LubricantsCo, a very successful Asian premium producer of lubricants in their native region, would like to further increase their revenue and profit. The product range ranges from lubricants in the automotive sector (e.g. motor and gear oil) to industrial applications (e.g. fats, heavy-duty oils).
According to preliminary examinations, further growth potentials in the Asian core market are rather limited. Thus LubricantsCo would like to investigate options to internationalize in the passenger car business – also outside the premium segment which is given priority.
Therefore your consulting firm was instructed to elaborate a market entry strategy for the European market.
The case has two project phases:
Project phase 1 aims at prioritizing a test market within Europe and its neighbouring countries with the help of a structured selection process on the basis of typical evaluation criteria.
During project phase 2 the interviewee should - based on qualitative standards and on the basis of relevant dimensions - outline a possible market entry strategy for the market, which has been prioritized during phase 1.
Short Solution (Expand) (Collapse)
The following framework/structure would be a good approach for the problem at hand:
At this point the interviewee should understand the situation and structure the problem solving strategy.
- Project phase 1 aims at prioritizing a test market within Europe and its neighbouring countries with the help of a structured selection process on the basis of typical evaluation criteria.
- Germany, Turkey and Russia can be internally chosen.
- In order to identify the test market that is the most appropriate for LubricantsCo, the two typical dimensions market attractiveness and probability of success should basically be analysed.
- Market attractiveness is composed of the following dimensions:
- Market size
- Market growth
- Market profitability
- The prioritization of a test market as well as the relevant dimensions of a market entry strategy should be summarized in a convenient design for the discussion with the management board of the client.
At this point the interviewee should locate the test market. To do so the interviewee needs to determine market attractiveness with the help of market size and profitability.
In Germany each of the approximately 40 million households has on average one car. This corresponds to a stock of approximately 40 million cars and accordingly a density of 500 cars per 1.000 inhabitants (population: 80 m.).
- Russia and notably Turkey are countries with a relative high market growth compared to Germany.
- This information can be used to estimate the market growth of car oils, since more motor oil will be used in growing economies in the future.
- Russia and Turkey also have a growing market of premium motor vehicles.
- Profitability cannot be calculated directly, since no data is available.
- Germany and Russia:
- High intensity of competition
- Low profitability
- In Russia the percentage of old vehicles is higher than in Turkey. The profitability is lower than Turkey, since used motor oils generate barely any margins for old vehicles.
- Due to growing demand of high-quality oils as well as moderate competitive conditions, Turkey has the highest qualitative profitability.
The interviewee should set up a comparison matrix.
Chart 2 shows an overview of the analysis.
It becomes obvious that Turkey is the most promising market and should therefore be selected as test market. Germany drops back due to low growth, Russia due to the difficult competitive environment and structural disadvantages.
Here the interviewee should set up a possible strategy for the market in Turkey. The 5 classic dimensions of a how-to-win strategy should be addressed:
- Production / Supply Chain
- Channels of distribution
- The product range that is offered in the domestic market ranges from lubricants in the automotive sector (e.g. motor and gear oil) to industrial special oils and fats.
- There are high regulatory guidelines for individual products for the European market.
Production / Supply Chain
- In a best case scenario, LubricantsCo continues to produce its lubricants in Asia only and transports them to Turkey.
- In this case they can, on the other hand, only react very slowly to local fluctuations in demand in Turkey or they need to have large stocks.
Channels of distribution
- The sale of lubricants to automobile manufacturers (OEMs) for the first fill during production is an important channel.
- Another channel are the numerous chains of workshops, which sell a large amount of motor oils to car owners.
- Furthermore there are smaller local workshops.
- An additional channel of distribution are gas stations, which, however, only offer their own brands (e.g. Shell).
- In order to lend the marketing campaign the necessary credibility and to emphasize the attractiveness of the brand from the beginning, an important automobile OEM should be won as so-called lead customer for the Turkish market.
- Next to the B2C-marketing, the B2B-marketing on the lubricant market also has however a very important role including for example workshops.
- LubricantsCo presents itself as premium supplier in Asia and wants to pursue this strategy in Turkey.
- Product: In order to keep the complexity to a minimum, you recommend LubricantsCo to focus on motor and engine oils for the market entry phase, since this product domain not only represents the largest volume of the Turkish market, but also promises profit margins above average.
- Production: As soon as you calculate the costs for transportation and stock-keeping you will realize that production in Asia for the Turkish market no longer makes sense – also if only small amounts are produced. As the market entry in Europe should not continue to be in a subcritical domain, you suggest a local production which will be supported by the smaller production costs in Turkey compared to other European countries.
- Distribution: OEMs generally have a preferred or exclusive supplier who covers a large part of the volumes. However, this channel is very important for the branding and for this reason for the perception of the end customer. Consequently, the OEM channel has significant impacts on the business in the aftermarket which is dominant in terms of volume. Not only does the value of an oil brand grow by connecting it with a popular car brand, but it is also easier to win the authorised workshops of these OEM contract customers as customers – at much higher margins.
- Brand: In order to win a lead client, negotiations should commence with AsiaAutoCo, a client who has been successfully supplied on the Asian market over the past years and who is already active on the Turkish market. An essential component for the success in the B2B area is to convince the mechanics in the workshops. This will be guaranteed by the quality and intense customer relations with the help of the Key Account Manager as well as the local sales team.
- Price: That is why the price strategy should be adjusted to the upper segment of the Turkish market. This strategy will be supported by the planned partnership with AsiaAutoCo and the high quality product offer for the premium as well as the middle quality segment.
The interviewee should draw a conclusion from the analysis:
- Turkey is the most the most promising market and should therefore be chosen as test market.
- The dimensions product, production, channels of distribution, brand and price strategy should be analysed more closely for the market entry strategy.
How would an inorganic growth in Turkey (acquisition or joint venture) proceed?
- The company has to run through a target screening process in order to identify attractive investment candidates or joint venture partners in this region.
- The following investment categories should mainly be evaluated:
- attractiveness of the company
- Fit with LubricantsCo (synergies, value proposition)
- Furthermore you have to check the availability of the acquisition candidate as well as the financial side of a possible deal (e.g. financing options, price) for LubricantsCo as early as possible in the process.
Further questions can be added by you, the interviewer!
At the end of the case, you have the possibility to suggest challenging questions about the case (for instance, these can be used for further meetings in which the interviewee solves the case very quickly).