Lubricant market in india

Introduction

The Indian automotive lubricant market is the sixth largest market in the world with
revenues of approximately $1.30 billion in 2002. It is also one of the fastest growing retail
markets in India. Until 1993, it was a highly regulated market with a clear dominance of the
public sector. Companies like Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL), and
Indian Oil Corporation (IOC) held more than 75 percent of the market share. In recent years,
with the advent of the increasing number of multinationals in the Indian market there is a
growing presence of private companies. Companies like Castrol, Elf Total-Fina, Gulf, and
Shell Oil have made their presence felt in the market.

Market Size

Total production of automotive lubricants in India is approximately 8 to 10 percent of global

lube production. Unlike other countries where lubricant demand has witnessed stagnation,
the Indian market has been growing at approximately 7 percent per annum for the past 2
years. The public sector contributes to over 60 percent of the revenues for this market.
MNC’s have 5 percent market share and the remaining share is held by the unorganized
sector. Automotive lubricants are further divided into diesel lubes and petrol lubes. Diesel
lubes comprise 70 percent of the market and petrol based lubricants cover the rest. As
diesel lubes are used by commercial vehicles, which have to cover greater distances, their
market share is higher. Engine oil constitutes around 83 percent of total sales volumes. Gear
oils, transmission fluids, hydraulic brake fluids, and engine coolants contribute to the
balance.

Competitive Analysis

The first seeds of competition were sown in the early 1990’s when following the
liberalization of the Indian economy, the government decided to open the Indian market to
foreign competition. Import of base oil, the key raw material, was de-canalized with IOC
losing its status as the sole canalizing agent. Pricing of base oil was deregulated in a phased
manner and currently it is market determined. Basic custom duty on base oil stock was also
reduced from a peak of 85 percent to a level of 25 percent. All quantitative restrictions were
also removed. These developments naturally encouraged the entry of foreign players on
Indian shores who were already facing a slowdown in demand in their local markets. The
coming in of foreign participants created an excess supply situation in the Indian automotive
lubes market, which made it more difficult for the Indian lube manufacturers to survive.

Recent deregulations in the lubricant market have promised many new opportunities for the
private lube manufacturers. With the dismantling of Administered Price Mechanism (APM)
the burden of subsidies is now being passed on to the government. Private participants will
also gain a presence in the Indian oil and gas sector and hence there will be competition
between participants that will ensure the growth of the sector. In the next couple of years,
the industry is going to witness sea changes. Retail networks, logistics management, and
risk management are going to be the crucial factors. The stand-alone refineries will have to
be merged with the marketing companies, as they do not have the distribution infrastructure
to sell their products in a deregulated market. Companies like Reliance are already selling
their products through petrol pumps. The monopoly of the public sector holdings will no
longer exist. MNC’s will be able to sell their products through petrol pumps. Lubes
manufactured by Reliance Petroleum, Castrol, Elf, Gulf Oil etc, which are now sold at petrol
pumps. In medium to long term, Frost & Sullivan expects private sector companies to have a
market share of around 25 percent.

Distribution Structure

There are two key markets for lubricants in India. Given high levels of competition original
equipment, linkages are gaining importance. The original equipment market contributes
almost 70 percent and 30 percent of the market is comprised by the retail sales segment.
The channel for replacement market or the retail segment is petrol pumps or retail stores.
Almost 70 percent of the lubricants in India are sold through petrol pumps. Most of the
MNC’s have tied up with oil majors for marketing their lubricants like Castrol with Escorts
and Tata BP with Telco. After the deregulation of the petrol pumps companies are keenly
watching the developments in the lubes market.

The distribution channel adopted by public sector units is through the petrol pumps. Other
private participants have had to set up an independent infrastructure comprising of
distributors, stockiest and retailers through out India. MNC’s and private companies sell
through retail stores. To compete with dominant public sector distribution, concepts like
"Bazaars" and "Super Stores" have also been developed. Castrol developed the concept of
"Bazaars." These are outlets meant only for lubricant sales.

The concept of "User Outlet" is another new concept developed by Castrol. In this, the
consumer selects his own brand of lube after giving his vehicle for service in the same
outlet. Convenient stores and highway stops for vehicles are being built from where the
vehicle owners can get their vehicles repaired and get their supply of lubricants. In the lube
market, Indian Oil Corporation Limited is leading the market with 30 percent market share.
Castrol is next with 25 percent of the share and HPCL and BPCL are next with about 20
percent and 15 percent shares respectively. Other private companies hold the remaining
market share.

Key Success Factors

Frost and Sullivan believe that the key factors for success in this highly fragmented and
competitive industry include:

Brand Image

With lubricants becoming a fast moving consumer good and the brand preference of the
consumers witnessing a change, brand image plays a key role in affecting the consumer’s
decision to buy a lubricant. In a recent study by Frost & Sullivan, it was found that vehicles
owners’ decision to buy a certain lubricant is affected by a garage mechanic, retail
storeowner, or the advertisements. Hence, it becomes important to have a good brand
name in the market, which can affect the customer’s decision to buy a certain brand.

Distribution Channels

With increasing number of players in the market, it is vital for the companies to reach a
wider segment of customers. The lubricants market in India is very highly fragmented and
complex. Public limited companies selling primarily through petrol pumps manage to
achieve a deeper penetration. Most of the MNC’s have tied up with oil majors to market their
brands like Castrol with Escorts, Tata BP with Telco. This will help the private companies to
establish a wider access, brand awareness, as well as preference.

Margins and Discount Schemes

Private companies mostly sell their products through stockiest, dealers, distributors,
mechanics, and retail stores. Maximum sales are achieved through mechanics and retail
stores. Margins and discount schemes offered to the storeowners and mechanics prompt
them to sell and promote a particular brand.

Prices and Promotion

The transformation from the administered pricing mechanism to free pricing has increased
the importance of providing cost effective product to the users. Thus product costing and
competitive pricing are key factors affecting the market.

Market Trend

In the recent past, the Indian lubricant market has witnessed a phase of consolidation.
Multinationals with better technology, brand name and finances have the power to launch
themselves on their own in the market. However, with increasing number of competitors it is
not possible for every one to carve a nich in the market. This sector has witnessed
considerable amount of mergers and acquisitions. British Petroleum’s not so recent
acquisition of Castrol is one example. The Indian lubes market is a combative market place
and lubricant companies find themselves fighting a tough battle for survival. In the OE
sector also lubricant manufacturing, companies are entering into collaborations with vehicle
manufactures. Maruti Udyog, Hyundai Motors, Hindustan Motors, TAFE, Toyota, and Skoda
have entered into collaboration with IOC and Castrol for some of their models.

Outlook

In the future, growth in the automotive lubricants industry will largely depend on the overall
performance of the economy. In the past one and a half years, the scenario has improved
with higher sales of commercial vehicles and two-wheelers. However, in the future volume
growth will be affected because of use of better quality, long drain lubes. This will increase
the replacement cycle for lubes. In the shorter term, one will witness intense competition in
a slow growing market marked by a consolidation activity, which has the potential to change
the face of the lubricant industry. Given the rising competition, success of a product would
largely depend how well it is branded and distributed.

lubricants marketing strategy

MarketSource IMS, a firm specializing in online marketing strategy solutions, recently claimed a
1st place award for its utilization of product placement in video games and online games.

Ever wonder how to make a product stand out in a crowded marketplace and elevate it to a
cultural icon brand? Engage your audience with innovative promotional marketing and
advertising solutions. "Traditional approach? Well, that will get you traditional results,” says
Peter Morrison, Executive VP at MarketSource IMS. “If you’re looking for iconic brand status,
well, now let the games begin..."

Innovators of integrating products and brand attributes into video games and online games,
MarketSource has leveraged their expertise to win a Promo 2006 Entertainment Marketing
Award (EMMA) in the Best Electronic Games Category. The EMMA is the premier accolade for
outstanding entertainment in marketing strategy.

As part of targeting the young male consumer, Castrol® SYNTEC®, BP Lubricants asked
MarketSource to develop a non-traditional marketing approach that would put Castrol SYNTEC
motor oil in front of this very elusive audience. “The male 18-to-34 demographic is increasingly
difficult to reach,” says Mike DeBiasi, Marketing Director, BP Lubricants. MarketSource
devised a plan to engage those young, passionate, car-loving males that integrated memorable
Castrol SYNTEC brand messages into an Electronic Arts (EA) video racing game: 'Need for
Speed Most Wanted.' “The idea intrigued us because those males are watching less TV and many
spend hours playing video games.”

“We need to be creative in how we reach out to young men,” says Claire Lipnicki,
MarketSource’s Account Director for the Castrol Account. “By integrating brand messages into
naturally-occurring places in the virtual “real-world environment,” SYNTEC gets fantastic
product placement in front of their core target, generating positive product awareness that creates
an emotional brand connection.”

MarketSource handled the strategic initiative, branding guidelines, assets and messaging while
collaborating with EA to execute seamless in-game placements. Those product placements
played off the Castrol SYNTEC brand message, “Unlock the Power.” Castrol oil cans, street
billboards, quick lube stations and a 3-D garage environment were just the beginning. The
biggest impact idea was incorporating a high-performance vehicle — one of the most powerful
in the game — which took many levels of game-play to access. MarketSource promoted a “cheat
code” to the public and emailed it to thousands of Castrol database members to help players
access the sought after vehicle. Combine that exposure with a 30-minute MTV special promoting
the game’s release, coverage from national publications and the game hitting #3 on the
bestsellers list with more than 8 million units sold and you get the kind of viral marketing buzz
that makes corporate marketing executives salivate.

“Castrol SYNTEC fourth quarter sales increased nearly 30% over the same quarter last year. In
fact, Castrol SYNTEC was the only major synthetic brand to gain share in that quarter,” boasted
DeBiasi.

“Plus, research showed a 23% increase in awareness after playing the game,” added Lipnicki.

MarketSource also created online advergames for Castrol’s website that delivered an exciting
virtual racing experience while promoting various Castrol brand benefits through product
placement and game play. To drive site traffic, advanced search engine management techniques
were incorporated.
For more information about MarketSource’s in-game product placement and advergame
solutions, please visit here. For the Castrol SYNTEC case study, click here

About MarketSource Integrated Marketing Solutions:

MarketSource IMS, based in Howell, New Jersey has been solving online marketing strategy
challenges for more than 30 years. MarketSource IMS delivers innovative, strategic and non-
traditional Internet, product sampling, event, gaming, emerging media and search engine
marketing solutions that impact consumer behavior.

About BP Lubricants:

BP Lubricants USA Inc. markets premium lubricants and business-building programs directly to
independent lube operators, service providers, new car dealers and leading retailers. Our
leadership brands include Castrol® GTX® – a premium conventional motor oil; Castrol®
GTX® High-Mileage™ – designed for vehicles with over 75,000 miles; Castrol® GTX® Start
Up™ – formulated to provide superior wear protection during the critical start-up period;
Castrol® SYNTEC® BLEND™ – with an added level of synthetic protection; Castrol®
SYNTEC® – a full-synthetic, super-premium motor oil; as well as our range of commercial
transport lubricants. To find out more about Castrol products and programs, please call 1-888-
CASTROL or log on to www.castrol.com/us

Press contact:

Taryn Tarantino

VP, Marketing

MarketSource IMS

Phone: 732.987.3422

Fax: 732.987.3439

Web: www.marketsourceims.com

Marketing & Sales

In today’s highly competitive environment and narrow marketing margins, oil companies need
well-defined marketing and pricing strategies that enable them to extract their brand value in key
target markets.

Oliver Wyman has assisted many companies in addressing business challenges in the areas of:
 • Marketing and sales strategy
• Pricing and promotions
• Sales force effectiveness
• Customer and channel value

Recent engagement example

Customer value proposition and offer design - Oliver Wyman helped a client to assess its
current offer configuration to refined fuels product distributors and to redesign the configuration
of sales & marketing support elements using our proprietary Customer Value Engineering
approach. The work identified alternative combinations for differing customer segments to
increase offer take rates by 5 to 10 percent by focusing offers on the highest perceived value
elements.

Pricing and promotions: Oliver Wyman helped a client assess pricing strategies and improve
the effectiveness of promotions and direct mail programs to consumers through our proprietary
Value Engineering approach. The work identified tactics to increase earnings by 5 percent
through increased customer share and lower marketing costs.

Lubricants marketing: Oliver Wyman helped a major global firm develop lubricants marketing
and growth strategies across several markets including assessing local competitors and channels,
customer requirements/behavior, and expected economics. The resulting strategy allowed the
client to focus on highest value opportunity areas to achieve share and profitability targets. For
example, in China, execution of the strategy transformed the company’s loss-making operation
into one of its most profitable and rapidly growing.

Distributor offer redesign: Redesigned distributor/marketer offer and program elements for a
major oil company. Conducted quantitative choice-based. research/analysis of distributor
utilities for various offer components and levels. Developed segmented offers to increase
distributor volume share by 10+% over current offer configuration at lower program costs.
Developed client-ready simulation, planning, and competitive offer tools to assist sales force.

TOTAL
Total at a Glance: An international energy
provider (2009 figures)
 Fifth largest publicly-traded integrated international oil and gas company in the world (1)
 First largest capitalization on the Euronext Paris and the Euro zone: €105.7 billion at
December 31, 2009.
 96,387 employees.
 Operations in more than 130 countries
 Exploration and production operations in more than 40 countries.
 Producer of oil and gas in 30 countries.
 Approximately 540,000 French individual shareholders.
 2009 sales: €131.3 billion.

With operations in more than 130 countries, Total engages in all aspects of the petroleum
industry, including Upstream operations (oil and gas exploration, development and production,
LNG) and Downstream operations (refining, marketing and the trading and shipping of crude oil
and petroleum products).

Total also produces base chemicals (petrochemicals and fertilizers) and specialty chemicals for
the industrial and consumer markets (rubber processing, adhesives, resins and electroplating). In
addition, Total has interests in the coal mining and power generation sectors. Total is helping to
secure the future of energy by progressively expanding its energy offerings and developing
complementary next generation energy activities (solar, biomass, nuclear).

A leader in each of its core businesses: 2009

key indicators
Upstream

 Exploration and production activities in more than 40 countries

 Production of oil and gas in 30 countries.
 Production: 2.28 million barrels of oil equivalent per day.
 Proved reserves: 10.5 billion barrels of oil equivalent as of
December 31, 2009 (2).
Downstream

 No. 1 Western European Refiner-Marketer (4) and No. 1 Marketer in

Africa (5).
 One of the leading traders of crude oil and refined products
worldwide
 Refining capacity: approximately 2.6 million barrels per day.
 Retail network: nearly 16,300 service stations.
 Sales of petroleum products: approximately 3.6 million barrels per
day.
 Brands: TOTAL, Elf, Elan, AS 24.
Chemicals

Total is one of the world’s largest integrated chemical producers (6) and
a leader in each of its markets - Petrochemicals and Fertilizers,
Specialties