Research objective:

EXECUTIVE SUMMARY

BP Castrol Consumer Business Services France is an integral part of BP Castrol France and is responsible for the marketing and delivery of services to its business-to-business customers in the automotive after sales market in France. The services the company offers are consultancy services, training services, environmental services, and architecture and multimedia services.

Castrol Business Services’ mission is to build relationships with existing and potential lubricants customers of Castrol that operate in the after sales market of the automotive industry in France and are of strategic importance to the company. Business Services has two strategic goals; first of all to provide the traditional lubricants business with possibilities of building stronger relationships with its customers by positioning its products as a marketing differentiation tool, thereby intensifying customer relationships, retaining market share and raising barriers to entry. The second strategic goal is to create a new profit centre using the same Castrol brand, but providing different services, thereby growing as a business unit, increasing sales and developing new customers.

The assignment for this research was given by Castrol Business Services. The company wishes to differentiate itself from its competitors and intensify its customer relationships. It is interested in whether a product bundling strategy could provide these benefits to the company and, if so, how such a strategy should be developed. This is expressed in the following research objective and central research question:

Research objective:

“To develop a product bundling strategy for BP Castrol Consumer Business Services France and give advice on how to introduce the strategy to differentiate itself from its competitors and build stronger relationships with customers.”

Central research question:

“How should the product bundling strategy for BP Castrol Consumer Business Services France be designed to differentiate itself from its competitors and build stronger relationships with its customers?”

The viability and implementation of the product bundling strategy was researched during the period of February to August 2004. The research made use of quantitative data about the number of services purchased by various customers of Business Services. This data was supplemented with qualitative data gathered during interviews with the key account managers of Business Services’ largest customers, the managers of the services and a manager of the company’s main customer, Groupe Volkswagen France.

Together, this data provided the necessary insight in the problems that the customers face in their environment, their needs and their recent use of services. Moreover, information was gathered about the industry in which Business Services is active and about the internal workings of the company.

Product bundling is a strategy that is used to market products or services of a company to its customers.

Product bundling is the integration and sale of two or more separate products in a single package for a special price. The strategy has a number of advantages for the company, notably, creation of value, opportunity for price discrimination, sustaining or creating market power and an entry deterrence device, product differentiation, customer relationship management and cross-selling, new product introduction and, the creation of solutions. However, as a consequence of a product bundling strategy, the company could also encounter difficulties due to lower turnover, larger investments and increased complexity. A product bundling strategy also has a number of advantages for the customer. These are the discounts offered, the total solutions provided, and a reduction in search and acquisition costs. However, the customer might face obligatory purchases, difficulties in decision making and unclear pricing.

From the analysis of the current situation it became clear that there are a number of directions for

improvement for Business Services. Firstly, the company should rapidly increase the number of customers

to become less dependent on the Groupe Volkswagen France and to increase its profits. Secondly, Business

Services should simplify its sales process to decrease the time it takes to sell services to customers, and

make its offer more comprehensive for customers. Thirdly, the company should increase its sales to

existing customers. These three directions correspond with the scope of a product bundling strategy.

Therefore, the next step in the research is to assess the viability of a product bundling strategy for Business Services.

The feasibility of a product bundling strategy was researched using a framework developed by Paun (1993) that uses four success factors, environmental factors, customer factors, product factors and firm factors.

The score on the framework’s working sheets was established by making use of the information gathered through secondary data from industry journals and company reports and from primary data through the interviews with managers. It was found that it was viable for Business Services to implement a product bundling strategy and from the scores in the worksheet it is concluded that a mixed product bundling strategy appears to be a better option than a pure product bundling strategy.

The next step in the research was to gain a better insight in the characteristics, needs and real use of the three customer clusters that Business Services serves. These are the carmakers, groups and authorised repairers. From this analysis it was determined that all three clusters would benefit most from a mixed bundling strategy instead of a pure product bundling strategy. The main reason is that all the customers are expected to be willing to purchase some (but not all) of the components of the product bundle separately.

• For the carmakers, the mixed product bundling strategy should be developed with a bundle that comprises consultancy and training services. The environmental and architectural and multimedia services should be offered separately outside the bundle.

• For the groups, also the consultancy and training services should be the most important services included in the product bundle, which is offered as part of a mixed product bundling strategy. The environmental and architectural and multimedia services should be offered as separate services.

• For the authorised repairers, different sets of mixed bundles can be compiled to satisfy the needs of this cluster. The bundle that consists of consultancy services and environmental services and the bundle that consists of training services and environmental services, should be offered using a mixed-leader bundling strategy which means that one service is the leading service in the bundle. This is true for the bundle of consultancy services and environmental services, for the bundle of training services and environmental services. The bundle that consist of consultancy and training services, and the bundle that consists of consultancy, training and environmental services should be offered using a mixed-joint bundling strategy which implies that bi-directional gains can be gained.

From the analysis of the likelihood and the attractiveness of the customer clusters, it was established that the carmakers would be the most prone to purchasing products in a bundle and that the groups and authorised repairers follow closely behind. Moreover, the carmakers are also the most attractive cluster to serve as they represent large volumes and are more inclined to display several needs at a time and are able to satisfy these needs because they have enough financial resources. The groups are also an interesting cluster because they still represent a large volume, and are expected to show more similar needs within the group, which makes a product bundling strategy an especially helpful tool to serve this market.

The expected benefit to Business Services of the mixed product bundling strategy is first of all that it allows Business Services to differentiate itself from competitors. This corresponds with the first goal in the central research question. Through the mixed bundling strategy, the company can offer a unique combination of services to the market and exploit its expertise in all the domains of its services to provide solutions to its customers that add value to the customer.

The second advantage of the mixed product bundling strategy is that it allows the company to intensify its

customers relationships. This corresponds with the second goal that was mentioned in the central research

question. The reason for the stronger customer relationship is, that customers will purchase more services

from the company and will rely more and more on the expertise of Business Services. This means that the

switching costs of these customers are increased and that Business Services will form an effective entry

deterrent to competitors. The result is an increase in the volumes of sales and the profits of the company.

Based on the research a number of recommendations were made to the company.

• First of all, the company should increase the complementarity of the components of the bundle so that complete solutions can be offered to the customers.

• Second, the company is recommended to use the OEM Key Account Managers as tying forces between the customers and the different services departments to communicate the information throughout the company that is valuable in designing optimal bundles.

• Next, the company should decide which prices to set for its bundles, and the possibility of setting a premium price should be calculated.

• Further, Business Services should think about adopting part of the risk involved in supplying its services to its customers.

• Another recommendation is that the company perform a pilot project for each of the customers clusters to verify the findings on the needs of the customers and to test whether they are positive about a buying bundles and to assess the ability of the company to supply the bundles.

• Business Services should develop best practices to show that the company is really able to increase the performance of its customer companies. Establishing a feeling of credibility and trust is important.

• Finally, the company is recommended to explore the possibilities of customisable product bundles.

PREFACE

This research report was written for the purpose of completing my studies in International Business at the Rijksuniversiteit Groningen. The objective of this final year assignment is to bring together both theory and practice by performing research that analyses a problem existing with an organisation.

I would like to thank my supervisors, Drs. Thijs Broekhuizen and Drs. de Vries at the Rijksuniversiteit Groningen. They gave me the support and feed back that made the completion of this project possible. Also I would like to thank Drs. Nicola Campbell for her guidance throughout the first phase of the research.

I would also like to thank my supervisor at BP Castrol Consumer Business Services France, Mr. Denis Urtizberea for his dedication throughout the research process. I was given the freedom to develop my own initiatives and ideas about the research subject and received full co-operation from everybody involved.

And a special thanks goes to my sister, Claire de Meijer, for the graphic design of the front page of this research paper.

Have a good read!

Maastricht, March 2005

Marie-France de Meijer

TABLE OF CONTENTS

CHAPTER 1 INTRODUCTION 1

1.1 Introduction 1

1.2 Bundling 1 1.3 BP Castrol Consumer Business Services France 1

1.4 The research 1

CHAPTER 2 COMPANY FOUNDATION 3

2.1 Introduction 3

2.2 The organisation 3

2.2.1 BP p.l.c. 3

2.2.2 History of BP 3

2.2.3 Mission & Strategy 3

2.2.4 Organisational structure 4

2.3 Castrol 5 2.3.1 History of Castrol 6

2.3.2 Strategy & Mission 6

2.3.3 Brand values 7

2.4 Castrol Consumer Business Services France 7

2.4.1 History of Castrol Consumer Business Services France 7

2.4.2 Strategy of Castrol Business Services 7

2.4.3 Organisational structure of Castrol Business Services 8

2.5 Services 9 2.5.1 After sales consulting 10

2.5.2 Training 11

2.5.3 Multimedia and Architecture 12

2.5.4 Environmental offer 12

2.6 Conclusion 13

CHAPTER 3 RESEARCH PROBLEM AND METHODOLOGY 14 3.1 Introduction 14

3.2 Research problem 14

3.2.1 Background of the problem 14

3.2.2 Current situation 15

3.2.3. Definition of the problem 16

3.3 Research project 16 3.3.1 Expected results for Castrol Business Services 16 3.3.2 Literature review for the central research question 17

3.4 Central research problem 20

3.4.1 Sub questions 21

3.5 Research model 21

3.6 Conceptual model 22 3.7 Types of analysis 24 3.8 Research strategy 25 3.9 Data collection methods for bundling strategies 26

3.10 Conclusion 28

CHAPTER 4 PRODUCT BUNDLING 29

4.1 Introduction 29

4.2 Definitions of bundling 29

4.3 How does bundling work? 31

4.4 Advantages and disadvantages of product bundling 32

4.4.1 Advantages for a bundling company 32

4.4.2 Disadvantages for a bundling company 36

4.4.3 Advantages for customer buying bundles 37 4.4.4 Disadvantages for a customer buying bundles 38 4.5 Success factors in product bundling strategies 39

4.5.1 Comparison to SWOT analysis 41

4.6 Product bundling strategies 41

4.6.1 The reasons behind the choice for product bundling 41

4.6.2 Pure product bundling strategy 42

4.6.3 Mixed product bundling strategy 44

4.6.4 Complementary product bundling 46

4.7 Conclusion 47

CHAPTER 5 CURRENT SITUATION BUSINESS SERVICES 49

5.1 Introduction 49

5.2 Strategy and goals of Business Services 49

5.3 Practice and evaluation of Business Services 50

5.4 Directions of improvement 52

5.5 Conclusion 52

CHAPTER 6 RESULTS 53

6.1 Introduction 53

6.2 External and internal environment measured by four success factors 53

6.3 Environmental factors 54

6.3.1 Governmental regulations 54

6.3.2 State of the economy 57

6.3.3 Intensity of competition and entry barriers 57 6.3.3.1 Intensity of competition for Business Services 58 6.3.4 Bundled and unbundled offer of competitors 65

6.3.5 Conclusion environmental factors 65

6.4 Customer factors 66

6.4.1 Time and effort saved in purchasing the bundle 66

6.4.2 Self assembly 66

6.4.3 Single sourcing preference 67

6.4.4 Customer needs 67

6.4.5 Price sensitivity 68

6.4.6 Conclusion customer factors 68

6.5 Firm factors 69

6.5.1 Propriety control 69

6.5.2 Cost advantages 69

6.5.3 Market growth 69

6.5.4 Price discrimination 69

6.5.5. Care and maintenance of leased products 70

6.5.6 Conclusion firm factors 70

6.6 Product factors 70

6.6.1 Relationship and complementarity between the four services 71 6.6.2 Differentiation power of the four services 72

6.6.3 Bundle performance 73

6.6.4 Conclusion product factors 73

6.7 Conclusion 74

CHAPTER 7 PRODUCT BUNDLING STRATEGIES FOR THREE CLUSTERS 76

7.1 Introduction 76

7.2 Why segment the market for a product bundling strategy 76

7.2.1 Needs segmentation 77

7.3 Clusters 78

7.3.1 Carmakers 78

7.3.1.1 Characteristics 78

7.3.1.2 Problems facing the customer 79

7.3.1.3 Carmakers’ real use of services 79

7.3.2 Groups 81

7.3.2.1 Characteristics 81

7.3.2.2 Problems facing the customer 82

7.3.2.3 Groups’ real use of services 82

7.3.3 Authorised repairers 83

7.3.3.1 Characteristics 83

7.3.3.2 Problems facing the authorised repairers 83 7.3.3.3 Authorised repairers’ real use of services 84 7.4 Likelihood that each cluster will purchase a bundle 87

7.5 Attractiveness of the clusters 90

7.6 Product bundling strategies for each cluster 93 7.6.1 Cluster-independent variables that influence the strategy choice 93

7.6.2 Carmakers 94

7.6.3 Groups 94

7.7.4 Authorised repairers 95

7. 7 Conclusion 96

CHAPTER 8 CONCLUSION AND RECOMMENDATIONS 98

8.1 Introduction 98

8.2 Conclusion 98

8.3 Recommendations 100

8.4 Limitations of this research and future research 100

BIBLIOGRAPHY 102

APPENDICES 107

Appendix 1 Paun’s worksheets for measuring the feasibility of a bundling and unbundling strategy 108 Appendix 2 Paun’s worksheets for measuring the feasibility of a bundling and unbundling strategy,

applied to Castrol Business Services 110

Appendix 3 Services purchased by OEMs 112

Appendix 4 Services purchased by Groups 113

Appendix 5 Characteristics of the authorised repairers, Trusted performance 114 Appendix 6 Characteristics of the authorised repairers, Joint solutions 115 Appendix 7 Current implicit packages for GVF authorised repairers 116

Appendix 8 List of interviewees 118

Appendix 9 Interview with Castrol’s Product- and Key Account Managers 119

Appendix 10 Interview with GVF’s J.P. Cheverry 122

CHAPTER 1 INTRODUCTION

1.1 Introduction

This chapter gives and introduction to this research by providing a first understanding of the most important subject in this research, namely, the theory of bundling. Second, an introduction to the company is given and the problem that it faces. Finally, the research objective and research question are mentioned to guide the further reading of the first chapters.

1.2 Bundling

Almost every person on this planet is confronted with the main topic of this research on a daily basis…

Although you may not be aware of it, a single outing to the supermarket or even the use of a computer will confront you with the practice of ‘bundling.’ The strategy of bundling entails that different products are offered to the customer in one package or at one price. Thus on your daily trip to the supermarket, you may be offered to buy a package for an Indonesian dish in which the rice, seasonings and vegetables are included. Off course all these ingredients may also be obtained separately. However, the supplier entices you to buy them together in this package and assures you that they will make up a fabulous meal. Another common example that you may encounter is while using your computer. Microsoft has bundled Windows and Explorer in a package and as a result the Explorer browser has pushed the competitors’ browser Netscape out of the market within a year, even though the latter was of better quality. Although, in this instance, the practice was ruled against in an antitrust case, it does show the power of bundling if used adequately.

For managers, the practice of bundling is relevant because of the advantages that were already slightly illustrated in the examples above. It is a powerful tool to earn higher profits and among other advantages, the strategy allows a company to increase its market power versus competitors and to intensify its relationships with customers.

For academics, the theory of bundling is ever relevant, as it provides an alternative to pure price discrimination and shows an overlap with various fields of research. Bundling has been discussed from an economic point of view where it concentrates on extracting consumer surplus and the competition in the market. It has also been discussed from a marketing point of view, where the emphasis is on the relationship of the company with its customers. Although the original discussion on bundling started in the 70’s, it has recently been taken up and many articles have been written in the last ten years proposing different view on the subject.

1.3 BP Castrol Consumer Business Services France

BP Castrol is one of the largest suppliers of lubricants in the world. It serves customers in the automotive, agriculture, marine and aviation industry. This research concentrates on the lubricants customers in the automotive industry in France. These vary from national car importers to local car dealers in a city. Their market is undergoing many changes which leads to consolidation and increased competition. This has also had its effects on BP Castrol.

This business unit for which this research was performed, BP Castrol Consumer Business Services France, is a very new entity within the company. It was set up as a reaction to the declining volumes and margins in the lubricants industry in which Castrol is active. The objective is to provide additional services to existing and new customers in the lubricants industry and thus tie them to the company. Ultimately, Business Services hopes to build a relationship with these customers in order to prevent them from switching to competitors. Moreover, the company wishes to differentiate itself from its competitors by offering a unique combination of services. These two strategic goals of the company, combined with its wish to offer a package of services, formed the background of this research.

The competitive and changing environment of the company and the determination of the people at Business Services to prove that the goals of the company can be realised, provided a unique setting for this research.

The main challenges with which the company is faced is to increase the number of customers that it serves

and to increase its profits from the sales of services. The concept of selling services to the after sales

automotive industry has been proven to work in the past two years. The next step is to consequently market the services to the customers in order to reach the strategic goals that the company has formulated.

Business Services is interested in knowing whether the practice of bundling could provide the advantages to the company that it is looking for, which are differentiation and customer relationship building. It has thus commissioned this research, to look into the possibility of bundling four distinct services that the company offers, into one package for the customer. The research will thus look at whether a bundling strategy is viable for Business Services and if so, what kind of bundling strategy should be developed. In addition, it will give recommendations on which products to include in the bundle and how to change the company to be able to implement such a strategy.

1.4 The research

The previous section briefly introduced the goals and challenges of Business Services. To guide the reader through the next chapters, the research objective and central research question are stated in this paragraph.

Their backgrounds and the method which will be used to provide an answer to this question, will be extensively dealt with in chapter 3.

The research objective for this research is:

“To develop a product bundling strategy for BP Castrol Consumer Business Services France and give advice on how to introduce the strategy to differentiate itself from its competitors and build stronger

relationships with customers.”

The central research question that will be answered in this research is:

“How should the product bundling strategy for BP Castrol Consumer Business Services France be designed to differentiate itself from its competitors and build stronger relationships with customers?”

1.5 Conclusion

This chapter has given a brief introduction into the research subject and the company for which it is

performed. The following chapter gives an introduction to the company for which this research was

performed. The company BP and the lubricants manufacturer Castrol are introduced. And for the business

unit BP Castrol Consumer Business Services France, the background, strategy and structure are examined.

CHAPTER 2 COMPANY FOUNDATION

2.1 Introduction

This chapter introduces the organisation in which this research project took place. First, BP p.l.c. is presented in paragraph 2.2. It describes the company and its strategies as a multinational oil, gas and petrochemicals company. Then paragraph 2.3 describes the department in which the research has been performed. This is Castrol Consumer Business Services France, which is a distinctive entity within Castrol France but not a separate business unit. Finally, the services of this entity are described in this same section.

2.2 The organisation

This paragraph describes the organisation in which this research project was performed. It discusses the history, mission and strategy, organisational structure and services of BP p.l.c.

2.2.1 BP p.l.c.

BP is one of the world’s largest groups in the oil, gas and petrochemicals industry in the energy sector

. BP has grown significantly in recent years, partly through acquisitions, and in 2003 had a result of $12.4 billion. The company is represented in 100 countries, serves 13 million customers every day, and now employs more than 103,000 people around the world

. Its main activities are the exploration and production of crude oil and natural gas; refining, marketing, supply and transportation; and the manufacture and marketing of petrochemicals. The reserves in oil and gas represent a key determinant of value in this sector, and BP is well positioned as second, behind Exxon Mobil and in front of Shell.

2.2.2 History of BP

BP was founded in 1901 by a wealthy Englishman, William Knox D’Arcy, to explore the possible worthwhile oil deposits in Persia (now Iran). With an engineer and later the financial support of the Burmah Oil Company, commercial quantities were finally found in 1908. After this discovery, the Anglo- Persian Oil Company was founded in 1909 to develop the oil field and exploit the resources. In the early years the focus lay on the Middle East and on avoiding falling under control of the competitor, Royal Dutch-Shell. This was realised with the government’s participation of £2 million in the company, who was interested in getting secure supplies of fuel oil for the ships of the Royal Navy shortly before the outbreak of World War I. In the 1960s the centre of attention focussed towards the USA and Britain. The West Sole gas field was found in Britain and in 1969 BP did a major oil discovery at Prudhoe Bay on the North Slope in Alaska, the biggest oil field in the USA. The 1970’s where characterised by the two great oil price shocks in 1973 and in 1979/80, and the OPEC taking over control of supplies, production and prices. This was the basis for a diversification process by BP into nutrition, information technology, household cleaning and personal care products, coal and minerals. The company was restructured into a matrix organisation to manage the diversified group. Since the 1980s BP developed many more oil and gas fields in the North Sea, made Prudhoe Bay operational through a 800 mile Trans-Alaskan pipeline and started production in the Kuparuk field and the Arctic Endicott field. However, the refining, shipping and chemicals operations had to be rationalised to cope with the industry-wide overcapacity and economic recession. 1987 was an important year because of the acquisition of Standard Oil, the sale by the British government of its remaining share in BP and the purchase of Britoil. A series of divestments was also made to concentrate on the core, hydrocarbon-based activities. Therefore the computing services, minerals, coal and nutrition divisions were sold in the late 1980s and early 1990s. Further, the 1990s were mainly characterised by company restructuring and in 2000 the acquisition of Castrol. Today it is has a strong portfolio of assets in the energy industry and leading market positions.

2.2.3 Mission & Strategy

BP aims to maximise long run shareholder value by realising the potential of its portfolio and making the most of the strategic positions it has established by being a first mover in key markets. The company aims to generate competitive, secure returns by applying its distinctive capabilities to develop an equally distinctive set of assets: its oil and gas fields, refineries, service stations and petrochemical plants. For the Resources Businesses (exploration and production) this means ‘to build production with steadily improving

1 BP global website

2 BP Annual Review 2003

underlying cash returns by investing in the largest, lowest cost, new hydrocarbon deposits and managing the decline of existing production assets.’ For the Customer Facing Businesses (refining and marketing, petrochemicals and gas, power and renewables) the aim is ‘to expand customer capture, improve quality to offset competitive forces in order to grow cash flow while keeping underlying cash returns at least constant.’

BP also formulated a number of objectives to guide its organisation for the years to come. First of all it strives to stay one of the ‘Supermajors’ of the oil industry, which it has become through acquisitions in the last few years (AMOCO, ARCO, Burmah Castrol and Veba Oil). This means it will realise economies of scale and scope as a result of its take-overs and improve its capabilities and capacities in the diversified portfolio. Second, the group wishes to reach greater innovation and new productivity through its performance culture. This also means that its leading portfolio of assets and market positions in its sector, should function as a buffer against outside market forces beyond its control. The third objective is to maximise value while managing risk through constant renewal. Fourth, BP’s objective is to be an industry leader employing a ‘first mover strategy’. Examples in the past have been the investments in China and Russia, the series of mergers and take-overs and the anticipation of the growth in gas. Fifth, BP drives for sustainable advantage by concentrating on the markets that matter, namely, natural gas (the world’s fastest- growing major fuel), petroleum product markets (core petrochemical products with strong market share and technological advantage) and solar power. The sixth objective is to belong to the world’s great companies in terms of social and environmental sustainability, corporate governance and transparency of reporting.

Finally, a new management framework has been put in place to align its internal understanding of the brand and guide its human potential to act as one strong group.

2.2.4 Organisational structure

Last year BP introduced a management framework that stresses the importance of clarity of roles and accountabilities. At BP’s organisational centre stands the board with the group chief executive and the group chief executive’s committee. They oversee the implementation of company strategy and the activities of the group which is divided into four main business segments: Exploration and Production; Refining and Marketing; Petrochemicals; and Gas, Power and Renewables. Each of these businesses has an executive committee headed by the chief executive of the business. The four businesses are made up of business units (BU’s) that are sometimes grouped into strategic performance units (SPU’s). All report to the executive committee. For each business unit and strategic performance unit, performance contracts are set in place, that include financial and operating performance objectives and non-financial elements such as safety and environmental performance.

Figure 2.1 Organisational structure BP p.l.c Source: adapted from BP global website

Customer Facing Businesses:

Refining and Marketing

B2B marketing Lubricants Retail

Chemical bulk products Petrochemicals

Gas (LNG) Solar energy Powerstations Gas, Power and Renewables Resources Businesses:

Exploration and Production

Field development and production

Exploration of oil and natural gas

SPU SPU

SPU SPU

Executive Committees for BP’s 4 businesses

Group Chief Executive’s

Committee BU

BU

BU

One of the ‘Customer facing businesses’ is Refining and Marketing. These are the downstream operations that refine, transport, sell and trade crude oil and petroleum products. They include 24 refineries, which produce 3,5 million barrels a day, and 25,000 petrol stations worldwide. In addition BP is the largest automotive lubricants marketer across Europe with a 17% market segment share and it is the largest player in Germany. The company sells 2 Billion litres of product each year in 100 countries around the world.

Brands include BP, BP connect, BP ultimate, Aral, Arco, AmPm, Castrol , Castrol syntec and Wild Bean Cafe.

BP even provided the lubricants for outer space for the NASA Mars probe! Lubricants is also the least capital intensive business for which the brand is the most important asset, helped by strong technology and a knowledgeable sales force. The main driver is the revenue investment into the brand and technology. The figure below shows the impact of the global launch of three new premium products as a percentage of total sales. The second graph shows that BP’s sales have been growing consistently even though the total market was in an economic downturn.

Figure 2.2 Lubricants premium products and sales growth Source: BP Global website

The mission for the lubricants business is to be the undisputed leader in global lubricants

. This means growing profit and market share. The strategy is to define groups of customers that have common business and purchase decisions and serve them with powerful brands and strong technology. The company markets its lubricants through two brands, BP and Castrol. The most distinctive brand is Castrol, which will be described in the next section.

2.3 Castrol

Castrol is the world’s leading specialist provider of lubrication solutions

. The company is currently the third largest marketer of lubricants overall and is gaining market share. It has expertise in developing lubricants for cars and bikes, but also produces lubricants for gas and electricity production, transport industries, construction and earth moving vehicles, refrigeration, metalworking and plastics, the marine sector and for industry in general. It is the market and technical leader for automotive lubricants for the retail consumer and for specialised industrial lubricants. Castrol is also market leader in the marine lubricants and among the leaders for aviation and commercial vehicles. The company headquarters are located in London (Swindon). France’s headquarters are in Paris and the company has two important lubricants manufacturing sites in Peronne (France) and in Gent (Belgium).

3 Lubricants strategy update

4 Castrol Global website

2.3.1 History of Castrol

Burmah Castrol has its origin in two companies that were founded at the end of the 19

century in Britain.

Burmah Oil Company Limited was founded in 1886 and CC Wakefield & Company was formed in 1899 in London. Burmah deployed activities in oil exploration and production in Burma and was even so successful that it was able to acquire a 90% share in the Anglo-Persian Oil Company (later BP). However this share had to be handed over to the British government during World War I. In the 1920 the company had a full range of activities from exploration, production and refining to marketing. During the second World War many assets were destroyed, but the company recovered and could repulse a take over bid by BP and Shell.

Burmah was the first company to find evidence of oil in the North Sea.

CC Wakefield was founded by Charles Wakefield and mainly sold lubricants to the railway, marine, colliery and textile industries. It introduced motor oil and oils for motorcycles, aeroplanes and racing engines in the early 20

century and the brand name Castrol in 1909. The company expanded during the following decades and introduced the first fully synthetic lubricants for passenger jet engines in the 1950s.

However, in the 1960s the competition grew harder as cars needed fewer oil changes. CC Wakefield decided to diversify into plastics production, metal treatment and anti-corrosion materials, but the cost were high and the company was taken over by Burmah Oil in 1996.

The 1974 oil crisis had a serious impact on the company and it had to be rescued from its financial problems by the Bank of England. The company recovered with the launch of new products (Castrol FX) and acquisitions. This lead to geographic expansion and a focus on lubricants and chemicals. Castrol was globally acquired by BP in 2000.

2.3.2 Strategy & Mission

BP Castrol’s vision is to be the ‘undisputed leader in global lubricants’ and it has the aspiration to double profit towards 1 billion dollar by 2007

. The company aims to ‘grow by further focussing its resources and capabilities on selected market spaces. Customer focus, distinctive brands and superior technology remain the cornerstones or its long-term strategy.’ The acquisition by BP has given the company access to Castrol’s strong brand management and has brought BP’s expertise in building profitable, performance driven businesses to Castrol. The internal visions and values of the company have been formulated as follows

:

•

We are passionate about our customer’s success

•

We are driven by performance, but respect the environment

•

We have the confidence that comes from our experience around the world

•

We challenge the status quo

•

We always get thing done

The companies’ structure in serving its markets is represented below in figure 2.3.

Figure 2.3 Castrol’s value chain Source: BP intranet: Story of Alchemy

5 BP Castrol document: Strategy lubricants ppt

6 BP intranet: Story of Alchemy, 2002

Intermediaries (Distributors, Wholesalers)

Castrol BSS

B2B2C Workshop (consumer)

B2B2C Retailer

B2B Workshop (commercial)

Consumer

Business

2.3.3 Brand values

To many, Castrol’s brand is synonymous to premium quality, high performance and leading edge technology in lubrication. Castrol is positioned as a performing high technology leader, which is expressed in its four core values: technology leader, winning, passionate and exciting, superior performance and total automotive solutions.

These emphasis on performance and leading edge technology are clearly represented in the choice of communication towards the larger public The company has always focussed on marketing investing in pioneering achievements in aviation, motor sport, motorcycling, powerboat racing, rallying and land and water speed record attempts. The activities of Castrol Racing through the support of the Formula 1 teams BMW Williams and Jaguar, the MOTO GP, the World Rally Cup and the Castrol Elixion truck racing are clear examples. Apart from that large investments are made into Research and Development to keep delivering premium quality products for daily use and for extreme circumstances such as heavy duty diesel engines and the Mars expedition.s

2.4 Castrol Consumer Business Services France

This section describes the organisational entity in which the research took place. It explains the creation of the ‘account’ Castrol Consumer Business Services France, its strategy, its organisational form and its Business-to-Business clients.

2.4.1 History of Castrol Consumer Business Services France

Castrol Consumer Business Services France (to be called ‘Business Services’ from now on) was created in 2000 by the then CEO of Castrol. As a response to the competitiveness in the maturing lubricants industry BP Castrol France decided to add a services component to the lubricant product sold to car manufacturers and authorised repairers. This was done for two reasons. First of all to create a new source of profit and second to build a differentiated activity aimed at defending current market positions and acquiring new ones. As from 2000 Business Services is charged with providing services to the existing and strategic lubricants clients of Castrol. This started off as a marketing activity to retain customers in this field.

However, the purpose of the business has changed and Business Services is now an independent unit charged with adding value and generating profit on its own.

Once the decision to provide services was in place, it was important to reach a critical size and develop at a fast pace. This was needed to reach a workable size and accumulate expertise. As the bigger volumes for the industry are concentrated with the car manufacturers and importers, it was decided to begin convincing these parties to outsource some of their activities and deploy new ones with Castrol. The Groupe Volkswagen France (GVF), importer for the Volkswagen Group in Germany, was chosen as a primary target because a long lasting relationship in the lubricants field already existed and both companies were good partners. The most important objective was to prove that the business idea was viable and feasible.

The first activities were developed in 2000 with as main customer GVF. This car manufacturer was willing to pay for the services and it was proven that the concept of Business Services could work. In 2001 it was important to reach a critical mass of 1,5 million Euro in turnover. This was realised working with GVF and to a smaller degree with other car manufacturers, like BMW. In 2002 the profit and losses had to be balanced. For the year 2003 it was planned to concentrate on developing new products. However, as a reorganisation was being executed at that time the actual goal was rephrased to sustaining the realised growth and promoting Business Services internally within BP.

Car manufacturers and importers are the largest clients of Castrol Business Services. They will also be referred to as group as ‘OEMs’ (Original Equipment Manufacturers) in the remainder of this report.

2.4.2 Strategy of Castrol Business Services

The purpose of the Business Services department is to generate new revenues and defend and secure the

market share of the lubricants activities in a market that shows a yearly decline. Therefore, the strategic

objective is to improve client relationships and provide a diversified and differentiated business that will

generate a completely new profit stream besides Castrol’s lubricants business.

The two strategic goals formulated by Business Services are:

1. The business unit aims to provide the traditional lubricants business with possibilities of building stronger relationships with its customers by positioning its products as a marketing differentiation tool.

The goal is to intensify customer relationships to retain market share and raise barriers to entry.

2. Second the business unit strives to create a new profit centre using the same Castrol brand, but providing different services. The outcomes should be to grow as a business unit, increase sales and develop new clients.

The strategy for the business services is that it is an “integral part of the OEM strategy and that it enhances the overall offer to an OEM and other significant customers to differentiate Castrol from its competitors.”

Moreover it enables Castrol to make its clients sticky by increasing its knowledge of OEMs, increasing their dependency on Castrol, providing a significant competitive differentiator and a stand alone profit stream. Thus to really understand the needs of the OEMs from an overall business relationship not just a lubricants viewpoint

. The business’ strategic goal as offered to the client is to provide OEMs with solutions that make its goals, policies and standards work within its network

. These can be projects for on- site interventions, tailor-made solutions, the representation of the brand, communication tools, senior project managers and involvement in dealership results.

The transition of Consumer Business Services into a services profit centre is an important change in strategy. In the past a number of comparable services were offered to clients to win lubricant contracts over the competition. For example a workshop was redesigned with the help of architects to acquire a three year lubricant contract. It was thus more of a marketing tool than a real source of revenue. The change process still requires effort from the employees at Castrol and the clients in the market, not yet used to paying for similar services, which were previously offered free of charges.

The business unit now provides clients with four distinctive but interrelated services. Consulting services, training programs, architectural design and multimedia, and environmental programs. The goal for 2004 is to find new contracts and rely less on the Groupe Volkswagen France. BMW is becoming an important partner for the services and on a smaller scale services have been developed with Toyota, Jaguar/Landrover, Honda and Volvo. However, Castrol will not only seek its customers at the level of car manufacturers and importers, but will extend its playing field to that of the authorised repairers and larger national groups. The latter are comprised of a number of authorised dealers that have organised themselves in national and even international groups representing several brands, such as Inchcape and Nefcar.

The goals for 2004 until 2006 will mainly be to offer a structured package of services to existing and new clients and to organise the sales. In addition relationships are to be set up with more and new car manufactures to extend the client group. The target group consists no longer of only the OEMs but also of large (inter-)national dealer groups and larger dealers. Financially the goal is set to generate 1 million Euro in profit for the year 2008. Or 30% of Castrol’s profits. In 2003 a profit of 300.000 Euro was realised and in 2004 the goal is to realise 500.000 Euro or 15% of Castrol’s profits.

2.4.3 Organisational structure of Castrol Business Services

In fact Business Services is not an organisation but an account. This means that it is not a separate business unit but an entity that generates profit. The Business Services unit is entirely separated from the traditional lubricants business. This means that different managers organise the sales of lubricants and business services. Contracts are signed separately for the lubricant deals and for the service deals. This also implies that services can be offered to a OEM client even when there is no lubricant contract with Castrol or when the lubricant partner is a competitor. In addition it means that the services unit has its very own financial balance sheets.

However, more important are the connections that exist between the two business units. For example, services are occasionally offered as a marketing activity by the lubricants salesmen to make interesting deals compared to competitors. For the near future, the aim is to create some degree of cross-fertilisation in that Business Services strengthens the position of Castrol versus its competition in selling lubricants and that vice versa the business services profit from the existing reputation and partnerships of the lubricants

7 BP Castrol document: OEM Franchised Workshop Market Space Strategy, update September 2003

8 BP Castrol document: Presentation Client BS complete November 2003 ppt

department. The business unit is thus highly important from a strategic point of view, as it is positioned as a new profit source that should become more and more important in the overall performance of the company.

The services provided are crucial to ascertain a sound relationship with the OEMs with which Castrol has a lubricants deal.

The unit consists of 29 people (figure 2.4). At the head of the ‘account’ stands one director who is responsible for the OEM contacts and Services, helped by an assistant. The director is responsible for three service-related teams and co-ordinates the activities of the three OEM Key Account Managers that are each responsible for the contacts with a specific set of OEMs. On of the service-related teams is the consulting team which consists of 18 people all permanently under contract with GVF; one director, 9 consultants for the Express Services team and 8 consultants for the Opticap team. The multimedia team consists of one new technologies manager, two architects and a multimedia expert. The training team consists of one manager and two trainers. In addition there are consultants working under contract for a specific OEM. At the moment two are with Rover and one with Toyota.

The place or distribution of the product involves all aspects of getting products to the consumer in the right location at the right time. This proves to be a major challenge at the time as the limited number of personnel does not allow personal selling to all dealers in France. The business unit that sells the lubricants has an impressive sales force that is stationed across France. However, Business Services does not have a sales force of its own. This means that the managers have to pass through the OEM to realise large volumes at a time. However, these negotiations take much time and a no-go decision is rather harmful to the company. Meanwhile smaller companies are eating away market share in the different regions where Castrol can not commit its attention due to the lack of an active in-the-field sales force.

From July 2004, the structure has changed from a national to a international structure. This means that country level business units will now respond to and be controlled by international structures. Castrol Consumer Business Services France thus falls under the “Northern” countries who all have their national director, but are co-ordinated by one person that will be responsible for the integration of operations and sharing of best practices.

Figure 2.4 Organigram Castrol Consumer Business Services France Source: Castrol internal communication

2.5 Services

This section describes the four services that are sold by Business Services. Their relation to the other activities within Castrol are described, the content of the services are explained, the human resources employed, the main clients and examples of past and current projects are given.

Figure 2.5 shows that there is a hierarchy in the services provided by Castrol. At the basis stands the traditional lubricant business. Then comes the basic B2B marketing, which is defined as activities that Castrol (and the competition) will routinely do for lubricant customers. They can be an ‘entry fee’ for the business and examples are lubricants- and fluid management-training to customers, on line ordering and F1 events. One degree higher stands advanced trade marketing. These are unique selling points for Castrol’s brands and are exclusive to the company. The services are delivered by a specialist sales staff and are wholly or partly subsidised by the lubricant revenue. Examples are higher level training, the sale of

OEM & Services Manager

Training Manager

Consulting Manager Assistant

OEM Key Accounts Manager New Technologies

Manager

OEM Key Accounts Manager

OEM Key Accounts Manager

workshop equipment and associated technical support and maintenance, trade loans and remote monitoring of customer’s bulk oil stocks. In the top stand the Business Services. These are people-intensive services undertaken with customers.

Figure 2.5 B2B marketing scheme

Source: Castrol internal documents (confidential)

Castrol Business Services’ main product is delivering services consisting of expertise in the organisation of the after sales market to car manufacturers and dealerships. Business Services have the following key features

:

• They are services, or service-based products provided for the customers, not lubricants;

• The customer is invoiced for it directly, it generates direct turnover and RCOP and profit in its own right;

• They are implemented by a dedicated specialised organisation;

• They are imbedded in the lubricants business.

The after sales market is a very important market for OEMs as 50 to 65% of returns are made in this sector, which is more than with their core business, selling cars! Paradoxically however, much less than 50% is invested in the after sales activities. The services developed in France until now, have basically all been developed and performed exclusively for Groupe Volkswagen France (GVF). The objective is to offer these to other OEMs as well, which is already being done with BMW, Toyota, Rover and Honda on a smaller scale.

There are four important service products in Castrol Business Services’ current offering to its clients. Each has its own specific value propositions and requires special resources and expertise. They are described below, and are: After sales consulting, Quick services and accessories business, Training, Multimedia and Architecture and Environmental offers. Other services are provided on a smaller scale.

2.5.1 After sales consulting

This is the main service provided, as it covers the entire area of other services. It forms the pin of the business and can thus generate projects for the other services. Business Services has developed programs and tools to support car manufacturers and their network of authorised repairers in the management of the automotive after sales market. These services consist of after market and customer satisfaction consulting focussed on OEMs and providing profit and process improvement programmes to dealers

. The consulting team analyses the organisation and sales processes, develops optimisation plans and implements these in order to augment sales and profit. Often this requires a follow-up in terms of implementation of the

9 BP Castrol document: Business Services: Updated European Business Plan 2002

10 BP Castrol document: OEM Franchised Workshop Market Space Strategy, update September 2003 Business

Services

Advanced trade marketing

Basic Trade Marketing

Lubricants

solutions proposed by the consulting team. Ideally this intervention is done by another services team, for instance the training team.

The consulting job concentrates on after sales projects and includes tailor made after sales solutions for OEMs and their dealers. These include studies and analysis of the current situation, OEM-to-network communication, OEM-standards implementation and measurement for the dealer, corrective actions, OEM reporting assistance for the dealer, durable development, dealer development and involvement with the results. The two main activities of the consulting service are called Opticap and Quick Service.

Working in this service is a consulting group of 18 persons completely dedicated to GVF. One team of 8 is concerned with putting in place a capacity optimisation plan called Opticap. This after sales consulting program helps dealers work more efficiently, and implement after sales processes, policies and standards.

Solutions suggested by the Opticap team can be the implementation of a Quick Service or assistance in selling accessories. The other team of 9 is dedicated to putting in place the Quick Services concept for Volkswagen dealers across France. The Quick Service concept of fast fits has been developed by Castrol and is currently being sold to GVF under the name Express Services and on a smaller scale to Toyota. In addition offers have been made to Jaguar/Landrover and Ford for putting in place comparable services.

Most consultants have a background in the automotive business rather than with BP or Castrol. They are highly qualified and form the most important resource for delivering this activity. They have been recruited outside BP two years ago.

A program within the consulting service, but that concentrates more on implementation, is delivered by the Quick Services and accessories team. This fast fit programme is a service that puts in place an entirely modified workshop specialised in small repairing while the car-owner waits. The programme includes the development of the concept, the selling of the concept, the implementation of the service, the generation of results, and the follow-up of performances for the management as well as development for the future. As the technical knowledge is mostly well developed within the existing workshop, the programme focuses on improving the commercial knowledge and competencies needed to sell the service to the customer. The programme has been sold to the car manufacturer GVF and implemented in 160 Volkswagen sites, 15 SEAT sites and 3 Audi sites.

The quick services program has also been sold in a modified form to Toyota and is now being implemented in ten sites. This is also more of a program for helping dealers develop themselves and to protect the lubricants market share from falling too fast since Castrol has lost its contract to Exxon Mobil.

An additional activity of this team is giving assistance in the development of the accessory business in the Volkswagen dealership. The activities comprise the implementation of the shop, and advise in merchandising, selling the accessories and follow-up.

2.5.2 Training

Castrol provides after sales training for the employees of authorised repairers in the automotive after sales market. It offers a variety of training courses for the after sales managers of dealerships. The purpose is to assist in the implementation of OEM projects in the field. They concentrate mainly on commercial and marketing activities, but also include courses on the use of financial software specific to the group.

The product consists of training sessions given by professionals with a background in the automotive field and the training field. Mostly these courses are tailor made and developed in conjunction with the OEM. At this stage the clients are mainly the car manufacturers at OEM level. These include Groupe Volkswagen France, Honda and Volvo. Until now the training offer has been sold to the OEMs which included the courses in their standards regulations imposed on the dealer network. As such Castrol has been using the single entrance of the OEM and its power over the dealers to quickly diffuse the product through its network. However as has been described, the power structures in the automotive market are quickly changing.

For GVF 25 different modules were created, which are being performed by two trainers. Subjects cover an

introduction of Quick services, financial training, financial software application training, after sales

commercial training and recruitment courses. On a smaller scale, a training program has been developed for

HONDA. Training prices are 100 Euro or 245 Euro per participant depending on the number of days and

intensity of the course. As for the training courses delivered to GVF, the price was set by GVF and is the same as Castrol’s four competitors with that OEM.

The main route for promotion is through personal selling via Castrol’s key account managers with OEMs, who serve as intermediary at the initial stage when the car manufacturer is not yet familiar with Castrol’s products. In addition the consulting and Opticap team communicate the existence of the training program to the dealers. They are consultants who advise GVF dealers about installing quick services, equipment and the optimisation of their organisation. As such they can also advise to train the personnel in these fields.

Also the sales men in the different districts from time to time promote the training offer for the dealers.

However, they should not be considered as a training dedicated sales force as they are mainly concerned with selling lubricants.

The main performers are two trainers and a third one on freelance basis that conduct training session throughout the country at dealers, hotels, third party training centres or in Castrol’s own special training centre installed at BP headquarters. The latter comprises of two training rooms for the theoretical part of courses and two fully equipped workshops with bridges and equipment for practical and technical instructions. These trainers are supervised by a manager in charge of the development of new products and new clients. In addition he is charged with strategically aligning the training offer with Castrol’s other services. Partially involved are also the key account managers to the OEMs who participate in selling the training offer to car manufacturers and dealers.

2.5.3 Multimedia and Architecture

This service comprises two different activities. A multimedia service and an architectural design service.

The unit works with two architects and two multimedia experts who are specialised in dealership exteriors and interiors and workshops design.

The largest activity is the architectural restructuring of dealerships to adhere to standards of the OEM. The complete architecture of the internal and external part of the site is done by the architects. These are constructed with 3D design tools and computer assisted design. Projects have been done mainly for GVF and BMW. Recently this part of the business unit has commenced designing BP gas stations as well.

Another activity is the development of communication and multimedia tools for car manufacturers and their network. The developed products include CD-ROMs and internet sites which specify OEM standard regulations. A third main service is the construction of internet and intranet sites. A few smaller activities are the development of graphics, logos and image touch-up, media production and project management with sub-contractors.

2.5.4 Environmental offer

The environmental offer consists of a complete package for authorised repairers that handles all their waste deposal needs (lubricants, oils, plastics etc.). The specific strategy for this product from Castrol’s point of view is that first it is a differentiation tool towards competitors. The environmental offer is unique for it is a total solution for the client, it gives the sales force an additional source of differentiation and enables a closer relationship with the car manufacturer and dealers. As such it is a strategy to bring in new clients, build stronger relationships with existing clients and make it more difficult for Castrol’s lubricants competitors to enter the market. Second it introduces a new profit centre because the sales act is simple, it is performed by an exclusive third partner (subcontractor), needs little back office support within Castrol and is paid by commission. Third, it promotes the environmental values of the BP group.

The services consist of a diagnosis of the needs, waste collection, knowledge on European legislation and prevention of risks, training of personnel, support via internet, help with acquiring financial aid, communication, and adherence to ISO 14000 and control. The offer can be performed at three levels. The first consists of delivering special equipment, waste collection (dangerous and not dangerous waste), advice via an internet site, management tools and 1 control visit. The second level adds a diagnosis of the needs, recommendations and accompaniment and advice about financial aid. The third level gives training, green communication and accompaniment to ISO 14000.

The service is either offered through the car manufacturer when an “advice contract” has been signed or

directly to the dealers. In either case the first presentation is done by the regional directors for lubricants.

Then a price offer is demanded which is provided by Castrol’s subcontractor Salazie. When the contract is signed with Castrol, it performs the services parts of the contract and Salazie is charged with the actual waste collection. The price is based on the consumption and varies according to the number of collections, administrative costs and the volumes of different products collected.

For the environmental offer, Castrol reaches an agreement with an OEM which permits Castrol to present itself to the dealer network as the environmental partner of that particular OEM. The advantages for the client are that he gives the total handling of waste deposal in hands of only one partner, Castrol, which provides a total solution (technical, human resources, economical, juridical), at a competitive price, and reduces the administrative and managing process. Clients working with Castrol are Jaguar/ Landrover France, two BMW sites and two Ford regions. Contracts with BMW France, Toyota France, Vulco and MG-Rover France are expected.

2.6 Conclusion

This chapter has given a detailed description of the organisation in which this research has taken place, BP

Castrol Consumer Business Services France. Castrol has positioned itself as a high quality performer and

has chosen the services of Castrol Business Services as a means to differentiate itself from competitors and

set up a new profit stream. This chapter will serve as an introduction to the problem description in the next

chapter. There the background to the research and the research problem are explained. In addition the

research design and process are discussed.