Customer And Market Kathon Mwx example essay topic

Rohm & Haas Marketing plan for Kathon MWX (1984) 1. EXECUTIVE SUMMARY Rohm & Haas is a diversified chemicals company. Its industrial chemicals division manufactures maintenance 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 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.

This target would be achieved by a combination of a revamped distribution network for Kathon MWX, focused promotion campaign and sampling. 2. PROBLEM STATEMENT Can Rohm & Haas increase its market share and revenues in the maintenance 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 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 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 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 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 - o 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. o Rohm & Haas has disallowed private branding of Kathon MWX and that can be disincentive for the formulators to promote the product. o Kathon MWX potentially increases the life of metalworking fluid by 2-4 weeks; this resultant ly 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). o The formulators lack the incentive to sell Kathon MWX due to lower dealer margins as compared to the margins earned from competitors. (This space has been left blank intentionally) Table 3.3 Loss to formulators by selling Kathon MWX Particulars Without Kathon MWX With Kathon MWX For a typical small machine shop for a year No of gallons of metalworking fluid used in a year [22 machines 50 gallons 12 times a year] 13,200 [22 machines 50 gallons 6 times a year] 6,600 No of gallon of metalworking fluid concentrate sold by formulators 528 264 [Dilution ratio = 1: 24] Sales of metalworking fluid concentrate by formulators @ $5.68/gallon $2,999 $1,500 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 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. Due to lack of awareness about, customers tend to use substitute products ranging from household disinfectants to bleach to deodorants (ie basically the "no segment") that have seldom shown positive results in effectively containing micro-organism growth.

This is also one of the primary reasons for poor performance of Kathon MWX. Further, Union Carbide and ICI plan to make their foray into the maintenance market in the near future. Table 3.4. 1 Features of Kathon MWX and competitor products Product Compatibility with concentrate Increases life of metalworking fluid by Effectiveness against bacteria and fungiKathon MWX 70% 2-4 weeks Good Tris Nitro 45% 3 days Poor Dowicil 75 45% 2 weeks (assumed) Poor (This space has been left blank intentionally) Table 3.4. 2 Significant cost savings from use of Kathon MWX (for detailed calculations, refer Exhibit A) Particulars Amount Annual cost for a small machine shop When no is used $20,951 When Kathon MWX is used $10,740 When Tris Nitro is used $19,673 Reduction in cost [no to Kathon MWX] $10,212 [49%] Reduction in cost [no to Tris Nitro] $1,278 [6%] Reduction in cost [Tris Nitro to Kathon MWX] $8,934 [45%] 3.5. Customer and Market Kathon MWX has been specifically designed to meet the needs of individual metalworking fluid systems operators who have reservoir capacities of less than 1,000 gallons.

The company estimates the market size of this segment to be about $20 million. 50% of this segment is unaware of the usage of and the related benefits and rather relies upon household disinfectants to bleach to deodorants to kill odour casing bacteria in their machine sumps. Further, of those who have used a at least once, only 50% recall the brand name of the. 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 -o 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. o Lack of water solubility of the product and the requirement of special care while installation and disposal raises safety concerns. o Because of the difficulty in disposing the product midway due to high concentration levels, customers would now have the additional overhead of book keeping of dates of installation and expiry. 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 be tween 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 5. STRATEGIES AND OBJECTIVESObjectiveTo achieve the sales target of additional 600 boxes for 1984 (refer Exhibit B-1). Recommended Strategy: Revise distribution network, conduct a promotional campaign (involving sampling of packets), supported by advertising 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.

Additionally, a promotional campaign involving a sampling exercise would be undertaken. This would be effectively backed up by an advertising campaign specifically targeting the customers using individual systems. Alternative Strategy 1: Allow private label branding by formulators 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. Alternative Strategy 2: Maintain Status Quo (i. e., do nothing) 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 PLANProductWe 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, Kathon-MWX is the most cost effective 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). The economic value to the customer on usage of Kathon MWX is significantly higher than those of Tris Nitro and Dowicil (refer table 6.1). This presents a strong case for a price increase (say by 3 or 4 dollars).

But, due to the lack of awareness of in general and Kathon MWX in particular, we don't recommend such a significant price hike for the next 7 months. However, we suggest that this be considered as a long term strategy 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 sales force'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 I BEV 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. Price / packet Under current scenario Under proposed strategy Rohm and Haas to Formulator 1.125 (from case data) 1.125 (Rohm & Haas to distributor) Formulator to distributor 2 NIL Distributor to end user 2.2 (10% markup) 2.2 (same as current scenario) Distributor margin 0.2 0.875 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. We propose to do this by conducting a promotional campaign targeted at specific customers. The number of plants targeted for this campaign is about 5620 (approx 3.75% of the target market of 150,000 customers; the calculation for this optimal sampling number is shown in Exhibit C-1).

The selected group would especially include plants having a large number of reservoirs, so that, if tapped, they could lead to increased usage and enhanced sales volumes for the company. Details of the campaign: Each of these selected customers would be handed a promotional package, which would consist of: o One packet of Kathon MWX (with an attached leaflet on usage instructions and salient benefits) o A brochure detailing the benefits of the products, with special mention of the following: o Cost effectiveness with respect to competitors (for e.g. 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. We expect that, as a result of this campaign, about 20% of the sampled customers would come back for purchase of Kathon MWX (after having sampled the product at their plants). These customers would then be regularly serviced (the focus group mentioned above under "Distribution strategy" would drive this) so as to convert them into regular customers.

In order to popularize the above promotion, we recommend backing it up with an advertising campaign specifically targeting the customers using individual systems. The expected cost of the advertising campaign is about $10,000. The results of the above strategy are summarized as follows (refer Exhibit D): 7. LONG TERM STRATEGIES Change in packaging: A change in the product packaging, namely the introduction of multiple size packs, is recommended.

Kathon MWX in the present form allows it to be conveniently used only in 50 gallon tanks. For larger tanks, more packs have to be used (since one pack can treat only 50 gal fluid. ). This would result in usage and disposal problems for larger reservoirs.

Having different package sizes for different tank sizes would make it much more convenient for the end users. Price increase: As the EVC of Kathon MWX (refer Table 6.1) is higher than the competitors (40 for Kathon MWX as against 33 and 20 for Tris Nitro and Dowicil respectively), there is a strong case for a price increase (say by 3 or 4 dollars). This increase should be carried out gradually as the brand awareness of the product increases. 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.