"Marketing Research on Jatropha Biodiesel"
MARKETING ANALYSIS MARKETING ANALYSIS 1-1 MARKETING ANALYSIS 1. Introduction of the Business “The next black gold is just lying idle in our backyards” - BizNews Asia 2007 Today, fuel energy is among the biggest issues impacting the Philippine economy and society. The country, being highly dependent on imported fuel, sourced 99% of its oil supply from other countries prior to the Biofuels Act of 2006. In the diesel sector alone, there has been 367% increase in diesel prices in the last five years from P15 (2003) to P55 (August 2008). Since petroleum fuel is a non-renewable energy, the eventual depletion of its supply further leads to forecasts of increasing price trends in the near future. The enactment of the Biofuels Act of 2006 (Republic Act 9367) is the government’s response to this multi-faceted socio-economic problem. It requires the mandatory use of locally-produced biofuels in all fuel products to replace a significant portion of its fuel requirements. In particular, this legislation resulted to increased efforts in the diesel fuel sub-sector to develop the Jatropha biodiesel other than the currently used coconut biodiesel, which is derived from edible coconut oil. Since the coconut industry can only commit up to 5% of its edible coconut oil yield to the fuel industry, the coconut oil cannot be a sustainable source of biodiesel in the long run. The government, thru the Philippine National Oil Company–Alternative Fuels Corporation (PNOC-AFC), is pioneering the accelerated cultivation and production of locally-produced Jatropha curcas plant, also known as tuba-tuba, as the sustainable primary source of local biodiesel. Economically, the government is banking on Jatropha biodiesel to achieve energy self-sufficiency of 60% by 2010. Moreover, the Biofuels Act of 2006 created demands for Jatropha biodiesel, as the primary biodiesel source, and opened opportunities for lucrative investments. With government support, it also boosts economic activity in planting Jatropha, cultivating, processing and distributing it. 1.1 Business Case Philippine law mandates the blending of locally-sourced biodiesel in all diesel products. The Philippine Biodiesel Act was primarily enacted into law in order to help reduce the country's dependence on fossil-fuel sourced fuel. However, local diesel is still 99% dependent on world crude oil prices. Diesel is now at Php 55 per liter causing minimum transportation fare to escalate to Php 8.50. 1-2 MARKETING ANALYSIS 1.2 Objectives of the Study 1.2.1 General Objective The general objective of the study is to establish the marketing, technical and financial feasibility of the Jatropha biodiesel distribution business in the Philippines. To achieve this goal, the specific marketing objectives for the marketing feasibility are set as follows. 1.2.2 Specific Objectives To identify and exploit market trends and opportunities in innovating business To segment, profile and target the most attractive market segments to the business using appropriate tools and comprehensive analysis To develop a marketing plan that would entail product brand, pricing, distribution and promotion strategies To capture at least 5 % of the primary market upon penetration and gain an additional 5% every succeeding year. 1.3 Review of Related Literature Biodiesel refers to non-petroleum-based diesel produced from vegetable oil or animal fat. Biodiesel can combined with petroleum diesel to create a biodiesel blend, which can be used in compression-ignition (diesel) engines with little or no modifications. It is made through a chemical process called transesterification where the glycerine is separated from the fat or vegetable oil. The process leaves behind two products – methyl esters, the chemical name for biodiesel, and glycerine, a by-product usually sold to be made into soaps and other products. Biodiesel for industrial applications has been utilized since the beginning of the car industry. Rudolf Diesel, the inventor of the diesel engine, envisioned his engine to run on peanut oil. However, when crude oil was discovered to be cheaply extracted, cars began using petroleum based fuels. But since about 2000, rising oil prices, greenhouse gas emissions, and instability in the Middle East, where crude oil are mainly sourced from, are pushing renewed interest in biofuels. For many countries, the question of trying to achieve greater energy independence one day through the development of biofuels has become one of ‘when’ rather than ‘if’. Here in the Philippines, the government is pushing the development of biofuels programme through the enactment of Biofuels Act of 2006 (Republic Act 9367). The Biofuels 1-3 MARKETING ANALYSIS Act of 2006 mandates the use of biofuels in the country, the first of its kind in the Southeast Asia. The provisions call for a mandatory mixing of 1% of biodiesel in petrodiesel and 5% of ethanol in gasoline for the first 4 years. It will then be increased to 2% for Biodiesel and 10% for Ethanol in 2009. The Alternative Fuels Program focuses on developing and utilizing domestically-produced biodiesel which will then be used to replace a portion of the country’s diesel requirements. Currently, the biodiesel being blended is the Coconut Methyl Ester (CME) derived from edible coconut oil. However, due to food-versus-fuel debate that coconuts to be used for food are diverted to fuel use, issues on the continuous use of CME are now being deliberated. Consequently, a need for an alternative biodiesel are has been recognized; thus research on Jatropha curcas, which is currently being utilized in India as biodiesel, is now being undertaken. The government is taking careful, measured steps in exploring the use of Jatropha as a biodiesel feedstock. The Department of Science and Technology (DOST) commissioned a study last March 2006, which shows that potential areas for Jatropha plantation in the Philippines are at 2 million hectares. At present, a total of 360 hectares of land are planted with Jatropha in the country, found in the following areas: 200 hectares in General Santos, 27 hectares in Camarines Sur, 120 hectares in Fort Magsaysay, Nueva Ecija, 5 hectares in Dacong Cogon, Negros Occidental, and aside from locally-grown Jatropha in Quezon Province. The DOE, DOST, and Department of Agriculture (DA) also sent a team to India last April 2006 to study the different agriculture and production technologies of India, which is already using Jatropha for biodiesel production. Other institutions, such as the University of the Philippines-Los Baños Agriculture Department, are also currently studying the different varieties of Jatropha and its agriculture management, systems and production technology. Furthermore, leading the campaign for the propagation of Jatropha in the country is the Philippine National Oil Co.-Alternative Fuels Corp. (PNOC-AFC). It will undertake three major projects: Jatropha nurseries totalling to 1500 hectares in area to produce Jatropha seedlings, 700 000 hectares of biodiesel crop plantations, and a refinery with a capacity of one million metric tons annually. Recently, the PNOC Board approved the budget of the PNOC Alternative Fuels Corporation (PNOC-AFC), which will be allocated for the funding of Jatropha mega nurseries, as investment share in the planned biodiesel refinery, and for research and development activities. Jatropha curcas is a non-edible, oil-yielding perennial shrub that grows mostly in tropical countries like the Philippines. Jatropha curcas is resistant to drought and can easily be propagated through seeds or cuttings in any kind of soil, even on marginal lands. Also, it 1-4 MARKETING ANALYSIS is a low-maintenance shrub which has a productive life span of 35 to 50 years. Seeds from Jatropha plant can be propagated 18 months after planting. By the third year, tons of seeds per hectare can be acquired. Other parts and by-products of Jatropha can be used as traditional medicine, pesticide, soap and fuel oil for lighting and cooking, and fertilizer. As a potential source of biodiesel, the Jatropha plant can produce an oil content of 30-58%, depending on the quality of the soil where it is planted. Its seeds yield an annual equivalent of 0.75 to 2 tons of biodiesel per hectare. In general, the production of Jatropha biodiesel entails expelling seeds from the Jatropha nut, extracting crude oil from the seed and processing the crude oil through transesterification to yield Jatropha Methyl Esther (JME). Test results on the quality of JME based from the European Standards (EN 14214) and the American Standards (ASTM D6751) (Refer to Appendix D) show that Jatropha biodiesel is comparable, if not surpassing, to the specifications of diesel and Coconut Methyl Ester. In addition, unlike other types of biodiesels, the food-versus-fuel conflict does not apply to Jatropha. As a non-food crop, Jatropha does not compete with food since it is poisonous and inedible. Indeed, with Jatropha as the next super fuel, food and fuel security can go hand in hand. Neither food security nor energy independence has to take the backseat. 1-5 MARKETING ANALYSIS 1.4 Methodology The steps and tools used in analyzing the market are summarized in the following figure: Figure 1-1. Marketing Analysis Methodology 1-6 MARKETING ANALYSIS 2. Market Analysis 2.1 Product Description A complete alternative to petroleum diesel fuel is a 100% pure Jatropha biodiesel to be introduced under the trademark Optum. Optum is an economy brand catering to public utility vehicles. The product line is technically known as pure Jatropha Methyl Esther (JME) which is scientifically proven to be a superior alternative for diesel automobiles. Optum is derived from Jatropha curcas feedstock. The Figure 1-2. Optum in production of Optum JME entails expelling seeds from the Jatropha Discrete Amount fruit, extracting crude oil from the seed and processing the crude oil to yield Jatropha Methyl Esther. The Optum biodiesel will be available both in continuous and discrete amounts. Figure 1-2 shows Optum in discrete amount bottle. 2.2 Business Model The business model for Optum is established under a distribution company named PrimeOne. Its mission is to ensure availability and easy access of the products to diesel end-users. At present, there is no commercially available Jatropha biodiesel or JME that can be bought directly by diesel end users. As such, PrimeOne strategically positions itself as a business-to-consumer distributor in the supply chain of Jatropha biodiesel. Figure 1-3 summarizes the business model of the company. Figure 1-3. PrimeOne Business Model PrimeOne recognizes the power of manufacturers and planters in the supply chain. As of the moment, PNOC-AFC is the largest and the only manufacturer of Jatropha in the country that can provide those interested in the biodiesel business with Jatropha biodiesel. 1-7 MARKETING ANALYSIS They are therefore an important player in the supply chain. PNOC-AFC has a tie-up project of establishing a 700,000-hectare Jatropha plantation and a biodiesel refinery with 1 million metric-ton capacity both in operation by 2011. These large scale capacities will produce the national requirements for JME. Technical and Costs Analysis revealed that outsourcing from PNOC-AFC is more economical than putting up own refinery plant. This results in the decision of PrimeOne to outsource from PNOC-AFC and focus on its core competency of innovative delivery services and superior customer service. PrimeOne will source its Jatropha biodiesel from PNOC-AFC and distribute the product to its target consumers, the PUV drivers. Apart from the physical biodiesel product, PrimeOne will offer a direct distribution service to its consumers. Optum Biodiesel will be delivered daily to jeepney terminals. PrimeOne shall have an agreement and contract with the jeepney terminal associations regarding refilling. PrimeOne will have drums with manual pumps for dispensing biodiesel situated at the terminals. These will be refilled daily by tanker trucks that will pass by the terminals according to a determined route and schedule. Upon delivery, the refill will be paid by the association in full to PrimeOne. The associations will be in charge of the distribution to the drivers from this point on. The volume of Optum availed by each member and the total sales daily will be kept track of by the association. Collection of payment from members will also be the job of the association. The incentive for the jeepney terminal associations in this setup is that since they will be housing the drums owned by PrimeOne and directly organizing the fueling of their members, the association can raise funds by earning commissions from PrimeOne for every x amount of biodiesel sold to the association members. It is therefore up to them to come up with an arrangement that will facilitate an effective and efficient distribution of Optum to its members. This setup allows the jeepneys at the terminal to refuel while in line and eliminates the need for them to pass by gas stations during their trip, saving them time. Jeepneys that missed the truck delivery may still refuel from the drums using the manual pumps. They also have the option to avail of the bottled Optum, should they run of out of fuel during a trip. Also, the distribution model allows for accrued payments from the jeepney drivers, something which is not possible in the gas station distribution model. 1-8 MARKETING ANALYSIS 2.3 Market Study 2.3.1 Market Trends The Biofuels Act of 2006 requires that all petroleum fuel products must be blended with at least 2% pure biodiesel from 2009 onwards. The projected demand for biodiesel at varying blends until year 2015 is summarized in Figure 1-4. With the projected growth in fuel biodiesel demand, balance must be preserved to ensure that land and feedstock resources are properly allotted between meeting both biodiesel demands and food crop demands. The two major sources of local feedstock for biodiesel are edible Coconut oil and crude Jatropha oil. Given the government initiatives to address the possibility of diverting massive amounts of food commodities such as coconut oil into biodiesel, the Figure 1-4: Projected Biodiesel Demand production of coconut biodiesel is expected to decline in the long run. Jatropha is the only sustainable biodiesel source as it is non-edible and can be cultivated in arable and marginal lands. It does not, in any way, compete with the production and consumption of food commodities. This secures an increasingly growing market for the Jatropha industry, an industry being poised by the government to absorb the demand for coconut biodiesel and become the primary source of local biodiesel. 2.3.2 Opportunities The market trend for Jatropha biodiesel shows that opportunities for lucrative investments are highly viable in the market. Since the Biofuels Act of 2006 is directed towards increasing demand trend of biodiesel blend requirements from 2% and up, the supply chain for the production of Jatropha Methyl Esther (JME) creates an emerging industry for business. Table 1-1 displays the biodiesel requirements in million liters from year 2008 to 2015. 1-9 MARKETING ANALYSIS Table 1-1. Projected Diesel Demand with Corresponding Biodiesel Requirements in Varying Blends Year Diesel Demand (Million Liters) Biodiesel Requirements (Million Liters) Low High Average 1% 2% 5% 10% 20% 2008 4, 274 11, 842 8, 058.00 80.58 161.16 402.90 805.80 1,611.60 2009 4, 447 12, 281 8, 364.00 83.64 167.28 418.20 836.40 1,672. 80 2010 4, 586 12, 738 8, 662.00 86.62 173.24 433.10 866.20 1,732.40 2011 4, 786 13, 211 8, 998.50 89.99 179.97 449.93 899.85 1,799.70 2012 4, 988 13, 701 9, 344.50 93.45 186.69 467.23 934.45 1,868.90 2013 5, 191 14, 210 9, 700.50 97.01 194.01 485.03 970.05 1,940.10 2014 5, 365 14, 738 10, 051.50 100.52 201.03 502.58 1, 005 2,010.30 2015 5, 544 15, 285 10, 414.50 104.15 208.29 520.73 1, 041 2,082.90 Source: BizNews Asia, June 1-11, 2007 Initial estimate of the market size includes all diesel industries. These include the transport sector and the industrial sector. Business opportunities in the Jatropha biodiesel industry encompass small, medium, and big scale investments. And various involvement in the supply chain ranges from planting Jatropha, cultivation of seeds, extraction of oil, processing crude oil and distribution of the final product. 2.4 Industry Analysis 2.4.1 PEST Analysis The important political, socio-economic, technological and environmental considerations which affect the Jatropha Biodiesel industry are presented in Figure 1-5. 1-10 MARKETING ANALYSIS Figure 1-5. PEST Analysis 2.4.2 Porter’s 5 Forces Analysis PrimeOne belongs to an industry marked by intense rivalry, as manifested in the threat of bigger and more established multinational fuel companies. While Optum and offers benefits that are absent from its competitors, the moderate barriers of entry for competitors into the business threaten the market share of these products. However, consumers have low buying power and option since PrimeOne is the only supplier of the low cost diesel products. Supplier power is high as there is only one supplier in the industry, and possibility of forward integration is high. Strong supplier power and high threat of new entrants give rise to intense competitive rivalry. The threat of the more established biodiesel and multinational companies further drive the competition. Optum must compete to protect and increase their market share in the industry. 1-11 MARKETING ANALYSIS Figure 1-6. Porter’s 5 Forces Analysis 2.4.3 Competitor Analysis The biodiesel industry is only just emerging with minimal players in the industry. Companies belonging to the diesel industry are considered the secondary competitors of PrimeOne. The diesel industry is currently dominated by three big companies which have a combined market share of 85%. PrimeOne does not aim to compete with these companies in the diesel product line. Instead, it aims to create a new market by converting existing diesel users into biodiesel users. PrimeOne will utilize its price advantage and value-added service to do this. Table 1-2 summarizes the secondary competitors of PrimeOne with their corresponding prices and market share. 1-12 MARKETING ANALYSIS Table 1-2. Secondary Competitors of PrimeOne Diesel Max Diesoline Ultra Power Diesel Pure Diesel Pure Diesel Envirotech Product/ Manufacturer Price 55.87 - 55.87 - 55.60 - 55.88 - 55.86 - 55.98 (in PhP) 56.37 55.98 55.98 55.98 55.98 Market 39% 31% 15% 15% Share In anticipation of the possible consequences of the introduction of the low-priced Optum to the market, experts from the two of the Big Three (Petron and Shell) were consulted. From the consultation, it was learned that the two are soon intending to introduce a biofuel line where the percentage of biofuel used is more than the amount mandated by the law. The third member of the Big Three, Caltex, already has a 10% biofuel line in its refilling station. This indicates that the big players are anticipating the possible shift to or growth of the biodiesel industry. However, when asked about their distribution options, although they have acknowledged that their primary customer by volume are PUJ drivers, neither have explored the possibility of making engine refuelling much more accessible to drivers, in terms of convenience in location and convenience in payment terms. PrimeOne, on the other hand, recognizes this gap and prepares to fill this gap by introducing the Optum Biodiesel Distribution Model. (1) Decreasing Sales (2) Technological Advancements from Industry Research and Development (3) A Big Player Introduces a New Product (4) A Small Player Introduces a New Product (5) A Startup Company Introduces a New Product (6) A Big Player Introduces a New Service (7) A Small Player Introduces a New Service (8) A Startup Company Introduces a New Service (9) A Big Player Introduces a New Fuel Distribution Model (10) A Small Player Introduces a New Fuel Distribution Model (11) A Startup Company Introduces a New Fuel Distribution Model Figure 1-8. Breakdown of Compelling Business Scenarios (12) An Emergence of a New Market Need 1-13 MARKETING ANALYSIS The experts were then asked regarding scenarios that would trigger their respective companies to retaliate, results of which are summarized in the preceding graph. From the graph, it can be assumed that the Big Three are not threatened by activities initiated by small players. It is important to note that from the given set of situations, all those that involved big players were deemed compelling and little attention was paid to activities by small and start-up companies. The conclusion that the Big Three compete mainly amongst themselves only 33% 33% and do not mind other players until they already pose a considerable amount of 17% 17% threat is further supported by Figure 1-9 which shows the companies considered by the Big Three as major competition. Total, although not part of the Big Three is Total Shell Petron Caltex Figure 1-9. Major Competition as Viewed by Petron and Shell considered a threat perhaps because of its Fuel Industry Experts potential for growth was recognized by the competition. The graph was summarized from results of the interview and consultation done on the industry experts. A more detailed summary of the results of the consultation is shown in the Appendix F. Results of the interview and consultation imply that in order for PrimeOne to penetrate the market successfully, it is important that it stays off-the-radar, so to speak. For the most part, the big players only play amongst themselves, and consider small and start-up companies as players of an entirely different game. By the time PrimeOne catches the attention of these companies, it has already captured its intended market, and agreements with jeepney terminal associations have already been formalized through legal contracts. 2.5 SWOT Analysis Analyzing the internal and external environment of PrimeOne as a distribution company shows both its strength and weaknesses as shown in Figure 1-7. Aside from the benefits that Optum offers, PrimeOne’s unique delivery service lends the products an edge over the other existing diesel products. However, PrimeOne must continually innovate their products and services to build sustainable customer loyalty and satisfaction. 1-14 MARKETING ANALYSIS Figure 1-7. SWOT Analysis 2.6 Customer Analysis As a new player in the biodiesel distribution business, it is critical for PrimeOne to fully understand the orientation, needs and buying influences of its potential customers. Optum is the first of its kind and determining the proper product positioning and an effective marketing strategy require identifying the specific market segments to be captured. Although the whole diesel market is itself a potent customer base of PrimeOne, the company’s main focus as a starting business is to first capture the most attractive market segment among other alternative segments. Given investment capital and start-up constraints, only a limited market segment will be catered to by PrimeOne. The target market segment should be chosen to create the highest potential value to the business. 1-15 MARKETING ANALYSIS 2.6.1 Segmentation and Targeting The segmentation of the market was based on several criteria that aimed to identify and differentiate the target from the general market. These criteria were in line with the goal of PrimeOne to target the most attractive market segment in starting the business. The specific segmentation criteria used were product use, geographical location and socio-economic factor. Consequently, three segmentations were undertaken for each criterion as discussed in detail below. Product Use Optum can only be used in diesel engines. As such, the total market base of PrimeOne consists of diesel-powered engines in the country. On a national level, biodiesel products are used by the diesel industrial and transport sectors. Since 65% of total oil supply is utilized by the transport sector, PrimeOne will focus its distribution business on this sector. Hence, the first market segmentation based on industry use of product identifies the diesel transport sector in the Philippines as the initial target market. Geographical Location Since the establishment of PrimeOne distribution centers for Optum will not be nationally widespread on its starting years in business, a market segemention based on location was deemed logical. This geographical criterion also considers where to locate the distribution facilities and all the business operations of PrimeOne. Figure 1-10. Registered Diesel Vehicles per Region The second segmentation required identifying the statistics of the distribution of diesel vehicles in the country. Thus, the diesel transport sector was further segmented geographically to determine the region with the highest concentration of diesel vehicles. Based from the information provided by the Land Transportation Office (LTO), the National Capital Region (NCR) has the highest number of registered diesel vehicles in the country as shown in Figure 1-10. 1-16 MARKETING ANALYSIS Socio-Economic After identifying the diesel transport sector in NCR as the most viable target market, the market was further segmented according to the socio-economic importance of the diesel vehicle to the owners and users. This socio-economic criterion accounts the segment receptiveness to diesel substitutes, product usage, price sensitivity and purchase practices, which are all dictated by socio-economic status. The third segmentation differentiates the market segment into public or private vehicles. This segementation best distinguishes the socio-economic status of each segments. Based from LTO, the diesel vehicles in NCR is classified into private, public and government use. Figure 1-11 displays that private vehicles significantly consist 81% while public utility vehicles (PUV) account for 16% of diesel automobiles in NCR. To expound the psychographics of the socio- Figure 1-11. Diesel Vehicles per Type economic factor, product usage of both diesel PUV and private vehicles segments in NCR are described in the following paragraphs. Public transportation is the primary source of income for PUV operators and drivers. The increasing price trend of petroleum diesel directly affects this livelihood as compared to private usage of cars. Since the diesel PUV sector is highly sensitive to fuel price, it is a potent market for PrimeOne’s selling point of product cost advantage. Furthermore, other superior engine features of the product needed for more stable “pasada” highly ensure steady demand from the PUV sector. On the other hand, the private vehicle segment has a larger market population but has less product usage frequency and volume, as private vehicles are used less often unlike public vehicles which stays on the road for the most part of the day. Intuitively, it can be said that private vehicle owners are more apprehensive aboout trying new products for their cars and price alone will not be enough to convince them to use a product. Their main concern is not to save money on fuel but to ensure the performance and the safety of thier vehicles. In summary, the segmentation of the diesel market for PrimeOne’s Jatropha biodiesel distribution business is now down to two segments - the public utility vehicles and private vehicles in NCR. Figure 12 tabulates the three market segmentations, the corresponding segmentation criteria used and the resulting market segments of each segmentation. 1-17 MARKETING ANALYSIS First Segmentation Total Market 1st Segmentation Market Segment Criteria Diesel Engine Product Use Transport 65% Industry Sector Industrial 35% Sector Second Segementation Customer 2nd Market Segment Segmentation Criteria Diesel Geographical NCR 33% Transport Region III 15% Sector Region IV 14% Region VI 6% Region VII 6% All Other 26% Regions Third Segmentation Customer 3rd Segmentation Market Segment Criteria Diesel Socio-Economic Private Vehicles 81% Transport Public Utility 16% Sector in NCR Vehicles Figure 1-12. Summary of Market Segmentation 2.6.2 Market Segment Profile After the market segments were narrowed down to just two, profiling was then done to further evaluate the segments. To strategically decide on the primary segment to target, three segment profiling variables were identified to describe attractiveness of each segment. These are the segment’s market size, product ratings, and purchase preferences 1-18 MARKETING ANALYSIS 22.214.171.124 Market Survey Sample Size A market survey was conducted to characterize the market segment and profile their buying patterns and preferences. A preliminary sample size of 40 respondents were surveyed for the market segment to determine the initial descriptive statistics. From these descriptive statistics, the mean, standard deviation, and error estimate were approximated to determine the valid sample size which represents the population at a given confidence level. The statistical computation for sample size n is given in Equation 1. n = (zα⁄2 σ) 2 (Equation 1) E where z = standard normal value at significance level α α = significance level σ = standard deviation E = Error estimate If the resulting sample size is smaller than the preliminary sample size of 40, then statistics from preliminary data suffices. That is, further sampling may not be necessary as the population had been properly represented by the preliminary sample. The significance level is set at 0.05. Since the bound on the error in estimation E is one-half of the length of the confidence interval, E is set at 0.5. Table 3 summarizes the results of sample size computation. Table 1-3. Summary of Market Survey Sample Size Market Segment Standard deviation Sample size, n Diesel Private Vehicle 0.749 n = 8.62057≈ 9 Diesel PUV 0.2667 n = 1.09299 ≈ 1 Since the computed sample sizes of the market to survey are 9 and 1 for diesel private and PUV segments respectively, they are both less than the preliminary sample of 40 respondents. Thus, the preliminary survey is sufficient enough to be conclusive of the segment population. This is largely attributable to the fact that the standard deviation is significantly small. • Survey Results: Market Segment Buying Pattern 1-19 MARKETING ANALYSIS Price is the deciding factor for public utility vehicle (PUV) drivers to switch from petroleum diesel. Jeepney drivers load up their tanks in small amounts enough for a round trip or two. It is very seldom that they avail of full tank refills for their daily trips. Drivers have to budget their income to ensure that they are able to meet their boundary and keep an amount for themselves which is why they refuel on a need basis. For PUV drivers, fuel cost is a major determinant of how much of their income they will be able to take home. Daily Frequency of Refuelling Average Amount in Peso per Diesel Refill 100 5% 5% 2% 18% 20% 4 150 12% 13% 200 5 15% 30% 32% 250 6 28% 20% 7 300 350 400 Figure 1-13. Daily Frequency of Refilling Figure 1-14. Average Amount in Peso Per Diesel Refill For private diesel vehicle users, price, mileage and efficiency are the major determinants for switching to a fuel product. Although price also counts, users are generally reluctant to try a new product that does not have a performance track record. Since private vehicles require higher investment and have higher value relative to PUV’s, owners are more cautious to switch and convincing them requires witnessing satisfying results. 126.96.36.199 Segment Profiling As there is no existing biodiesel distribution business that sells 100% pure JME, PrimeOne will be first in this business and is yet to face primary competitors. However, the established multinational and local oil companies will serve as secondary competitors offering substitute biodiesel blended products. In segment profiling, the segment profiling variables will serve as criteria for assessing the market’s attractiveness to PrimeOne’s business. As aforementioned, these variables include the market size, the product ratings against secondary competition, and the purchase preferences on products and services offered by the company. 1-20 MARKETING ANALYSIS Segment Market Size The market size is the first profiling variable to be considered. In essence, the segment’s market size is the product of consuming population size, usage frequency and price paid by the specific market segment. The segment market size computation is tabulated in Table 1-4. As previously identified, population size of the diesel vehicle segment takes 81% of the NCR market while the PUV segment takes 16%. The diesel PUV segment survey reveals with 95% confidence level that 100% of the segment is willing to switch to Optum Jatropha biodiesel. The usage frequency is quantified in the average weekly diesel consumption of the segment in liters. The equivalent price are also tabulated in Table 4. Table 1-4. Target Market Size Usage Frequency Segment Market Consuming (Weekly Equivalent Segment Market Size Size Index Population Size consumption Price Paid in liters) 81,527 Diesel Private = [81 – ( 0.39 x 81)] x 81 – ( 0.39 x 81) 30 P 55 Vehicle Index: 1.00 30 x 55 154,000 Diesel PUV Index: = [16 – ( 0 x 16 )] x 16 – ( 0 x 16 ) 175 P 55 1.90 ≈ 2.0 175 x 55 The segment market size index is computed by dividing each segment market size with the smallest market size. Hence, the diesel PUV index results to 1.90 by dividing 154,000 by 81,527. Consequently, the same operation results to the diesel private vehicle index being equal to 1. The segment market size index means that the diesel PUV segment is approximately twice the size of the diesel private vehicle segment. Product Ratings and Purchase Preferences Product ratings based on mileage and fuel performance of Jatropha biodiesel in comparison to secondary competition were then obtained. While providing information on the proven superior features of Jatropha biodiesel, survey was conducted among PUV drivers and private vehicle users. Survey results are shown in Figure 13 and Figure 14. In addition, purchase preference surveys are conducted together with product ratings. The purchase preferences or practices include brand loyalty, economical price, unparalleled service and promos and freebies. The survey results are also shown in Figures 1-15 and 1-16 for private and PUV segments, respectively. 1-21 MARKETING ANALYSIS Figure 1- 15. Customer Criteria for Selection of Refilling Stations for Private Motorists Figure 1-16. Customer Criteria of Refilling Station for PUV After providing profiling variables and identifying segment characteristics, strategically targeting the most attractive segment was now possible. In each of the three variables, “Best” labels are placed on the market segment that is most attractive or 1-22 MARKETING ANALYSIS receptive to the business criteria at hand. Consequently, “Better” labels only imply less marketability on the segment at a particular criterion that is important to the business. Figure 1-17 summarizes the market segmentation and targeting steps which culminates to identifying the primary target market and the secondary target market. Steps Step # 1: Market Partitioning Better Best Market Size Better Best Purchase Preference • Price • Unparalleled Service Segment Step # 2: • Convenient Location Profiling Segment • Promos and Variables Profiling Freebies Best Better Product Ratings • Fuel Performance • Higher Mileage Step # 3: Secondary Market: Target Market: Segment Private Vehicles PUV Targeting Figure 1-17. Market Segmentation 2.6.3 Target Market In summary, PrimeOne aims to cater to the needs of a potent market which will develop and sustain customer loyalty in the long run. Hence, the primary target market of PrimeOne is the diesel-powered Public Utility Vehicles in NCR and the secondary market is the diesel-powered private vehicles in the region. Focus will be given to the primary target market only. The secondary market can be addressed later on in the distribution game once PrimeOne establishes itself as a reputable biodiesel distributor. 1-23 MARKETING ANALYSIS 2.7 Marketing Strategy 2.7.1 Kano Analysis In order to rank customer requirements based on satisfaction, Kano analysis was performed to better understand the potential customers’ response to the presence or absence of certain features in a product. This type of analysis classifies customer requirements into three: delighter (unspoken and unexpected needs), satisfiers (spoken and expected), and dissatisfiers (unspoken and expected). Table 1-5. Satisfaction Rating Satisfaction rating Satisfaction rating if the product did Needs and Wants Attribute if the product has not have this Category this attribute attribute Economical 1 4 Satisfier Environment- 1 2 Delighter friendly High efficiency 2 4 Dissatisfier High mileage 2 4 Dissatisfier Locally produced 1 3 Delighter Natural lubricant 1 3 Delighter No engine residue 1 4 Satisfier Renewable energy 1 2 Delighter resource 1 – like 2 – neutral (it’s normally that way) 3 – don’t care 4 – don’t like Based on the survey done on diesel users, efficiency and mileage are considered dissatisfiers. Inability to fulfil these basic requirements will result in customer dissatisfaction. This shows that the primary concern of diesel engine users is performance. Economical pricing and the absence of engine residue are satisfiers – features that when improved can be considered a competitive advantage. Price of diesel products do not vary significantly across different brands as they are considered a commodity and are known to have low differentiation. Diesel products also commonly leave residues in the engine. An upgrade in these two known and accepted diesel attributes can sway a customer into choosing one brand over another. The features considered as delighters are those that have not been previously considered possible or relevant to a diesel product, but when offered increase the satisfaction of the customers. For diesel products, delighters include the absence of 1-24 MARKETING ANALYSIS harmless effects to the environment, local production, lubricating properties, and renewability as an energy resource. Based on the results of the survey, for a diesel product or substitute to gain the loyalty of diesel users, it must not only fulfil the basic performance requirements of diesel product, but must also have a cost advantage over the other products and offer features not commonly found in diesel products. 2.7.2 Product Positioning Competitive Advantage Benefits in using Optum are not only limited to the significant price reductions and value added service provided by PrimeOne. The entire supply chain of Jatropha biodiesel from propagation to production translate to intangible benefits that encompass social, economic and environmental aspects. Propagation of Jatropha seeds in barren lands restore fertility and increase economic activity in rural and agricultural areas providing additional livelihood to marginalized sectors. Jatropha is also used as traditional medicines, pesticides, soaps, fertilizers and fuel oil for lighting. The price of Jatropha biodiesel is also sustainable since it is locally sourced and can be continuously propagated up to 50 years. At a price of P36.30 per liter, the commercialization of Optum to a national level could translate to a roll back of minimum transportation fare to P5.50 from the current P8.50. Wide product patronage would also reduce dependency on imported fuels thus, providing big savings to the government. Figure 1-18 summarizes all the benefits gained from using Jatropha Biodiesel. Figure 1-18. Benefits of using Jatropha Biodiesel 1-25 MARKETING ANALYSIS 2.7.3 Product and Brand Strategy Product Identity In order to gain the trusts of the primary customers, it is essential for PrimeOne to establish a unique branding that conveys safety, high quality and eco-friendly product. The different elements of the brand symbolize the different competitive advantage of the product. • The name “Optum” is derived from the word optimum which conveys the message of being the optimum solution to the oil price crisis and environmental issues. Figure 1-19. Optum Logo • The bold black letters spelling out the name of the brand project an image of strength and reliability of the product. Such perception is important for an innovative product like Optum to attract and retain customers. • Green was the chosen color for the symbol to highlight the product’s environmental benefits. • The three curves depict smooth and safe travel on the road. The bottom part of the rightmost curve ends on the “O” of the brand name, associating the easy ride on the road with Optum. 2.7.4 Pricing Strategy Cost differentiation is the main strategy employed by PrimeOne in introducing Optum. Based from the 2% survey conducted by the proponents PRICED JUST 15% RIGHT for a (Refer to Figure 20), consumers feel necessity that the current price of diesel fuel is I'm already 83% PAYING TOO too high already, thus Optum is MUCH deliberately priced lower to compete with the existing diesel brands. Optum will be priced at P36.50 per liter. This is based on the released projected price of PNOC-AFC of P36 and Figure 1-20: Customer Response Towards Diesel Prices a profit margin of P0.50 per liter. 1-26 MARKETING ANALYSIS 2.7.5 Distribution Strategy Since PrimeOne is a new business-to-consumer distribution company, the strategy to reach customers should be differentiated from close competitors. The distribution service offered by the company is one of its core competencies in providing excellent customer service. Mobile Biodiesel Outlet PrimeOne innovates the delivery of Optum to ensure customer satisfaction and loyalty through supplying directly in customer distribution centres such as Public Utility Vehicle (PUV) terminals. The mobile gas outlet is comprised of a truck with fuel dispensers. Tanker trucks with twenty-thousand liter capacity will be deployed across the metro, with scheduled routing and multiple stops at bus and jeepney terminals, and other strategic locations. These will refuel the vehicles in line at the terminal and eliminate the need for them to drive by gas stations during their trips. Discrete Products PrimeOne also introduces Optum in 5-liter containers to provide easy access to PUV’s around NCR. It will also be distributed to PUV terminals and other public distribution centres to address the drivers’ need to refill during a trip. 2.7.6 Promotions 188.8.131.52 Marketing Plan Having established the superior features of Optum biodiesel as the best and only sustainable alternative to diesel, PrimeOne will make use of a marketing strategy to reach the public motorists. In order to completely establish the brands Optum, a campaign named Accelerate: Breakthrough, Capture and Dominate (ABCD) Campaign will be launched. The campaign encompasses three stages necessary to build the integrity of Optum brand. The core of the ABCD Figure 21. ABCD Campaign Campaign is product quality and integrity coupled with unparalleled service, putting emphasis on building and maintaining strong customer relationships. 1-27 MARKETING ANALYSIS As Optum is a new brand penetrating a market dominated by three big players, Optum will use guerilla strategy in marketing. While the big players target the general fuel market with no segment in particular, Optum will focus on gaining its target market, the PUV drivers. In contrast to the big players’ gas stations situated to be accessible to everyone, Optum will be exclusively available at PUV terminals only. There will be no large declaration or announcement of the product to the public, except to its target market. Samples of marketing materials are shown in Appendix Y to AA. Breakthrough As a new entrant, PrimeOne must make a strong positive impact upon entry in the biodiesel industry. It must address the most pressing need of Filipinos in the marginalized sector. Endorsements Biodiesel as a complete Supported by DOE and DOST substitute and not as an additive to 5% definitely petroleum products is a fresh concept. 39% 22% unwilling It is crucial for the company to first unwilling establish the technical reliability of 34% undecided JME. Through endorsements from credible local government offices that Figure 1-22. Customer Response towards Endorsements successfully tested on the technical from DOE and DOST aspects of JME, PrimeOne can make statements on its product line’s comparable Membership in Jeepney Operators and and even surpassing properties relative to Drivers Association diesel. Dissemination of optimistic testimonies from DOST, DOE and PNOC-AFC 38% will increase the awareness and will educate Yes the PUV drivers using Optum. 62% No Partnerships An important strategy in target market penetration is the collaboration with major Figure 1-23. Percentage of Jeepney Drivers Belonging to a Transport Group public transportation groups such as PISTON, FEJODAP, Drivers’ Association of the Philippines etc. Sixty-two percent of jeepney drivers are members of transport groups or associations. For the ABCD Campaign, these 1-28 MARKETING ANALYSIS transport groups will serve as a strategic venue where PrimeOne can reach and directly interact with their target markets. It is important that the opportunity for the associations to raise funds through the use of Optum biodiesel be emphasized. Jeepney terminal associations can gain commissions for every x amount of biodiesel sold to its members. Demonstrations PrimeOne acknowledges that public transportation is a primary source of livelihood, and that several operators will be hesitant in experimenting with new products. The company will address the possible reluctance by conducting live demonstrations of diesel PUV running on Optum. Capture After the initial introduction of the PrimeOne products into the market, the company aims to capture the loyalty of its consumers. The business model for the product line Optum allows the company to keep strong ties with the PUV drivers as there is constant and direct interaction. Free Services Aside from the scheduled daily delivery and refueling services, PrimeOne will also include additional free services such as engine check-up and tuning to Optum users. Promos and Giveaways For accumulated refueling receipts of a certain amount, PrimeOne product users will receive freebies. For individual Optum users, towels, t-shirts, and stickers for their vehicles will be given away. Dominate After capturing the target market in NCR, PrimeOne will then focus on expanding their market in nearby areas, such as Bulacan, Laguna, and some parts of Quezon and Pampanga. Market survey will first be done to establish the receptiveness of these areas to PrimeOne products. 1-29 MARKETING ANALYSIS PrimeOne will also explore the possibility of targeting the private diesel vehicle users after establishing its credibility as biodiesel distributor though Optum biodiesel. A premium biodiesel blend under the Figure 1-24. RapidMax Logo brand name RapidMax will then be made available. RapidMax will be priced higher at P36.50 and will be distributed at gas stations around the metro. For this product line, a different marketing strategy will be used. Advertisements will be made in maximedia and the other marketing channels used by the existing gas companies. PrimeOne will bombard Metro Manila with billboards and newspaper and radio advertisements, creating excitement and hype. Jingles are to be aired in the local radio stations prompting sound association and as an effect, recognition and brand recall. Visual ads such as a website, highway billboards, newspapers, hobbies and lifestyle magazines will exhibit a range of images from typical day-to-day scenarios to minor local celebrities with environmental advocacies. In contrast to Optum, RapidMax will be positioned to compete alongside the established fuel companies. PrimeOne also plans to continually research on other possible additives and blends that could further improve the performance of biodiesels as it is important that PrimeOne maintain their status as the premiere supplier of commercially available pure biodiesel. 184.108.40.206 Marketing Expense Projections Following the guerrilla marketing strategy, promotional materials will be limited to posters, brochures, and the like containing product information and testimonies from credible agencies, giveaways for the drivers, and other items related to the live demonstrations in the terminals. The expenses related to marketing are summarized in the following table. Table 1-6. Budgeted Monthly Marketing Expenses Expense Budgeted Cost Printed Ads (posters, P 100 000 brochures, fliers, stickers) Live Demonstrations P 50 000 Promotional Giveaways (shirts, P 70 000 caps, towels) Additional Services and Others P 30 000 Total P 250 000 1-30 MARKETING ANALYSIS 3.0 Conclusion Optum Biodiesel is the first commercially available pure biodiesel in the Philippines distributed by PrimeOne Distribution Company. It is made from Jatropha curcas, a non- edible, oil-yielding perennial shrub that grows mostly in tropical countries. Jatropha fruit undergoes several processes before it is converted into Jatropha Methyl Ester (JME), its biodiesel form. Compared to Coco-Methyl Ester (CME) which is made from coconut, JME is more sustainable as its feedstock, Jatropha, has no other known uses. JME as a biodiesel has been proven by various government agencies such as DOST and DOE to have comparable properties and performance to that of petrodiesel. It also offers several advantages not found in petrodiesel such as its lubricating properties and environmental benefits. Above all, JME priced at P36.30 is much cheaper than petrodiesel. Market segmentation criteria for Optum Biodiesel included product use, geographical location, and socio-economic factor. Segmentation returned PUV with diesel engines as the primary target market, and the private diesel vehicles as the secondary target market. Optum Biodiesel is the first in the biodiesel industry but faces tough competition from the diesel industry saturated with big players namely Caltex, Petron, and Shell. In order to survive the competition, Optum must have something to offer that is currently not available in the other fuel companies. While Optum is priced considerably lower than other fuel products, the Big Three are expected to follow suit and penetrate the biodiesel industry eventually. Thus, PrimeOne Distribution Company came up with a unique business model. Optum Biodiesel will not be made available in gas stations. Instead, Optum will be delivered directly to jeepney terminals across the metro with the help of the jeepney associations. The business model offers ease and convenience to the drivers, the opportunity to raise funds to associations, and contract partnerships guaranteeing a solid chunk of the market to the company PrimeOne. With the right marketing strategy, Optum Biodiesel stands to acquire and maintain a steady number of consumers in the form of PUV drivers. 1-31