assignment 2 marketing audit of eco fueling - rajith januka
TRANSCRIPT
Januka G.D.R U1015838 [email protected]
MKT5000 Marketing Management
Assignment – 2
MARKETING AUDIT
On
ECO - FUELING
Name : Galbadage Don Rajith Januka
Student No : 0061015838
Januka G.D.R U1015838 [email protected]
Table of contents
Content Page No:
Overview 3
Marketing Objectives 4
Marketing Tactics 9
Marketing Timeline 11
Marketing Contingency’s 14
Reference 16
Table 18
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Januka G.D.R U1015838 [email protected]
Overview and Executive summery
Eco-Fueling a Brisbane- based company that developed a new sophisticated ethonol Co-fueling
technology is planning to begin the next growth phase of expanding the market. The Product is
purely targeted at any kind of diesel engines through which the engine owner can reduce the
operating cost and increase the life time. It is understood by an environmental scan that there is a
very good market opportunity to introduce the product to the countries like Brazil and USA in
addition to Australia. Pricing and quantifying the sales, keeping the product cost within the
manageable range, establishing the distribution channel, Promoting investors and customers are
the major challenges ahead to win by the company.
As the product is related with the technological improvement there is a risk of being obsolete and
override by new invention. Therefore, it is very important to grab the market opportunity to as
soon as possible and tap all possible markets within a short period.
Industry ratios depicts that the net profit margin lies at 2% where company can only increase the
profit by targeting on number of sales units. All company infrastructure and budgetary provisions
needed to be designed to achieve the expected sales quantum or even above the expectation. This
paper is aimed at developing a marketing plan to explore the market opportunity created by E-
Cofueling technology in relation to diesel engines in an effective and efficient manner.
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Januka G.D.R U1015838 [email protected]
Marketing Objectives
Product Objectives
Eco-Fueling’s Diesel Engine Retrofit kit (KIT) can be used for both new and old diesel engines.
KIT will Increases Fuel economy, Horsepower, longer engine life and torque as well as reduces
the emission of all type of diesel engines. The kit can be named as a Business component product
that is in the introductory stage.
The technology can be used with bio diesel, renewable diesel and used as a viable alternative to
specific emission reduction products such as Selective Catalytic Reduction. Buyers should make
aware of the product features uses and advantages.
Eco-Fueling’s next generation systems will allow carbon tracking and develop IP property
portfolio continuously enhancing the attractiveness of the technology.
The company will manage the upgrading process of the technology to next generation for its
clients. (E-Cofueling 2011), (Product Strategy 2011)
There are two income sources that Eco-Fueling can target from this product
1. Direct unit sales Income from selling the KIT
2. Royalty income from selling the technology to the Original Engine Manufactures –
Technology sales option is considered only when there is a failure in direct sales plan.
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Januka G.D.R U1015838 [email protected]
Price Objectives
KIT Sales Pricing
Pricing should equities the customer perception of return on their investment.
Price competitiveness with that of the competitive products would essential to
justify the price to the target market
Price per KIT = Fuel Cost saving per three years ( Assumed Customer Expectation)
(No of engine hours uses per year * Average diesel galloons consumption
per hour * Price per diesel galloon * Expected fuel saving % *
Three years)
Eco fueling is expected to have 10% saving on fuel cost based on the competitive product cost
saving & efficiency improvements status. (Ivco 2011). As per the Diesel fuel consumption
analysis, (Robert G, Virginia Tech 2007) an engine consumes an average of 22 liters per hour.
Price per diesel liter is USD 0.14 Cents (Australian institute of Petroleum 2011) assuming that
US$ and AU$ conversion rate is 1. If a diesel engines works for 3300 hours a year (10 hours a
day * 330 days a year) and the customers accepts the three years payback period eco fueling can
price the KIT at USD 3,050.
In another term, price of somewhat similar product in the market (H2 Booster 2011), (Eco fuel
Box 2010) is ranging from USD 595 to 2495. Since it is not 100% alternate, E-cofueling should
be able to charge at the highest possible price that the buyers willing to pay.
The gross profit and net profit margins of ten companies were analyzed (Table 1) GP margin is
observed in between 10% to 35% and NP margin is observed in between 0.07% to 7.26%. It is
assumed that E-Cofueling is having 25% GP margin after machinery depreciation. Even though
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the industry average for Automobile and Bio technology gives 2% net profit margin (Date360
2005), (Reference for Business 2011). E-Cofueling targets to manage the Admin, Marketing and
distribution expenses to maintain industry NP margin of 2% after allocating 25% of the product
cost to selling and distribution expenses.
Distribution Objectives
Since the company is in the highly competitive market and the technology is subject to outdate
on a fast track, we try to exploit the maximum market opportunity within the minimum time
period. With that view, the company is targeting three countries to introduce the KIT.. Those are
Australia, USA and Brazil. As the mother country of E-Co fueling, market knowhow is the key
advantage in introducing to Australia. Being the world’s leading ethonol producing countries,
availability of established distribution channels and constant government support for renewable
energy and energy saving USA and Brazil is considered as more prospective countries to
introduce the KIT. (Bio Energy Wiki 2011),
Distribution in Australia
There are around 8,000 service stations in Australia. 89% of these service stations are
represented by 5 companies (ANZ 2011). E-cofueling is targeting to have 800 fuel stations as our
sales points in Australia that covers wide customer base. Negotiations to be done with above
companies to have a better distribution channel at a low cost.
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Distribution in Brazil
Since Brazil government is support is high in relation to ethonol related technology, we are
planning to access Petrobas and or Ulrtapar to distribute our KIT in brazil. Petrobas is a state
owned company where they have 6,000 Service stations in Brazil (Petrobras 2009), (Wikipedia
2011). Ultrapar owns 5,900 service stations in Brazil (Ultra 2010).We are targeting to select
1,200 service stations from Brazil as our sales points.
Distribution in USA
By targeting well established fuel distributers namely, Chevron having more than 8000 stations
(Chevron 2011),Citigo having 6000 Stations (CITGO 2010) Exxxon having 10,000 Stations in
USA (Exxon Mobile 2011) and Shell E-Cofueling is targeting about 2,500 service stations as
KIT sales points.
From above three countries it is targeted to have 4,500 sales points giving much attention to
demographical and geographical factors of each country (Wikipedia 2011). E-Co fueling sales
target for the first year is one average one unit per month from each station. The target per month
is increased to 2, 4 and 5 per station in the year 2, 3 and 4 respectively. By keeping lesser sales
points compared to number of fuel stations (About 10%) and achievable sales target, we make
the distribution channel more comfortable and flexible.
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Januka G.D.R U1015838 [email protected]
Promotion Objectives
Company target is to do the maximum number of sales during a short period of time. Introducing
the product to the market and maximize the profit by high sales volume should be the objective
of the promotion. Promotional activities are targeted to be done in both Macro and Micro level.
Reaching government agencies and green pressure groups to educate about new product and its
impact on economy (Balance of payment) and the environment is targeted in macro level.
Making market awareness and creating a need to the society as whole and having solid public
relations are the main aim of macro level promotional program.
In Micro level, we have identified three major groups to be dealt with.
1. Fuel distributor companies – Budgetary provisions have been made to offer them up to
5% sales commission. So that the fuel distributors are having a good reason to market and
sale the KIT.
2. Fuel Station Managers and staff – Introductory Promotional program to motivate them to
sell the KIT.
3. Diesel Engine Owners – Using television advertising and telemarketing media releases,
participating to events, initial discounting create customer awareness and need.
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Marketing Tactics
1. Mark the price at $ 4500 and offer it for $ 3,049.9 as the introductory price. Use the “More
than 30% discount” banner in the marketing campaign.
2. Use the theme of “100% returns in just three years” throughout the whole marketing
campaign.
3. Introduce slabs to the distributor company commission entitlement percentage, based on the
number of sales achieved. These slabs have to be designed very carefully considering their
market size, ability to achieve and it should be time bound.
4. Introduce a competition between fuel station managers and offer a holiday package to Sri
Lanka for the first 10 fuel station managers who achieve 250 sales within one year. Offer gift
packs to the employees of the first 10 fuel stations, who achieve 250 sales within one year.
5. Prior to introduce the product to the general public we have to lineup and educate the
distribution channel about the product. Make them available with at least a sample product.
6. It is very costly and huge investment is needed to keep stocks in each and every sales point
other than the sample unit. Therefore stocks to be kept in maximum of 10 strategic locations
in each country.
7. Three years warranty period is to be provided for the KIT
8. Take part in green programs, and taking the membership in green related social organizations
and develop good personnel relationship.
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9. Try to access and develop good relationship with AU, US and Brazil government agencies
key personnel who are working in relation to green concepts, emission standards, energy
saving.
10. Formally access all three government’s economic policy makers and make presentations on
the saving that the government can have in a year from the fuel cost by using the kit and its
effect on balance of payment in overall.
11. Design the Company website with more marketing prospects, highlighting the opportunities
that Individuals, Governments, Environment and Society that can have by using E-Cofueling
products. Further the web should invite for prospective distributers, who are interested to do
join hand with E-Cofueling.
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Marketing Time Line
Sales Target
Year 1 Year 2 Year 3 Year 4 Year 5
Total Sales Target (Units) 54,000 108,000 216,000 270,000 270,000
Australia 9,600 19,200 38,400 48,000 48,000
Brazil 14,400 28,800 57,600 72,000 72,000
USA 30,000 60,000 120,000 150,000 150,000
Per unit price and standard expenses structure
Description USD
Sales Price (SP) per unit $ 3,050
Cost Per Unit (75% from sales price) $ 2,288
Gross Profit per unit (25% Margin) $ 762
Selling Distri: & Marketing Exp per unit - S & D (25% from Cost per unit) $ 572
Maximum sales commission inbuilt in S & D expenses (5% of SP) $ 152
Allowed other S & D expenses per unit $ 420
Other Administration Expenses per unit (15/85 of S & D ) $ 101
Finance Cost per unit @ 4.5% ( Assuming that 20 MN plant to be financed) $ 7
Net Profit per Unit ( 2.8% Margin) $ 83
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Januka G.D.R U1015838 [email protected]
Projected Statement of Income “$ 000”
Description Year 1 Year 2 Year 3 Year 4 Year 5
Sales Income 164,700 329,400 658,800 823,500 823,500
Cost Of Sales 123,525 247,050 494,100 617,625617,625
Gross Profits 41,175 82,350 164,700 205,875 205,875
Selling Distri: & Marketing
Exp
37,168 63,049 126,098 155,693 154,406
Administration Expenses 6,809 11,126 22,253 27,475 27,248
Finance Cost 1,800 1,800 1,800 1,800 1,800
Net Profit -4,602 6,374 14,549 20,907 22,421
Statement of Income is prepared based on the industry ratios and an additional $ 5 million is
allocated to initial marketing campaign. It is targeted to have 5,000 units of stocks to distribute
among 4,500 identified sales points. The estimated initial investment needed to build the stock is
USD 11.44 million. Further it is assumed to that the plant and machinery are to be setup using
the Australian government grant scheme (Australia Business Financing Center 1995 2011).
However, the company targeted to obtain loans from bank and other institutes and personal
lenders for USD 20 million to meet up initial expenses, in case of emergency and if needed to
bridge the gap between the government grant and the machinery cost. It is assumed that the
weighted average cost of capital (WACC) is 6% per annum. Even though the bank interest rate
lies at 4.5% (Trading Economics 2011) WACC assumed to lie high due to high personal loan
interest rate. It is necessary to keep at least 15 days stocks with the company and therefore net
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profit does not reflect the net cash inflow. However, starting from second year it is possible to
start repaying the loans.
E-Co fueling has already allocated 5% commission from the sales price, to the distributing
company.
If a station manager sold 250units per year Eco- fueling earns USD 190,500 contribution from it.
Company can spent 5% from the same for Station’s manager’s holiday package and the other
staff gifts packs.
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Januka G.D.R U1015838 [email protected]
Marketing Contingency’s
Failure in Promotion
Failure in promotion objective will not have long term impact as far as immediate corrective
actions are taken. It is possible to change the promotional tactics periodically and as it needed.
Even the company is having enough cushioning on the selling distribution and marketing
expenses to increase the distributer commission or to change over to a different promotional
campaign.
Failure in distribution
Even if the distribution in any two countries failed, it is possible to make the product feasible if
the company manages to sell more than 25,000 units per year with a tightened marketing budget
and more concentrated distribution channel. However, obtaining government grant to plant and
machinery is critical if the yearly sales falls below 50,000.
Failure in Pricing
If in case, the company made over pricing, it is possible to reduce the sales price by 10% provided
that the marketing and administration expenses are also reduced by same percentage. On the other
hand if the cost increases more than USD 50 per unit it marketing and administration provisions
have to be reducing to compensate the increasing production cost.
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Failure in product
If incase, E-Cofueling unable to convince core product features and position the KIT in the
market as a component product, all promotion, pricing and distribution objectives has no
meaning. Then, as the final option, the company has to think of selling the concept to Original
diesel engine manufactures to recover the cost to maximum possible level. General Motors,
(General Motors 2011), (Energy Boom 2010), (USA Today 2011), Caterpillar (Caterpillar 2011),
John Deere (John Deere 2011),Yanmar (Yanmar 2010), Perkins Pacific (Perkins Pacific
2011), ,Isuzu (Isuzu 2011) and Detroit Diesel (Detroit Diesel 2008) are the main probable diesel
engine manufactures that E-Cofueling can look for.
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Literature
1. Australia Business Financing Center (1995 2011),
<http://www.australiangovernmentgrants.org/programs.php>
2. Australian institute of Petroleum (2011), <http://www.aip.com.au/pricing/pdf/Weekly
%20Diesel%20Prices%20Report%20-%2002%20October%202011.pdf>
3. ANZ (2011),<http://www.anz.com/documents/economics/Service_Stations_Aug_2006.pdf>
4. Bio Energy Wiki (2011),<http://www.bioenergywiki.net/Ethanol_producers_by_country> ,
<http://www.bioenergywiki.net/Ethanol>
5. Caterpillar (2011), <http://www.cat.com/cda/components/fullArticleNoNav?
m=76100&x=7&id=285577>
6. Chevron (2011), <http://www.chevron.com/countries/usa/>
7. CITGO (2010), <https://www.citgo.com/CITGOforYourBusiness/RetailGasoline.jsp>
8. Data 360 (2005), <http://www.p360.org/dsg.aspx?Data_Set_Group_Id=498>
9. Detroit Diesel (2008), <http://www.detroitdiesel.com/>
10. E-Cofueling (2011), < www.ecofueling.com>
11. Energy Boom (2010), <http://www.energyboom.com/biofuels/general-motors-wants-
thousands-ethanol-stations-built-us>
12. Eco Fuel Box (2010), <http://www.ecofuelbox.com/en/all-ethanol-e85-conversion-kits.html>
13. Exxon Mobile (2011), <http://www.exxonmobilstations.com/mobileapps.php>
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14. General Motors (2011), <http://www.gm.com/>
15. H2 Booster (2011), <http://h2booster.com/Diesel-Emissions-Retrofit-Kits_c5.htm>
16. Ivco (2011), <http://web.iveco.com>
17. Isuzu (2011), <http://www.isuzu.co.jp/world/corporate/engine/>
18. John Deere (2011), <http://www.deere.com/wps/dcom/en_US/regional_home.page>
19. Perkins Pacific (2011), <http://www.perkinspacific.com/>
20. Petrobras (2009), <http://www.petrobras.com.br/en/about-us/>
21. Product Strategy (2011), <http://www.product-strategy.net/>
22. Rrbert G, Virginia tech (2007)
<http://bsesrv214.bse.vt.edu/Grisso/FBM/Ext_Fuel_Prediction.pdf3>
23. Reference for Business (2011), <http://www.referenceforbusiness.com/encyclopedia/Per-
Pro/Profit-Margin.html>
24. Trading Economics (2011), <http://www.tradingeconomics.com/australia/interest-rate>
25. Ultra (2010), <http://www.ultra.com.br/Ultra/Show.aspx?
id_canal=gAgkcdWmhxjtFuqEKR/bEg==>
26. USA Today (2011), < http://www.usatoday.com/money/industries/energy/environment/2008-
02-26-ethanol_N.htm>
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27. Wikipedia (2011), <http://en.wikipedia.org/wiki/Ethanol_fuel_in_Brazil>,
<http://en.wikipedia.org/wiki/Brazil>, <http://en.wikipedia.org/wiki/Australia>,
<http://en.wikipedia.org/wiki/United_States>
28. Yanmar (2010), <http://www.yanmar.com/>
Tables
Table 1
INCOME STATEMENT ANALYSISINDUSTRY SPECIFIC
COMPANY NAME CURRENCY GP RATIO NP RATIO
AUTOCHINA INTERNATIONAL LTD USD "000" 10.07% 7.26%CAFFYNS GBP "000" 14.57% 1.20%HONDA MOTORS CO LTD USD MN 27.30% 6.38%PENDRAGON PLC GBP MN 13.96% 1.76%TECH OPS SEVCON INC USD "000" 35.01% 1.26%TITAN INTERNATIONAL INC USD "000" 12.92% 0.07%TOROTRAK PLC GBP "000" 24.48% 0.75%TOYOTA MOTORS CORPORATION USD MN 15.72% 0.78%AB VOLVO 23.78% 5.86%CHAMBERLIN PLC GBP "000" 18.68% 2.27%
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