Januka G.D.

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MKT5000 Marketing Management Assignment 2

MARKETING AUDIT On ECO - FUELING

Name Student No

: :

Galbadage Don Rajith Januka 0061015838

Januka G.D.R Table of contents

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Content

Page No:

Overview Marketing Objectives Marketing Tactics Marketing Timeline Marketing Contingencys Reference Table

3 4 9 11 14 16 18

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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 ECofueling technology in relation to diesel engines in an effective and efficient manner.

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Januka G.D.R Marketing Objectives

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Product Objectives Eco-Fuelings 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-Fuelings 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 Price Objectives KIT Sales Pricing

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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 the

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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 worlds 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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Januka G.D.R Distribution in Brazil

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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 Promotion Objectives

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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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Januka G.D.R Marketing Tactics

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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 Take part in green programs, and taking the membership in green related social

8.

organizations and develop good personnel relationship.

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Januka G.D.R 9.

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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 governments 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.

Marketing Time Line

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Januka G.D.R Sales Target

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Year 1 Total Sales Target (Units) Australia Brazil USA 54,000 9,600 14,400 30,000

Year 2 108,000 19,200 28,800 60,000

Year 3 216,000 38,400 57,600 120,000

Year 4 270,000 48,000 72,000 150,000

Year 5 270,000 48,000 72,000 150,000

Per unit price and standard expenses structure Description Sales Price (SP) per unit Cost Per Unit (75% from sales price) Gross Profit per unit (25% Margin) Selling Distri: & Marketing Exp per unit - S & D (25% from Cost per unit) Maximum sales commission inbuilt in S & D expenses (5% of SP) Allowed other S & D expenses per unit Other Administration Expenses per unit (15/85 of S & D ) Finance Cost per unit @ 4.5% ( Assuming that 20 MN plant to be financed) Net Profit per Unit ( 2.8% Margin) USD $ 3,050 $ 2,288 $ 762 $ 572 $ 152 $ 420 $ 101 $7 $ 83

Projected Statement of Income

$ 000

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Januka G.D.R Description Sales Income Cost Of Sales Gross Profits Selling Distri: & Marketing Exp Administration Expenses Finance Cost Net Profit

U1015838 Year 1 164,700 123,525 41,175 37,168 6,809 1,800 -4,602 Year 2 329,400 247,050 82,350 63,049 11,126 1,800 6,374

U1015838@umail.usq.edu.au Year 3 658,800 494,100 164,700 126,098 22,253 1,800 14,549 Year 4 823,500 617,625 205,875 155,693 27,475 1,800 20,907 Year 5 823,500 617,625 205,875 154,406 27,248 1,800 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 profit does not reflect the net cash inflow. However, starting from second year it is possible to start repaying the loans.

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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 Stations managers holiday package and the other staff gifts packs.

Marketing Contingencys Failure in Promotion

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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.

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

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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.

Literature
1. Australia Business Financing Center (1995 2011),

<http://www.australiangovernmentgrants.org/programs.php>

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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> 14. General Motors (2011), <http://www.gm.com/>

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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 ANALYSIS INDUSTRY SPECIFIC COMPANY NAME AUTOCHINA INTERNATIONAL LTD CAFFYNS HONDA MOTORS CO LTD PENDRAGON PLC TECH OPS SEVCON INC TITAN INTERNATIONAL INC TOROTRAK PLC TOYOTA MOTORS CORPORATION AB VOLVO CHAMBERLIN PLC CURRENCY USD "000" GBP "000" USD MN GBP MN USD "000" USD "000" GBP "000" USD MN GBP "000" GP RATIO 10.07% 14.57% 27.30% 13.96% 35.01% 12.92% 24.48% 15.72% 23.78% 18.68% NP RATIO 7.26% 1.20% 6.38% 1.76% 1.26% 0.07% 0.75% 0.78% 5.86% 2.27%

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