‘Money Makers’ – How Should Lubricants Marketers Position their Business in 2019?
After a difficult 2017 and 2018, this year holds promise for global lubricants marketers that make the right moves. Yes, we assert they have an opportunity to regain some growth momentum. Why and how? Read on…
Thank the tailwinds in the first quarter of 2019 as base oil prices have declined. They will help marketers partially recover the hit they took on earnings in the two prior years. However, let’s put this in perspective. In light of the pace of industry consolidation and competition, our industry models tell us they will not achieve full recovery until 2021.
More perspective… Let us set aside the longer term impact of electric vehicles on the automotive business. Instead, we focus on the immediate business cycle. That said, volatility reigns. But keep in mind we are accustomed to dealing with volatility, both political and economic, in our emerging and developing markets around the world. Yet, these markets represent a more significant portion of the margin pool and therefore introduce greater overall portfolio risk.
Volatility also cuts across our core markets of North America and Western Europe. Brexit is unresolved and straining the relationships between all EU member nations. What’s more, trade wars cast a large shadow of uncertainty.
All told: How do marketers succeed in this environment?
Jagger Advisory has created an impromptu playbook just for this purpose. It flows from our experiences both watching and working with lubricants clients in Brazil, Mexico, Russia, Africa, the Middle East and other countries where volatility is the norm rather than the exception. What is the main lesson learned? It takes a strong bench and discipline to effectively and sometimes profitably ride through even intermittent volatility. We transferred our learnings into actions:
Keep the customer in your brand.
Offer a brand-price architecture for your targeted customers that provides options for both the ups and the downs of the economy. It must clearly represent the price-benefit tradeoff at each tier from premium to conventional levels.
Defend margins selectively with targeted marketing investments.
Use your marketing tool chest to your advantage. Direct your advertising, sponsorships and promotions to support shifting the mix to premium products; defend volume on a case-by-case basis with strategic accounts to protect a competitive operating scale and cost position for growth.
Exercise disciplined channel and pricing behavior.
Form working partnerships with your distributor network. In this way, you facilitate visibility and control exactly what channels and at what price your products are positioned. Market volatility can feed products into sub-jobbers and channels that tend to challenge a marketer’s pricing strategy. Police these channels actively, and leverage the strength of your country level sales and marketing team to provide real time feedback on product and packaging opportunities.
Foster the strength and sustainability of your distributor network and model.
Understand the new normal – 50% plus of global branded sales are distributor-served, a level that is increasing as marketers lower their cost-to-serve. With sustained volatility, a macro-distributor is just as likely to experience financial difficulties as a smaller regional one. To Do’s: build contingencies for supply and inventory management; remove complexity in the network; and act quickly to stay on-strategy.