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Marketing Research on Jatropha Biodiesel

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					  MARKETING ANALYSIS




MARKETING
       ANALYSIS

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                                                       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.


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   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
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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
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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.




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   1.4 Methodology


          The steps and tools used in analyzing the market are summarized in the following
figure:




                              Figure 1-1. Marketing Analysis Methodology




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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.
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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.




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   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.




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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.




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                                    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.




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                                                         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.




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                                                                 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



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           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.


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                                                     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.




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                                                       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.




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                                                     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.
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                                                       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




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                                                         MARKETING ANALYSIS


           2.6.2.1 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.


            2.6.2.2 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


           2.7.6.1 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.


            2.7.6.2 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.




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