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1. EXECUTIVE SUMMARY
Rohm & Haas is a diversified chemicals company. Its industrial chemicals
division manufactures maintenance biocide products to the metal working
industry. The company enjoys a healthy 30% market share with its Kathon 886
MW in the Central Systems segment. Rohm & Haas has recently launched
Kathon MWX to target 150,000 customers in the Individual systems segment
where the market for biocides is underdeveloped and has little competition. A
large part of the customers use substitute products such as deodorants and
bleaches with little effect on microorganisms.
The company estimates the market size for the individual segment to be at $20
million and aims to achieve $0.2 Million revenues from this segment in the first
year. Despite a superior product, the sales of Kathon MWX reached a meager 6
% of the annual plan in first five months. Rohm and Haas wishes to re-evaluate
its strategy in order to tap this huge segment to significantly increase sales
volume and market share of Kathon MWX.
Rohm and Haas plans to enhance its allocation for distribution and marketing
spend of the Kathon MWX. This would result in additional revenue of 0.1 million.
2. PROBLEM STATEMENT
Can Rohm & Haas increase its market share and revenues in the maintenance
biocide market with its current product line? The sales of Kathon MWX have
barely touched 6% of the annual targeted sales for 1984. Is this the right product
to target the Individual Systems segment? Can the current marketing strategy for
this product help achieve the company?s objectives in the long run?
3. SITUATION ANALYSIS
3.1. Context
The product sales of the company?s newly launched product Kathon MWX are
well below the target set in the marketing plan for 1984. Despite its superior
quality, the consumers have shown little inclination to adopt this product.
3.2. Company
Rohm and Haas is a strong player in the maintenance biocide market for Central
systems. The product Kathon 886 MW has a 30% share of the 18 million market.
The company enjoys 70-80% market share in the non-ferrous metals segment
and about 20% share in the ferrous metals market.
The company has launched its new product Kathon MWX, a biocide targeted at
Individual systems consumers. The company estimates that there are 150,000
customers in this segment, which has a potential value of $20 million and little
competition. Kathon MWX prolongs the life of the metalworking fluid by a period
of 4 weeks on an average in comparison with only 3 days to 2 weeks if the
competitor biocides are used. Hence, Kathon MWX is 2 to 10 times as effective
as the substitutes offered by Rohm and Hass? competitors. Despite these
noteworthy distinguishing factors, the sales of Kathon MWX in the first 5 months
of its launch have been far below the target sales.
Separately, Rohm & Haas does not enjoy good brand awareness in the US
metalworking fluid market, since its products are sold to customers as ?Private
Label products?.
3.3. Collaborators
Metalworking fluid formulators have been the primary distributors for Kathon 886
MW. Though 90% of the formulators business is generated by the sales of their
own products, they distribute the biocide primarily in order to service the
maintenance needs of the Central Systems customers. Besides this product is
private branded by formulators and there is low brand awareness of Rohm &
Haas. Further, a few of the formulators use Industrial supply houses and
machine tools shops as
sub-distributors for their products.
Though Rohm and Haas has tied up with the formulators for the distribution of
Kathon MWX, the main target segment for this product, the Individual Systems
customers, rely on industrial supply houses and machine tool shops entirely for
all their metalworking fluid requirements. This is confounding and is potentially
resulting in distribution failure due to the following reasons -
? Formulators mainly deal with users of large central metalworking fluid systems
and not with users of small individual metalworking fluid systems, which are the
target market segment for Kathon MWX.
? Rohm & Haas has disallowed private branding of Kathon MWX and that can be
disincentive for the formulators to promote the product.
? Kathon MWX potentially increases the life of metalworking fluid by 2-4 weeks;
this resultantly reduces the revenues of the formulators as the individual systems
customers would have otherwise purchased more of the metalworking fluid in the
absence of Kathon MWX
(refer Table 3.3).
? The formulators lack the incentive to sell Kathon MWX due to lower dealer
margins as compared to the margins earned from competitors.
Loss to formulators (in terms of sales) $1,500 (50 percent of sales approx)
3.4. Competitors
Rohm & Haas has about 15-20% of the market share in the maintenance biocide
market. The remaining 80-85% of the market is distributed equally among the
other competitors and hence, signals the lack of a dominant player in this
segment.
In the individual systems segment, Rohm & Haas faces direct competition from
competitors Angus and from Dow Chemicals. The competitors? products have
been proven inferior to Kathon MWX both in terms of their effectiveness in
containing microorganisms and with respect to the cost effectiveness as shown
in the Tables 3.4.1 and 3.4.2 below.
Table 3.4.2 Significant cost savings from use of Kathon MWX (for detailed
calculations, refer Exhibit A)
Particulars Amount
Each 2-ounce pack of Kathon MWX can effectively treat 25-50 gallons of diluted
metal working fluid. The current packaging size makes it inconvenient for usage
by customers with tank size larger than 100 gallons because ?
? Multiple packs will be required to cure the tanks. For example, a 500 gallon
tank would potentially need 10 packs. Hanging more than 2-3 packs is definitely
cumbersome.
? Lack of water solubility of the product and the requirement of special care while
installation and disposal raises safety concerns.
Due to the factors mentioned above, the product is at best suitable for customers
with tank sizes between 25- 100 gallons. It is estimated that there are 150,000
customers having 1,701,000 metal working machines, which have tank sizes in
the range 50-1000 gallons. We assume that there are about 30 % customers
have tank sizes between 50-100 gallons
In the short-term, ie over the next 7 months of 1984, given that the product
design cannot be changed to suit the requirement of the other customers, the
target segment of Kathon MWX is customers with tank sizes of 50-100 gallons.
Over the long term, Kathon MWX would expand its segment into the tank sizes
from 100 to 1000 gallons after necessary product modification.
SWOT Analysis
It has been observed that the strategy of involving the formulators as the main
distributors is not appropriate and is the reason for the low sales levels of Kathon
MWX. Hence we recommend direct distribution of Kathon MWX through the
industrial supply houses and machine shops.
A possible strategy would be to allow a private label for the product, so that
Rohm and Haas need not exert their efforts in distributing the product to the end
user.
But this would not be an advisable strategy, because although the formulators
(the main distributors) have the necessary distribution network, it is not in their
business interest to sell Kathon MWX. This is evident from the results of the
survey, which show that using Kathon MWX greatly increases the life of the
metal working fluids, which constitute 90% of the formulators? business. Thus,
such a strategy is not recommended.
By not proactively trying to address the critical issues of distribution and creating
market awareness, it is highly unlikely that Rohm & Haas would be able to
increase sales or market share of Kathon MWX. Going by the current growth rate
(74 boxes in 5 months), only 180 boxes of the product can be sold (as against
the annual target of 1350). This would surely lead to a situation wherein the
product would need to be withdrawn from the market.
6. IMPLEMENTATION PLAN
Product
We recommend that the product be retained in its present form for the next 7
months (however, refer to our discussion in the section ?Long term strategy?
below).
Positioning statement
For all metalworking fluid users having a reservoir tank capacity of 50-100
gallons, among all maintenance biocides, Kathon-MWX is the most cost effective
biocide which extends fluid life and provides better bacteria and fungi control.
Price
We recommend that the price of the product be retained as it is (however, refer
to our discussion in the section ?Long term strategy? below).
Table 6.1 Economic value of Kathon MWX to the customer (for detailed
calculations, refer Exhibit C)
Particulars Biocide used in the Individual systems
None Tris Nitro Dowicil 75
Economic value of Kathon MWX to the customer
(per packet) $40 $33 $20
Cost of Kathon MWX to the customer
(per packet) $2 $2 $2
Place (Distribution)
Our analysis (above) clearly indicates that the strategy of involving the
formulators as the main distributors is not appropriate and is the reason for the
low sales levels of Kathon MWX.
Thus our recommended strategy is to move away from the formulator channel
and distribute Kathon MWX through industrial supply houses and machine
shops. Such a strategy would increase awareness and focus on the product in
the distribution channel and thus lead to boosted sales levels. Also, such a ?
formulator?free" distribution channel would prevent sales from getting affected by
the formulator?s disinclination to sell the product.
In line with the above strategy, some of the existing salesforce?s time would be
redirected towards managing the distributors. Since distributors are large in
number and geographically widespread, we recommend a slight increase in the
sales force (probably one experienced sales manager with a small team). This
would function as a small focus group, primarily aimed at monitoring Kathon
MWX sales. The cost of this change is expected to be around $20,000 (in line
with the sales personnel salary figures mentioned in the case).
(Expected costs, revenue increase and IBEV calculations for the above initiative
are mentioned at the end of the strategy)
Also, we plan to transfer the value captured by the absence of the formulator (i.e,
the formulator?s margin) to the distributor, so as to incentivize him to make
efforts towards increasing sales and brand awareness. The increase in margin
obtained by the distributor under this strategy is depicted in the following table.
Thus, post the above incentive, the distributor receives $ 0.675 more as margin
per packet.
Promotion
The results of the survey conducted clearly evidence the lack of awareness of
Kathon MWX amongst customers. Thus, our primary objective is to increase
awareness of the product amongst the target market.
? One packet of Kathon MWX (with an attached leaflet on usage instructions and
salient benefits)
? A brochure detailing the benefits of the products, with special mention of the
following:
o Cost effectiveness with respect to competitors (for eg. the cost savings
obtained by using Kathon MWX is about 49% as against just 6% for Tris Nitro;
the detailed cost savings calculations have been shown in Exhibit A)
o Functional superiority (with respect to prevention of bacterial growth in the
reservoirs)
The above package would be handed over to the selected customers when they
make their next usual purchase from the distributor.
The results of the above strategy are summarized as follows (refer Exhibit D):
Water soluble product: The product in its current form (liquid) is inconvenient
from a usage and disposal perspective. Thus, further efforts should be made to
develop a water soluble product. This would also address the safety concerns
regarding usage of the product.