Rohm and Haas Case Study

Rohm and Haas Case Study 1. Purpose of the Report: Joan Macey, the Rohm and Haas market manager for Metalworking Fluid Biocides, was reviewing the marketing approach for the recently introduced Kathon MWX maintenance biocide. Rohm and Haas is one of several manufacturers that develop liquid biocide chemicals for eliminating microorganisms in metalworking fluids. The company currently manufactures the Kathon 886 MW concentrate biocide, the leading biocide in the concentrate biocide market. Kathon 886 MW is a very powerful concentrate used for large-capacity reservoir systems (above 1,000 gallons) and is too powerful for small fluid reservoirs. As a result, the company developed the Kathon MWX maintenance biocide for use in small-capacity tanks (less than 1,000 gallons). The problem is the new product is not selling as expected and Joan is not sure why. The purpose of this analysis is to: • Evaluate the strengths and weaknesses of the current marketing plan • Recommend whether the current marketing strategy should be continued, rejected, or modified 2. Recommendations: Continue with the current marketing strategy with the following changes: • Establish a fixed price for end-users • Provide product demonstrations at customer businesses with free samples • Develop a follow-up survey for customers using free samples and develop a call back system to ensure distributors follow up on leads • Demonstrate the product at trade shows • Develop a new print advertisement with a cost / benefit analysis where typical household disinfectants are used in place of a maintenance biocide o Display the savings opportunity prominently on the advertisement o Explicitly state the safety and ease of use on the product o Keep the advertisement short – minimize word usage • Allow formulators to privately brand using a fixed specification that cannot be deviated from 3. Analysis:

Market / Customer Analysis: The maintenance biocide market is a $38 million industry with competitors using all sorts of methods to treat metalworking fluids. Maintenance biocides are starting to be considered the preferred choice for bacteria and odor control and by 1993 are expected to completely replace the concentrate biocide market. The end-user for the maintenance biocides are the metalworking operators and shop foremen in the machine shops. These individuals are generally the decision making units for purchasing the product as they are the most familiar with the equipment and what is required to maintain them. The decision making process for selecting a maintenance biocide involves determining whether the product is needed for their operation and if so, what is the least expensive, most effective, and easiest to use solution available. Many consumers are unaware of the need or benefit of a maintenance biocide in small capacity fluid reservoirs so first hand customer training and education is usually required. Industry / Competition Analysis: The maintenance biocide industry is composed of four major manufacturers each with a 15 – 20% market share with products that range in price and fluid capacity treated. These manufactures provide biocide solutions in many different forms and it is up to the end user to determine what is best for their application. A lot of time and energy is spent developing biocide solutions therefore the barriers to entry into the market are rather substantial. The main competitors in this market utilize different marketing and sales approaches with some manufactures choosing to sell directly to end-users and others choosing to sell to formulators and distributors before passing the product on. Company – SWOT Analysis: Strengths • Known for developing Kathon 886 MW, the primary maintenance biocide on the market, generally 10 times more effective than competitive biocides • All salespeople have advanced technical degrees to support the customers • Positive return on net assets for the past five years Weaknesses • Products sold to formulators and then redistributed to end-users under the formulators name (except for Kathon MWX) and not their own brand – difficult to create an identity in the market • Financial goals not well defined – market size required to meet goals not well understood Opportunities

• Maintenance biocide market estimated at $38 million and projected to continually grow • 50% of consumers that use products to eliminate microorganisms use household disinfectants – many potential consumers unaware of the value or benefit of a maintenance biocide Threats • Competitors developing and introducing new products • Metalworking operators use makeshift efforts to control microorganisms, unaware of the need for biocide chemicals • Safety concerns associated with product, regardless of whether they are warranted or not – word of mouth panning the product for safety reasons Conclusion Rohm and Haas have a great opportunity to tap into the market of small capacity fluid reservoir metalworking systems by leveraging existing technology and the customer’s desire for the product. The company’s sales force is comprised of technically trained personnel that custom tailor solutions to fit a customer’s needs. By selling directly through formulators and distributors though, the company has made it difficult to develop their own identity. These outlets privately brand solutions derived from the Rohm and Haas products so the Rohm and Haas name is not as known in the industry as it could be. New products now packaged with the Rohm and Haas name appear no different to some consumers than a product from a brand new company on the market. Customers are unaware of their position and experience in the market and may be apprehensive of trying a new product they may not even know they need. Rohm and Haas have also not defined their marketing and financial goals very well other than to say they seek to gain 1% of the estimated $20 million market for Kathon MWX. This equates to a financial goal of $200,000 in sales in the first year however at a bulk price of $145 per box of 144 packets, this sales volume could serve nearly 15% of the estimated 150,000 consumer market over 1 year. A 15% market penetration for the first year of a product is very aggressive and difficult to realize. This is a very optimistic target for the company and one that should be reevaluated. The opportunities are available for the company to meet this target however with the threats in the market and the lack of brand recognition it will be very difficult for the company to meet their first year objectives. Evaluation of Marketing Strategy (4Ps): Product: Strength • Customer requested – desired by customers satisfied with the performance of Kathon 886 MW but required a solution for small (50 – 100 gallon) reservoirs

• No maintenance required • Safe to handle and easy to dispose of • Compatible with ~70% of the metalworking fluids as compared to 45% for the competition • Always in demand considering evaporative losses must be replenished in systems • Extends fluid life an additional one to two weeks for annual savings up to $54,000 • Extends fluid life indefinitely when used in conjunction with makeup fluid – does not require a complete flush of the fluid reservoir Weaknesses • Cannot be used for all varieties of metalworking fluids (limited to ~70%) • Must be continually replaced every 2 – 4 weeks • Some concerns within the industry regarding the safety of the product • End users unaware of the value or need for their product Conclusion Kathon MWX is a superior product to its competitors by being an inexpensive, safe, and easy to use package. The product is more compatible with existing fluid systems than any competitor and when used properly can virtually eliminate the need for a full fluid system flush. The product faces stiff competition from a number of competitors though and a misinformed market would rather waste time with household disinfectants than using a proper chemical solution. Customers will always be concerned with safety and price and household chemicals are seen as the easy solution, regardless of if they actually work or not. Price: Strength • Discount pricing offered for purchasing in bulk • Pricing used for Kathon 886 MW demonstrates to their customers the ability of the company to sell competitive products at a fraction of their price (26% – 47% the cost of the competition) Weaknesses

• No fixed pricing for product – final price to consumer varied between $2 and $6 per packet – high prices stifle interest and varying prices encourages consumers to shop around thereby increasing the potential for a competitive product to be purchased • Low price may provide the perception of low quality or value to the consumer • Arbitrary price – no budget analysis performed to determine the level of sales and price required for the product Conclusion Kathon MWX is priced from $1.25 per packet all the way down to $1.01 when purchased in bulk. These prices are very low which benefits the manufacturer by spurring interest in consumers because it provides an inexpensive solution for treating metalworking fluids. These prices are rarely seen by the end-user, however. Rohm and Haas does not specify a fixed price to consumers therefore final prices actually range anywhere from $2 per packet all the way up to $6. Prices that may seem high to the consumer will steer them away from a product, particularly when the product is new and unproven. At the same time though, low prices also hurt interest because the consumer may perceive the price to mean the product is of low quality or value. Rohm and Haas should ensure the product is sold at a fixed pricing scheme through all the distributors so that consumers may still take advantage of bulk pricing while ensuring they will receive the same price regardless of where they go. This will eliminate the need for customers to shop around. Rohm and Haas also have not performed a breakeven analysis to determine the price required for a level of sales necessary before a profit is observed. The price of the product appears arbitrarily set and without this information it will never be known what the appropriate price or volume should be to become profitable. It is known that the cost to manufacture a packet is $0.50 however this price cannot be used as the selling price as the company has research and development costs to recuperate. This information must be evaluated and a reasonable sales goal defined before an appropriate fixed price can be set. Promotion: Strength • Print advertisements placed in industry journals and machinist magazines directly targeting the end user – machinists and shop managers (DMU) • Free sample provided upon request Weaknesses • Many small customers unaware or just don’t understand the need for a maintenance biocide • Company does not sell directly to end users – must rely on distributors to sell products knowing the distributors sell competitors products as well

• Only 20% of recipients of the free samples remembered receiving them – distributor follow-up was unsuccessful Conclusion The marketing strategy for Kathon MWX included print advertisements directly targeting the end-users. These advertisements were not very successful in generating interest in the product because the advertisement did not appeal to their target audience. The DMU for the Kathon MWX are machinists who are interested in machinery, not chemistry. These consumers are only interested in the cost, safety, and ease of use of this product. A new advertisement should be developed with a cost / benefit analysis to explain the value of the product and what a customer can save and even show how much they can save when compared to household disinfectants. The savings should be highlighted within the advertisement and the safety and ease of use should be explicitly stated. Free samples were also provided as part of the campaign to generate business. The free samples were provided by request and a distributor follow up was expected. This did not occur very effectively and only 20% of the recipients actually remembered receiving the product. Rather than simply mailing free samples to the end-user, the company and distributors should perform demonstrations at the consumer’s place of business where possible to demonstrate the safety and ease of use and ensure the samples are actually used. A follow-up survey should also be developed and a system implemented to ensure that all consumers’ that received a free sample are contacted during the trial period or directly after to gauge feedback while still fresh in their mind. A follow-up visit would be recommended following the trial period to ascertain the effectiveness of the product and attempt to gain sales. In addition to the promotion activities mentioned above, the product should also be demonstrated at trade shows to give many customers a hands-on demonstration to prove how safe the product is. The market is estimated to have 150,000 potential customers therefore onsite visits are not possible for everyone. A trade show demonstration will allow the company the opportunity to educate many people at one time. Places or Channels of Distribution: Strength • More than 18,000 outlets available between formulators, industrial supply houses, and machine shops Weaknesses • Private branding of Kathon MWX not permitted therefore costing the company distribution outlets that were uninterested in selling off-brand products • Inability to sell directly to consumers impacts the ability of the company to continually gauge customer needs directly Conclusion

Kathon MWX is developed by Rohm and Haas and then delivered to formulators who in turn provide the packets to large companies or other dealers including industrial supply houses and machine shops. Even though there are only a handful of formulators in the industry, each formulator has its own customer base therefore expanding the available distribution outlet to more than 18,000 outlets with over 150,000 customers. With distributors though comes the problem that the company loses its continuous oneon-one contact with the consumer and therefore impacts their ability to communicate and effectively evaluate the consumer’s needs. By restricting the formulators from privately branding the product the distribution potential of the product is limited as some distributors were not interested in distributing the product if they could not distribute it as their own. This directly impacts the potential market exposure of the product. Rohm and Haas should reverse their position and allow for private branding provided it is done according to a well defined specification. The company would still be able to control all the major features of the product while allowing the formulators and distributors to continue marketing products as their own. Sales Goals Calculations Sales goal $ 200,000 Cost per box $ 145 Number of boxes required to reach sales goal 1379 Packets per box 144 Number of packets 198,576 Weeks in year 52 Number of weeks before a new packet is required 6 Number of packets per year per customer 9 Number of customers 22,064 Size of market 150,000 Percentage of market 14.71% Comparative cost of treating a 10,000 gallon system with Biocide (for one cycle) Name Cost % Markup vs. Kathon 886 Cost of Kathon 886 Compared To Competitor Dowicil 75 $ 269.64 277.65% 26.48% Grotan $ 151.20 111.76% 47.22% Kathon 886 $ 71.40

Savings Calculations Metalworking fluid concentrate (per gallon) $ 5.68 Waste disposal (per gallon) $ 1.36 Kathon MWX (per packet) $ 2.00 Gallons of fluid treated per packet of Kathon MWX 50 Weeks per year 52 Typical machine shop size (machines) 22 Typical fluid reservoir Capacity Per Machine (gallons) 50 Typical lifespan of fluid (weeks) 4 Typical machine shop annual fluid usage w/o Kathon MWX (gallons) 14,300 Typical machine shop annual fluid usage cost $100,672 Minimum extended lifespan of fluid w/ Kathon MWX (weeks) 2 Typical machine shop annual fluid usage w/ minimum extended lifespan using Kathon MWX (gallons, rounded up) 9,900 Typical machine shop annual fluid cost w/ minimum extended lifespan using Kathon MWX $ 70,092 Minimum savings w/ Kathon MWX $ 30,580 Savings as a percentage of typical annual fluid cost w/ minimum extended lifespan using Kathon MWX 30.38% Maximum extended lifespan of fluid w/ Kathon MWX (weeks) 5 Typical machine shop annual fluid usage w/ maximum extended lifespan using Kathon MWX (gallons, rounded up) 6,600 Typical machine shop annual fluid cost w/ maximum extended lifespan using Kathon MWX $ 46,728 Maximum savings w/ Kathon MWX $ 53,944 Savings as a percentage of typical annual fluid cost w/ maximum extended lifespan using Kathon MWX 53.58%

Minimum savings w/ Kathon MWX if only 1 packet served 25 gallons of fluid $ 15,290 Maximum savings w/ Kathon MWX if only 1 packet served 25 gallons of fluid $ 26,972 Savings as a percentage of typical annual fluid cost w/ minimum extended lifespan using Kathon MWX, 1 packet serves 25 gallons of fluid 15.19% Savings as a percentage of typical annual fluid cost w/ maximum extended lifespan using Kathon MWX, 1 packet serves 25 gallons of fluid 26.79%