A Case Analysis on

“Castrol India Limited: An Innovative

Submitted to
Dr. Sivagnanasundaram M
by

Group 7 MM 2 - Section E
Karan Khanna 17A1HP488
Shamita Subrata Das 17A1HP556
Mrigank Bhalotia 17A3HP544
Mayank Gautam 17A1HP248
Abhishek Narayan 17A2HP585
Bhaskar Mitra 17A1HP319
Sourav Padhi 17A1HP410
 SUMMARY

Castrol India Limited is globally regarded as the leading lubricant specialist providing varied
services to customers across the world. The company is a respected brand and is known for its
technology innovations and marketing expertise.

In January 2006, the general manager of sales at Castrol India Limited was concerned. Sales
of Castrol motorcycle oil for four-stroke engines was far less than it should be, especially when
considering the five million motorcycles being added to Indian roads each year. Most
motorcycle oil changes took place in franchised workshops during the warranty period and in
non-franchised workshops after the warranty period. With this situation Castrol was bound to
lose not only its market share but also its market dominance. They also received heavy
competition from three large PSUs who had the advantage of owning forecourts. They also
faced threats from genuine oils. However technological innovations helped Castrol maintain
its leadership and success in the market. The general manager further reviewed the market
research studies and also identified the three distinct consumer segments. He decided to form
a project team to conduct gap analysis of MCO distribution and also wanted to increase the
sales of Castrol oil in the spare parts shops and non-franchised workshops that serviced India's
growing after-market. However, Castrol India's existing distributors were reluctant to sell to
those segments which they viewed as low-volume, high-cost, and risky distribution channels.
With its coverage in the after-market, it was evident that its opportunity to sell MCOs would
come from spare part shops and NFWs. With regards to the current situation in the market what
the general manager needed at that point of time was a distribution strategy that would appeal
to the existing distributors and also help boost Castrol Oil India's sales without increasing costs
to the company.
Q1) How do consumers buy MCOs? Discuss the existing consumer segments.
Answer: Earlier the consumers would buy the oil of their choice and take the preferred
mechanics to change the oil. Now the consumers depend on the mechanics for the entire
process of buying as well as changing the oil. They place their trust on the mechanics to use
the right oil. This, according to the research, was the shift "from shop to workshop". Key
Factors behind this shift were:

 Convenience
 Personal Attention from the mechanics
 Trust

Personal attention was the driving force behind this shift in the consumer behaviour. These
small mechanics were the trustworthy source of information for the recommending the right
oil for the bike.
The primary growth drivers were the younger demography who were full of enthusiasm and
entrepreneurial energy. The demand from rural areas was also increasing, the middle class was
expanding, and the disposable income was also increasing and so was the aspiration to own a
motorized vehicle. It was also marked by the ease of financing which was not available earlier.
Three distinct consumer segments were identified by Castrol:

1. Minimalists: People who seek value for the money spent with reassurance from a
credible brand. They need to do "right thing"
2. Appreciators: The go to reliable sources and are willing to pay premium if needed. They
are willing to be led and advised and appreciate freedom and confidence.
3. Enthusiasts: They want to be associated with the best and are ready to go to all extent
to tap the uncovered opportunities. They believe in getting the most out the bike engine.

Q2) What is the specific challenge for Rai and his team?

Answer: In the next five years, Rai and his team wanted to achieve a market share of 30% in
the MCO market. They could have opted to grow organically, which would have yielded an
increase in two-wheeler market share by 24%. But the challenge still remained how to achieve
remaining 6%.

Other option was to tap in NFW’s market which could have helped Rai and his team to achieve
rest 6%. But the Castrol distributor was reluctant to implement the same because of two
reasons, first being mechanics were unauthorized and they would buy only on credits which
could be very risky. Next, they were highly fragmented in remote locations. Delivering small
quantities would not have been cost-effective in terms of labour and transportation.
Q3) What are Castrol’s options for expanding its distribution? Discuss the
advantages and disadvantages of each option.

Answer: On the basis of the conclusions drawn by the project team tasked to analyse
the gap distribution of MCO products, Castrol could pursue the following options:

 Expanding coverage in after-market channels:

 Most bike users had the tendency to move from “shop to workshop”, that is after
the warranty period was over, customers moved away from FW’s to their
preferred after-market mechanics, and trusted them to use the right oil for their
vehicle.

o Advantages:
 Forecasts suggested that the growth of the MCO 4T market
would be spearheaded by the after-market channel, which was
considerably greater than the market’s rate.
 The number of outlets selling Castrol oil in the after-market zone
was significantly greater than the number of FW’s selling
Castrol oil.
o Disadvantages:
 There was an air of unreliability associated with the smaller
mechanics in the after-market scenario.
 Majority of the after-market mechanics required supplies in
small quantities, which the existing distributors were unwilling
to cater to, as it would incur losses for them.

 Reach out to the mechanics in the second and the third segment of after-market:

o Advantages:
 Organically, Castrol could grow to achieve a market share of 24
percent in the two-wheeler market. However, if disproportionate
growth was taken into consideration, by reaching out to these small
mechanics, a 30 percent market share goal could also be realized.
 Getting these small mechanics to stock, sell and display Castrol had
a huge potential first mover advantage, as consumer behavior was
said to be moving from “shop” to “workshop”.

o Disadvantages:
 Supplying to these small mechanics directly would mean a decrease
in the sales from the dealers from which these mechanics were
previously buying.
 Most of these mechanics are unreliable, and could close business any
day.
 Most of these mechanics were highly scattered and in diverse
locations, and delivering them the products directly would mean a
significant increase in delivery costs, and neither was Castrol
interested in increasing its distribution or trade margins in order to
fund this expansion.
 There was also a credit risk associated, as most of these small
mechanics used to stock and buy products on a credit from their
nearby dealer, and neither was any distributor interested in bearing
that credit risk.