing benefits, companies evaluate the costs associated with owning and using a product. Life cycle cost analysis enables a buyer to include all relevant costs, such as maintenance, repair, operating, product lifetime, disposal and other costs over the useful life of the product. This analysis might also include loss of production and reputational risk costs associated with a potential failure of the product in the company’s production processes. Some customers may be willing to pay a price premium to avoid or minimise potential loss of production. Product value is related to a buyer’s sensitivity to price. Price sensitivity can vary over time and under different circumstances. For example, a customer that can pass on the cost of a purchase to a subsequent customer is less likely to be price-sensitive than one who cannot. Product price may be less important than product performance to engineers, less important than reliable delivery to manufacturing personnel and less important to senior managers than supplier innovation. The price of a product relative to the total cost of producing an end-product can also influence a buyer’s sensitivity to price. They could also be influenced by the uncertainty of a switch from a proven supplier to a new one. Price differences must be sufficiently significant to overcome a buyer’s concerns about the product quality, service and reliability of unknown suppliers before they will switch from a trusted source of supply. Derived demand means that sales to an OEM ultimately depend on the level of customer demand for products that the OEM makes. The quantity of a product demanded by an OEM for component parts, raw materials, capital equipment and ancillary services will increase only as a result of increased purchases by end-­product consumers. Because of the relatively distant relationship between an industrial supplier and the ultimate consumer, what was a direct relationship between price and quantity demanded in the retail market becomes an indirect and often reversed relationship. For the supplier, a number of non-price contingencies can work to reverse the theoretical price/quantity relationship. Existing and potential competition inevitably affects a company’s pricing strategy, by setting an upper limit. Research indicates that “competitive-level pricing” is regarded by the majority of companies as the most effective pricing strategy. The amount of latitude a company has in its pricing decision depends largely on the degree

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to which it can differentiate its product in the minds of buyers, whether retail or industrial. As observed earlier, price is only one element of the buyer’s cost/benefit analysis. A product that is differentiated by its functional design, the supplier’s reputation for dependable service or technical innovation can command a higher price. Pricing strategy is also influenced by the anticipated reactions of competitors to pricing decisions, so competitive responses need to be considered. Price reductions or increases on products that are relatively undifferentiated are generally met immediately by all suppliers, resulting in little change in market share. When initiating price increases, a company should try to predict how competitors will react. A price increase that is not followed by competitors will most likely lead to a loss of market share. For competitors to follow a price increase, they must believe that total demand will not be reduced by the increase, other major suppliers will also follow the increase and the initiator of the price increase is acting logically. Most major industries are oligopolistic, so if a company is not a major supplier, it is unlikely to be able to induce its main competitors to follow a price increase. Conversely, a price reduction often brings swift reaction, even an undercutting. Market leaders can usually induce their competitors to follow both price increases and reductions. Because total demand for industrial products is often inelastic due to its derived nature, market volume is not increased by price reductions, but an individual company’s market share will almost certainly suffer unless it remains price-competitive.

16.5  LUBRICANT BASE OIL AND ADDITIVE PRICING AND PRICES The starting point for determining the cost, and therefore the eventual price, of a lubricant is the cost of the base oil(s) used to formulate the lubricant. Analysis of base oil prices over many years has shown that they are highly correlated with the prices of the crude oils used to make mineral base oils and the majority of synthetic base oils. Explanation and discussion of this correlation are beyond the scope of this book, but the author has been analysing all of the factors involved for almost thirty years. The correlation is shown visually in Figures 16.6 to 16.8. Figure 16.6 shows the average monthly price of Brent crude oil from 2009 to 2021. Figure 16.7 shows the average monthly price in Western Europe of 150 SN API Group I base oil, also from 2009 to 2021. Figure 16.8 shows the average monthly price in Western Europe of 4 cSt API Group III base oil, again from 2009 to 2021. While all three graphs are not identical, they are sufficiently similar in pattern to illustrate the correlation between crude oil prices and base oil prices. Of course, the prices of base oils are also subject to the laws of supply and demand. This is why the three graphs are not identical. Very similar correlations can be shown for prices of base oils in North and South America, Asia, Central and Eastern Europe, Africa and Australasia. All three graphs illustrate that prices for base oils can change month by month (in fact, they can change on a weekly or even daily basis), sometimes by only a little and sometimes by quite a lot. Clearly, at any given time, prices for lubricants will need to reflect the current prices of base oils and their changing pattern. The changing costs of manufacturing and distributing lubricants will also be influenced by the prices of crude oils and

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FIGURE 16.6  Average monthly prices for Brent blend crude oil, 2009 to 2021. (Pathmaster Marketing Ltd.)

their products, in terms of synthetic chemical costs, additive costs, blending costs and transportation costs. Labour costs will also need to be included in the mix. Prices for almost all of the additives used in the manufacturing of lubricants are also highly correlated with prices for crude oils and natural gas. Although many of

FIGURE 16.7  Average monthly Western European prices for 150 SN API Group I base oil, 2009 to 2021. (Pathmaster Marketing Ltd.)

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FIGURE 16.8  Average monthly Western European prices for 4 cSt API Group III base oil, 2009 to 2021. (Pathmaster Marketing Ltd.)

these additives, or of the chemicals from which they are made, are produced by the chemical or petrochemical industries, their costs and prices reflect the value-added chains of these industries. Re-refined base oil prices are dependent on the costs of the re-refining processes, which are heavily influenced by the costs of the energy used. The prices of bio-based components are influenced by the food industries, as both industries often use the same raw materials in their production.

16.6  AUTOMOTIVE LUBRICANT PRICING ISSUES The most important pricing issue for automotive lubricants is that almost all are marketed and sold as meeting one or more required international, national or automotive manufacturers’ specifications, as discussed in Chapter 12. The consequence of this is that oils or greases that meet the same specification, whether ACEA, ILSAC, API or others, are highly likely to provide the same or very similar performance characteristics. As a result, these automotive lubricants compete in the same marketplace and, therefore, must have very similar prices for very similar performance. Oils or greases that command better brand awareness might be able to command slightly higher prices, but their elasticity of demand will limit by how much higher. Of course, the brand awareness of automotive lubricants will be different in different countries. If prices are very similar for similar automotive lubricants, one way to increase profits is to reduce costs. There are several ways to do this: • Blend base oils to minimise poor performance properties. • Mineral oil/synthetic oil blends can be very effective, but check compatibility.

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• Use base oils that do not require as much additive to achieve the desired performance. • Use the minimum amount of additive necessary to achieve the required specification or performance. Using too much additive is called “quality giveaway”. • Readily available base oils and additives generally have lower prices. • Purchase in bulk wherever possible. • Blend larger volumes wherever possible, but monitor and control storage costs. As noted in Chapter 6, numerous factors influence retail customers to buy automotive lubricants. Price is a significant factor, but others include brand image, manufacturers’ approvals, perceived quality, promotional offers, brand loyalty, pack attractiveness, salesperson’s or engineer’s advice (in retail outlets), product choice and fitness for purpose.

16.7  AUTOMOTIVE LUBRICANT PRICES In any market, it is relatively easy for a lubricant supplier to ascertain the prices being charged to retail customers for most products. It is a simple matter of visiting a number of retail outlets (supermarkets, specialist motoring shops, discount warehouses and fuel service stations) to look at the prices of competing products displayed on the shelves. This can be done for gasoline and diesel engine oils, automotive gear oils, two-stroke and four-stroke motorcycle oils, automatic transmission oils and automotive greases. Some of these retail outlets may even sell oils and greases for marine applications, whether motor boats or yachts, and horticultural applications, including garden lawn mowers. The similarity between prices set by different suppliers of retail automotive lubricants can be illustrated with reference to Figure 16.9. Prices for 4 and 5 litres bottles of various viscosity grades of gasoline engine oils from five lubricant companies in a couple of retail outlets in the UK in June 2016 did not vary by very much.

FIGURE 16.9  UK automotive engine oil price comparisons, June 2016. (Pathmaster Marketing Ltd.)

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Finding out the prices that lubricant marketers are charging car dealers’ service centres and car, van, truck and bus fleet owners is much more difficult. These customers for automotive lubricants are much more like industrial customers, the pricing challengers for whom are discussed in the next two sections.

16.8  INDUSTRIAL LUBRICANT PRICING ISSUES Because industrial markets are different from retail markets, the factors that influence industrial lubricant pricing policies are different. For some time, the main pricing issues have been and still are: • • • • • •

The market is over-subscribed. Customers have a wide range of procurement options. Markets for lubricants are global. Large customers can dictate price levels and terms. Final prices are often agreed through negotiation. Lubricants are regarded as commodities.

These issues mean that establishing pricing policies and prices for industrial lubricants is particularly challenging for lubricant marketing and sales managers. To summarise the discussion of industrial lubricant buying decisions in Chapter 7, five main categories of industrial lubricant customer categories can be identified: • Small customers who view lubricants as a routine purchase. • Small customers who purchase lubricants on a best deal basis and expect high levels of service. • Medium or large customers with high sensitivity to price and service levels. • Customers who purchase large volumes of lubricants and who command low prices and high levels of service. • Industrial businesses which purchase lubricants through tendering processes. Pricing product ranges for each of these industrial customer types involves industrial engine oils, industrial gear oils, hydraulic fluids, compressor oils, special purpose oils, metalworking and production engineering oils, fluids and pastes, high performance lubricants and/or industrial greases. Marketing and sales managers should consider using a tried and tested process for developing a pricing policy for a new industrial lubricant. They should establish good knowledge of target market segments, determine the relationships between industry price levels and level of demand in those segments, decide the product’s position, design the total product offering (including the service support package), accurately calculate all costs, decide price objectives in line with marketing objectives and produce a price structure, including discounts.

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In each of the five categories of industrial, different marketing and sales tactics should be used to set industrial lubricant pricing policies and prices: • Group 1: All products should be sold at list prices. Service levels can be difficult to achieve and second-tier distribution might need to be used. • Group 2: For automotive and most industrial lubricants, small discounts might be offered. Metalworking oils, fluids and pastes and high performance lubricants should be sold at list price. Again, service levels can be difficult to achieve and second-tier distribution might need to be used. • Group 3: Automotive and most industrial lubricants can be sold at discounts to the general market prices. However, metalworking oils, fluids and pastes and high performance lubricants should be sold at list prices. The performances of the other lubricants in the customers’ applications are of value to them, so there is the potential for upselling and higher margins. If after-sales or customer support service is required, product prices should be adjusted accordingly or discounts reduced. • Group 4: Prices for automotive and industrial lubricants can either be discounted or negotiated. Customer support service provides added value, so can be priced accordingly or integrated into the negotiated prices. Small discounts, related to purchased volumes, could be offered for metalworking oils, fluids and pastes. Again, customer support service is of real value. High performance lubricants should be sold at list prices. Any difficult lubrication applications provide customer value, so should be priced accordingly. • Group 5: For all products, prices are likely to need to be set at cost-plus, with allowances for a slight discount if necessary and related to the volume(s) of lubricant(s) being sought. Prices for customer support service are likely to need to be set separately, if this is required. The product prices are likely to be selective to the supplier’s requirements and capacity. These accounts are usually high volume and low profit margins, but useful for maintaining lubricant blending plant operations at optimum efficiency. For obvious reasons, customers in the last two categories should not be aware of a lubricant supplier’s list prices and customers in the first three categories should not be able to find out the prices that have been negotiated with the last two categories’ customers.

16.9  INDUSTRIAL LUBRICANT PRICES Prices for a specific company’s industrial lubricants, including those for automotive lubricants supplied to OEMs, car dealerships and fleet operators, are almost impossible to obtain. Every lubricant supplier is highly likely to want to maintain simple commercial confidentiality. Prices for industrial customers are almost certainly going to be different to those for retail customers, primarily due to price/volume relationships and volume/cost relationships.

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Lubricant company’s websites and product literature do not disclose prices. These only become available to customers or prospective customers during sales negotiations. Many lubricant company’s websites have password-secured sections for each industrial customer, accessible only by that customer. Much as lubricant consultants would like to know current prices for industrial lubricants, they are usually unable to find out and can only estimate price ranges, based on extensive industry knowledge. Additionally, prices for industrial lubricants will change over time (months, quarters and/or years), for the same reasons that automotive retail lubricant prices change over time. The only realistic possibility for a lubricant supplier to ascertain price levels for industrial lubricants is to ask customers what prices they are being charged or quoted by other suppliers. Of course, a marketing or sales manager who asks these questions should have established a very good, mutually beneficial, working relationship with the customer and be certain that the information received is honest and reliable. Some customers might be tempted, when asked about competitors’ prices, to see an opportunity to negotiate prices down.

16.10  FUTURE TRENDS A number of pricing and value-added trends in the lubricant market have become apparent during the last twenty years: • • • • • • • • • • •

A global over-supply of API Groups I, II and III mineral base oils. An increasing supply of re-refined base oils of high quality. Continuing competitive pressures on lubricant suppliers. Smaller lubricant blenders and marketers have lower costs than the oil majors. Profit margins are higher from higher performance lubricants. Lubricants based on API Group III base oils and synthetic base oils are gaining market share. Environmentally friendly and non-toxic lubricants are also gaining market share, albeit from a low base. Value-added lubricants have become the key to commercial success. More attention has been given to marketing and branding in retail and consumer lubricant markets. More attention has been given to customer support service in industrial lubricant markets. Niche markets offer opportunities to add value.

In the author’s opinion, these trends are likely to continue for the foreseeable future. Additional trends are likely to become important in the foreseeable future: • An increasing number of hybrid and electric vehicles, of many types and sizes, will slowly change the nature of lubricant markets and prices for lubricants. • Changes in global supply chains are likely to influence the costs of manufacturing and marketing lubricants, which will in turn influence lubricant prices.

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• The impacts of climate change on all industries, particularly renewable electricity generation and hydrogen power, will affect lubricant markets and the value of lubricants. • Lubricant markets in different countries are almost certain to have different pricing structures. These future trends were explored in depth in Chapter 5. Lubricant marketers will need to maintain an ongoing awareness of developments in both their own and other countries.

16.11 SUMMARY Although the strategies and policies for setting the prices of both automotive and industrial lubricants do not appear to change very much for each lubricant supplier, the prices they can charge in the marketplace can change a great deal over time. Market prices for all products, including lubricants are subject to the laws of supply and demand. Although these are becoming better understood and followed, they are not really laws in the strictest sense. Prices for lubricants may need to be adjusted up or down within months or weeks, depending of prices for the numerous input components. Prices for products need to take into account the total costs of making, marketing, distributing and selling them. Prices should reflect the value that the manufacturer has added as part of the market chain for the product. Each participant in a market chain should be adding value. Some of the costs involved in making, marketing, distributing and selling products are fixed, some are variable, some are direct, some are indirect and some involve customer perceptions of quality and service. Setting automotive lubricant prices for individual retail consumers is relatively easy. Setting automotive lubricant prices for car, van and truck dealers and fleet owners and operators is the same as for industrial lubricant customers, which is very difficult. It is very important for marketing and sales managers to be able to determine and adjust the prices charged for retail and industrial lubricant customers.

17

Key Account Management

17.1 INTRODUCTION In almost all businesses, the marketing and sales department has a list of all the companies to which it sells products and/or services. Some of these customers are more valuable to the company than are other customers, usually for one or more reasons. At regular intervals, the company’s directors and senior managers, particularly those in marketing and sales, should look at the list of the most valuable customers and ask, “Would it be really bad if our company lost any of these customers?” Those customers for which the answer is “yes” are called “Key Accounts”. They represent a disproportionate percentage of either sales or profits. In total, they probably account for between 30% and 50% of either revenue or profits. The loss of any one of them would be a cause for significant concern. However, they are not just the important customers currently. Thought should also be given to those smaller customers that might grow to become important and to those companies that are not current customers but would be very valuable if they could be persuaded to become customers in the future. Managing key accounts is not easy. There is a danger that too much marketing and sales management time is paid to existing key accounts, at the expense of neglecting other accounts that could become key accounts. Another danger is that salespeople could spend too much time at key accounts and insufficient time at other accounts, so as to be able to achieve their sales targets. Several other dangers can exist, so these will be explained and discussed throughout this chapter. It is vitally important for a company to recognise that implementing key account management is an organisational methodology, not a sales technique. Key account management implementations take years, not months. Companies which have implemented key account management most successfully are those who view it as a change in the way of doing business. Suppliers who have failed at key account management are those that tend to think of it as being an initiative of the sales department. Key account management is a commitment to work differently with certain priority customers and, to achieve this, other departments in the supplier’s organisation must understand and support key account management. One obvious example is supply chain management. If a key account is promised priority access to the urgent delivery of products or services, it is production, logistics and customer support that can provide that, not sales. Best-practice companies choose to train their operations and supply chain staff in key account management, as well as their marketing and sales staff. Another example is with the development of a new product for a key account. In this case, the research and development department must be heavily involved with the key account staff.

DOI: 10.1201/9781003318392-17

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17.2  KEY ACCOUNTS Key accounts can be defined in a number of different ways, some of which overlap. They could be companies that: • Buy lots of products or services. • Would cause a significant drop in profits if they went elsewhere to buy products and/or services. • Might provide big revenues and profits in the future. • Salespeople focus on most. • Bring additional profits with extra marketing and sales effort. • Demand additional services and are willing to pay for it. • Are likely to provide significant growth opportunities in new markets. • Are medium-sized companies with high growth potential. • The supplier understands their business and who the supplier can work with to achieve mutual growth. • Have several divisions and/or international subsidiaries or affiliates. • Have a level of business or potential that makes the cost/effort of key account management worthwhile. If the account is an existing customer, it is one that needs to be managed carefully, so that it continues to be so. If it is a potential new customer, it needs to be cultivated in line with the potential supplier’s business development (marketing) strategy. These types of accounts are generally complex and difficult to develop and manage effectively in order that their potential is optimised to the benefit of the supplier. The challenges to managing key accounts are numerous. Where does today’s profit come from? What about tomorrow’s oak trees? Should a company let sales statistics determine whether a customer’s current size is important? Should a customer be kept happy irrespective of the marketing and sales effort required? What if it’s unprofitable to satisfy an important customer’s requirement(s)? How would the company cope if the account decided to look or buy elsewhere? Do salespeople need to be motivated and managed to attend to all customers and not just the key accounts? (The focus on time and approach should be where the results will be achieved.) How many accounts should be classified as key accounts? What does this mean for other customers? Where should the company concentrate its marketing and sales efforts? Just because a customer is demanding and willing to pay, does this translate into extra profitability? Could customers that might provide future growth opportunities also lead to future losses, because the future is never certain? The complexity of the purchasing process by companies was discussed in Chapter 7 and illustrated in Figure 7.1, which is reproduced here as Figure 17.1, for convenience. The response to the complex purchasing process by suppliers is illustrated in Figure 17.2. Suppliers’ marketing and sales efforts involve marketing strategies, overall company support systems, sales management, sales territory characteristics, account teams and individual sales representatives. However, these responses need to be aligned with the types, characteristics and needs of existing and prospective customers, each of whom is or could be a sales

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FIGURE 17.1  Purchasing complexity. (Pathmaster Marketing Ltd.)

FIGURE 17.2  Supplier response to purchasing complexity. (Pathmaster Marketing Ltd.)

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account. It is, therefore, critically important for marketing and sales managers to identify which accounts are which. Accounts can be classified as one of five possible types: • • • • •

O  A  B  C  D 

We do not know this account at all: It could be a prospect. New account: We need to get to know more about it. Developing account: We are beginning to understand it better. Significant account: Buys quite a lot of products and services. Business partner: Key account.

Marketing efforts can be focused on all five account types. The first two types may only require market research, as described in Chapter 4, with additional information gathered by salespeople. Sales efforts will become more important for the last three account types, with significant involvement by marketing and sales managers. The ways in which key accounts can be identified and selected are discussed in Section 17.7.

17.3  ISSUES IN MANAGING KEY ACCOUNTS Managing a key account generally presents a logistical challenge to the account manager, because it involves managing a team that is developing and implementing relationships with customers. There are a number of essential issues a manager must address in order to guide the team to success. The RAIN Group defines key account management as “A systematic approach to managing and growing a named set of organisations that are the most important customers, to maximise mutual value and achieve mutually beneficial goals”.1 In addition to having a core definition, the RAIN Group and others find that having a shared understanding of the following six components of key account management helps to create focus: • Viewing key accounts as separate from those that are simply large accounts in terms of revenues. • Limiting the number of key accounts and actively controlling the growth of the list of key accounts. • Viewing key accounts as assets that require continued, and often significant, investment to yield maximum returns. These investments often include structuring and aligning the company’s processes and systems to maximise account value. • Viewing key account investment returns as tied to the company’s long-term business strategy. • Pursuing key accounts as institutional partners, such that innovation and value are built together, becoming deeply linked to each other’s future. • Allocating key account focus on three core topics: penetrating, expanding and protecting accounts from competition.

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Companies that agree on a definition and the components of a key account can make significant progress. Unfortunately, without this agreement, particularly between senior management and marketing and sales, efforts can diminish shortly after they start. Because key account management is the process of building long-term relationships with the company’s most valuable accounts, which generally comprise the majority of the company’s income, a key account manager typically needs to provide dedicated resources, unique offerings and regular meetings. Key account management activities often lead to increased costs and lower margins. That is an inevitable outcome of giving a customer greater attention and frequently the best discounts. Fortunately, using the right key account management strategies and tactics usually leads to higher sales volume, increased total profits and long-lasting strategic relationships.

17.4 KEY ACCOUNT MANAGER’S SKILLS, QUALITIES AND ACTIVITIES The principal role of key account managers is to handle the company’s most valuable customers. They manage the account, build strong relationships with the customer, identify challenges or opportunities and find ways to assist with these challenges and opportunities. In managing the account, a key account manager must also manage the team that communicates and negotiates with the customer. As a consequence, a key account manager needs to have a very broad range of skills: • • • • • • • • • • • • • • • •

Extensive sales experience. A good listener. An effective and clear verbal and written communicator. A good leader and people manager. An effective delegator. A wide knowledge of the industrial market. A sound knowledge of his/her company’s products, services, strengths and weaknesses. Experience of negotiation at a high level. A decision maker. Good presentation skills. A thorough understanding of planning and strategy. Comfortable with change. Enthusiastic to go above and beyond for customers. An ability to assess account needs and identify gaps. Able to build rapport and to establish credibility with account stakeholders. Sound management and financial knowledge.

An effective key account manager should have a detailed understanding of his or her account’s business strategy, market position, finances, products and organisation.

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They will be able to use this knowledge to make business cases that show how prices, customisation and services will add value to the customer’s business. Because key accounts do not generally buy standard products, they often want a custom blend of products and services tailored to their needs. It is therefore vital that a key account manager is able to work with the customer’s key decision makers to prepare these offerings. A key account manager is also the leader of a team of salespeople, marketers, engineers, scientists, logicians and other specialists. He or she must have the management skills and experience to guide the team to continual successes with the key account. Working with multi-disciplinary teams and selling to key decision makers and key decision influencers is discussed in Chapters 7 and 13. Key account activities tend to be complex, involving a number of factors and meetings. A successful key account manager needs to be able to plan for both the short term and the long term, lead the team to carry these plans out, analyse the outcomes and apply the learnings to future strategies and plans. Methods for devising marketing and selling strategies for lubricants are described in Chapter 14. A key account manager should understand how companies make money. This is commonly called “business acumen”. Key account managers recognise that customers have their own customers, all the way along a market (value-added) chain. The ability to react to changing drivers of customer growth, profitability, cash flow and markets and adjust customised product and service offerings is critical to success. He or she will then be able to solidify their position as a trusted resource and advisor for their customers. In addition to having business acumen, a key account manager should be highly analytical. Their analytical skills will help them create and present business cases. They need to be able to think carefully and apply their knowledge to a variety of different clients and markets and be confident when presenting the information. Consequently, a key account manager’s activities are numerous and onerous: • Sales. • Strategic planning. • Managing the relationship between the key customers and his or her company. • Managing the multi-level sales team. • Developing new sales opportunities with the key account(s). • Working with new product development. • Working with logistics and customer support engineers and chemists. • Keeping a record of sales progress and outcomes. • Organising the team to ensure it presents a unified and credible image to each key account. • Presenting a consistent message to each customer. • Ensuring all members of the team build relationships with their appropriate counterparts. • Working with named accounts to identify their biggest challenges and opportunities. • Looking for ways in which to help with those challenges and opportunities.

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• Using both traditional and creative techniques to develop relationships with key account stakeholders. • Keeping track of the accounts’ satisfaction and reporting on their status to the company. • Ensuring the team prioritises the customer needs with their counterparts. • Organising and maximising the internal customer support resources to gain credibility. • Building realistic solutions that satisfy the customer’s needs. • Gaining and agreeing meaningful solutions with the customer. • Always leading effectively to eliminate any confusion. • Continuously planning, implementing, reviewing and adjusting. The above skills, experience and activities could constitute a job description when recruiting a key account manager or promoting a sales manager to a key account role. Ideally, a key account manager should not be a sales representative, but might be a sales manager or a marketing manager. Experienced managers should be able to manage five or six key accounts. However, even the best key account mangers cannot, and should not, do everything themselves. Each key account manager should have a cross-functional support team to execute the deliverables related to each client’s account. These teams should include a range of skills, disciplines and expertise. (This is discussed in more depth in Section 17.8.) If possible, a named executive sponsor should be assigned to each account. They can play a major role in securing the necessary resources, connecting to the managing director or chief executive officer and providing high-level guidance to the key account manager and the sales team.

17.5  EFFECTIVE KEY ACCOUNT MANAGEMENT Although key account management can provide significant potential benefits to a company’s revenues and profits, it is not necessarily suitable for all companies. Achieving the benefits requires strategic thinking and planning. For companies in which the sales cycle is relatively short and salespeople have minimal interaction with prospective customers, key account management is unlikely to provide much benefit. Key accounts require consultative selling methods and training salespeople to use completely new processes for just a few customers is likely to be too time-consuming. Key account management might be a good idea when a company’s products and/ or services can either be upsold or cross-sold to a new customer. There is little benefit to be gained from a customer that is unlikely to buy anything else. However, providing excellent customer service and support is obviously likely to promote beneficial word-of-mouth marketing and sales to the buying company’s competitors. Implementing a key account strategy for a large, new customer could be beneficial once a company has achieved an initial sale, if the account can be grown by selling the same or similar products to other departments, offices, subsidiaries or companies in the same group. A key account programme can serve as a competitive advantage in some circumstances. If a prospective customer has narrowed down their choice of supplier to just

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two companies, one of the suppliers could gain an advantage by offering to make the customer a key account. Obviously, the prospect needs to have a definite potential to become a key account. Also, if the other potential supplier offers the same deal, the advantage is lost immediately. Successful key account management depends on company-wide support, particularly executive management buy-in and a dedicated key account team. The key account manager will also need enough latitude for an investment that might take between one and three years to recoup the investment. In order to be effective, a key account management plan needs to achieve a number of things: • Understand the account’s business. • Identify the people in the customer’s organisation and their roles in the decision-making process. • Form meaningful relationships with these key decision makers, key decision influencers and gatekeepers. • Select appropriate sales team members who can form strong relationships with their counterparts. • Ensure all the personal and organisational needs relative to the products are understood and prioritised. • Search for problems, through relationship development, to create opportunities for providing solutions. • Control and direct team tactics to achieve a commitment to purchase from the account. Effective key account management should be a win-win for both the customer and the supplier. In this collaboration, the supplier and the customer work together to understand each other’s business, to achieve common goals and to find better ways of doing things. Cost savings can be achieved by re-engineering processes, reducing inventories and avoiding unnecessary activities. It is very important to understand that the cost savings must be shared between the supplier and the customer. The ratio does not necessarily have to be 50:50, but can be 60:40 or 40:60 or similar, depending on a determination of which company is providing a larger share of the value added. However, it should not be 10:90 or 90:10 or any similar ratio, which is likely to be unfair and resented by one side or the other. The relationship makes it much harder for competitors to sell to the key account and enables the supplier to take a more holistic approach to its business development strategy.

17.6  DIFFERENCES IN KEY ACCOUNT STATUS There are different circumstances that can face a key account manager, depending on the status of the account: • Trying for new business. • Maintaining an account relationship. • Trying to increase account penetration.

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Developing a complex account. Facing a competitive sales situation. Dealing with a significant change in an account. Trying to handle a problem account.

All of these situations should be tackled in a similar way, although the strategy and plan are likely to vary slightly. The overall objective, to optimise the potential to the account manager’s company, is the same. A key account manager who is trying for new business is almost certainly either trying to cross-sell to an existing key account or looking to sell to a new account that could become a key account. In the first case, the task is relatively easy, because the manager and the customer have an established relationship and track record. In the second case, the task is likely to be much harder, because the prospective account may already be a competitive supplier’s key account. Displacing a competitor can be quite difficult to achieve, unless the competitor makes a mistake that is sufficiently serious to prompt the customer to look for another supplier. Maintaining an existing account relationship is usually straightforward if everything is going to plan and the relationship is amiable. Unfortunately in business, some employees are promoted or change companies. If a new key decision maker comes into an account’s buying team from another company and has considerable positive experience with other suppliers, maintaining the key account might not be quite as easy. The new member of the team may take a great deal of persuading that the incumbent supplier is better than other suppliers. This could involve a key account manager in considerable additional work. Dealing with a significant change in an account is a similar situation, again requiring significant additional work by the key account manager and his or her team. The success or otherwise of trying to increase account penetration is likely to depend on the strength of the established supplier/customer relationship. If it is meeting the expectations of both parties, cross-selling should be relatively easy. However, other business units or divisions in a company may already have their own established suppliers and the penetration task might be that more difficult. A key account manager should always be alert to the possibility that a competitor might be trying to penetrate his or her key account. Either eventuality is similar to a competitive selling situation. Developing a complex account is likely to involve a key account manager in a significant amount of work. Complex accounts can have several, independent, buying teams, each with different key decision makers, key decision influencers and gatekeepers. These teams and their members may or may not communicate with each other and their decision-making processes might not be the same. Keeping track of all this could involve a key account manager in quite a lot of work. Problem accounts are the most difficult. It is much easier to promote an account to a key account than it is to demote one. It will depend almost entirely on the nature of the problem(s). If the account is experiencing a temporary decline in sales, and therefore revenues and profits, a key account manager may decide that a little patience could pay dividends in the future. If, however, the problem is more serious, a key account manager may decide either to maintain the account but with much reduced sales efforts or to demote the account. Either course risks losing the account

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altogether. Understanding whether the customer’s difficulties are temporary or not requires considerable business judgement. Large companies are more likely to be, or become, key accounts compared with smaller companies. Invariably, larger companies provide more opportunities for a supplier to cross-sell, upsell, sell to other business units or divisions and generate higher revenues and profits from product innovations. Growth markets and segments are likely to be more attractive for a key account manager, due to the possibility of more sales and bigger profits. A key account that is supplying its products into a growing market segment is likely to need growing amounts of input components from its suppliers. Unfortunately, competitors could easily spot this attractiveness too, so the level of competition may increase considerably. A key account manager might need to monitor competitors’ activities even more closely than usual. Accounts that have few competitors are likely to qualify as key accounts more readily than those that have a large number of competitors. Because they have a comparatively larger market share percentage, the price/volume and volume/cost relationships described in the previous chapter are more likely to be beneficial.

17.7  SELECTING KEY ACCOUNTS A company should have an explicit, rigorous definition of key accounts. The more detailed and specific the criteria, the better. Key accounts are going to receive a great deal of the company’s time, resources and effort, so making certain they are the right ones is critical to eventual success. A key account should not be selected based solely on the revenues it generates for the supplier. An analysis of the ratio of revenues to costs for all accounts will identify which are contributing most to profits. Market research should be able to determine which accounts have the potential to expand. Another criterion to consider is whether the customer is or could be a strategic partner to the supplier. If the customer has the connections, resources and/or industry reputation to significantly alter the supplier’s future prospects, this could be an important guide to whether it could be classified as a key account. There are a large number of criteria that can be used to select an account to become a key account: • • • • • • • •

Product fit. Financial stability. Existing relationships. Possibility of becoming a channel partner. Cultural fit. Geographic alignment. Purchasing process. Revenue and/or profit potential.

A marketing manager may be tempted to label many customers as “key accounts”. This temptation should be resisted. Making sure that an account really is a key

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account is important, as the marketing and sales effort will be higher than for other accounts. Over-promising and under-delivering to senior managers are dangerous. Starting a key account management programme requires companywide change, support from many people and implementation of new processes. Starting small allows a key account manager to focus their efforts. Deciding which important customers should be classified as key accounts is a task for experienced sales managers. Key accounts can be selected using the eight criteria, grouped according to growth, value creation and fit with the company. Every customer should be evaluated against each criterion and given a score between 1 (very low) and 10 (very high). A weighting can also be applied if some criteria are more important than others. In some industries, irrelevant criteria can be disregarded. After totalling each customer’s score, those with the highest scores are the key accounts. This will highlight that not all accounts can be key accounts.

17.8  SALES TEAM OBJECTIVES FOR KEY ACCOUNTS Key account management and selling to other accounts are very different. While a general salesperson focuses on the short term, by concentrating on specific opportunities, a key account manager has to prioritise the future. A key account manager has broader goals, including collaborating with the customer on mutually beneficial projects, helping the customer meet their objectives and making sure that the customer is getting the necessary support. Selling to a key account involves communicating with many different people, mainly key decision makers and key decision influencers. A salesperson should always know to whom he or she needs to communicate and their position in the key account. They should also always know who must still be convinced in order to bring the sale to a close. It is a good idea for the sales team to build an organisational chart of the key account, with pictures of each person, and make notes about each person’s likes, dislikes, attitudes and beliefs. Practical sales tactics for lubricants are discussed in depth in Chapter 19. The sales team needs to build relationships and establish the individual roles of the purchasing team. It is important to categorise their roles relative to product purchasing. Salespeople should also establish the customer’s organisational needs, identify any problems and establish the customer’s organisational technology. This will involve identifying their costing methods and attitudes, their communication channels, the company’s economic situation and their expectations of current or potential suppliers. Above all, it is vital that the sales team gains commitment from the customer or prospective customer. Selling and key account management are not the same thing, although they must work closely to succeed. The strategic account management process is illustrated in Figure 17.3. Selling is the execution part of the account management process. Account management skills are required throughout the process, but without the sales skills necessary for execution, a supplier’s efforts will not achieve the desired results. The RAIN Group1 has found that weak strategic account management and

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FIGURE 17.3  Differentiating sales and key account management. (Pathmaster Marketing Ltd.)

sales skills are ranked as one of the top challenges for average and below-average practitioners. Without strong sales skills, a company is unlikely to: • • • • • • • •

Create new opportunities. Penetrate new buying centres. Inspire buyers to pursue new ideas and possibilities. Understand buyers’ buying processes. Move opportunities forward. Stand out against the competition. Make a compelling business case for buying. Present solutions, overcome objections and win new business.

Without account management skills, a supplier is unlikely to build a good account strategy or plan, will not be able to put the right team together and is unlikely to be able to work with customers over the long term to maximise the overall strength of relationships. If a supplier wants to grow key accounts, it must first need to create a universal key account definition, and make sure everyone understands it, agrees with it and lives by it. Second, the marketing and sales team needs to excel with both account management and sales skills. The sales team’s objectives for a key account are likely to be slightly different for each account, depending on a number of factors: • • • • • • • •

The supplier’s marketing policies. Current and likely future market conditions. The level of competition, which is affected by market segment. The price structure of the supplier’s product and/or service. Delivery service capabilities. Location(s) of customer support services. Customer support resources. The strength of marketing and sales resources.

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• The experience and skills of the account sales team. • The strength of the supplier’s image in the market or segment. Explanations and descriptions of all of these factors can be found in most of the other chapters in this book.

17.9  PITFALLS IN MANAGING KEY ACCOUNTS Despite the potential benefits of key account management to a company’s revenues and profits, it may not be suitable for every company. If a company’s sales cycle is relatively short and its salespeople have minimal interactions with prospective customers, key account management probably is not the right choice. Key accounts require consultative selling techniques and it is likely to be difficult to teach salespeople to adopt completely new processes for just a few customers. This is likely to be particularly important for selling industrial lubricants, which, as has been discussed already, are highly technical products that require technical expertise. Continuing a relationship with a customer after a sale is unlikely to be of much benefit if they are not going to buy more. Obviously, the supplier will want to provide excellent customer service and technical support, to encourage word-of-mouth marketing and high rates of customer retention. Although it might be worthwhile to find out why the sale is a one-off, for market research purposes, it should be obvious that this customer is very unlikely to become a key account. Successfully managing key accounts depends on company-wide support, particularly from production, logistics and technical department, but also including senior management buy-in and a dedicated key account team. A company may need enough senior management tolerance for an investment that might take between one and three years to pay dividends in terms of revenues and profits. It is very important for marketing and sales managers to accept that not all accounts can or should be or become key accounts. They should be watching the costs of doing business with all accounts, to determine which ones may become key accounts. The emphasis needs to be on the word “may”. Researching, assessing and monitoring all accounts pay dividends. Also, monitoring key accounts to check they are making progress and are not being overtaken by their competitors is crucial to maintaining revenues and profits. If a key account is losing market share, it could be appropriate to identify their main competitors and target them as possible future key accounts.

17.10  PREPARING A KEY ACCOUNT STRATEGY AND PLAN As with all business activities, the most significant differences between high performing companies and less successful ones are effective strategies and action plans. Effective key account management requires an implementable account planning methodology. A key account plan helps to identify the greatest possibilities for growth, potential downsides, competitive threats and selling opportunities. Strategic planning methods are discussed in Chapter 14. The final question in a strategic planning process is to define what it is the company wants to achieve.

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The key account plan that emerges from the strategy should identify the company’s relationships within the account, the customer’s current business plan, objectives and financial health, the company’s sales targets for the account and the sales team’s tactics for meeting those targets. Identifying the supplier’s relationships within the account could take some time and will involve the sales team as well as account managers. The customer’s key decision makers, key decision influencers and gatekeepers (see Chapter 7), buyers, technicians and senior managers will all need to be identified. This will determine which relationships need to be built on and maintained, in addition to identifying anyone who could potentially derail the plan and everyone who is supportive. A detailed understanding of a customer’s key business goals, financial health and future plans will enable a supplier to anticipate and meet the customer’s needs and expectations, to provide value to the account and to find mutually beneficial opportunities. These analyses should be ongoing and regular, involving market analysts, salespeople and account managers. As part of the action plan, the supplier should keep both SWOT and PEST analyses up to date. The sales targets for the account should cover how much it is worth currently, which opportunities have been achieved, which opportunities have been lost (if any, as none should have been lost), where potential revenue growth has been identified and the projected values for those opportunities. It should also outline the short-term, medium-term and long-term goals for each member of the sales team. An example of a short-term sales goal is securing an order for 1,000 litres of high-performance hydraulic fluid by the end of next month. A long-term sales goal could be completing the negotiations for a Total Fluid Management contract by Christmas next year. The account strategy and goals are simply a “wishlist” until there are specific action plans to achieve those goals. These plans need to specify who will do what and by when. The tactics will need to be short-term, medium-term and long-term. The more specific and actionable these plans are, the better. Key account management involves juggling several initiatives, priorities and campaigns at the same time. Without clear direction, the sales team could go in a thousand directions. It is also important for a key account manager to remember that the strategy and plans can be changed or updated as circumstances change. An effective key account strategy depends on focus and selectivity. It is very important to select the right accounts and apply the correct criteria to each one. These accounts should be reviewed regularly to verify they continue to justify extra time, energy and resources. If they are contributing to revenues and/or profits as expected to substantiate the resource allocation, they are still key accounts. If for any reason they are under-performing or the account no longer appears to be a good use of additional resources, consideration should be given to reducing the work required. It is also very important to routinely watch the other accounts that are beginning to show growth potential. If a customer is about to experience significant growth, it may qualify as a strategic account. Investing some additional resources at this stage may earn the customer’s loyalty before any other competitor in the market segment. The criteria used to assess each key account should be reviewed at regular intervals. If a key account is not generating as much revenue and/or profits as expected, it is possible that one or more of the selection criteria were incorrect or inappropriate.

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A supplier may find that using different selection criteria for that account, means that it no longer qualifies as a key account. The performance of each account needs to be monitored regularly, preferably every month or every quarter, but at least every six months. What gets measured, gets done, so staying on top of account performance is critical for success. A timetable for internal account reviews should be established. The timetable is likely to depend on the size of the sales team, the value of the account and the dynamics of the relationship with the account. Measuring the account’s engagement and loyalty is just as important as the financials. All should be trending upwards. There should be a schedule of regular checks with the customer to get their feedback, address any issues and identify areas for improvement. Customer Relationship Management (CRM) software can make a key account manager’s workload so much easier and more effective. Using CRM to keep track of communications with an account’s stakeholders will give everyone on the sales team visibility into what is happening and help to minimise duplication of effort across the team. Implementing an e-mail tracking and notification tool can help to monitor customer responses to e-mails, letting a key account manager know exactly when the recipients open e-mails and click any links. CRM and related sales tracking methodologies are explained in Chapter 15. In the aftermath of the COVID-19 pandemic, the greatly increased use of virtual meetings, via MS Teams, Zoom, Skype and other software is likely to make communicating with key accounts even easier. The associated meeting scheduling software will either eliminate or greatly reduce the need for back and forth e-mails between suppliers and customers. As with all aspects of the internet, cyber security is of paramount importance. Suppliers and customers do not want competitors hacking into or listening to confidential and commercially sensitive discussions. However, effective key account managers know that virtual meetings, while convenient, are not a substitute for face-to-face meetings, at which personal interactions are very important for building relationships. A well-planned, comprehensive key account management strategy and action plan will not just keep a supplier’s best customers satisfied. It will also provide opportunities to exponentially grow the relationship. Both customer retention rates and supplier profits will benefit.

17.11  BENEFITS OF KEY ACCOUNT MANAGEMENT Because key accounts are likely to contribute between 30% and 50% of either a company’s revenues and/or profits, it is axiomatic that managing key accounts properly offers significant benefits. These benefits accrue to both the supplier and the customer. Effective key account management achieves cost savings for the customer and the supplier. For the customer, the purchasing process is simplified and the business relationship requires less effort. The customer’s staff are able to rely on deliveries, qualities and support service, knowing who their opposite numbers are and how to contact them if or when necessary. Stronger business relationships enable the key account to be much more comfortable with repeat orders.

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For the supplier, several studies have found that sales to key accounts are between 60% and 70% more likely to close than for other types of accounts. Also, key accounts spend an average of about 30% more than other accounts. Other surveys have shown that customer satisfaction scores increase by around 20% within a few years of starting a key account management programme. A key account management programme can serve as a competitive advantage. If a customer has narrowed down their choice of possible supplier to two companies and only one can offer to make them a key account, it is more likely that the purchase or contract will go to that supplier. Of course, this assumes that the customer meets the criteria described previously for qualifying as a potential key account and that the other supplier does not have a key account management programme. Also, for the supplier, the streamlined business processes allow savings in time and costs. The lessons from managing key accounts can be applied across the customer base and the word-of-mouth promotion from key accounts provides a higher marketplace profile. There are also likely to be opportunities for advertising and other promotional activities. In addition, key accounts are valuable “partners” to a supplier’s business. The more that key accounts succeed, the more the supplier’s products and services are going to succeed in those companies.

17.12 SUMMARY Managing key accounts requires specific marketing and sales skills and qualities which many marketing and sales people take time to acquire. The activities of a key account manager are numerous and onerous, because key accounts require more marketing and effort, in order to generate more sales, revenues and profits. A number of pitfalls exist in the management of key accounts. Only some accounts should be designated as key accounts. These are the ones that a company cannot afford to lose. There are several criteria that should be used to evaluate whether an account should become a key account. Key account management and selling are very different. While a salesperson focuses on the short term, by concentrating on specific opportunities, a key account manager has to prioritise the future. A key account manager has broader goals, including collaborating with the customer on mutually beneficial projects, helping the customer meet their objectives and making sure the customer is getting the necessary support.

REFERENCE

1. Schultz, Mike. “What Is Key Account Management?” RAIN Group Inc., Boston, MA, 2022. www.rainsalestraining.com

18

Supply Chain Management

18.1 INTRODUCTION A very important part of marketing and selling lubricants is to make sure that products are delivered to customers at the right times, right places, right quantities and right qualities. Consequently, marketing and sales people need to understand the complexity and methodology of managing a supply chain for product production and delivery, so that they can reassure their customers. In 1986, the US Council of Logistics Management defined supply chain management (SCM) as “The process of planning, implementing and controlling the efficient, cost effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin to point of final consumption for the purpose of conforming to customer requirements”. This definition highlights that logistics: • Involves the movement and storage of materials. • Is concerned with managing the information flows that underpin the flow of materials. • Ranges across the whole supply chain from point of origin of raw materials to final consumption of finished products. • Requires a single logic to plan and organise this flow of materials throughout the supply chain. As a result, SCM has two key objectives to achieve: • Achieving appropriate customer service standards. • Doing so in a cost-effective way. SCM practice draws heavily from logistics, procurement, industrial engineering, systems engineering, operations management, information technology and marketing. It strives for an integrated approach. Marketing channels play an important role in SCM. Current research in SCM is concerned with sustainability and risk management. It is also suggested that the “people dimension” of SCM, including ethical issues, internal integration, transparency, human capital and talent management are topics that have, so far, been under-represented in SCM. As companies have strived to focus on core competencies and become more flexible, they have reduced their ownership of raw material sources and distribution channels. These functions are increasingly being outsourced to other companies that can perform the activities better or more cost effectively. The effect is to increase the number of organisations involved in satisfying customer demand, while reducing DOI: 10.1201/9781003318392-18

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managerial control of daily logistics operations. Less control and more supply chain partners lead to the creation of the concept of supply chain management. Logistics management and SCM are essentially synonymous terms. Logistics management is a systematic and holistic approach to managing the flow of materials, products and information across the whole supply chain, from raw materials to end-user consumption. Many logistics problems initially become evident within a company, or even within a specific activity. For example, a company may realise it has insufficient warehouse capacity, that there is insufficient flexibility in production or that inventory levels are too high. However, the real cause of the problem, and indeed the solution, may lie outside the immediate function or even outside the company itself. By adopting “Total Supply Chain Management” techniques, a company can look across the whole supply chain to identify efficiency improvements. This involves a five-stage approach to developing a “model” from which the organisation can “chart” the four main process issues it needs to understand and control: • • • •

Physical flow of goods. Organisational and management structures that control the supply chain. Information flows and systems which underpin the flow of goods. Transportation.

When performing the above type of analysis, it is recommended that the issue of transportation is not considered until all of the other issues have been analysed. Companies increasingly began to find that they needed to rely on effective supply chains, or networks, to compete in the global market and networked economy. This concept of business relationships extends beyond traditional corporate boundaries and seeks to organise entire business processes throughout a value chain of multiple companies. In recent decades, globalisation, outsourcing and information technology have enabled many organisations to operate collaborative supply networks successfully, in which each specialised business partner focuses on only a few key strategic activities. This inter-organisational supply network can be acknowledged as a new form of organisation. However, the COVID-19 pandemic has exposed the fragility of many global supply chains. This is explained and discussed in depth in Sections 18.6 and 18.7. Fortunately, the lubricants business does not appear to be unduly impacted by recent global supply chain disruptions.

18.2  THE PHYSICAL FLOW OF PRODUCTS The flow of goods and products is the most obvious starting point in analysing a supply chain. A schematic diagram showing the flow of goods from point of origin of raw materials or components, through manufacturing and out through the distribution channel to the end-user, will aid the analysis considerably. Such diagrams should be schematic and as simple as possible. For example, if there are fifty suppliers of

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components, it might be unnecessary to show fifty boxes in the suppliers’ column. It might be better to group the suppliers into types and show a smaller number of boxes. Conversely, if the primary manufacturer has three plants, these could all be drawn into the column under manufacturing. Supply chain diagrams should not attempt to illustrate geographical locations. Although relative locations of organisations in the supply chain may be important, particularly when considering global supply chains, the schematic diagram is only intended to show the structure of the fixed points in the chain, such as factories, refineries, warehouses, terminals, depots and movement patterns between these fixed facilities. To identify fixed points in the chain, the first step is to categorise the various functional stages, such as manufacturing, storage, wholesaling, retailing, and then to group organisations into the following categories: • The Primary Manufacturer: Defined as the organisation producing the final product, as used by the end-user. In many supply chains, the primary manufacturer is the pivotal point of the chain. In the lubricants business, the primary manufacturer is the lubricant supplier’s blending plant. This might be wholly owned by the lubricant supplier, but might involve toll manufacturing in a third-party blending plant. • Component Suppliers: Are upstream of the primary manufacturer, beyond which are likely to be raw material suppliers. It may be beneficial to identify first-, second- and third-tier suppliers. Consolidation centres may also exist between the component suppliers and the manufacturers to accumulate or sort supplies inbound to the manufacturing process. For making lubricants, the component suppliers are mineral oil base oil refineries, synthetic base oil manufacturers and lubricant additive manufacturers. • Fixed Assets in the Distribution Channel: Are downstream of the manufacturer and are used to deliver products to the end-user. They include finished product storage facilities, warehousing or terminalling at the distribution centre which will be closer to the marketplace. Thereafter, the product is likely to move through distribution channels, such as wholesalers, retailers or distributors. In some cases, warehouses and terminals for lubricants may be under the direct ownership of the lubricant supplier, while in other cases they may be contracted from other companies. It is advisable to chart the supply chain as far as the end-user because it is possible that difficulties for the final customer may arise between the last organisation in the chain and the actual consumption or use of the product. Increasingly companies are looking at influencing the supply chain even within the customer’s organisation to ensure best customer service to the actual end-user. This certainly applies to Total Fluid Management contracts, discussed in Chapters 13 and 19. After identifying and categorising the fixed elements of the supply chain, the second step is to chart the flows and movements that provide the links between the fixed elements. Conceptually, transport should be the last issue to consider when analysing existing supply chains and indeed when planning new supply chains, because

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transport requirements are determined by the number and geographical proximity of the fixed elements in the chain and the volumes to be moved. When considering the links, it is important to view the chain as a whole. Transport flows should be clearly indicated on the schematic diagram and in reality they may be more complex than simple direct flows between the fixed facilities. Additionally, it is often beneficial when analysing transport movements to produce a simple geographic map to show the main fixed locations in the supply chain and the major movement patterns between them. A basic knowledge of geography of an area is essential in analysing transport systems. For example, some potential transport options may be precluded because of physical barriers. Also, mapping the locations of all fixed elements in the supply chain from raw materials suppliers through refineries, blending plants, terminals, depots and regional distribution centres may reveal geographical juxtaposition that suggests opportunities for coordination of transport across the chain. It is also important when considering transport to identify requirements right up to the end-user’s point of consumption, as problems and potential customer service difficulties may occur beyond the point of final purchase. Most supply chains are not planned as a single system. They have evolved over time on the basis of many decisions taken independently at different times and different points of the chain. As a result, chains are often complex and inefficient. The schematic mapping of the system is an essential first step in untangling this complexity and the production of a flow diagram is often a very good indicator of some of the major supply chain problems.

18.3  INFORMATION MANAGEMENT This is the second major group of issues to be considered when analysing logistics. Information management is critical to effective supply chain operations. The operational system required to process orders through the supply chain needs to be considered first. Customer demand triggers orders and the systems that are in place to capture the order and progress it down the supply chain must be identified. The order moves in the opposite direction and initiates the physical flow of goods. A second flow of information accompanies the movement of the product through the system. These include despatch notes, delivery notes and invoices. Again, the information associated with this must be identified and its efficiency analysed. It is also useful to produce a schematic diagram to show the flows of information. This should indicate the fixed points through which information passes, such as sales, warehousing and transportation, and the mechanisms by which the information is transmitted, including telephone, fax and electronic data interchange (EDI). The production of flow diagrams is an essential first step in understanding the mechanisms of the supply chain information flows and in highlighting potential problems. Another key aspect of information management in logistics is the information required for demand forecasting. A fundamental starting point for modern logistics management is the requirement for forecasts of future demand in order to plan the capacities of the supply chain functions, such as production and transport and to determine the levels and locations of inventory required to meet customer demand.

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In many companies, demand forecasting is the responsibility of the marketing or sales department; in others, it is the responsibility of production, while in some it effectively does not take place at all. Accurate demand forecasts are essential to successful logistics planning and it is therefore important to identify the functions and systems involved in demand forecasts and assess the accuracy of these forecasts. A third aspect of information management relates to the availability of the management information which is necessary to monitor the efficiency of logistics operations. A great variety of such information is required, ranging from data to monitor the performance of specific operations, such as vehicle utilisation levels or plant and warehouse productivity, or information which indicates the performance of the overall logistics system, such as inventory levels throughout the supply chain. In many companies, there is a paucity of management information for logistics, partly because logistics is often a new function and no one has previously collected relevant information and partly because information is generated by and for the financial functions of the company and may not be in an appropriate form for logistics managers. An important early step in logistics improvement is to clearly define the management information required to monitor the performance of supply chain activities and to establish if or how that information can be made available. The fourth aspect of information management that requires analysis is the physical systems to facilitate the flows of operational information and provides the requisite management information. In most modern organisations, this will centre around the computer systems and requires assessment of the capabilities of both hardware and software and, increasingly, of the network linkages between computer systems. These will include on-truck computing systems and bar-coding systems for product tracking that are becoming more prevalent in logistics operation. In some organisations and some countries, computer systems may be underdeveloped, unreliable, inappropriate or non-existent. In these cases, analysis should be made of alternative systems which are in place to handle information.

18.4 THE ORGANISATION AND MANAGEMENT STRUCTURE CONTROLLING THE SUPPLY CHAIN The third major consideration when analysing logistics systems concerns the organisation structures that control the supply chain. The essence of logistics is to develop an integrated approach to management of the whole supply chain. It is necessary, therefore, to understand the structures, functions and attitudes that control the existing supply chain system. Analysis of management structures should be carried out at three levels: • The individual function. • The individual company. • The supply chain as a whole. In some companies that form part of a supply chain, it is common to find responsibility for different logistics activities split between functions. For example, the production function could be responsible for in-bound transportation, the distribution

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function could be responsible for warehousing and terminalling, and in some companies this may be split by product group and the marketing and sales functions could be responsible for customer service and inventory levels. These traditional styles might prove to be “cost blocks” to SCM and might place unnecessary costs upon a company in terms of both direct oncosts and business complexity. Many companies are organised traditionally into vertical and functional groups, while materials and information flow horizontally across these functions. It is important to identify the groups involved in the flows and to determine their perspectives and objectives in relation to logistics activity. It is also important to assess the perspective of the company’s senior managers to supply chain activities and improvement. Studies have shown that senior management understanding of, and backing for, changes in logistics activities is an essential ingredient for success. As a result, it is necessary to assess senior management’s view of logistics, as this will be critical to the likely success of future plans. The relationships of the various individual organisations that make up the supply chain must also be examined. Most supply chains are comprised of a large number of companies, such as several suppliers, retailers and wholesalers. All of these are independent commercial entities, with their individual business objectives and profit goals. Consequently, the traditional control of many supply chains has been fragmented between these organisations and is often adversarial. In some cases, one company has acquired other companies, either upstream (supplier) or downstream (retailer), in a process of vertical integration, in order to gain control of a greater part of the supply chain. The goal is to permit more systematic management of the system. There have been an increasing number of initiatives in many industries towards the formation of partnerships and joint ventures between members of a supply chain. A main purpose of these is to move towards the implementation of logistics improvements along the supply chain. A further important issue that should be examined when analysing the control of the supply chain is that of power relationships between the organisations and groups making up the chain. It is important to assess which organisations are most powerful. In reality, only the most powerful members of a chain will be able to force through logistical initiatives, as these require significant changes of operational practice across the chain and may result in a disproportionate sharing of benefits. Finally, but very importantly, when supply chains are international or companies are multinational, there is a need for considerable cultural sensitivity and diplomacy when dealing with supply chain members that are located in different countries. They may have very different perspectives on business practices and on logistics management initiatives.

18.5  INTEGRATED SUPPLY CHAINS To achieve a fully integrated supply chain, a planner needs to consider all of the available options. There is a danger in thinking that putting a number of least cost options together will achieve the optimum solution. This cannot be assumed, as each choice may have significant effects on other options.

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An integrated supply chain for lubricants, in terms of product movement to the marketplace, is made up of four separate areas: • Primary source of supply: Own base oil refinery, own lubricant blending plant, other company base oil refinery, third-party blending plant, synthetic oil manufacturer (chemical company), additive manufacturer. • Primary mode of supply: Truck, railway, pipeline, barge, sea. • Storage options: Own terminal, distribution centre or warehouse, thirdparty terminal, distribution centre or warehouse, regional and local distribution centres, hired warehouse(s), joint venture or alliance location. • Secondary distribution: Own vehicles, contract vehicles, shared vehicles. Computer modelling techniques are used to achieve the best “mix” and to identify the optimum choices. It is important that the model and choices are reviewed regularly and constantly, to ensure ongoing optimisation.

18.5.1 Primary Supply Primary supply is the task of moving base oils from a refinery to a blending plant and finished lubricants from a blending plant to a distribution centre or warehouse. In many cases with lubricants, the main distribution centre or warehouse will be located within or next to a blending plant. Storage facilities for base oils, additives and blended lubricants will be required in the appropriate locations. The location of a refinery or a blending plant is likely to provide competitive control over the marketing hinterland around it. This can be used, by virtue of the lower cost of primary distribution, as a valuable competitive advantage. The main issues concerning primary supply relate to the movement of products to intermediate storage terminals and the competitiveness of alternative modes of supply. To achieve an optimised logistics and distribution function, the primary supply issues must form an integrated part of the supply chain, provide a competitive advantage, form part of the marketing strategy, meet customer needs and minimise costs.

18.5.2 Secondary Transportation Secondary transportation for lubricants depends on the type of customer and the scale of the delivery. Most automotive lubricants will be delivered either in bulk road tankers (to vehicle manufacturers, car and truck dealers, fleet operators and service centres), drums (to service garages and fleet operators) or palletised small packs (to service stations, specialised auto shops or supermarkets). Delivery of industrial lubricants can involve everything from pipelines (although rarely) to very large customers (power stations and steelworks), through road tankers, rail tankers, drums and small packs (to very small customers such as production engineering workshops). Marine lubricants can be supplied in barges, bulk containers, drums and small packs. Mining and agricultural lubricants are generally supplied in drums and small

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packs, but can be supplied in road or rail tankers, depending on the size of customer and distribution through specialised distributors. The obvious area for identifying cost savings in secondary transportation for lubricants is with road delivery, since the efficiency with which drums and pallets of small packs can be handled has a larger impact than with bulk deliveries. Road transportation has also seen much change in terms of technical development in truck operation and the use of information technology used on-board vehicles. Specialisation within the supply chain began in the 1980s with the inception of transportation brokerages, warehouse management (storage and inventory) and non-assetbased transportation companies. It has developed beyond transportation and logistics into aspects of supply planning, collaboration, execution and performance management. Market forces sometimes demand rapid changes from suppliers, logistics providers, locations or customers in their role as components of supply chain networks. This variability has significant effects on supply chain infrastructure, from the foundation layers of establishing and managing electronic communication between trading partners to more complex requirements such as the configuration of processes and work flows that are essential to the management of the network itself. Supply chain specialisation enables companies to improve their overall competencies in the same way that outsourced manufacturing and distribution has done. It allows them to focus on their core competencies and assemble networks of specific, best-in-class partners to contribute to the overall value chain itself, thereby increasing overall performance and efficiency. The ability to quickly obtain and deploy this domain-specific supply chain expertise without developing and maintaining an entirely unique and complex competency in house is a leading reason why supply chain specialisation gained in popularity. In the 1990s, companies began to focus on “core competencies” and specialisation. They abandoned or reduced vertical integration, sold non-core operations and outsourced those functions to other companies. This changed management requirements, as the supply chain extended beyond the company walls and management was distributed across specialised supply chain partnerships. This transition also refocused the fundamental perspectives of each organisation. Companies had to control the entire supply chain from above, instead of from within. Contract manufacturers had to manage bills of material with different partnumbering schemes from multiple sources and support customer requests for workin-process visibility and vendor-managed inventory. The specialisation model creates manufacturing and distribution networks composed of several individual supply chains specific to producers, suppliers and customers that work together to invent, design, manufacture, market, distribute, sell and service a product. This set of partners may change according to a given market, region or channel, resulting in a proliferation of trading partner environments, each with its own unique characteristics and demands. Outsourced technology hosting for supply chain solutions started in the late 1990s and has become established mainly in transportation and collaboration. This has progressed from the application service provider (ASP) model from roughly 1998 through 2003, to the on-demand model from approximately 2003 through 2006 to the software as a service (SaaS) model used currently.

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18.6  GLOBAL SUPPLY CHAINS Wide fluctuations in demand, caused by local market-derived demand, are even more pronounced in longer and less communicative global supply chains. Inventories and production are subject to wider swings the further a producer is removed from ultimate buyers. The effects are similar to cracking a whip; the farther the point is from the handle, the wider the variability in its motion. This variability is accentuated in global supply chains due to communication problems, accentuated by economic, cultural, political and legal environments. For example, national governments are increasingly limiting information sharing between host and foreign companies. Instead of continuing the conventional approach of constantly changing production schedules, inventory levels and revamping control systems, SCM advocates an “integration” of channel efforts rather than the conventional “interface”. This integration envisions supply as a shared objective of every channel participant and of functional units within companies. Global SCM involves a not easily attained, but essential, shared managerial philosophy among international companies. It conceives the possibility of a shared ownership of information about plans, allocations and inventories. Also, of linking different functions, such as purchasing and production, and of the management of data gathering and its flow across international organisational and functional boundaries. In this context, firms must be willing to share essential supply information, so that a small swing in demand does not turn into an unjustifiably larger swing farther up the supply chain. Also, companies and functional areas within them must be willing to negotiate on varying, often conflicting objectives. For example, it may be concluded that a 99% delivery reliability in four weeks is more acceptable than an 85% reliability on a two-week lead time. Global SCM requires developing trust and cooperation between and within companies separated by great physical distances. Fortunately, with the internet and cloud data storage, physical separation does not affect information flow, even with different time zones. Inspiring a multi-company philosophy that accomplishes such an integration represents a monumental challenge. Until recently, it was thought that the benefits outweighed the challenges. It was thought that international distribution offered distinctive competencies to international companies and, consequently competitive advantages over their more localised competitors. Whether such competencies were derived intentionally was not fully known, but their existence continued to be documented. For example, in the 1990s, Japanese television manufacturers developed worldwide brand dominance, which enabled them to advance along the learning curve. Although European and US companies responded with improved technological processes, they were faced with ever lower competitive prices. Global distribution had effectively established real barriers to competition. Logistics strategies involving overseas production can be accompanied by purchases of nearby low-cost foreign inputs, such as lower labour costs. International companies can also develop differential advantages by employing the principle of comparative advantage of producing where production is least expensive and selling where the greatest profits are achievable. They can take advantage of lower wages,

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higher production rates, reduced lead times and readily available capital at production locations, as well as concentrated, wealthier customers in developed country marketing and selling locations. As noted earlier, the COVID-19 pandemic of 2019/2021 revealed the fragility of global supply chains. Data showed the devastating economic impact as weekly trade in and between China, the US and Europe halved because of the crisis. The pandemic hit global trade and investment at an unprecedented speed and scale. Multinational companies faced an initial supply shock, then a demand shock as more and more countries ordered people to stay at home. Governments, businesses and individual consumers suddenly struggled to procure basic products and materials and were forced to confront the fragility of modern supply chains. The urgent need to design smarter, stronger and more diverse supply chains was one of the main lessons of the crisis. Two side effects of the contractions in global trade emerged. One is that it took longer to settle an invoice, reversing a previous trend of faster payments. Second, the lack of orders going through the supply chain built up to another tidal wave, with new orders slowing and invoices dropping off. At the time of writing (February 2022), companies are still struggling to recover from the economic effects of the crisis. Companies had already begun to re-think their global supply chains in response to changing labour costs, advances in automation, rising protectionism and external shocks, such as natural disasters. It took the COVID-19 pandemic to more fully expose the structural flaws that prompted a fundamental re-assessment by companies of their approach to global manufacturing and sourcing. Factory lockdowns, transportation disruptions and panic buying led to shortages of everything from medical supplies and household necessities to critical automotive and electronic components. The crisis also heightened geopolitical tensions, trade restrictions and nationalistic policies aimed at promoting domestic industries. These factors are likely to continue to reshape the global business landscape. Now, companies are exploring various ways to build more resilience into their manufacturing and supply networks, even if that resilience leads to extra costs. With massive value at stake, global businesses are seeking to mitigate risk and secure better access to supplies and markets. They are exploring options for diversifying and regionalising their manufacturing and supply networks, adding backup production and distribution capacity, and re-optimising inventory. Companies are also seeking to improve their supply chain flexibility, risk-monitoring capabilities and capacity to respond rapidly to new shocks.

18.7  DISRUPTIONS TO GLOBAL SUPPLY CHAINS Several factors, some interconnected and others completely separate, have disrupted global supply chains in recent years. A trade war between the US and China that started in 2017 with the imposition of tariffs on both sides caused many companies to look for alternative sources of supply. The Chinese government decided that the country needed to become less reliant on imports of important products or technologies from America. An increasing number of companies in other countries had

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already begun to consider alternative Asian suppliers, as increases in labour costs in China began to impact prices and profits. Following the World War II, the idea that more open markets help to promote innovation, competition and growth lead to support for freer trade. The system of the General Agreement on Tariffs and Trade (GATT, founded in 1948) which was transformed into the World Trade Organization (WTO) in 1995 lead to an explosion of global trade as a share of gross output. The share rose from around 30% in the early 1970s to around 60% in the early 2010s. Over the same period, global supply chains grew from around 37% to 50% of total trade. A report by the World Bank in 2019 concluded that a 1% increase in participation in global value chains is linked to an increase in income per year of more than 1% in the long term. The value of global merchandise exports has increased from 5% of GDP in 1949 to 25% of GDP in 2019. Then, early in the COVID-19 pandemic, many countries started to believe that foreign suppliers might protect national interests at the expense of exports and that in a crisis foreign suppliers are unreliable. In 2020, global trade fell by 8.9%, the steepest drop since the global financial crisis of 2008/2009. Trade in services fell by more than 20% in 2020, almost four times the decline trade in goods. COVID-19 restrictions curtailed the service sector, while goods trade recovered as factory shutdowns were limited and there was a surge in demand for some durable goods. During the pandemic, world trade fell by less than economic activity during the global financial crisis, despite a significantly larger decline in global GDP in 2020. This was because services represent the majority of economic activity in advanced economies, but only around a quarter of global trade. The impact of the pandemic on trade was different across countries. In particular, the fall in Chinese trade was much smaller than in other regions. The recovery of Chinese trade was especially strong, supported by robust global demand for goods and China’s ability to reopen its domestic supply chains ahead of other countries. Imbalances in regional trade brought about by the pandemic have contributed to the rise in shipping costs. In particular, increased demand for durable goods in lockeddown economies, combined with COVID-related disruption in the ports of those countries, exacerbated the shortage of shipping containers. In September 2001, the spot price for sending a standard container (a 40-foot-equivalent unit (FEU)) from Shanghai to New York was almost $15,000, compared with about $2,500 at the end of 2019. Containers became “stuck” in the US and Europe rather than being returned to Asia. The average door-to-door shipping time for ocean freight has gone from 41 days in 2020 to 70 days in 2021. The shortage of shipping containers is likely to be temporary and ultimately fade. However, shipping costs could remain elevated in the near future, supported by the strength in manufacturing and the recent commodities boom, partly driven by the recovery in economic outlook across the world. In addition, decarbonisation costs arising from the need to tackle climate change mean shipping rates are likely to settle at higher levels than before the pandemic. Although shipping costs account for only a small proportion of the total cost of most products, some analysts believe that they are unlikely to fall much during 2022 and 2023 because most shipping contracts are long-term and are significantly lower than current spot rates. As the contracts roll over, future rates are likely to be much higher than they were in 2019. Shipping rates

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may not come down until new ships are launched. Some observers contend that ship owners may not order more ships until it is clear that lower freight rates are a thing of the past. Shortages of truck drivers in Europe, North America and Asia also disrupted local supply chains, affecting global trade flows. Following lockdowns in many countries, some truck drivers decided not to return to work. This led to delays in getting goods to many retail outlets, resulting in panic buying by some shoppers. At the same time, some staff are having to isolate and not work, either because they have contracted COVID-19 or have been in contact with someone who has. China’s zero-tolerance approach has closed ports following the discovery of only a few cases of COVID-19. Some commentators believe that the dislocations could even hasten a reordering of global trade. The problem of reliability may cause companies to change the way they plan. “Just-in-time” may give way to “just-in-case”, as companies guard against supply shortages or disruptions by building inventories. However, building buffers into supply chains is expensive. Some politicians and bureaucrats have blamed companies’ drive for maximum cost efficiencies on supply chain disruptions. A goal of greater resilience now frames some governments’ trade policies. This could mean strengthening domestic industry according to criteria beyond just the marketplace. A combination of trade disputes, tariff increases, geopolitics and supply chain fragility may result in sources of supply tilting away from China and the US. Identifying supply chain vulnerabilities seek to identify sources of supply that are so concentrated that they justify government intervention. In June 2021, the G7 group of developed countries floated the idea of supply chain stress tests. The European Commission has highlighted sources of lithium-ion batteries for electric vehicles, for example. It has also been suggested that some companies may decide to shorten their supply chains, by moving production closer to their headquarters, a process known as “near-shoring”, to distinguish it from the earlier process called “off-shoring”. An increasing number of companies are ensuring that their supply chains are not reliant on either a single country or a single source of supply. The precise nature of future-resilient supply chains is likely to vary by industrial sector, location and the type of sourcing and manufacturing network that best fits each company’s strategic objectives. Business decisions could be influenced by two key factors. These can be called the “impetus to change”, such as economic and political pressures, and “the ease of adjustment”, such as the difficulty of replacing certain suppliers and the capital costs associated with moving to new locations. Companies that make the right adjustments will create supply chains that put them in the best competitive position as they emerge from the current pandemic and prepare for the next pandemic. Fortunately, supply chain disruption does not appear to apply very much to markets for base oils, additives and lubricants. Most base oils and additives are available from a number of sources and suppliers, globally. A small number of additives and some bio-based base oils may be available from only one or two suppliers, but in many cases alternative materials can be substituted in most lubricant formulations. Smaller lubricant companies that market and sell speciality products worldwide from a single blending plant may need to analyse their supply networks to customers,

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to ensure as much resilience as possible, within cost and price constraints. The evidence of the last few years suggests that close attention to global and national supply chains is very worthwhile.

18.8  LOGISTICS FUNCTION CHALLENGES The main challenge for the logistics function is how to service diverse markets, which require handling with differentiating service levels, in the most efficient manner. Many suppliers of lubricants have a fragmented approach to marketing the various products, particularly with industrial lubricants. In many companies, the logistics problem is confused further by the insistence that some of the specialist markets will require their own logistics and distribution channels. Marketing strategies and tactics may dictate that deliveries to large customers are handled by the logistics function, while smaller customers in industrial and agricultural markets are served by specialist distributors. In the latter case, third-party contractors are used to deliver “niche” market products, managed by the marketing function. In terms of logistics, and indeed overall economics, such fragmented approaches may not provide the best solution to the company. Using the logistics function to provide the services, it is designed to allow marketing staff to focus on the issues affecting market segments. It also gives logisticians the opportunity to obtain greater flexibility across functions. The real challenge for logisticians is to get the organisation to work across functions rather than in the traditional “silo” manner and to use a process called tender bundling. This process is detailed in the section relating to outsourced suppliers.

18.9  ROAD TRANSPORT STRATEGY Road transport strategy for lubricants is likely to need to be aligned closely with the marketing strategy, for delivering specific groups of products to specific types of customers. The strategy should also be capable of a five-year timescale.

18.9.1 Principal Transportation Issues A number of major issues need to be considered when developing the road transport strategy, including: • Market conditions: Regulated, protected, competitive, aggressive. • Services availability: No contractors, poor quality contractors, expensive contractors, maturity of contractors, partnership options. • Industrial relations: Stable and empowered, problems, regulated by government. • Customer service: Crucial, cost no object, indifferent, differentiated, role of the delivery driver, order capture. • Health and safety: Vital, important, evolving. • Logistics environment: Stability of network, use of information technology, control of scheduling, use of performance standards.

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• Changes in legislation: Sealed parcel meters, carriage of dangerous goods legislation, packaging and labelling regulations. • Competitors’ plans: Joint venture options, outsourcing, driving down costs. Having considered these “high level” issues, logisticians should then consider the market segment in detail, to identify the issues that are vital to both logistics and marketing.

18.9.2 Own or Contracted Vehicles The use of either or both company or outsourced vehicles is the next issue in setting the transport strategy. Although some of this may have been resolved by the decisions relating to the higher level issues, much of what exists has arisen from the company’s history and how that has evolved. Many companies use the process of identifying “core” and “non-core” business to assist them in the process. In some companies, it may be agreed that running company vehicles is not a core activity. More companies are recognising the benefits of moving towards the use of specialist logistics providers to handle the road transport function. However, in terms of customer service, vehicle drivers can be an important point of contact with customers. It is therefore very important that, as part of the tendering process for contracted transportation, issues around service levels are clearly understood. Many companies also insist that a contractor provide trucks in the supplier’s livery and that drivers wear similar uniforms to company drivers.

18.9.3 Transportation Management Management of road transportation involves order tracking, vehicle routing, delivery scheduling and related services. Many companies use sophisticated management systems to schedule trucks, many of which link directly to payment systems for the driver and self-billing invoices for the contractor. Many contractors can also provide expertise in this area. The issue for the operator is how far to devolve management while retaining control of costs. Much of this will depend upon the maturity of the contractors and the opportunities to move towards long-term strategic alliances and partnerships. The issue of safety must always be considered when examining the potential for outsourcing. Many companies insist that drivers are trained to their own standards. In some countries, drivers must be qualified and licenced to deliver hazardous goods and trucks may need to be inspected annually, to be given a safe loading pass which allows entry into distribution facilities.

18.9.4 Information Technology and Road Transport With mobile computing, trucks have become the front line in terms of handling information. On-board computers for trucks handle transactional and

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administrative data, monitor truck and driver performance and deliver improvements in fuel efficiency and environmental management. Computerised control systems can include safety management, controlling bulk product loading and discharge process and safeguarding against the cross-over of product at the delivery point. GPS (global positioning satellite) systems are being used to locate and monitor trucks and GSM phone communications transfer information to and from the truck in real time.

18.9.5 Road Transport Performance Management Many companies are now using improved management tools, based on standard measurements for the process’s undertaken by drivers and trucks, so that performance can be both measured and improved. Performance measurements can include: • Loading Set Up Minutes: The time taken to connect a bulk delivery truck at the loading rack. • Loading Rate: The time taken to load either a bulk delivery truck or the palletised load. • Standard Trip Measurement: Automated-scheduling systems measure and allocate time allowance against shortest road route with differing average speeds for road types. • Customer Administration Time: Average time taken for documentation completion at each customer’s location. • Delivery Rate: The time taken to deliver at each customer’s location. By using these measures for each load delivered, the logistics function can compile a performance analysis of each operation. Oil companies then use the application of Best Practice Performance Measures to improve individual operations. These would usually involve: • Best practice definition: Ninety per cent or more of the maximum legal capacity limit, one drop per trip, 5,000 hours per truck per year, measured against 24 hours per day 7 days per week 365 days per year, or 8,760 hours per year availability, and 2,000 hours per driver per year. • Best practice performance measurement: Utilising each truck to maximum capacity on every load, optimising the number of drops per trip, reducing non-productive time at a distribution centre and reducing nonproductive time at each customer’s premises. The objective must always be to utilise each truck to the maximum up to 24 hours per day, 7 days per week and 365 days per year, where national law allows. Driver shift patterns must reflect legal limits on duty issues, but should target a driver to vehicle ratio of three drivers per truck. In this way, the logistics function can identify where performance can be improved across the network and constantly manage the options and costs.

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18.10  TENDER BUNDLING Real cost savings can be achieved by organisations through the use of tender bundling. Savings can come from a number of sources. Using outsourced transport enables a simplification of the tender process, greater “leverage” of suppliers and greater flexibility of resources. Using in-house operations allows single rate salary structures, control over the standards used and also greater “leverage” of suppliers. Bundling the volumes of the several divisions into one single tender process and “grouping” contractors into various areas, to use more than a single contractor, enables substantial reductions in costs to be achieved. Managing a tender process in this way also provides a lubricant supplier with the opportunity to exert increased “leverage” on truck and equipment manufacturers to provide improved warranties for the provision of equipment based around “whole life costing” of the truck, including maintenance and repair costs.

18.11 SUMMARY Managing supply chains is an important adjunct to successful marketing and selling. Cooperation and co-ordination between logistics, marketing and sales people is vital for ensuring that the right products get to the right customers at the right times, right prices, right quantities and right qualities. In the lubricants business, supply chains start with the purchasing of base oils and additives, progress through the blending plant(s), warehouses and distributors and may involve ships, containers, rail tank wagons and even cargo planes. Global supply chains can be very long and complex and, as the COVID-19 pandemic and geopolitics have exposed, can be subject to fragility and disruptions. Even local supply chains can be disrupted by unforeseen events. Delivery by road is the last, but very essential, link in the supply chain, particularly for marketing and sales people. It is also an area where much can be done to affect cost savings, particularly when lubricant suppliers are innovative in their use of contractors and partners. It is also an area where much use can be made of information technology to improve service and to reduce costs. Road transport is the point in the supply chain where a supplier meets face-to-face with a customer. As a result, opportunities exist to influence the customer’s perception, by providing quality service delivered in a timely, professional and courteous manner. The condition of the delivery vehicle and the manner of the driver, who acts as a company representative, can be major opportunities to shape the standards by which a customer perceives the supplier. Clearly, logistics should aim to achieve an effective supply chain at a cost that provides marketing and sales with a competitive advantage. There are no prizes in exceeding customer’s demands, only in meeting them in a timely and professional manner. The only way this can be achieved is for logistics and marketing people to work together, with the joint aim of delivering a logistics strategy that best meets the customer’s needs.

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19.1 INTRODUCTION The main objective of all good salespeople is to find ways to increase productivity, achieve more sales and generate higher profits on every selling day. Experience at Mobil Oil Company1 in the 1960s indicated that “benefit selling” is the best way to secure and retain customers with minimum sales effort. This allows a salesperson to focus on building strong and enduring customer relationships. Studies of customer accounts in almost all industries show that around twenty of every hundred accounts make up 80% of sales. It is therefore apparent that a salesperson should concentrate on those twenty accounts and can afford to spend only 20% of his or her time on the smaller accounts. For obvious reasons, the Mobil benefit selling methodology is immediately applicable to the lubricants business. To be successful, salespeople and customer support engineers and chemists must have a good working knowledge of lubricants, lubrication methods, maintenance practices, industrial equipment and manufacturing and production engineering processes. This is why selling lubricants is not the same as selling almost all other products. Effective sales are win-win for the customer and the supplier. What this means is achieving the lowest total cost for the customer and not the lowest unit price from the supplier. The Mobil benefit selling programme aims to assist a customer with using their equipment or manufacturing their products at the lowest possible unit cost. The lubricant supplier provides an organised sales approach that aims to secure and retain all of the customer’s lubricant and lubrication requirements. In all cases, the benefits need to be expressed in units of cost or time saved. (Time has a cost, so these units imply the same thing.) For reasons that will become apparent throughout this chapter, benefit selling is most applicable to the industrial lubricants market, although it can apply equally well to the fleet operators in the automotive lubricants market, as described in Chapter 6. Most retail buyers of lubricants are unlikely to understand the finer points of the benefits that can be achieved from using the most appropriate lubricants. However, as noted in Chapter 10, some retail automotive lubricant users are likely to recognise the benefits of maintaining their cars or vans optimally, by using high-quality oils and greases.

19.2  BENEFIT SELLING METHODOLOGY Benefit selling is both a philosophy that governs the conduct of a supplier and a sales method that enables a supplier to sell profitably in a highly competitive market. In this way, both supplier and customer are able to achieve higher profits. DOI: 10.1201/9781003318392-19

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Selling benefits for lubricants involve seven interrelated components: • Reduce unscheduled downtime: Eliminate equipment failure due to faulty lubrication and maintenance. • Increase production of acceptable parts or products: Improve machine performance and reduce the number of rejected parts or products caused by malfunction of inadequately lubricated equipment. • Reduce maintenance labour costs: Apply effective methods of lubrication scheduling, lubricant handling and lubricant application. • Reduce the number of equipment or component replacements: Reduce or eliminate causes of excessive wear or equipment failure due to faulty lubrication or maintenance practices. • Reduce lubricant consumption and cost: Eliminate over-lubrication, minimise waste and extend lubricant life. • Reduce lubricant purchasing costs: Apply lubricant rationalisation, bulk purchasing and lubrication recommendations, based on detailed knowledge of the equipment requirements and manufacturing operations. • Achieve effective maintenance controls: Establish supervisory and lubrication controls by training the customer’s personnel in efficient and effective lubrication methods. The principal aim of the Mobil benefit selling methodology is to convince a prospective customer that the lubricant supplier can assist with realising one or more of the above benefits. Only those specific benefits that are achievable in the prospect’s operations, based on comprehensive information obtained and analysed in conjunction with the prospect, should be promised. Existing customers should not need to be convinced, because they should already be aware of the benefits that can be achieved. The prospective customer needs to be asked to commit their lubricant and lubrication requirements to the supplier. This will be based on the marketing and sales negotiations discussed in Chapter 7. After the commitment, it is the lubricant supplier’s responsibility to cooperate with the (now) customer, not only to help them realise the specific benefits promised, but to work continually to develop benefits in all phases of their plant lubrication. The benefit selling methodology requires dealing in specifics, not generalities, and relating the specific benefits to the customer’s responsibilities as a manager. The methodology also provides the techniques that produce any one or more of the promised customer benefits. Mobil described these as “The Ten Phases of Lubrication”. Because lubrication is involved in many facets of a customer’s operation, the techniques are used to put the lubricant supplier’s products, experience and services into the customer’s production and maintenance operations. The ten phases are the areas in which salespeople and support engineers need to work to achieve the benefits in cooperation with the prospect or customer. The possibilities of achieving the desired benefits depend on many factors, including the type of equipment, the type and frequency of maintenance, the plant’s size and conditions, operational and managerial effectiveness and financial limitations. In almost all situations, there are likely to be good opportunities to produce benefits

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in one or more phases in any given customer’s operations. Very often, cost reductions can be achieved that exceed the cost of the annual expenditure on lubricants. According to Mobil, the ten phases of lubrication are: • • • • • • • • • •

Fewest correct lubricants. Lubrication instructions. Lubrication organisation. Lubricating devices. Storage and handling. Lubricant life. Oil purification. Lubrication controls. Customer staff training. Preventive maintenance.

In order to identify which of these phases is appropriate for each selling situation, customer information must be collected and analysed in a precise, organised way. This will involve the methods discussed in several earlier chapters. Since all benefits are expressed in specific terms of cost or time, the approach to establishing this data must be well documented. For each phase, four steps need to be completed by the marketing and sales team: • Baseline conditions: What is being achieved currently in this particular customer’s plant with the machines and operating conditions? • The goal: What could be achieved if improvements can be made? (ISO 9000 and 9001 indicate that improvements are always possible.) • Recommendations: What improvements in methods and controls must be made to reach the goal(s)? • The benefits: How much can the customer save by following the recommendations? The benefits involve the seven interrelated components described earlier. Whenever possible, marketing and sales people should use cost data for the specific plant rather than average industry figures. The ability to identify and establish performance improvement is creative engineering rather than simple questioning and note taking.

19.2.1 Fewest Correct Lubricants The methodology for identifying what are the fewest lubricants that can be used by the customer in the specific plant starts with the lubrication surveys described in Chapter 13. The objective then becomes one of using the smallest number of correct lubricants consistent with sound lubrication practices. Use of the fewest lubricants reduces the chances for confusion and errors, simplifies inventories and allows the purchase of the most economic amounts of oils and greases. Bulk purchasing of large-volume lubricants lowers unit-buying costs. Eliminating small-volume

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purchases also allows unit-price economics. Fewer purchase orders lower administration and accounting costs. Fewer products reduce storage and handling costs. With careful analysis of machine and operating conditions, a reduction in the number of lubricants by 50% is not uncommon. Larger plants with more and different machines and a greater range of operating conditions are likely to need a higher number of different lubricants. This may also depend on the types of controls used for lubrication and on the skills and experience of the plant’s engineers and supervisors. Use of the correct (most suitable) lubricant can often improve machine performance, extend equipment lifetime and reduce maintenance or replacement costs.

19.2.2  Lubrication Instructions Maintenance engineers and supervisors need to have complete, simple and wellorganised written instructions and procedures if efficient and effective lubrication of equipment is to be accomplished. Lubricant salespeople and customer support engineers should assist the customer by providing methods of charting, scheduling and applying oils and greases that are sufficiently flexible to meet all plant needs. The sales team should prepare a lubricant recommendation chart for each machine, covering some or all of the following items: part(s) to be lubricated, lubricant to be used, application frequency, reservoir and filter changes and reservoir inspection. There are several different kinds of these charts. A simplified chart, applicable to smaller customers or plants, just lists a small number of machines and the lubricants to be used. These can be used for accounts that the salesperson handles by themself. A more comprehensive chart, suitable for a medium-sized plant, is more common and includes oil change and re-greasing recommendations, amounts of lubricants to be used and intervals for checking the reservoirs. The most detailed charts, for larger plants and more machines, include methods of lubricant application, lubrication frequency, drain intervals and lubricant sampling and testing intervals. Using these charts, a customer can prepare cards, forms or folders of the lubrication instructions required, after the sales engineer has recommended exactly what needs to be done and how to do it. In more advanced plants, in which lubrication and maintenance engineers are familiar with mobile technology, these charts and instructions can be stored on laptops or tablets. (The screens on mobile phones may not be large enough to display all the required information.) The first set of instructions is a weekly schedule of lubricant application, which includes the route to be followed in the plant between one machine and the next, listed in order. These instructions can be used by maintenance engineers and supervisors, as well as anyone who might need to step in during holidays or sickness. In many cases now, the instructions can be accessed on a laptop or tablet that can be updated remotely when necessary. It can also be used to record when each lubricant application or check has been completed. Obviously, in larger plants, the laptops or tablets must be able to communicate (using wi-fi) with a central server. The weekly schedule can be used to construct a master control sheet, which details the schedule for monthly, quarterly and annual lubrication servicing of all machines. Using the master control sheet, again held as an electronic file, will enable both the customer and the lubricant supplier to determine what amounts of which

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lubricants will be required during the year. The electronic versions are also easy to update whenever a machine is changed or added.

19.2.3  Lubrication Organisation In many manufacturing companies, particularly larger ones, several people are responsible for lubrication and machine maintenance. The maintenance manager has overall responsibility, but the actual oiling and greasing of machines and equipment is delegated to supervisors and lubrication engineers. In many cases, there will be a wide range of machines and equipment, some of which may require specialist attention. Organising, supervising and checking this work require skilled management control. Effective organisation ensures that all instructions and plans are carried out. The lubricant supplier’s experience can often provide support to the organisation of lubricant application and evaluation. Each customer should be encouraged to set up a flow chart showing the lines of communication between managers, supervisors and engineers. This will include establishing who instructs the engineers what to do, who assigns the work to be done, who does the work, who checks that the work has been done and who keeps records. The charts described in Section 19.3.2 will assist in defining each lubrication engineer’s duties, routing and responsibilities. All instructions should be written, as should the records. Laptops and tablets, preferably connected by wi-fi to a central database, are particularly helpful in modern factories. In some plants, machine operators apply lubricants to their own machines or equipment. These practices still need to be checked and recorded, in case lubrication and maintenance have become less than optimal. If the practice results in production losses, this increases unit costs by virtue of the value of the additional parts produced or the extra work that could have been performed. Except where a machine operator is very experienced or knowledgeable, it is usually preferable to have a trained lubrication engineer responsible for lubrication. Experienced lubrication supervisors are a valuable asset to a manufacturing plant. Over time, they will have accumulated the knowledge and skills to ensure that all machines are correctly lubricated and maintained, adding significantly to the combined wisdom of maintenance supervisors and engineers to achieve optimum machine performance and productivity.

19.2.4  Lubricating Devices In many cases in modern machinery and equipment, automatic and semi-automatic lubricating devices can be very cost-effective in a short period of time. In addition to savings in time and labour, they can reduce lubrication errors and waste. Using recommended and confirmed lubricant application devices is likely to provide effective lubrication that minimises the wear problems that cause high maintenance and loss of production. Typical devices are centralised lubrication systems, mechanical force-feed lubricators, automatic spray equipment, power-driven grease guns and cartridges, wick-feed cups and bottle lubricators.

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Labour and time savings are self-evident. A lubrication engineer with a manual grease gun is unlikely to be able to service more than about one hundred grease points in an eight-hour shift. The use of power-driven or spring-loaded grease cartridges or centralised greasing system will enable the maintenance engineer to focus on more specialised lubricant applications. Automatic lubricating equipment is probably of greatest benefit in hard to reach or dangerous applications. These could include large, complicated machinery, cranes, shovels, blast furnaces, paper mills, rolling mills and many more.

19.2.5 Storage and Handling Improved handling, storing and dispensing of oils and greases (whether petroleumbased or synthetic) reduce waste and uncertainty, minimise fire and safety hazards and reduce labour, storage and dispensing costs. An analysis of the ways in which lubricants move from the reception (storage) area to the machine(s) in which they are used is likely to provide insights into how time, energy and manpower can be saved. The use of fork-lift trucks and powered carts could save more than they cost to buy and operate, particularly in large plants. Powered carts for lubricants will save time by significantly reducing the number of trips to and from the lubricant storage area. Improper storage or dispensing of oils and greases could result in contamination, causing serious damage to equipment. For example, a grease-gun loader installed on a grease drum for filling lubricant engineers’ grease guns completely eliminates any contamination, at a cost that is likely to be less than having to replace a single ball bearing ruined by dirt in the grease, particularly when the costs of time, labour and lost production are added. For machines or equipment that require large volumes of oil, such as hydraulic systems, large compressors, large gearboxes and metalworking machines, installation costs can be reduced by using a centralised piping system from a central storage tank to each machine. An analysis of the cost of buying and installing the pipework when compared with the labour and storage costs of handling drums will reveal the lowest cost method. For customers that use sufficiently large volumes of oils, a lubricant supplier should always consider the benefits of providing bulk storage facilities. This is likely to assist with repeat orders. Equally importantly, a customer’s insurance premiums may be reduced by safer storage and handling methods for oils and greases.

19.2.6  Lubricant Life Special preventative maintenance measures need to be taken with hydraulic and circulating systems. Inspection methods to detect contamination, monitoring to establish filter changes and oil drain intervals and control of oil temperature and cooling systems will significantly extend the lifetimes of the hydraulic or circulating oils. While the lubricant supplier will probably sell less oil, the customer will benefit from fewer shutdowns to change the oil, lower maintenance costs and reduced labour costs.

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Analysis of the causes of leakage from circulation systems frequently identifies how to save oil and to minimise potential contamination. Cooling water leaking from heat exchangers will also shorten the lifetime of hydraulic and circulating oils. Visual inspection of oil in reservoirs shows any contamination, changes in oil viscosity and general oil condition. Correcting adverse conditions helps eliminate machine operating problems and production losses, through proper control of the fluid condition. This insures effective protection for the equipment while in service. Many lubricant suppliers now offer programmes to analyse lubricant condition (see Section 13.4 in Chapter 13) to check for problems and to determine when oil changes are required. These services eliminate the expense for the customer of maintaining their own laboratory or of contracting consulting laboratories for this purpose. Larger customers are more likely to have an analytical laboratory with most of the equipment for conducting routine oil and grease analysis. These customers will have one or more specialist technicians for lubricant sampling, analysis and results interpretation. These people will always benefit from having the support skills and experience of the lubricant supplier’s customer support engineers. Using higher performance oils and greases, with longer operating lifetimes, will frequently lead to lower total costs, through reductions in numbers of oil changes, extended machine or equipment operation and reduced manpower costs. In addition, higher quality lubricants can often lead to improved lubrication and extended machine or equipment life.

19.2.7 Oil Purification Keeping oils clean and dry, either by filtering or by centrifuging, is a practical means of extending the useful life of the oil in machine systems. This is an effective method of reducing oil costs, particularly in large plants or with large machines. Installing proper filters in hydraulic and circulating systems almost always results in the extension of oil service life, in elimination of harmful deposits and in smoother machine operation. The use of portable filtration units for purifying oil, whether during installation or as a supplement during filter changes in individual machine reservoirs, also will extend oil life and reduce shutdown expense for draining and cleaning. Using magnetic drain plugs in reservoirs or centrifugal separators in circulating systems reduces component wear by removing abrasive ferrous contaminants. An increasing number of industrial lubricant suppliers now offer services to reclaim, rejuvenate, purify and re-use oils for many industrial applications, including hydraulic oils, gear oils, turbine oils and compressor oils. The costs of these services to recover lubricants that would otherwise be classed as used oils requiring disposal, are frequently less than the costs of new oils. While the lubricant supplier will sell less oil, some of the financial loss can be made up by the recycling services and the enhanced relationship with the customer. There is also the marketing kudos of Corporate Environmental Responsibility in a world which is increasingly environmentally conscious.

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19.2.8  Lubrication Controls Written, or more usually now electronic, records of lubricants and lubrication help to keep all types of costs under control. Initial records provide a baseline and can be used to show where improvements are needed. Subsequent records show what results have been achieved and what other improvements might be evaluated. Previously, where no reports or records on lubricant use, application or maintenance costs were kept, managers and supervisors were unaware of the cost reductions that could be achieved through “correct lubrication”. A lubricant supplier can identify the potential for significant benefits for a customer when there are accurate reports and records. It is important for salespeople and customer support engineers to recommend only those essential records required for such effective “lubrication control” purposes and that they do not suggest the accumulation of information which may be of interest but is not important to the understanding of lubrication costs. When preparing written procedures for lubrication controls, it is often advisable to group machines for lubrication and maintenance. For example, in larger plants, all electrical equipment, such as motors and generators, are the responsibility of the power engineers. They are likely to be responsible for greasing bearings and couplings. In other plants, where there are a large number of hydraulically actuated machines, one of the service engineers is likely to be responsible for all the controls and records of the hydraulic systems. When these special divisions are identified, lubrication and inspection routes can be set up accordingly. In some special cases, an entire machine’s lubrication system may be supervised by one person. Examples include paper-making machines or the backup roll systems of rolling mills, which have large circulating systems using several thousand litres of oil. A comprehensive preventive-maintenance programme (see later) will include a thorough inspection system in which the inspectors report to the head of maintenance. The inspection regime needs to be included in the lubrication controls reporting and recording system. Many customers believe that inspections should not be done by either maintenance or lubrication engineers, since they are then placed in a position of reviewing the results of their own work. However, the inspections need to be done, and the results need to be correlated with the lubrication controls, to check whether improvements are being achieved or not. Premium-quality lubricating oils do not often deteriorate appreciably in service. They usually have to be changed because of contamination. The condition of the oil in reservoirs needs to be analysed regularly, to determine whether the oil should be changed or left in service and whether the reservoir needs special cleaning. This should be part of the inspection regime. Any significant change in a customer’s operations may require amendments to the system of lubrication controls. These updates must be recorded and communicated to everyone involved with lubricants and lubrication.

19.2.9 Customer Staff Training Many managers now accept that training their staff pays dividends. Larger companies have developed and implemented training programmes, usually managed by the

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Human Resources department. Other companies send key members of staff on specialist training courses. A number of companies have been providing such courses for many years. Lubricant suppliers can assist their customers by providing tailor-made, in-­ company training with lubricants and lubrication. Training lubrication engineers and supervisors, maintenance engineers and technical staff can help to achieve improved effectiveness with lubrication, knowledge about the optimum application of oils and greases and enhanced interest in lubrication and machine operation, while also providing the best-quality information. The training must be tailored to the customer’s operation and may involve presentations, videos, case studies, charts, computer simulations, discussions and quizzes. Wherever possible, training course notes and copies of slides should be compiled into a “Training Course Manual”, for future reference by all attendees to the course. Managers should also be encouraged to attend, to learn some of the things they didn’t know, to refresh their knowledge and to see what their staff has learnt. High-quality training is also a useful additional way of building long-lasting relationships between supplier and customer. In many cases, such training can be used for problem-solving, quality improvement, risk assessment, hazard reduction, lubrication programme development and maintenance excellence.

19.2.10 Preventative Maintenance An effective lubrication programme is the keystone of a good preventive-­maintenance system. Regular inspection of machines and equipment, ongoing analysis of operating conditions and lubricant properties and performance, planned maintenance schedules and control of reports and records will enable long machine and lubricant lifetimes. When recommending improved preventive-maintenance practices, the lubricant supplier should ensure that their administrative methodology is clearly communicated and understood. The customer’s responsibility for the application of these recommendations needs to be well defined. A number of customers for industrial lubricants, particularly some of the larger ones, have machines whose breakdown for even a short period of time would result in significant financial and reputational losses. Industries, including steel and aluminium rolling, paper-making, chemical manufacturing and pharmaceutical production, pay a major economic penalty for any shutdowns. They generally operate 24/7 (twenty-four hours a day, seven days a week) on a multi-shift basis. They attempt to avoid shutting down equipment except for scheduled work at an annual shutdown, most usually during the summer holiday period. Some industries operate continuously for 365 days per year for three or four years before a major shutdown and overhaul. Any methods that keep production equipment operating for long periods mean a greater profit to these types of customers. In industries such as food preparation and packaging, glass manufacturing, automotive manufacturing, mining and textile manufacturing, unplanned equipment breakdown and shutdowns have moderate to high costs. If the machine can be

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repaired quickly, the financial damage may be tolerable provided there is sufficient stock to satisfy the customer’s customers. Obviously, effective preventative maintenance is preferable. With automated or highly mechanised equipment, such as cars, trucks, buses, construction and agricultural farm machines, and even aircraft, even when operating three shifts, short scheduled shutdowns may be tolerated. Often, these can be set for shift changes, lunch periods or overnight. Here, however, unscheduled shutdowns can also be very costly. Complete mechanical failure of an aircraft in flight or of a large ship near a rocky coastline can be catastrophic. Special equipment can be found in some customer’s plants. Examples include paint-drying ovens, biscuit and cake baking ovens and metalworking machines that make a critical component in an assembly line. A breakdown in one of these machines is likely to stop the whole production line. Lubricant salespeople should be on the lookout for such special equipment, where preventative maintenance can bring significant benefits to customers.

19.3  SELLING LUBRICANTS For the reasons set out earlier and in previous chapters, selling lubricants is not the same as selling almost all other products and services. To be successful, salespeople and customer support engineers must have a good working knowledge of lubricants, lubrication methods, maintenance practices, industrial equipment and manufacturing and production engineering processes. Lubricants, lubrication and tribology are highly technical, so sound analytical thinking and training is required of a lubricant salesperson. Although some people are likely to disagree, in the author’s opinion and experience, it is easier to train a graduate mechanical engineer or lubricant formulation chemist to be an effective lubricant salesperson rather than trying to train a good salesperson to be an effective lubrication engineer. Nevertheless, a number of tips about selling should be used by technical people who are learning how to be an effective salesperson: • • • • • •

People buy people first and your product or service second. Always listen effectively. People buy results, so sell benefits, not features. Do not rationalise away failures. Do not knock the competition. Telling is not selling.

The basics of selling were explained and discussed in Chapter 2. Many effective salespeople have understood the maxim that “all sales take place in a customer’s mind”. Selling is primarily about establishing and maintaining a rapport with each customer, to build trust in the supplier’s products and services. Selling lubricants is no different.

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19.4  EXAMPLES OF BENEFITS ACHIEVED BY LUBRICANT USERS Quantifying the benefits to a customer from the methodologies described in the preceding section can involve collecting and analysing quite a lot of information, but can also be very enlightening. A few examples which have been collected by the author over a number of years are shown in Figures 19.1 to 19.8. The data shown in these figures is illustrative. Many of the monetary values were collected a few years ago, but the time information is still likely to be relevant. It is the methodology and logic that is important. The financial benefits to an individual car owner in the UK of using a more expensive, lower viscosity, synthetic engine oil are illustrated in Figure 19.1. The analysis suggests that the motorist could save an average of more than £140 per year by switching to the synthetic engine oil that only needs to be changed every second year. Of course, the savings are likely to be lower in countries where the cost of the oil service is lower than it is in the UK. Some of the financial benefits arise from using a more fuel-efficient engine oil. Figures 19.2 and 19.3 concern a European truck fleet operator and the engine oils used in a number of light-, medium- and heavy-duty trucks with different ranges of in-town, short-distance and long-haul journeys. Analyses of the fuel efficiency and oil drain interval benefits of changing from a 15W-40 mineral oil diesel engine oil to a 5W-30 fully synthetic diesel engine oil indicate that the fleet operator could save

FIGURE 19.1  Case study: private motorist’s gasoline engine oil. (Pathmaster Marketing Ltd.)

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FIGURE 19.2  Case study: fleet operator’s heavy-duty diesel engine oils: input data. (Pathmaster Marketing Ltd.)

FIGURE 19.3  Case study: fleet operator’s heavy-duty diesel engine oils: operating costs. (Pathmaster Marketing Ltd.)

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a total of £235,169 per year. Of course, the fleet owner would need to be satisfied that the switch would be accepted by the manufacturer(s) of the diesel engines. The same fleet operator could also decide to switch from a 90W-140 mineral gear oil to a 75W-90 synthetic gear oil, as illustrated in Figures 19.4 and 19.5. In this case, although the oil drain intervals are unchanged, the fuel savings total £140,422 per year, even with the higher price of the synthetic gear oil. The data shown in Figure 19.6 concerns the hydraulic system on a large mobile digger. In this example, changing from a mineral oil hydraulic fluid to a synthetic hydraulic fluid with double the oil lifetime results in lower maintenance costs and extra productivity from the digger, giving annual savings of $1047.50. This is despite the synthetic oil costing four times more than the mineral oil. With an air compressor for the pneumatic system in a factory, illustrated in Figure 19.7, savings of $3,095 per year can be achieved from the change from a mineral oil to a synthetic compressor oil. Again, the savings are due to higher productivity and lower maintenance. The last example is for synthetic compressor oil used in a compressor on a natural gas pipeline, as shown in Figure 19.8. Because the synthetic compressor oil has a very much higher lifetime, the annual savings amount to $236,480 per year. This is, perhaps, an extreme example, because very few operators of natural gas compressors would still consider using mineral oil compressor oil. The analysis shows why.

FIGURE 19.4  Case study: fleet operator’s heavy-duty diesel gear oils: input data. (Pathmaster Marketing Ltd.)

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FIGURE 19.5  Case study: Fleet operator’s heavy-duty diesel gear oils: operating costs. (Pathmaster Marketing Ltd.)

FIGURE 19.6  Case study: large mobile digger hydraulic oils. (Pathmaster Marketing Ltd.)

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FIGURE 19.7  Case study: industrial factory air compressor oils. (Pathmaster Marketing Ltd.)

With the availability and increasing use of laptops and tablets by salespeople, they can be provided with spreadsheets into which a customer’s data can be entered for any of the above examples and other situations. The estimated savings for any discussion can then be available immediately for the customer to understand and consider. Obviously, marketing and sales managers would need to provide spreadsheets that are able to handle a wide range of customers’ situations.

FIGURE 19.8  Case study: natural gas pipeline operator’s compressor oils. (Pathmaster Marketing Ltd.)

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Lubricant salespeople should be looking to illustrate the kinds of benefits that a customer should expect to achieve. The following statements could be applicable: • These lubricants will enable you to increase your production rate by X%. • These lubricants have been shown to extend the lifetimes of your equipment by Y years. • This oil/grease will reduce your energy consumption by £Z per year. • This oil/grease will lower your equipment maintenance costs by W% per year. • You will only need to change this oil every two years instead of every year. The preceding examples illustrate that the cost savings achieved by changing to higher performance lubricants range from very modest for individual applications to enormous for large-scale applications. While savings in energy usage can be important, savings in maintenance reduced lubricant consumption and enhanced equipment productivity can be more significant. Also, cost savings achieved by using higher performance oils or greases can be customer- and application-specific; not all customers may benefit from using synthetic lubricants. An example of the benefits offered to one company compared with those offered by a competitor is shown in Figures 19.9 and 19.10. Figure 19.9 lists the most likely offers that a customer might seek. This list can always be modified, depending on the type of customer and the industry sector. Figure 19.10 fills in the details for a specific customer, supplier and competitor in terms of what the customer actually wants and what the competitor and supplier are able to provide. In marketing and selling, companies should aim to be as good as, or even better than, the most effective competitor. The selling process is therefore: • Sell products by explaining benefits relative to applications in the customer’s plant. • Prepare the call or presentation. • Use only relevant case studies.

FIGURE 19.9  Comparison of benefits offered to customers. (Pathmaster Marketing Ltd.)

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FIGURE 19.10  Comparison of benefits offered to customers: example. (Pathmaster Marketing Ltd.)

• Anticipate objections. • Acknowledge high initial costs. • Propose an ongoing programme to demonstrate benefits and savings from using products. • Demonstrate commitment. • Build relationships early. • Quantify all improvements. Of course, this checklist applies to almost all selling situations, including automotive and industrial lubricants.

19.5  BENEFITS OF LUBRICANTS IN THE FUTURE As has been noted throughout this chapter, benefit selling applies mainly to industrial lubricant users and fleet owners and operators. The average motorist may not be particularly concerned with the benefits of using what they perceive as a higher cost engine oil. (Some motorists may be very interested, as explained in Chapter 10.) In the future, many of the types of benefits illustrated earlier are still likely to apply to industrial and business customers. However, some types of benefits may no longer apply. For example, with increasing numbers of on-highway and off-highway vehicles switching to electric or hybrid power units, the lubricants and functional fluids used in them may be filled-for-life, as noted in Chapter 12. Using a longer-life lubricant is unlikely to apply to the vehicle operator. The benefits of using a higher performance lubricant or functional fluid may accrue to the manufacturer of the power unit, to enable them to sell more of their systems than those of competitors. The point of this discussion is that marketing and sales people should be on the lookout constantly for developments and improvements in machines and equipment. Because lubricants and functional fluids are used in almost all machines or systems worldwide, developments or improvements in any of them may require new or improved fluids, creating opportunities to sell new or additional benefits.

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19.6  SELLING RETAIL LUBRICANTS Selling the benefits of specific lubricants to individual car, taxi, van and truck drivers is not particularly easy. As noted in earlier chapters, most motorists do not understand or want to know the technology of lubricants or lubrication. However, targeted magazine and television advertisements can and have been used to inform motorists of the benefits of using higher performance engine oils in protecting the operation and lifetime of their engines. Point-of-sale promotions in specialist motorsport shops can also be used to sell benefits. Successful selling of lubricants to retail customers depends on how well the marketing strategies achieve their goals. Selling retail lubricants to business customers, such as independent garages, quick lube outlets, tyre change workshops and commercial fleet operators, uses the same strategies and tactics as selling to industrial customers. Of course, trying to sell the benefits of retail automotive lubricants to OEMs is virtually impossible, as these companies are among the most knowledgeable customers when it comes to understanding lubricants and lubrication. Indeed, as illustrated in earlier chapters, the technical engineers and chemists in automotive OEMs work closely with the major additive manufacturers to develop the specifications for automotive lubricants and test the candidate formulations that are developed to meet those specifications.

19.7  SELLING INDUSTRIAL LUBRICANTS Selling lubricants to industrial customers involves the marketing and sales strategies discussed earlier in this chapter and in Chapters 7, 8, 13 and 14. Industrial lubricants are ideally suited to benefit selling. Particular types of industrial lubricants whose benefits can be sold are those used in special applications and to solve problems, including metalworking fluids, high performance lubricants and synthetic lubricants. Most of the examples of benefits outlined previously are for industrial lubricants. The author is certain that many experienced lubricant salespeople are likely to have collected a number of other examples during their work. One subject discussed in Chapter 13 whose benefits to customers are not described in Section 19.4 is Total Fluid Management. The benefits of these contracts are: • • • • • • • •

A fixed annual charge, so there is complete control of costs for the customer. They provide opportunities to reduce indirect costs. They enable a reduction in waste through the principle of conservation. There are opportunities for improved productivity through reduced manning levels. The customer and supplier can define a continuous improvement plan. Lubricant and lubrication inventory costs are eliminated. Waste disposal costs are eliminated. Requirements to check the quality of incoming fluids are eliminated.

Some of these benefits may also be applicable to other areas in the selling of industrial lubricants to smaller users.

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19.8  COMMON MISTAKES MADE BY SALESPEOPLE In a chapter on selling methodologies and tactics, it is worth noting that there are a number of common mistakes that almost all new salespeople make. Fortunately, the most efficient and effective salespeople soon learn to avoid these mistakes, which are that they: • • • • • • • •

Talk too much. Chase popularity rather than respect. Rationalise away failure. Sell technology instead of benefits. Fail to control the sales conversation. Tend to over-promise on deliveries and new product introductions. Drive too much. Fail to follow-up.

Mechanical engineers, customer support engineers and formulation chemists who transition to be lubricant salespeople usually have to be taught how to avoid these mistakes. As noted earlier in this book, teaching this is likely to be easier than teaching a good salesperson to be a mechanical or customer support engineer, with the attendant complexity of lubricants, lubrication and tribology. Surveys done by Structured Training Ltd. in the UK2 indicate that the ten most common excuses salespeople give for not obtaining a sale or order are that the customer: • • • • • • • • • •

Wants to think it over for a few days. Wants to wait until the other quotations have been received. Doesn’t want to spend that much money. Wants a bigger discount. Wants to stick with their normal supplier. Needs the product by next week and it can’t be delivered for four weeks. Doesn’t think enough of their customers will buy this product. Thinks it will be too much trouble to change. Thinks it is too complicated for his/her people. Was too busy to listen properly.

Structured Training Ltd. noted that these were excuses, not reasons. John Fenton believes that there are many ways to eliminate, or at least minimise, these types of excuses. For example, with the first excuse, why did the customer want to think it over, what exactly did he or she want to think about, how many doubts did they have and why were there any doubts after the sales presentation? Also, did the salesperson actually ask for the order and, if so, how many times? When is the salesperson going to visit the customer again and what are they going to say next time? If the customer wants to wait until the other quotations have been received, when are they going to be received? If the quotation is the most satisfactory, will the order

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follow and when? If not, will the customer phone the salesperson, to see whether the offer can be improved somehow? If the customer doesn’t want to spend that much money, how much do they want to spend and can the offer be adjusted to match that amount? What is it that the current supplier is able to provide that another supplier can’t? Are there any benefits that a new supplier can provide that the current supplier can’t? If the customer wants the product by next week and the supplier can’t deliver in that time, the salesperson needs to communicate this to both his or her sales manager, for discussion with the marketing manager and the production manager. If the customer thinks it will be too much trouble to change or is too complicated, how can the supplier make this a lot easier? If the customer was too busy to listen, the salesperson arranged the presentation at the wrong time or on the wrong day, so needs to reschedule a meeting for a more suitable day and time when the customer is able to listen and discuss properly.

19.9  TIPS FOR SALESPEOPLE The most important tip for all salespeople is, in order to successfully close a sale, they have to ask for the order, not just once but several times if necessary. The words a salesperson uses during a presentation or negotiation, particularly in the closing part, are likely to determine whether a “yes” or “no” response will happen. Some words are good for closing and others are bad. For example, a customer can be asked to “invest” in a product or service rather than to “pay” for it. A simple change of word could mean that saying “yes” is a sensible way for the customer to save money rather than spend it. It also provides the buying team with words they can use when justifying their decisions to their senior managers and directors. Asking a customer to okay an order is much less stressful than asking him or her to sign it. They will still have to put their name on the dotted line, but the effect will be that they are agreeing to a shared decision-making process. If there are two or three Key Decision Makers in an industrial purchase, they will all feel part of the agreement. Also, there is great power in the words “new” and “improved”. Almost all customers will be interested in anything new or improved, particularly when it comes to lubricants and lubrication. A number of important tips for salespeople include: • • • •

Treat every account as if it was a new account. Build relationships and maintain contact with key personnel. Use all internal resources available to make the sale a team effort. Hold regular informal meetings to inform, discuss and resolve the supply relationship. • Work with the team to make contract renewal a formality. • Never become complacent towards an account. Again, these tips are things that a trained mechanical engineer, customer support engineer or lubricant development chemist are able to learn and apply when they train to be an effective lubricant salesperson.

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19.10 SUMMARY Selling lubricants is, in essence, selling the benefits of lubricants. Numerous benefits can be identified for every different user of lubricants, even though many people do not understand or need to know much about lubricants and lubrication. Indeed, when the appropriate selling methodologies are used by trained mechanical engineers, customer support engineers or lubricant development chemists, selling the benefits of lubricants can be relatively straightforward. Fortunately for technical people selling highly technical products, there are a number of very practical sales tips and mistakes to avoid when selling lubricants to either retail or industrial customers.

REFERENCES

1. Mobil Commercial Selling Volume II, “The Industrial Program”, Mobil Oil Corporation, New York, NY, 1962. 2. Fenton, John. Close! Close! Close! Mercury Books Division of W. H. Allen & Co. PLC, London, 1990.

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“One-Stop-Shop” Solutions for Marketing Lubricants

20.1 INTRODUCTION The previous chapters in this book have illustrated and discussed the wide range of activities and responsibilities performed by a company’s marketing and sales department. These are: • Assessing markets: Measuring existing and potential markets, defining market segments, monitoring progress and forecasting future demands for all products and services. • Understanding customers: Determining how and why different groups of customers do and do not buy specific products and services. • Specifying products and services: Managing product portfolios, managing new product development and providing inputs to strategic and operational business planning. • Defining channel policy: Determining how products will reach markets and selecting and training distributors. • Participating in supply chain management: Liaising with production, finance and logistics activities to help ensure that the right products get to the right customers in the right condition at the right time. • Promotion and advertising: Defining communications strategies and managing and evaluating market communications. • Determining pricing policy: Setting prices to maximise profits. • Managing sales activities: Managing sales teams, managing customer support services, monitoring customers and their needs and qualifying sales prospects. • Managing key accounts: Determining which accounts should and should not be key accounts and defining key account strategies and tactics. These activities and responsibilities require marketing and sales managers to have learnt, understood and developed a range of key skills and attributes: • Time: Abilities to shorten the times required to make and implement decisions by key managers in the company’s customers. • Attitude: Disciplines that always put customers first in satisfying profitoriented goals. • Skills: Breadth of knowledge, plus one or more areas of deeper knowledge. DOI: 10.1201/9781003318392-20

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FIGURE 20.1  Marketing commitment organisation. (Pathmaster Marketing Ltd.)

• Experience: What can be done, how to do it and where to obtain information and assistance. • Organisation: Management and integration of complex tasks to achieve profits. • Co-ordination: Between all of the functions of a business. In an effective customer-focused company, the marketing and sales department sits at the heart of the organisation, as illustrated in Figure 20.1. Although the communication lines between the marketing and sales department are shown as dotted lines in Figure 20.1, everyone in the organisation should be aware of the silo organisations discussed in Chapter 15 and shown in Figures 15.1 and 15.2. In a customerfocused company, all departments need to be communicating effectively with all other departments.

20.2 “ONE-STOP-SHOPS” A “one-stop-shop” (sometimes called a “one-stop-store” or “one-stop-source”) is a company, office or retail outlet where multiple products and/or services are offered. In these locations, customers can buy all they need in just “one stop”. The term originated in the US in the late 1920s or early 1930s to describe a business model offering customers the convenience of having multiple needs met in one location, instead of having to “drive all over the town” to obtain related products and/or services in different places. The term is now used to describe everything where people can find most of what they need, including information, in one location. The most familiar examples are Google, for information, and Walmart (in the US) and Carrefour (in France) for huge ranges of products. Another example is a bank that offers a complete range of financial products and services, such as savings accounts, loans, mortgages, investment advice, investment vehicles, insurance policies and stocks and shares trading. The concept of a one-stop-shop can be very useful for busy people who want to save time. In the US in the early 20th century, stores responded by stocking a wider

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range of products so that customers only had to come to their location to check off the majority of their shopping lists. The term “one-stop-shop” may also have been used in conjunction with businesses that did all the work for the then new essential American purchase, the automobile. Companies that sold, maintained, repaired and provided parts for cars were likely to attract more customers. The business strategy behind the one-stop-shop is to provide convenience and efficiency to customers, at the same time as gaining loyalty and additional sales. Eventually, the concept of the one-stop-shop expanded over time to include business services. Although the concept started with retail outlets for consumers, it has gained wider traction in recent years and is now just as applicable to commercial and industrial markets. While the majority of supermarkets and hypermarkets offer very wide ranges of products, they are not likely to be viewed as one-stop-shops by a majority of consumers. A one-stop-shop has an absolute focus on the customer by providing a single point of initial and ongoing contact for all the customer’s needs: • • • • • • •

Product and service information and pricing. Product and service ordering. Order progress. Delivery scheduling. Invoicing. Customer support services. Product and service performance monitoring.

Clearly, this single point of contact needs to be able to communicate efficiently and effectively with all the activities involved. Given the activities and responsibilities outlined previously, the obvious place for a single point of contact is in the marketing and sales department. The single point of contact model is illustrated in Figure 20.2.

FIGURE 20.2  Communication links with “One-Stop-Shops”. (Pathmaster Marketing Ltd.)

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The concept is particularly applicable to the marketing and selling of lubricants, as a consequence of the technical complexity of lubricants and lubrication illustrated and explained throughout this book. Many industrial users of lubricants, particularly the larger ones, are likely to be appreciative of being able to contact an identified person who is able to either answer immediately their questions about which lubricant(s) to use in which equipment or who knows how to find the answer(s) very quickly. In addition, the single point of contact will be able to tell the customer about the status of their order (blending, packaging, delivery or invoicing), any updates or improvements or any cost savings.

20.3  “ONE-STOP-SHOP” FACILITIES AND SYSTEMS In order to be able to provide a one-stop-shop service to lubricant customers, a number of facilities and systems must be in place. These include: • One or more call centres, depending on the size of the lubricant manufacturer or marketer. • Call logging. • Local Area Networks (LANs), within business units and associated or subsidiary companies. • Wide Area Networks (WANs), between supplier and customer companies and dispersed business centres. • Computer searchable databases, for blending, packaging, warehousing, distribution and invoicing. • Customer relationship management (CRM) databases. • Instant access to customer information. • Instant updating of customer information. Obvious people to provide a one-stop-shop solution for industrial and commercial lubricant customers are key account managers, as illustrated in Chapter 17. They have all the required skills, experience, facilities and systems at hand. However, they cannot provide these services to every account that would like the solution. Smaller accounts are likely to need to have a one-stop-shop solution provided by either an account manager or a sales manager. Fortunately, as discussed later in this chapter, not all accounts would like to have a one-stop-shop solution. When a company provides a call centre for customers, it is important to recognise that this is not the single point of contact, even though it may be the first point of contact. For each customer that is being provided with a one-stop-shop service, the call centre must have an instantly accessible database of who is the key account manager, account manager or sales manager responsible for that customer and how best to contact them, either by phone, text or e-mail. The call centre must also know the location and availability of the responsible manager at all times, information that the responsible manager (or his or her personal assistant) should give to the call centre on a daily basis. When a key account manager, account manager or sales manager is not available immediately, the call centre must be able to tell the customer when he or she will be available and that they will call back at an agreed time, preferably

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the same day. Efficient and effective managers are aware that customers are very high priority and that many phone calls, text messages or e-mails take only a few minutes to complete. Additionally, the responsible manager needs to have a deputy, in case of sickness and for holidays. The deputy could be an alternative key account manager, account manager or sales manager. One way in which a company might consider whether an account manager has the necessary skills and attributes (see Section 17.4) to be a key account manager would be to ask the account manager to deputise for a week or two while the key account manager is on holiday. A successful account manager could then be first in line to be promoted to a key account manager when a position arises.

20.4  DRIVERS FOR GLOBALISATION Globalisation is the proliferation of products, services, technologies, information and jobs across national borders and cultures. In economic terms, it describes an interdependence of nations around the world, enabled by free trade or lower tariffs. It has created new jobs and economic growth through cross-border flows of capital, goods, ideas, services and labour. However, the growth and job creation are not distributed evenly across industries or countries. Specific industries in some countries have suffered severe disruption or outright collapse as a result of increased international competition. Globalisation is not a new concept. In ancient times, traders travelled vast distances to buy commodities that were rare and expensive for sale in their homelands. It accelerated in the 18th century due to advances in transportation and communication technologies and systems. At the same time, conflicts and diplomacy are also large parts of the history of globalisation. In the 19th century, the Industrial Revolution brought further advances in production and finance that eased trade across borders. The term globalisation appeared first in the early 20th century (replacing an earlier French term mondialisation) and developed its current meaning during the second half of the 20th century. Globalisation stalled after the World War I as countries became more protectionist, by introducing import taxes to more closely guard their industries in the aftermath of the conflict. This trend continued through the Great Depression and the World War II until countries began to revive international trade. From the 1970s onwards, globalisation sped up at an unprecedented pace, with public policy changes and communication technology innovations cited as the two main driving factors. Governments worldwide integrated a free market economic system through fiscal policies and trade agreements from the 1980s to the 2000s, usually overseen by first the General Agreement on Trade and Tariffs (GATT) and, latterly by its successor, the World Trade Organization (WTO). The core of most trade agreements is the removal or reduction of tariffs. This evolution of economic systems has increased industrialisation and financial opportunities in many countries. The expansion of global markets liberalised the economic activities of the exchange of goods and funds. Removal or reduction of cross-border trade barriers has made the formation of global markets more feasible. In recent times, the introduction of containers, large ships, the internet and mobile phones made globalisation even more financially viable.

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By the 2010s, the rate of globalisation had started to slow down. Trade stagnated as a share of GDP (Gross Domestic Product) and foreign direct investment fell. China’s growing middle class consumed domestically more of what it produced and its share of world exports stopped rising in 2015. As manufacturing became more automated, savings from locating production where workers were cheapest were reduced. The rise of social media made consumer fads more volatile, necessitating faster production and shipment to satisfy impatient buyers. Companies began to see long supply chains as unwieldy and risky. Trade started to concentrate in regional blocks. However, global challenges such as climate change, cross-border water and air pollution, over-fishing and skewed national current-account balances have been linked to globalisation. Now, the COVID-19 pandemic has begun to cast a shadow over further globalisation. The effects of globalisation are influenced by business and work organisation, economics, socio-cultural resources and the natural environment. The academic literature commonly divides globalisation into economic, cultural and political globalisation. Globalisation motives are idealistic, as well as opportunistic. The development of global free markets has benefited large companies based in developed countries. Their impact remains mixed for workers, cultures and small businesses around the world, in both developed and developing countries. There are many claimed advantages for globalisation. Companies gain through reductions in operating costs by manufacturing in countries with lower labour costs. They also gain access to millions of new customers. Socially, it leads to greater interaction between populations and, culturally, it represents the exchange of ideas, values and artistic expressions among cultures. Legally, globalisation has altered how international law is created and enforced. Advocates of globalisation believe it enables developing countries to catch up to developed countries through increased manufacturing, diversification, economic expansion and improvements in standards of living. Outsourcing by companies brings jobs and technology to developing countries. Trade initiatives increase crossborder trading by removing supply side and trade-related constraints. Also, it is claimed that globalisation has advanced social justice on an international scale, by focusing attention on human rights, worldwide. One clear result of globalisation is that an economic downturn in one country can create a domino effect through its trade partners. The detractors of globalisation contend that it has created a concentration of wealth and power in the hands of small corporate elite, enabling them to acquire smaller competitors around the world. It has become a polarising issue in many developed countries, with the disappearance of entire industries to new locations abroad. It has also seen increased homogenisation. Globalisation has been a major driver in the increase in one-stop-shops. A survey by PricewaterhouseCoopers (PwC) several years ago found the following factors to be important in the creation and evolution of one-stop-shops: • Customer-driven factors: 66%. • Globalisation of customers: 31%. • New customers in emerging markets: 27%. • Enhanced customer responsiveness: 8%.

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• Market-driven factors: 34%. • Globalisation of competitors: 16%. • Reduced trade barriers: 10%. • Advances in technology: 8%. Then, at the beginning of 2020, the COVID-19 pandemic struck globally. Many companies started to realise how much their supply chains depended on China. Several surveys conducted in 2020 found that a large percentage of companies reported plans to make supply chains more resilient. The initial panic was relatively short-lived. Towards the end of 2021, global trade had not declined as badly as some forecasters had predicted at the beginning of the pandemic. Supply chains had not been wrecked completely. It is important to distinguish a supply chain’s robustness (the ability to keep working through an emergency), from its resilience (the ability to bounce back from one). The history of supply chains is that they are not robust but they are resilient, because companies are quick to find workarounds. Their robustness could be improved, but not by bringing production home, because emergencies can also strike at home. COVID-19 has given politicians a chance to indulge their protectionist instincts. However, the logic of national protectionism is shaky. Governments might choose to ignore changing patterns of trade and supply chains in favour of protection, but most companies are unlikely to simply abandon their cross-border investments. Among the many after-effects of the global COVID-19 pandemic could be a reduction in the amount of globalisation, an increase in national protectionism, more local production of products and services, much shorter supply chains and a greater reliance on trusted countries and suppliers. Throughout all this, it seems that the concept of “one-stop-shops” is likely to survive, due to customer demand. Fortunately, in the lubricants business, globalisation has been a major driving factor of success for many companies. There are numerous sources of supply of base oils, whether mineral, synthetic or vegetable oils. Sources of supply of additives are also numerous. For those countries that do not have either base oil or additive manufacturers, shipping and transportation routes have become very well established. Most countries now have one or more lubricant-blending plants and the practice of toll-manufacturing for several lubricant suppliers has also become well established. Additionally, even small or niche manufacturers of lubricating oils and greases are now able to market and sell their products globally. Base oils, additives and finished lubricants are now traded and shipped all over the world.

20.5 ADVANTAGES AND DISADVANTAGES OF “ONE-STOP-SHOPS” One-stop-shops are not a magical solution to marketing and selling, particularly for industrial customers. The first potential problem is, who owns the customer? Conventional marketing and selling wisdom is that everyone in a company owns the

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customer, from the managing directors all the way to the receptionists and cleaners. Everyone in a company should be trying to ensure that a customer’s needs and wants are met. With a single point of contact for a customer, some people may feel a bit more distant from the customer. The responsible point of contact needs to ensure that this does not happen, through good communication and involvement. Another potential problem is identifying which customers want a single point of contact. This is a very similar problem to identifying which accounts should be key accounts. Some customers may want purchasing people talking to salespeople, finance people talking to finance people and production people talking to customer support engineers. A third potential problem is whether everyone in the supplying company always has access to all the information. In addition, what about the confidentiality of that information? Companies with CRM databases will have very little difficulty in enabling access to customer information for those staff who need to know it. Those companies that do not have efficient and effective database communications between departments may struggle to implement a one-stop-shop. Also, is a one-stop-shop system part of, or additional to, supply chain management? Possibly, the most important potential problem for a one-stop-shop is what happens when the computer(s) or network(s) crash? Companies should always have backups of databases stored on remote secure servers in case of computer or network problems or failures. The advent of cloud storage systems has made this very much easier. A potential problem with cloud data storage is the robustness and reliability of internet connections. In an era of increased cyber-security, companies should have telephone and paper-based backup systems and plans, so as to be able to implement business continuity in case of technology failures. Fortunately, one-stop-shops have a number of advantages. Each customer knows who to contact for any required information and everyone who may need to contact the supplier knows who is that contact and how to reach them. The point of contact should also know everyone in the customer’s company that might need to phone, text or e-mail them. Convenience for customers is a major advantage of a one-stop-shop, as illustrated previously. A high level of trust grows over time when a customer uses a particular company more and builds personal connections with it. The supplier may be able to offer loyalty bonuses to the customer and the company can gain a higher degree of confidence that the customer is less likely to search for another provider based on price alone. A one-stop-shop approach is likely to improve significantly the supplier’s management and control of the customer relationship. It is also likely to enhance customer knowledge and control, by significantly improving the capture of customer information. Companies that offer one-stop-shop solutions will be able to provide enhanced responsiveness to customer’s needs, which could be of great value to the customer/supplier relationship. However, one-stop-shops do reduce personal contacts between suppliers and their customers. On many occasions, these personal contacts, for example, between finance people and finance people or production engineers and customer support engineers, can help to build trust between a supplier and a customer. Marketing and

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sales staff can sometimes be viewed a little suspiciously by a customer’s purchasing managers. There is also the potential for a division of responsibilities for the customer, with staff in department other than marketing and sales being unsure about who is responsible for what. Marketing and sales staff can simply become order takers, progress chasers or post boxes in a one-stop-shop. Instead of building relationships with customers, marketing and sales staff who are single point contacts might find themselves overwhelmed with requests for information from anxious customers. If a single point of contact is not immediately available in a one-stop-shop, call centre staff, who are almost certainly non-sales staff, might be confronted with the consequences of “angry” customers. Sales staff are trained and acquire experience in dealing with awkward problems experienced by some customers, while call centre staff may not have sufficient training or skills. As noted above, one-stop-shops might become over-reliant on technology. Overreliance on computers, servers, databases, the internet and the cloud can be dangerous. Completely automated customer response systems could alienate customers completely. Almost everyone has experienced the frustration of having to talk to a computer when they really wanted to talk to a real person. A problem with one-stop-shops in retail markets is that there are natural limitations on how many products and services one company can offer to a customer while maintaining superior quality. Also, while the products and services offered by a single company are probably competent, they may not be as expert or as inventive as those offered by expert companies that specialise in specific products or services. Dealing with a one-stop-shop may save money, thanks to the company’s economies of scale, but then again, it may not. The convenience of the one-stop usually comes with a cost.

20.6  FUTURE TRENDS In the author’s opinion, “one-stop-shops” are likely to continue to exist for the foreseeable future, due to their usefulness in some circumstances for both retail and industrial customers. Although some customers like and appreciate the concept, others do not. Companies should consider the advantages and disadvantages carefully before deciding to implement a one-stop-shop policy. Companies are increasingly using the power and reach of the internet and social media to differentiate and target customers and potential customers. One-stop-shop offerings can help to facilitate this, by providing customers with convenience, including comprehensive product coverage and easy access to information. However, one of the most likely future problems could be information overload, for both companies and customers. In the lubricants business, computer storage of customer information (orders, deliveries, services, problems, resolutions and others), e-mails, phone call logs, product information (literature, applications, data sheets, safety data sheets), product formulations and test results, blending plant records, warehouse and storage information and logistics all take space. Then, there is the issue of archives of all this information. For lubricants, the requirement for companies that market and sell products in the European Union to maintain a REACH

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database of all customers’ uses all the way down the market chain to the end-user can place a huge burden on data storage. Cloud data storage is already becoming an issue for some large companies and the cost of this storage is unlikely to decrease. This might also be linked to the future evolution of backup and fail-safe systems. Another future trend for the concept of the one-stop-shop is the possibility of integration into supply chain management. Companies might decide that, because supply chain management involves all of the activities in a company’s supply of products and services to a customer, this is effectively a one-stop-shop. The only difference is in the provision of a single point of personal customer contact. Some companies may decide to provide a single point of either phone or internet contact, with options for a customer to contact whichever department they require. This could then raise the issue, noted previously, of non-sales staff dealing with “angry” customers. Further ahead, some business analysts are suggesting that the future of globalisation is likely to be determined less by products than by services. Before COVID-19, global trade in services was not stagnating but was growing faster than global GDP. According to the WTO, exports of services account for around a fifth of all trade, although what precisely counts as services’ trade is a matter of some discussion. Once there is more control over COVID-19, whether through vaccines, drugs, masks, herd immunity or medical treatments, it seems likely that travel and tourism will eventually return to something approaching pre-pandemic growth. In the interim, the rapid increase in remote working in many countries during 2020 and 2021 might encourage more trade in digital services.

20.7 SUMMARY “One-stop-shops” offer convenience to customers, who can find all the products, services and information they need in one location. They are particularly suited to the marketing and selling of lubricants and lubrication, due to the technical complexity of these products and services. They have been encouraged by the growth of globalisation of trade, services and supply chains. However, they are not suitable for all companies or all customers. Some industrial customers would prefer specialist services and/or personal contacts with their opposite numbers in companies. Some companies do not have the resources to provide one-stop-shop solutions to marketing. But the concept of one-stop-shops is likely to continue for the foreseeable future.

Index A Advertisements, 136, 141–143, 146, 148, 155, 165–166, 169, 173, 197 Advertising advantages and disadvantages, 147–148 agencies, 135, 152–153 agency selection and briefing, 150–157 automotive lubricants, 166, 168–170 benefits, 163–164 industrial lubricants, 171–172, 174, 176 Automotive lubricant packaging, 195, 200 Automotive lubricant specifications, 111–113

B Benefit selling benefits achieved, 351–357 future benefits, 357 methodology, 341–342 Boston Consulting Group, 18–20 Business functions, 271–274 planning, 73–75, 250–253, 269 planning benefits, 265–266 planning pitfalls, 264–265 plans, 250–253 strategy, 8, 18, 230, 247–248, 258, 265, 271–274, 312–313, 365 Buying centres, 126–128, 132, 190

C Channels; see also Distribution, channels; Marketing, channels; Sales, channels direct, 41 effectiveness, 48 indirect, 41 objectives, 45–47 selecting, 42–43 Climate change, 25, 71, 85–86, 98, 108, 129, 209, 257, 307, 335, 368 Closes (Sales), 23, 26–27 Competitive position, 62–65, 194, 220, 247, 336 Competitor analysis, 61–62, 153, 219 Conferences, 141–142, 171, 276, 286 Consumers buying behaviours, 35, 41, 43, 54, 58, 59, 108–109, 113, 170, 186

purchasing decisions, 108–110 types, 31, 51, 55, 59–60, 101–102, 129, 146, 166, 196 Customers buying behaviours, 22–23, 101, 105–109, 117, 129 types, 16, 26, 31, 51, 55–56, 59–60, 101–105, 179, 187, 188, 309 Customer relationship management, 43, 191, 284, 286, 323, 366, 370 Customer support service costs, 239–241 lubrication surveys, 236–237 objectives, 65, 237–239, 241–242 organisation, 242–243 principles, 233, 241–242 reporting and control, 243–245 scope and limitations, 233–234 types, 234–237

D Deals, opening and closing, 3, 13, 24, 26, 172, 286 Demand, see Supply and demand Demographics, 25, 89, 185, 186 Developing a new automotive lubricant, 222–228 Developing a new industrial lubricant, 228–230 Direct mail, 146, 166–167, 168, 171, 172, 186 Distribution channels, 29, 33, 35, 45, 51, 101, 138, 139, 211, 249, 250, 270, 325, 326, 327, 337 logistics, 108, 129, 270 strategy, 47 systems, 38, 41, 62, 181, 289, 331, 338, 339 Distributors, 31, 37–42, 44, 46–47, 59, 102, 172, 217, 230, 270, 289

E Economics, 58–59, 77, 89, 204, 337, 344, 368 Electric and hybrid vehicles, 61, 86–88, 90–91, 97, 98, 112, 114, 165, 166, 208, 223, 231, 306, 336, 357 Exhibitions, 43, 141, 146, 148–149, 171, 182, 276, 286

F Fluids for new applications, 231–232 Forecasting climate change, 71, 85

373

374 exchange rates, 71 interest rates, 70 lubricant demand, 69, 78–90, 91–97 methodologies, 69–72, 78, 97 oil industry, 76–77 scenario planning, 72–75, 266 Fuel cells, see Hydrogen power and fuel cells Future markets for lubricants, 90–91

G Gatekeepers, 126, 128, 190, 316, 317, 322 GDPR, 167, 168 Geographics, 183, 185–186, 197, 242, 243, 277, 278, 280, 328 Glass bottles, see Packaging, glass bottles Globalisation, see One-Stop-Shops, globalisation

H Hybrid vehicles, see Electric and hybrid vehicles Hydrogen power and fuel cells, 88–89, 91

I Industrial customers buying function and process, 117, 129, 130, 132, 358 characteristics, 26, 60, 101, 163, 189, 233, 279 Industrial lubricant procurement issues, 128–133 Internet, 35, 37, 38, 41, 44, 56, 66, 106, 142, 143, 149, 165, 168–169, 171, 176, 199, 333, 370 Introducing a new lubricant to the market, 230

K Key account management benefits, 323–324 effectiveness, 315–316 pitfalls, 321 principles, 309, 312–313 strategy and plan, 321–323 Key accounts definition, 310–312 manager’s skills, qualities and activities, 313–315 managing, see Key account management sales team objectives, 319–321 selecting, 318–319 status, 316–318

Index Key decision influencers, 56, 58, 126–128, 130, 131, 171, 172, 190, 299, 314, 316, 317, 319, 322 Key decision makers, 56, 58, 126–128, 130, 131, 171, 172, 190, 299, 314, 316, 317, 319, 322 Key Performance Indicators, 176, 260, 261–264, 266, 282, 283, 285, 286, 287 Key Success Factors, 261, 263–264, 266, 282, 287

L Logistics, see Supply chain management Lubricant demand effects of drivers, 83–85 emerging drivers, 85–90 historic and current drivers, 78–85 forecasting, see Forecasting Lubricant marketing organisation alternatives, 277–279 influences of company size, 274–276 principles, 267–269 Lubricant pricing additive pricing and prices, 300–302 automotive lubricant prices, 303–304 automotive lubricant pricing, 302–303 base oil pricing and prices, 300–302 future trends, 306–307 industrial lubricant prices, 305–306 industrial lubricant pricing, 304–305 prices and costs, 293–298 pricing strategy, 298–300 principles, 289–290 supply and demand, see Supply and demand Lubricants agricultural, 31, 56, 86, 170, 189, 223, 231, 331, 337 automotive, 30–31, 35–36, 38, 80, 109, 111, 113, 165–166, 170, 173, 176, 195, 210, 293, 302–304, 331, 341, 357, 358 aviation, 30, 31, 56, 278 industrial, 30, 31, 32, 35, 37, 80, 86, 88, 128–133, 170, 172, 176, 188, 189–190, 203, 224, 229, 282, 293, 304, 305, 306, 321, 331, 337, 341, 349, 357, 358 marine, 30, 31, 56, 89, 170, 176, 189, 223, 231, 278, 303, 331 mining, 30, 31, 32, 56, 86, 132, 170, 172, 176, 189, 223, 278, 331, 349 packaging and branding, 203–204 railroad, 170, 176 types, 30–33 Lubricants for new applications, 231–232 Lubrication surveys, 236–237

375

Index product life cycles, 211–216 product/market matrix, 211–216 test marketing, 221–222

M Market communication advantages and disadvantages, 147–150 effectiveness, 174–177 industrial lubricants, 170–172 processes and tasks, 136–140 retail lubricants, 165–170, 182 salespeople, 172–173 Market research aims, 51 analytical methods, 54–56 data analysis, 66–68 dynamics and changes, 58–59 information sources, 65–66 potential, 56–58 process and analysis, 52–53 report preparation, 66–68 Market segmentation criteria, 183–189 methods, 180–182 macro and micro variables, 189–190 principles, 179–180 product positioning, 182–183 target segments and values, 191–194 Marketing asset-led, 14–16 channel support strategies, 43–45 channels, 29, 33–40, 41 market-led, 14–16 performance, 282–287 plans, 13, 14, 16, 24, 32, 36, 51, 72, 247, 248, 252, 253–258, 259–260, 265–266, 269 principles, 13–20 promotional mix, 140–145 pull strategies, 43–44, 139, 165, 270 push strategies, 43–44, 139, 170, 270 strategies and tactics, 19, 41, 101, 124–126, 165, 180, 214, 247–248, 258–260 strategy, 13–16, 35, 38, 43, 44, 46, 117, 179, 215, 247–250, 260, 265 Marketing department activities, 269–271, 277 company size, 274–276

N New lubricant development idea evaluation, 219 idea generation, 217–219 idea screening, 219 marketing inputs, 211–222 organisation, 216–217 preliminary business analysis, 220–221 process, 216–222 product development and testing, 221

O One-stop-shops advantages and disadvantages, 369–371 background, 363–364 facilities and systems, 366–367 future trends, 371–372 globalisation, 367–369 principles, 364–366

P Packaging attributes, 146, 156, 195, 196, 199–200 drums, 200, 201, 208, 331 glass bottles, 207 labels, 201–203 plastic bottles, 200, 201, 202, 206–207 recycling, 204–207 refillable containers, 207–208 roles, 199–201 tinplate cans, 200, 201, 207 waste plastic, 204–207 Pandemics, 75, 77, 87, 89–90, 97, 99, 107, 111, 256, 323, 326, 334–335, 336 Pareto Principle, 13–14 Personal sales and selling, 139, 140, 145, 147, 173, 177, 182, 183, 186 PEST analysis, 24–25, 73, 248, 252, 256–257, 266, 322 Plastic bottles, see Packaging, plastic bottles Presentations, 106, 108, 141, 142, 159, 173, 280, 349, 356, 359 Press releases, 66, 141, 147–148, 156, 157, 159, 163, 171, 173, 174 Product life cycles, see New lubricant development, product life cycles Product/Market matrix, see New lubricant development, product/market matrix Product portfolio management, 17, 18, 19, 211, 363 Promotional mix, 140–141, 143, 145, 149 Promotions (sales), 43, 44, 102, 106, 108, 110, 139, 145, 149, 152, 155, 157, 159, 163, 180, 183, 199, 204, 276, 358 Psychographics, 110, 182, 183, 186 Public image, 158–160 Public relations agencies, 135–136 agency selection and briefing, 155–157 benefits, 163–164 public image, see Public image

376 R Refillable containers, see Packaging, refillable containers Retail brands, 195–198, 209 Retail customers buying behaviours, 27, 101–105, 109 buying influences, 105–107, 110, 303 types and characteristics, 59–60, 102–104, 189 Retail lubricants branding and sales, 209–210 brands, 198–199 labels and labelling, 201–203 packs and packaging, 199–201

S Sales Closes, see Closes Sales force organisation, 279–282 Sales performance, 282–287 Sales strategies and tactics, 101, 124–126, 258–260, 358 Sales tactics benefit selling, see Benefit selling common mistakes, 359–360 principles, 341 tips, 350, 360 Scenario planning, see Forecasting, scenario planning Selling approaches, 13, 20–24 benefits, see Benefit selling industrial lubricants, 350, 358 principles, 20–24 retail lubricants, 350, 358 strategies, 247–249

Index Silo organisations, 271–274, 337, 364 Social media, 21, 43, 44, 66, 71, 105, 107, 142–143, 149–150, 153, 155, 159, 164, 165, 169–170, 171, 172, 175, 176, 256, 284, 285, 368, 371 Strategic analysis, 249–250 Supplier evaluation, 122–124 Supply and demand, 29, 44, 58, 59, 72, 196, 290–293, 300 Supply chain management disruptions to supply chains, 334–337 global supply chains, 333–334 information management, 328–329 integrated supply chains, 330–332, 372 logistics function challenges, 337 organisation and management, 329–330 physical flow of products, 326–328 principles, 325–326 road transport strategy, 337–339 SWOT analysis, 24–25, 248, 252, 254–258, 260, 266, 322

T Technical service, see Customer support service Telemarketing, 167, 168, 172 The internet, see Internet Tinplate cans, see Packaging, tinplate cans

W Waste plastic, see Packaging, waste plastic Wholesalers, 35, 36–37, 38, 41, 43, 44, 51, 102, 327, 330