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ABC Chemical Corporation:

Snow Tread

On June 1, 1990, Charles Brown, marketing director, and Mathew Spencer, technical
director, of the New Products Division of ABC Chemical Corporation, met to respond to the
division general manager's request to advance the introduction of Snow-Tread, a spray
compound designed to free cars stuck in ice or snow. The two men were jointly responsible
for presenting a marketing plan, a manufacturing plan and a preliminary budget to the
general manager by the end of the month.

Snow-Tread consisted of resins dissolved in methanol. The user sprayed Snow-Tread


on the exposed portion of a stuck tire, and then slowly rotated the wheels. As the treated
portion of the tire contacted the water, the resins formed a sticky layer, providing traction
so the user could drive away. Snow-Tread was a "spin-off" product from a basic technology
whose patent would expire in 1995.

Both men knew that another company “D” had withdrawn a similar product, in the
early 1980s, because of product difficulties that the ABC Chemical product appeared to have
overcome. Charles pondered as to why the company didn't take it back into the lab to iron
out the problems. In accordance to the information he had received, one in five households
in their test market had tried it, and four of them had bought a second can.

Charles wasn’t sure if those results would be relevant to Snow-Tread as they were
looking for an industrial market. ABC Chemical had recently experienced difficulty in
penetrating consumer markets other than those its Household Products Division served
through the grocery trade. As a result, ABC Chemical senior management had charged the
New Products Division to seek opportunities for developing and introducing new products
intended for industrial markets. Because existing products appeared unlikely to provide the
sales growth to which corporate management was committed, there was pressure on the
New Products Division to accelerate its activities.

Charles Brown defined the industrial market for Snow-Tread as fleets of 10 or more
passenger cars. Such fleets accounted for more than seven million vehicles in 1989. The
following table shows approximate fleet size by type of operator.

Average Number of % of Total


Operator Fleet Size Fleets Fleet Vehicles
Business (25+ cars) 200 12,000 35
Business (10-24 cars) 20 35,000 10
Rental 1,050 450 7
Federal Govt. Agencies 850 400 5
State & Local Govt.’s & Agencies 300 3,000 13
Police 500 580 4
Taxi 30 6,680 3
All other n.a. n.a. 23
Almost 75 percent of all the cars in business fleets were used for sales calls; nearly all the
remainder, for service calls.

Fleets in which 25 or more cars were used in a particular area generally operated
their own garages and purchased supplies centrally. Operators of large dispersed fleets
ordinarily negotiated blanket service contracts, which might include supplies, with
automobile dealers who sold the brands of cars represented in the fleet. Small fleets might
arrange a service agreement with a local garage or service station, or simply reimburse
vehicle users for maintenance expenses.

Fleet owners who operated garages bought supplies either directly from
manufacturers or through automotive parts wholesalers, who purchased from
manufacturers. Garages and service stations typically acquired supplies from wholesalers.

A manufacturer's average receipts per unit varied with the margins obtained by
wholesalers and garages, the discount available to direct purchasers and the proportion of
sales made direct and through wholesalers. One industry source estimated that an item like
Snow-Tread would, on average, yield the manufacturer about 45 cents on every dollar that
garages or service stations charged vehicle users for the product.

ABC Chemical customarily priced its specialty chemicals at three times factory cost.
The industry average prices for specialty chemical products were about two times factory
cost.

Mathew noted that costs depended on the size of the spray can used and the volume
of cans expected to be filled. He noted that at volume production, a 10-ounce can costs
about 25 percent more than a 5-ounce can. He felt that they should be able to produce
Snow-Tread at about 75 to 80 cents for a 5-ounce can if they can make 100,000 or more a
month. At 50,000 cans a month they would add another 5 to 10 cents a can. Below that,
their costs could easily run up to $1.25. He also realized that cost aside, they should also
know what capacity to commit and schedule it at least 10 weeks in advance. Their planning
horizons should be really longer than that, because they'll have to order cans, labels, boxes,
and any other materials required three to six months ahead.

As a basis for forecasting sales, Charles reviewed a study about winter driving habits,
which showed that 18 percent of the cars in snowbelt states were stuck at least once in a
typical winter, and that the average driver got stuck 1.6 times a winter. Because that study
was more than 10 years old, Charles thought that smaller, lighter cars had increased the
incidence of trouble.

Charles then reported on informal conversations he had held with ABC Chemical executives.
The dozen or so executives to whom Charles and Mathew had given samples of Snow-Tread
were impressed with its potential:
The following are some of the experiences narrated by the executives who tried the product

1. Jeremy (another division executive) and I flew in late and couldn't get out of the
airport parking lot - it was like a skating rink. We were literally spinning our wheels till I
remembered that can. Jeremy was so sure it wouldn't work he went to find a cab. It
took me just about a minute to "spray and rotate, then be patient," just like the label
said to, and then I drove out - picked up Jeremy at the cab stand. He's a lot less
skeptical now. Anybody who drives a lot and most sales, marketing and general
management people do shouldn't be without it.

2. My last trip to Pittsburgh made me a believer. I had a really tight schedule, and
when the rain turned to snow, I got stuck in curbside parking spaces. Even though I was
on an incline both times, Snow-Tread got me out. Can you get me another can?

3. 1 told Price [operations vice-president of a large customer] about Snow-Tread over a


drink after our meeting. He was excited about the possibility of developing a
longer-lasting compound that he could spray on their lift-truck tires. They have a
problem with moisture on the plant floor, and he says they've had several
near-accidents. I asked Mathew to send someone to visit with him.

Some executives found family uses for their samples. One said, "I gave the can to my kid
who goes out in all kinds of weather. He used it twice, and says he got out when he
otherwise would've called me for help. I figure that can's bought me at least four hours of
sleep." Another executive, who had placed the can in his wife's car, said, "She's never used
it, but I feel better knowing it's there."

Charles had also visited with fleet operators who found the concept of Snow-Tread
interesting. One commented that it would be a lot cheaper to use Snow-Tread than to send
a tow truck." An official of a car rental company thought Snow-Tread might help his firm's
image: "When people get stuck, they blame the car-not themselves. Sometimes they'll just
walk away, and we'll get the keys in the mail with a nasty letter."

Mathew was enthusiastic about the product. The company distributed 200 samples [4-ounce
aerosol cans] to their personnel in their lab. More than 150 people used it, and half of them
reported that it worked "like a miracle" for them. Most of the other half evidently didn't
know how to use it properly, from what they told Mathew afterwards.

Snow-Tread is much more powerful than the other company’s original product, and has a
far more effective applicator. Mathew and his executives had spent almost 30 months
getting it right. Now it was up to Charles and his guys to figure out how to sell it.

ABC Chemical's sales force did not presently call on automotive parts distributors or fleet
operators, but could do so if the New Products Division were willing to "buy" some of its
time. (The ABC Chemical sales force covered a variety of industrial accounts, and "sold" its
time to the company's product divisions.) Sales force time was available at a cost of 15
percent of sales volume, with a minimum charge of $150,000 per division. An alternative
route to distributors and users was through independent manufacturers' representatives,
who would charge from 5 to 15 percent of sales.

Many suppliers who served the fleet industry advertised in Automotive Fleet, whose
circulation exceeded 17,000. A full-page ad in Automotive Fleet cost about $2,500.