Tumbling oil prices are presenting a unique set of challenges for lubricants marketers. In November crude prices were around $90 a barrel and have now fallen to $48 a barrel. With base oil forming around 80% of finished products consumers and distributors will no doubt be looking to oilcos to start discounting.
ExxonMobil, Shell, Castrol, Chevron and others have already begun doing so. Exxon has pledged it will reduce prices by as much as 3.5% at the start of the year, although has advised it will maintain aviation fuel prices until mid February. Other global majors have pledged similar size cuts.
This will be welcome news to Chinese motorists and could well encourage them to purchase pricier, premium quality lubes. According to the China Association of Automobile Manufacturers (CAAM) car sales should increase by a 7.2% in 2015 to 25.13m units, with strong growth continuing to come from foreign auto brands, especially in the luxury segment.
Motorists will also be hoping the price cuts will offset the government's latest tax increase on lubricants. The 0.12 yuan ($0.02) to 1.52 yuan per litre consumption tax hike will apply to gasoline, lubricants and naphtha, according to the National Development and Reform Commission, which has pledged to cut retail prices of gasoline and diesel later this year.
Discounting can be a useful tool for marketers, especially in China where entire shopping holidays like Singles Day are predicated on the practice. Alibaba managed to attract more than $9bn in sales by pressuring its merchants to offer heavy discounts to online customers.
However, brands looking to maintain a premium position should be wary of discounts and other promotional activities. According to a study by Cohernt Path, shoppers whose first purchase is induced by the discount are 50% less likely to return and make a second purchase.
For lubes marketers, avoiding heavy discounts will serve to reinforce the premium nature of the product. If you are going to discount, digital agency Econsultancy recommends a rule-based pricing strategy to maintain a certain percentage above competitors, thereby protecting the brand and operating at reasonable market levels.
Another key trend in 2015 will be the rise of smartphones. Apple anticipates China will be its largest market for smartphones this year, having seen sales volumes rise by 70% in 2014. An increasingly mobile and connected population is putting real pressure on companies for modern, advanced lubricants recommendation websites that are fully integrated across mobile and desktop and have correct data.
This is exactly the issue OATS has addressed with our new earlFUSiON platform. The enhanced Product Manager application will support lubes marketers with timely, accurate data that will be provided to one of the world's largest auto markets.
For more insights on online marketing in China or to comment on anything you have read in this Bulletin, simply contact Diana Shen. As always, we look forward to hearing from you.
Sebastian Crawshaw
Chairman