EXECUTIVE SUMMARY

I recommend a full launch of the Bond-A-Matic 2000 (BAM) to facilitate IPG

’s

goals of increasing year-on-year salesof SuperBonder adhesives by 30.81% (from sales of $3.44M to
$4.5M) and attaining a 35% market share amongstcore industry groups within the CA market.
Within the market for instant adhesives,

Loctite’s

target customer forSuperBonder will increasingly be a varied group of small- to mid-sized industrial
manufacturers interested in qualitycontrol, cost-effectiveness, ease of use and efficiency. With a
strong reputation as a leader in the development andmarketing of high-performance adhesives and
sealants for industrial and consumer applications, Loctite is well-situated to lead the growth in this
new market by aggressively increasing efforts to educate a new group of end-buyers of the benefits
of its products. Specifically, I propose that Loctite initiate production of BAM 2000 andconcentrate on
marketing it to small and mid-size firms within the SIC 35-39 industry groups who use between
oneand nine pounds of CAs annually.

CUSTOMER ANALYSIS

In FY 1978, SuperBonder adhesives captured a 34.64% share of the industrial market for CA and
Quick Set 404maintained a 5.36% share. While sales in CA were growing by more than 20% annually,
the industrial segment greweven faster at 26.42%. Within the industrial segment, sales of
SuperBonder adhesives grew by 47.47% from FY 1977to FY 1978 indicating that SupeBonder was
stealing share from competitors while attracting new users as well. If Loctite could sustain such
growth, it would have no problem reaching its targeted goal of further increasing sales by30.81% in
FY 1979 to $4.5M.While the industrial segment within CA was highly fragmented and firm size was a
poor predictor of CA demand,

more than 50% of IPG’s current SuperBonder adhesive sales came from distributors who sold to
either small or

medium OEMs. Small firms accounted for 55% of total industrial volume and, in 16 SIC groups, more
than 10% of firms used instant adhesives. The Systems Division developed the BAM 2000 in response
to difficulties amongassembly line workers in dispensing CA from standard one-ounce and smaller
bottles. The BAM 2000 would allowthese end-users to precisely dispense dots, dashes, or lines of
adhesive quickly and without mess.With only 16% of firms using instant adhesives, Loctite had an
opportunity to create primary demand and expandthe size of the market while also increasing its
share within it. As a leader in a young and growing industry, Loctite

should educate the market about SuperBonder’s many applications and uses. With regards to the
BAM 2000

however, Loctite should not market it as standalone product but as complementary to SuperBonder
adhesives. By
1

targeting based on benefits, usage and decision processes, Loctite should concentrate on plant and
productionengineers as well as company presidents at small to medium sized firms in SIC industry
groups 35-39 that usebetween one and nine pounds of instant adhesives annually. This segment
currently includes 8997 firms with apotential to grow to 14,763 firms based on the industry
estimates provided in the case.Group SIC 35-39 Moderate

Use SIC 35-39 Heavy Use SIC 35-39# Current Users Establishments 8997 3413 31023# New Potential
User Establishments 5766 2187 19883

Total 14763 5600 50906

*Moderate Use: 29% of firms purchased between one and nine pounds annually; Heavy Use: 11% of
firms purchased more than 10 pounds annually

Segmenting our market in this way allows Loctite to use BAM 2000 to introduce new users to instant
adhesives andto react to the expressed interest of current SuperBond users with improved dispensing
technology. The industrieswithin the selected classification are characterized by small to medium
usage with strong opportunity to convertadditional nonusers in the future. Their products are subject
to frequent design changes and their productionprocesses are better suited for BAM 2000 than for
anything else on the market including the cumbersome one-ounce bottles that are prone to clogging
and making a mess on the assembly line. BAM 2000 provides these userswith greater precision,
control, reliability and efficiency while they work.

COMPANY ANALYSIS

As a pioneer in the market for instant adhesives, Loctite is one of three companies that altogether
account for about75% of the industrial CA market in the US. Unlike other competitors, Loctite is
unique in that it also manufacturesautomatic adhesive dispensing equipment to complement sales of
CAs.

Loctite’s

Systems Division was responsiblefor more t

han 15% of IPG’s FY 1978 sales. It

precisely engineered and sold automatic adhesive dispensing equipmentfor large firms at up to a
33% premium over comparable equipment from competitors.The Systems Division developed the
BAM 2000 and the Gluematic tip to address the needs of a different type of user

the assembly line worker in a small to midsize plant who found it very burdensome to work with the
one-ouncebottles that are prone to clogging. By increasing the precision and reliability of equipment
available to such workers,the BAM 2000 played directly to

the Systems Division’s unique competitive advantage –

purposeful, high-qualityinnovative designs

–
and will drive

IPG’s growth into new markets that

already comprise 70% of revenues.In FY 1978, sales of SuperBonder adhesives increased by 42% from
FY 1977. Over 50% of SuperBonder adhesive

sales were made through Loctite’s distributors who resold to medium and small OEMs.

Since small firms accounted

for 55% of volume of the instant adhesive market, Loctite could continue to leverage its highly
qualified salespeopleto educate distributors and end-users about the benefits offered by BAM 2000
and provide BAM 2000-specifictraining programs. By doing so, it could convert more nonusers to
users and encourage greater consumption bycurrent users.

Loctite’s strong relationships with its 285 distributors were highly valued

because they allowed the company tocommand premium prices, expect distributors to carry a full
line of Loctite adhesives and list Loctite products intheir catalogs. Loctite should strengthen these
relationships to protect and encourage sales and overcomedistributors

reluctance to stock equipment that required servicing. The company should incentivize salespeople
anddistributors with a matching commission percentage for equipment as for adhesives and offer
distributors amatching 25% margin on sales of the BAM 2000. Additionally, as neither salespeople
nor distributors havepreviously been pushed to sell equipment, Loctite should train both parties on
using the BAM 2000 for variousapplications as well as on the benefits it offers to end-users.The
Systems Division

s doubts about being able to manufacture large quantities of the BAM 2000 and about theirability to
service a high volume of service requests from inexperienced users posed a serious limitation to the
launch.As a market leader, Loctite cannot afford to jeopardize its reputation for quality and service
with a new launch of acomplementary product. The company should control its initial quantity of
production to ensure that this does nothappen or look for ways to outsource production of the BAM
2000.Financially, Loctite is well situated to launch BAM 2000 as an augmented product to
complement and drive sales of

SuperBonder adhesives. With 25% of Loctite’s sales in FY 1978 and a CAGR of 25%, IPG’s sales should
grow from

$32M in FY 1978 to $40M in FY 1979 even without launching the BAM 2000. Additionally, the up-
front R&D andinvestment costs of $48,000 represented 1.5% of SuperBonder sales from FY 1978.
Without accounting for variousmarketing scenarios, at a price of $200 for distributors, Loctite would
breakeven with 223 units of the low-pressuremodel or 310 units of the high-pressure model (a 3.6%
market share: 553/14763). With the most aggressivepromotion strategies including both direct mail
and following the proposed media schedule, at a price to distributorsof $200, Loctite would
breakeven with 934 high-pressure models and 673 low-pressure models (a 10.8% marketshare of:
1607/14763).

COMPETITOR ANALYSIS

The BAM 2000 would be entering the market at a price point far below the automatic dispensers
made by

competitors (which sell for $483) and by IPG’s System Division (

$725 and $1200). As a manual dispenser it will notlikely steal share from competitors who
manufacture automatic dispensers catered at larger firms. Since currentcompetitors have limited
resources and are highly fragmented in different regional markets or specific industries,there is little
direct threat posed by them. However, if sales of BAM 2000 increase very quickly or the product
ishighly profitable, there are few barriers to entry prohibiting new competitors from entering the
market formechanical adhesive dispensers. Furthermore, a successful launch of BAM 2000 by Loctite
may encourage 3M,Eastman, and Permabond to begin developing their own dispensers for their line
of instant adhesives as well.As a first-mover, Loctite has established its competitive advantage in CA
and has been growing among industrialgroups by stealing share from competitors. While its
marketing campaign in FY 1978 clearly paid off, it mustcontinue marketing to educate potential
users about its products and converting more users to BAM 2000 therebyraising switching costs for
competitors.Cannibalization

with IPG’s

Systems

Decision’s applicators is not a concern because they cater to very different usage

levels. It would not be pragmatic for a large firm using more than nine-ten pounds of SuperBonder to
switch to theBAM 2000.

PRODUCT, PRICING AND PROMOTION STRATEGY

BAM 2000 complements the SuperBonder line of instant adhesives. SICs 35-39 are very
heterogeneous with regardsto their uses and applications for instant adhesives. Sales of BAM 2000
should be accompanied with the Gluematictip, the Vari drop needle and applicator. Though BAM
2000 and the Gluematic Pen use the same applicator, thevastly different size of adhesive that
accompanies each negates the possibility of rivalry between them. As adoptionof BAM 2000
increases, sales of one-ounce bottles will decline and may at some point need to be
eliminatedaltogether pushing demand to either the one-pound containers or the three-gram
Gluematic Pen.I recommend introducing both the high- and low-pressure models of the BAM 2000 at
$200 for distributors and$250 for the end-user. Pricing the BAM 2000 this way eliminates the need to
get sales cleared by the purchasingdepartment and allows the majority of purchasing decisions to be
made directly by production and plant engineersand owners of small firms. The $200 price for
distributors incentivizes them to stock equipment by raising theirmargin on equipment sales to 25%
(equivalent to their margin on adhesives) presenting a greater incentive to

market these products to their customers. Additionally, the suggested pricing scheme allows Loctite
to pursue aprice skimming strategy in line with the premium it charges for its other products.I am not
certain

about the target customer’s price sensitivity. Though the market survey indicated that price was

not very important in instant adhesive purchase decisions, I wonder whether price will become more
important asfirms start spending a lot more money on such purchases, especially as their orders
grow from one-ounce bottles toone-pound containers with a dispenser.At this early stage in the
market, many potential users have little knowledge about instant adhesives and theircapabilities. In
order to continue growing, Loctite must employ a pull strategy and continue its highly
successfuladvertising campaign to raise consumer awareness, change their perceptions and
preferences, and educate non-users about the SuperBond line of adhesives.To encourage sales and
adoption of BAM 2000, Loctite should follow through with the proposed media schedule
inconjunction with SuperBond advertising and incorporate the direct-mail program to reach the full
list of 14,470potential users of instant adhesives in SICs 35-39 with moderate use (between one and
ten pounds). Loctite shouldinsert brochures in all SuperBond packages and highlight anti-clogging
features to target current users. Whensending a package through the direct-mail program, I would
suggest that the brochure describing BAM 2000 focuson benefits it provides with user testimonials.
Finally, when following the proposed media schedule, Loctite shouldnot highlight anti-clogging
features as the goal here is to target new users as well as nonusers.

DISTRIBUTION STRATEGY

At this early stage, I would not recommend any changes to the current distribution strategy and
would revisit in thefuture if competition increases or when BAM becomes a well-established product.
Loctite has strong relationshipswith distributors and these distributors already manage over 50% of
current sales of SuperBond adhesives. Byincentivizing distributors to stock equipment, the goal is to
have them sell BAM 2000 as a complement to allSuperBond adhesives.
Exhibit 1: Market Analysis by SIC Industry Group

SIC Code IndustryNumber of EstablishmentsInstantAdhesivesUsage (lbs)% of

UserEstablishmentsAdditional %of PotentialUserEstablishmentsUsage perEstablishment(lbs)

20-24 Food, Textile, wood products 9287447005.00% 7.60% 0.34471640726-27 Paper and printing
62872 14.3% 6.40% 0.34471640725 Furniture 13875 9500 12% 20.20% 5.70570570628-29
Chemicals, petroleum products 20167 15850 12.50% 6.00% 6.2874993833-35 Metal products,
machinery 102523 48200 14.70% 7.80% 3.19822046236 Electrical and electronic equipment 19610
42000 26.70% 18.30% 8.02158953538 Scientific instruments, photo equipment, watches 10143
10650 27.60% 20.10% 3.80429424430-31 Rubber, platstic, leather products 163322735015.30%
9.70% 2.05434389332 Stone, clay, glass products 19190 15.10% 3.80% 2.05434389337
Transportation equipment 11771 17.30% 15.20% 2.05434389339 Jewelry, toys, sporting goods
23904 24.60% 18.70% 2.05434389340-49 Transportation, communications, utilities 135657 16000
11.80% 7.10% 0.99952984670, 72, 73 Personal, tourist, business services 282239 8450 8.30% 6.20%
0.36071283275 Motor vehicle services 89257 58900 36.10% 10.10% 1.82795629276 Appliance repair
85838 13500 30.80% 4.10% 0.51062663278-80 Entertainment and health services 42001 9900 10.1%
5.60% 2.333749244

Exhibit 2: Breakeven Analysis for the Low-Pressure and High-Pressure BAM 2000*