Hunter Business Group: Case 29 May 2017

Study
GROUP MEMBERS:

1. Rajat Gupta (Regn No. VLMP/11/30)

2. Gourav Garg (Regn No. VLMP/11/12)
3. Abhishek Dixit (Regn No. VLMP/11/01)
4. Alok Mishra (Regn No. VLMP/11/02)

Problem: Star oils TBA business is unprofitable but drives loyalty that translates into increased
gasoline sales.

The Situation:

The Star oil was facing increasing competition.

The TBA business was now unprofitable and consuming valuable field resources.
Fearful that closing the TBA business would erode customer loyalty.
Hires Hunter business group for assistance.

Background of industry:

Gasoline service station evolved 1950s with advent of US interstate system

under the hood checks were a way to differentiate and strengthen customers bond,
customers would pay a premium branded TBA products
In 1960s/70s, star, shell, amco dominated the market- high margin of industry
attracted high volume/ low price stores: Kmart/Walmart and specialty stores jiffy
Lube, NTB
70% decline in 1970s, which continued till 1980s; 72,000 services stations closed;
post 1990 80% repairs were equally spread between private garages, special repair
shops, car dealers, gasoline service stations

Star Oil:

At time of this case 2,200 gasoline service station were throughout US

1991-92 stars was losing money; revenue 20% fall in 24 months; variable cost basis
estimate $8 million loss
Star management saw value in preserving star brand
TBA unattractive financially but it was clear that TBA product line built customer
relationship

Hunter Business Group:

Founded by Vic Hunter, 1981

Hunter believed strategic use of direct marketing technologies could revolutionize the
face of business marketing
Experience with TBA- Amoco
 Hunter Business Group: Case 29 May 2017
Study

Direct marketing approach

integrating field sales, phone Developed electronic
calls and mail delivering a database
consistent message

HBG Action Plan

Identify and develop gold Vendor partnership and

accounts (1% purchases of all private labelling based on
TBA products) quality and volume discount

Results:

Early success..

1. Satisfaction survey of 2,200 dealers

o Increase in TSM contact frequency despite reduced no. of field
representatives and less personal contact
o Differentiation based on valued communication.
2. Integrated marketing approach
o 600% increase in no of contact
o Face to face contact reduced from 83 to 18, dealers need no face to face
contact
3. Improved dealer satisfaction
4. 24% increase in active account.
5. 5X gold account achieved
6. 1993 sales surpassed $20M target

But

7. 1994: decrease in sales volume and no. of active accounts

8. Expected reduction in no. of service stations with bays
 Hunter Business Group: Case 29 May 2017
Study
SWOT Analysis

Strength
Opportunity
Expertized in highly personalized direct
marketing TBA products played a strategic role in
Reduce sales and marketing expenses boosting star gasoline sales brand
equity
Accurately track dealer information
Customer loyalty

Weakness
Unprofitable nature of TBA
businesses in early 90s
Early 1994, the number of active
accounts and total sales volume
began to level off
Threat
low price service models
Duality of leadership of management
of star oil and Team TBA

Evaluation of Plans:

Assuming 1500 active accounts, and sales revenue of $16 M. Expected TBA operating income
$360000

1993 Fixed cost FC-40~45% FC-reduced by

constant 20%
Revenue 20 16 16 16
Product cost 16 12.8 12.8 12.8
Gross profit 4 3.2 3.2 3.2

Operating cost
Fixed cost 1.5 1.5 1.28 1.2
Variable cost 2.05 1.34 1.56 1.64
Total 3.55 2.84 2.84 2.84
Operating income 0.45 0.36 0.36 0.36

Recommendation:

To maintain its bottom line and expect teamTBA to fullfil the promised operational cost cutting by
50% following options are recommended.

They should go for option 3 (Hybrid) as keeping fixed cost constant would limit the
scope to action. It will improve the flexibility to react to challenges in market.
Focus on profitable customer i.e A& AA,
Develop more gold accounts.
Maximize sales to improve revenues.
Work with suppliers and implement economies of scale to reduce the cost of goods
sold.