interstate batteries position paper

Product Leadership Analysis: Interstate Batteries in the US Automotive Aftermarket

Stephen Spivey

2

Product Leadership Analysis: Interstate Batteries in the U.S. Automotive Aftermarket

TABLE OF CONTENTS

Significance of Product Leadership in the Automotive Aftermarket ................................................................................ 3

Best Practices Award Analysis for Interstate Batteries................. 3

Survey History Highlights Interstate Batteries' Dominance ..................... 4

Interstate Batteries' Unique Business Model…………………………………………5

Impact of Emerging Battery Technologies……………………………………………..6

Market Outlook for Interstate batteries………………………………………………..7

Conclusion………………………………………………………………………………….8

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SIGNIFICANCE OF PRODUCT LEADERSHIP IN THE AUTOMOTIVE AFTERMARKET

Ultimately, growth in any organization depends upon customers purchasing from your

company, and then making the decision to return time and again. A comprehensive

product line, filled with high-quality, value-driven options, is the key to building an

engaged customer base. To achieve and maintain product excellence, an organization

must strive to be best-in-class in three key areas: understanding demand, nurturing the

brand, and differentiating from the competition.

This three-fold focus, however, must be complemented by an equally rigorous focus on

pursuing those opportunities to a best-in-class standard. Customer communications,

customer feedback, pricing, and competitor actions must all be managed and monitored

for ongoing success. If an organization can successfully parlay product excellence into

positive business impact, increased market share will inevitably follow over time.

In the automotive aftermarket, maintaining product leadership can be very challenging

because of the growing commoditization and price sensitivity of auto parts. There are

many suppliers in emerging regions that have reverse-engineered parts for sale at lower

prices than domestically produced components that include the costs of research and

development. At the same time, large distributors and retailers of auto parts are

consolidating, making it harder for suppliers to raise prices, recover their costs, and

develop the next generation of leading products.

Attaining a position of product leadership in the automotive aftermarket means a supplier

has developed a product portfolio that meets the high standards of automotive service

professionals. Service technicians do not want to sell a faulty product that causes the

customer to return to their shop, resulting in a loss of money and reputation. The ultimate

mark of product leadership is when service professionals consistently choose a company’s

parts over all competing brands.

BEST PRACTICES AWARD ANALYSIS FOR INTERSTATE BATTERIES

Frost & Sullivan presents its Product Leadership Awards to companies that are outstanding

within their industries—leading their markets based upon our criteria of excellence.

This award is based upon Frost & Sullivan’s review of data from end-using automotive

technicians. Frost & Sullivan conducted telephone interviews with 353 automotive

technicians during August 2015 as part of an annual project measuring service

professionals’ preferences and perceptions regarding various auto parts brands, purchase

intentions, and sales channels.

“In addition to the most

‘overall best’ ratings, 74

percent of technicians

whose shops primarily

install Interstate

Batteries’ products rate

Interstate Batteries as the

top brand. This

combination of top

‘overall best’ rating and a

strong leadership index

score gives Interstate

Batteries the top level of

Product Leadership

recognition, while its

competitors have all

polled critically low

votes.”

―Stephen Spivey,

Program Manager, Frost

& Sullivan

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Specifically, we applied our Product Leadership Index, which is calculated by multiplying

the share of ‘overall best’ mentions and loyalty index (LI) scores.

Frost & Sullivan’s recognition of Interstate Batteries is based directly upon our review of

United States automotive technicians’ ratings of automotive batteries, as the overall best

brand of automotive batteries in the United States.

SURVEY HISTORY HIGHLIGHTS INTERSTATE BATTERIES’ DOMINANCE

Automotive service professionals have chosen Interstate Batteries as the “Overall Best

Brand” by a wide margin every year since 20071 when the project began. In 2015, 46% of

respondents said Interstate Batteries was the best, compared to just 10% for its nearest

competitor. The gap between Interstate Batteries and the nearest competitor has been as

wide as 48 percentage points over the history of the survey.

In a competitive industry like the automotive aftermarket, it is very unusual to see a

supplier with such a strong advantage over its rivals sustained over a full decade. When a

company develops a leading product solution―whether it is in brakes, filters, or some

other component―it is common for competitors to quickly replicate its success and

reclaim some of the market share. That has not happened in the batteries segment, where

Interstate maintains a commanding lead among service professionals as the overall best

brand.

Source: Frost & Sullivan

1 Survey was not conducted in 2012.

59%

53% 55% 53% 50%

53% 53%

46%

11% 10% 12% 10% 8% 8% 10% 10%

2007 2008 2009 2010 2011 2013 2014 2015

Chart 1: Overall Best Automotive Batteries:

United States, 2007-2015

Interstate Batteries Nearest Competitor

“In 15 years of business, I

have never had one fail on

me. Good brand.”

―U.S. automotive service

technician

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INTERSTATE BATTERIES’ UNIQUE BUSINESS MODEL

Interstate is recognized in the automotive aftermarket as a “battery specialist,” meaning

that it carries products for boats, computers, motorcycles, mobile phones, and many other

consumer devices. Among such battery specialists, it is the only one with a significant

presence in the automotive aftermarket.

Frost & Sullivan believes the reason for Interstate Batteries’ enduring success with

automotive service professionals is based on its unique business model, which elevates

service as a key product attribute. Interstate Batteries’ dealers deliver fresh batteries on a

weekly basis to service centers in their local areas. Furthermore, the company sells them

on consignment, meaning the garages do not pay for the batteries until a vehicle owner

buys them. This ensures that service centers always have fresh batteries in stock and do

not have working capital tied up in inventories. In Frost & Sullivan’s research 2015 US Auto

Technicians' Choice—Replacement Parts, Interstate is most strongly associated with fast

delivery and fresh batteries as product attributes by participating installers.

The best suppliers recognize that parts must do more than replicate factory fit, form, and

function. Customer service has emerged as a key differentiator for automotive

aftermarket suppliers. As a result, Frost & Sullivan believes battery specialists, led by

Interstate, are poised to increase their share of the automotive aftermarket in the coming

years.


Retailers 31.0%

Battery Specialists 27.0%

Warehouse Distributors

19.0%

Mass Merchandisers

13.0%

OESs 9.5%

Internet 0.5%

Chart 2: Batteries Aftermarket: Percent of Revenue by Distribution

Channel, North America, 2015

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IMPACT OF EMERGING BATTERY TECHNOLOGIES

Changes in battery technologies have ushered in a new era of high-performance,

extended-life batteries that last twice as long as in the past. With the advent of absorbed

glass mat (AGM) batteries and enhanced flooded batteries (EFB), replacement rates will

decline over the medium to long term, challenging suppliers to keep pace with the

industry’s product leadership needs.

Interstate Batteries has demonstrated product leadership in the growing premium

segment of the aftermarket. Its MT7 AGM line is highly rated and performs well in a

variety of sizes for the growing number of vehicles that are factory equipped with these

batteries.

The performance demands of automotive batteries will continue to increase as more

mechanical parts, such as fuel pumps and compressors, become electrified, more new

models come with engine start-stop systems, and connected car systems are more widely

used.

Chart 3: Batteries Aftermarket: Market Segmentation, North America, 2015


“Meanwhile, when

technicians compared

Interstate Batteries to the

nearest competitor, the

former is the clear leader

and is particularly strong

on quality, brand

reputation, and accuracy

of order filling.”

―Stephen Spivey,

Program Manager, Frost

& Sullivan

7

MARKET OUTLOOK FOR INTERSTATE BATTERIES

The North American automobile batteries aftermarket is a mature, low-growth industry.

Frost & Sullivan expects unit shipment demand to grow by about 1.7% annually over the

next 5-7 years, a forecast that aligns closely with growth in the overall vehicle population.

Manufacturer-level revenue will grow by approximately 3.2%. Based on Frost & Sullivan’s

research, Interstate Batteries’ product leadership is worth more than $1 billion a year in

sales to automotive service businesses.


Increasing average vehicle age is also a positive demand factor for the batteries

aftermarket because it puts more in the prime replacement range for expiration. And,

with gas prices at historic lows, people are driving more, meaning they will need a new

battery sooner.

At the same time, Interstate Batteries is poised to expand its customer base in the coming

years because fewer people maintain their own cars. Even for simple repairs, such as

changing the battery, more and more vehicle owners are relying on service professionals

because of changes in vehicle architectures and a lack of access to tools or experience

working under the hood of their car. Fewer will buy them at local parts stores. With

Interstate Batteries’ dominant position as the preferred supplier to independent garages

and service centers, it will probably outperform the market and gain even more market

share.

65

70

75

80

85

90

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Un

it S

hip

men

ts (M

illio

n)

Rev

enu

e ($

Mill

ion

)

Chart 4: Batteries Aftermarket: Manufacturer-level Unit Shipment and

Revenue Forecast, North America, 2012-2022

“I don't get returns or

complaints. I'm satisfied

with the quality of the

battery. They last longer

and warranty or expected

life.”

―U.S. automotive service

technician

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CONCLUSION

For the last decade (2006-2015), US automotive service technicians have consistently

chosen Interstate Batteries as the overall best brand by a wide margin (at least 36

percentage points). Furthermore, respondents have consistently told Frost & Sullivan that

they install Interstate Batteries more than any other in their garages. The combined

impact of its ‘overall best’ ratings from service providers and customer loyalty, as

evidenced by its share of installations among participating respondents, earns the

company the 2015 Product Leadership Award.

Interstate Batteries earns high marks from installers for both the reliability of its batteries

and the support service it provides. This aligns with Frost & Sullivan’s industry research

highlighting the importance of customer service to products sold in the automotive

aftermarket. As battery technologies evolve, Frost & Sullivan research shows that the

company is strongly positioned to meet the aftermarket’s future product needs. As the

leading wholesaler in a retail-oriented category, Interstate Batteries also enjoys a

favorable growth outlook. Its unique channel and customer mix means the company

should grow faster than its competitors over the short to medium term.