Soren Chemicals Case

Written Executive Communication

“Soren Chemical: Why is the new swimming pool product sinking?”

Submitted to: Prof. Payal Mehra

Submitted By: Muthukumari GA (pgp28087) Avinash K (pgp29001) Geetika Aggarwal (pgp29019) Kaushik Jana (pgp29024) Ankit Kumar P (pgp29037) Shivangi Nagar (pgp2044) Nikhil Rai (pgp29052)

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LETTER OF TRANSMITTAL Dear Dr Mehra, As a part of our written executive communication course, we are submitting our report on “Soren Chemicals: Why the new swimming pool product is sinking?”. The report aims to understand the complexities and challenges faced by a company when diversifying into a new customer market with a new product offering. The report discusses the problem of extremely low sales of Coracle – a new product launched by Soren Chemicals. It analyses and understands the reasons for low sales of Coracle from multidimensional perspectives and also offers the recommendations to the problems identified. It was a great opportunity for all of us to work on such a challenging and interesting assignment. The learnings in the process will definitely help us in our careers ahead. We hope that you will find the report satisfactory and insightful. Yours Sincerely, Group-9, Section A, PGP29

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CERTIFICATE We hereby declare that all members of our group have equally contributed to the report writing task and no part of the report has been copied from any other source.

Muthukumari GA Avinash K Geetika Aggarwal Kaushik Jana Ankit Kumar P Shivangi Nagar Nikhil Rai

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Table of Contents 1 A. Executive Summary, Stated problem, unstated problem…………………………………………………………5 1 PURPOSE STATEMENT ........................................................................................................... 6 1.1

Background.................................................................................................................... 6

1.2

Scope ............................................................................................................................ 6

1.2.1 Distributors ............................................................................................................. 6 1.2.2 Consumers ............................................................................................................. 6 1.2.3 Competitors ............................................................................................................ 6 1.3 Limitations ..................................................................................................................... 7 2

KEY DECISION CRITERIA ....................................................................................................... 7 2.1

ISSUES .......................................................................................................................... 7

2.1.1 ISSUE 1: Actual value of Coracle not known to the Pool service professionals and Contractors ........................................................................................................................... 7 2.1.2 ISSUE 2: Customers unaware on the value of Coracle ............................................... 7 2.1.3 ISSUE 3: No proper support from the Distributors ..................................................... 7 2.2 Decision Criteria: ............................................................................................................ 8

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2.2.1 Distributor Margins .................................................................................................. 8 2.2.2 Marketing Budget .................................................................................................... 8 2.2.3 Competitive Pricing ................................................................................................. 8 2.2.4 Distribution Channel ................................................................................................ 8 Assumptions:......................................................................................................................... 9

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Analysis .............................................................................................................................. 10 4.1

Residential Pool Market Analysis .................................................................................... 10

4.1.1 Distribution ........................................................................................................... 10 4.1.2 Purchase behaviour ............................................................................................... 10 4.1.3 Competitors .......................................................................................................... 10 4.1.4 Marketing Strategy ................................................................................................ 10 4.2 COMMERCIAL POOL MARKET ANALYSIS ........................................................................ 11 4.2.1 PRODUCT ............................................................................................................. 11 4.2.2 USPs OF THE PRODUCT ........................................................................................ 11 4.2.3 MARKET SIZE ....................................................................................................... 11 4.2.4 DEMAND DRIVERS ................................................................................................ 11 4.2.5 BASIC NEEDS OF THE COMMERCIAL MARKET ........................................................ 11 4.2.6 BUYING BEHAVIOUR OF CUSTOMERS .................................................................... 11 4.3 Studying the macro dynamics ....................................................................................... 12 4.3.1 Potential new competitors: .................................................................................... 12 4.3.2 Competitors: ......................................................................................................... 12 4.3.3 Customer‟s bargaining power: ............................................................................... 12 4.3.4 Suppliers bargaining power: .................................................................................. 12 4.4 ......................................................................................................................................... 13 4.4.1 Strengths: ............................................................................................................ 13 4.4.2 Weaknesses: ........................................................................................................ 13 4.4.3 Threats: ............................................................................................................... 14 4.4.4 Opportunities:....................................................................................................... 14 4.5 Distribution Channel ..................................................................................................... 14 4.6

Comparison with key competitors .................................................................................. 15

4.6.1 4.6.2

Comparison of Prices for end Consumers ................................................................ 15 Distributor & Retailer Margin .................................................................................. 15

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Recommendations ............................................................................................................... 16 5.1

Increase Consumer Awareness ...................................................................................... 16

5.1.1 5.1.2 5.1.3 5.1.4 5.1.5 5.2 THE

Market potential .................................................................................................... 16 Understanding consumer psyche ............................................................................ 16 What customers need to know ............................................................................... 16 Steps to address pool service professionals............................................................. 17 Steps to address the residential pool owners .......................................................... 17 DISTRIBUTOR ISSUE............................................................................................. 18

5.2.1 5.2.2

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Other Water cleaning chemicals market cannibalization ........................................... 18 Low margin for Distributors even in absence of water cleaning market cannibalization 18 5.2.3 THE SOLUTION..................................................................................................... 18 References .......................................................................................................................... 19

List of Tables/Exhibits: Table 4-1: Comparison of Prices for End consumers ...................................................................... 15 Table 4-2: Distributor & Retailer Margins for Soren Chemicals and competitors ............................... 16 Table 5-1: Price comparison of Advertising Costs .......................................................................... 17

List of Figures: Figure 4-1: Macro Dynamics of the Industry ................................................................................. 12 Figure 4-2: SWOT Analysis of Soren Chemicals ............................................................................. 13 Figure 4-3: Distribution Channel of Chemical Agents Industry ........................................................ 14

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EXECUTIVE SUMMARY Soren Chemicals was founded by Timothy Soren in 1942 to sell industrial strength cleaning solutions. The initial focus of the company was on business to business sales with very little emphasis on creating consumer awareness. In 2002 company entered the consumer markets with its water clarifier- kailan MW. Kailan MW was intended to be used in large recreational water park facilities with capacities of one million gallons or higher. Since it was unsuitable for small scale applications like household swimming pools, Soren Chemicals launched Coracle in 2006. However, the results have been very discouraging with sales lagging behind its target by 90% due to a number of strategic and tactical problems. The main problems identified were the low awareness among consumers about the benefits of Coracle, no support from distributors because Coracle reduces the use of other chemicals by 25% thereby affecting their margins, high pricing of Coracle as compared to competitors and poor communication strategy as only 30% of retailers and professionals received a response to their enquiries from the company. Supported by a detailed situational analysis, the report recommends the solutions to all the problems identified. It proposes a new pricing strategy with revised retailer and distributor margins, branding strategy to create consumer awareness and push strategy for distributors to support Coracle.

STATED PROBLEM The case clearly highlights the problem of extremely low sales of Coracle – the newly launched residential pool water clarifier by Soren Chemicals. The volume target was 50,000 gallons or 100,000 units for the first year of sales. However, Soren has been able to sell just 3,725 gallons or 7,450 units through the first half of selling season of pool chemicals. Considering that pool chemicals season lasts just for 9 months from September to May, Coracle is behind its target by almost 90%.

UNSTATED PROBLEM The unstated problems in the case are the reluctance of wholesalers and retailers to create shelf space for Coracle, lack of awareness among the consumers about the safety and cost saving benefits of the product and the high pricing of Coracle as compared to competitors. Since, Coracle reduces the use of other chemicals by 20% to 30%, it would lead to a loss of revenue to retailers and distributors as they stock other chemicals too. In fact, the USP of Coracle seems to be in conflict with distributors‟ objectives. Since Soren chemicals are new to residential pool markets, they are not able to convey and communicate the benefits of Coracle to the end users. They are already full with choices on their plate and in such a condition why would they buy a product which is priced higher than the competitors.

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1 PURPOSE STATEMENT The case Soren Chemicals – Why is the new swimming pool product sinking? Mainly deals with the challenges and bottlenecks faced by a company when diversifying into a new consumer market segment with a new product. This project aims to understand the reasons for the extremely low sales of Coracle – a new market offering by Soren chemicals though an extensive situational and financial analysis. It also proposes feasible solutions to the identified problems along with the implementation plans.

1.1 Background Soren Chemicals founded in 1942, has always focused on business to business sales through its industrial strength cleaning solutions such as lubricants, fuels and chemical solutions for treating drinking water and wastewater. With industries and companies as their main customers, Soren Chemicals has placed a very little emphasis on generating consumer awareness for their products. With Coracle – a residential pool water clarifier, they entered into the consumer markets for the first time. With no experience in the field, they faced a challenge in meeting their targets within the first year of sales. The project aims to identify the major reasons for this failure of Soren to reach their targets.

1.2 Scope Though the case can be studied from a large number of industry and business angles, we restrict our analysis and study from viewpoints of three main stakeholders – distributors i.e. channels, consumers and competitors.

1.2.1

Distributors

The relative inexperience of Soren Chemicals in handling consumer oriented brands and dealing directly with wholesalers and retailers has resulted in a wide communication gap among the channels. As per the survey among the pool service professionals and speciality retailers conducted by Soren Chemicals, 70% of the respondents stated that Coracle was not offered by their distributors though the contact information of interested customers was passed to the appropriate wholesaler distributors on time by the company. Moreover, 70% of those who made enquiries about Coracle didn‟t receive any response from the company. The project will try to identify the major loopholes that might occur when switching from one distribution strategy to another.

1.2.2 Consumers Since Soren Chemicals has entered into the residential pool market for the first time, they don‟t understand their customers fully. Their marketing strategy focused on creating a buzz among consumers through the proposition that “Coracle will reduce their annual chemical costs by 20% to 30%”. However, they failed to create awareness among the consumers about the various benefits of Coracle. The project will try to understand the consumer perspective and find out the ways in which Coracle can be promoted in a better way.

1.2.3 Competitors Consumers perceive Coracle to be a high priced product as against competitors because of its high unit price of $25 as compared to others. However, company failed to convey the message that annual cost of Coracle will be much lesser that those of competitors.

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Page |7 After identifying the major problems, we carried out following analysis for understanding the causes and finding out solutions: 1) 2) 3) 4)

SWOT Analysis Porter‟s Five Forces Analysis Pricing/Financial Analysis Distribution Strategy Analysis

1.3 Limitations Although the case provides a lot of evidences about the possible points of failure, it doesn‟t back them up with facts and figures which impelled us to make certain assumptions though out the case. Moreover, the lack of data was a major concern while redefining the margins for wholesalers and retailers. Though the case can be analysed from multiple perspectives, we have limited our analysis mainly to consumers, distributors and competitors to understand the case and offer the solutions.

2

KEY DECISION CRITERIA

For solving the problem faced by the Soren Chemicals with respect to the Coracle product, the whole situation is analysed as different issues and at last recommending some solutions to tackle these issues.

2.1

ISSUES

There are three major issues which are of more importance to be sorted out. They are as follows:

2.1.1

ISSUE 1: Actual value of Coracle not known to the Pool service professionals and Contractors

As stated, the actual worth and utility of Coracle is not known to the Pool service professionals and Contractors. Most of these service professionals believed that another competitor chemical called Clearblu was more effective than the others. They believed that Clearblu alone could reduce the need for other chemicals like chlorine, shock treatments and enzymes by about 15%. Hence to overcome this traditional belief, Soren chemicals has to increase its current expenditure on advertisement as the number of Pool service professionals and Contractors have increased to around 50,000.

2.1.2

ISSUE 2: Customers unaware on the value of Coracle

About 80% of the residential pool owners maintain their pools by themselves. As they are not technically sound and also unaware of the Coracle product they go for whatever product the distributor gives them. Also because of their poor knowledge they are hesitant to check the post clarifier effects. Hence, the distributors end up in supplying an inferior type of chemical. Unless and until Soren does a proper marketing strategy and advertisement efforts, these customers will consider Coracle to be a highly priced product and try to avoid it.

2.1.3

ISSUE 3: No proper support from the Distributors

The USP of Coracle is that the usage of Coracle will reduce the further usage of other chemicals by 20% to 30%. The same is highlighted on Coracle‟s packaging. This is clearly against the objectives of the Distributors and the Retailers. Thus Coracle should look on and check whether the margins set by Coracle are enough to offset the earnings.

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2.2 2.2.1

Decision Criteria:

Distributor Margins

Since the use of Coracle reduces the sale of other brands‟ sales, the distributors were not willing to create shelf space for Coracle. Therefore, to gain the support of distributors for the sale of Coracle, Soren Chemicals should offer them better profit margins. As pointed out by one of the employees, checking out the possibility of increasing the prices of Coracle without comprising on profits was the key criteria in deciding about the distributor margins. Distributer motivation can be increased by increasing their margin. Distributor Cost Price: $2.32 (Soren‟s Ex-factory Price) Distributor Profit: $1.28 Distributor Selling Price: $3.6 Retailer Cost Price: $3.6 Retailer Selling Price: $ 4.73 Total cost of consumers if they use Coracle: $(47.3+225) = $272.3 Total cost of consumers if they do not use Coracle: $(50+300) = $350 This means that Soren has a room of $ 7.7 per-treatment ($350 – $273.2 = $77.7, divided by 10 treatments = $7.77) to increase price.

2.2.2

Marketing Budget

Soren Chemicals earlier products were for commercial pools because of which the firm had B2B marketing strategy. To enter the residential pool market, the firm hadn‟t gone with all the force as it had no expertise in B2C marketing. Cost of B2C marketing was also another factor that was affecting their product launch.

2.2.3 Competitive Pricing Residential pool market already had players such as Keystone, Kymera, Jackson Labs with their own products namely Purity, Hydropill, Clearblu. Clearblu at $ 75 was considered to be the best in the market. But its high concentration had pushed it into the backseat. The retail price of 0.5 Gallon Coracle container is $25. With 35% gross margin, this is resulted in a manufacturer price of $14.88. Selling Price = Cost Price + Percentage of margin x Selling Price Cost Price = Selling Price (1 – Percentage of margin) Selling Price = Cost Price / (1 – Percentage of margin) Cost Price of Distributor= $14.88 Percentage Margin of Distributor = 30% Selling Price of Distributor = 14.88 /(1-0.3) = $21.25 Margin of Distributor= $6.375 Cost Price for Retailer = $21.25 Percentage Margin of Retailer = 15% Margin of Retailer = $ 3.75 Selling Price of Retailer = 21.25/(1-0.15) = $25.00

2.2.4

Distribution Channel

Owners of residential pools buy from retailers such as Walmart, from specialty pool retailers, from pool service professionals. They normally do not normally have the know-how of pool chemicals. They tend to depend on pool service professionals, retailers and promotions at retailers for product purchase. It is in low involvement product segment and is used as a household cleanser. Distribution

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Page |9 chain for the B2C market is long and is filled with more channel partners. But in the commercial segment the formulator was the only intermediary. So improving the distribution channel is key decision criterion which impacts the sales of Coracle.

3 Assumptions: The failure of “Coracle” could be attributed some of the assumptions made by Soren Chemicals. The major causes identified were as follows: Soren Chemical launched Coracle in the fall of 2006. Coracle sales team did not consider the following effects, which might have impacted the sales revenue: 1. Consumers, wholesale distributors, pool service professionals, pool specialty retailers, mass retailers weren‟t provided adequate time to understand the benefits of the new product. Soren Chemicals assumed that they would appreciate the value of the product in a short time. 2. The stocks in the consumer‟s sides, pool service professional‟s sides, pool specialty retailers‟ sides, and mass retailers‟ sides might have impact the sales of Coracle, especially in the last maintenance month of the year i.e. till the end of September. Soren Chemicals assumed that consumers would care to maintain the pool throughout the year. But, if the consumers decide not to use the pool until next May, they may not maintain the pools till the beginning of next May reducing the sales of Coracle. 3. Soren Chemical did not position Coracle in the most appropriate position to its customers. Consumer market of residential pools emphasized more on aesthetics and perceived cleanliness. Soren Chemicals assumed that the consumers are technically aware of the chemicals that they are using for pools which is not true in reality. This assumption led to incorrect positioning of Coracle as product which can trap e-coli and cryptosporidium. 4. As indicated in the case, 30% of the respondents recalled receiving the Coracle materials that Soren Chemical had sent in response to their inquiries. Furthermore, 70% of the respondents stated that their distributors had not offered Coracle. Coracle‟s sales team assumed that distributors would actively promote the sales of their product which didn‟t occur as it was not in line with the interests of distributors. 5. Soren Chemicals assumed that distributors would not sell diluted version of Kailan to consumer market. But, there were still at least two formulators who diluted Kailan MW with a private label and sell to distributors for consumer market. This impacted the sales of Coracle which was intended for residential pool owners as distributors were unwilling to forego the sales of other competitors‟ products.

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4 Analysis 4.1 Residential Pool Market Analysis Soren Chemicals was content with its product Kailan in the commercial pool market. It never intended to launch it in residential pool market fearing safety risks. But, in 2005, firm noticed that two of the formulators were selling a diluted version of Kailan to the residential pool owners. That‟s when the company realized the untapped market and came up with the Coracle for residential pool market. Residential pool market was rather fragmented unlike the commercial pool market. With over 9 million residential pools, $ 50 per treatment would earn $ 112.5 million at retail level. Even after foregoing, 60% of retail prices, manufacturer could earn $ 67.5 million. In addition, the company‟s R&D team has been working on various other products for residential pools. The company wanted to have a strong brand name in the residential pool market. Therefore, Soren Chemicals decided that launching a clarifier for residential pools would create good equity for their brand. So that this strategy could help in realizing the company‟s long term vision.

4.1.1 Distribution Residential pool market had many channel members unlike commercial pool market where the only intermediaries were formulators. Competitors in the residential pool market chose to sell their products directly to retail stores such as Walmart, Tesco. But this method seemed to be a costly one as it suited only the interests of large chemical companies.

4.1.2 Purchase behaviour It varied to a great extent between commercial and residential pool markets. Commercial pool markets had pool professionals who are technically aware of various pool products which made it easy for quality manufacturers like Soren Chemicals. Pool professionals were concerned about the swimmer safety and legal issues. However, residential pool owners didn‟t have that technical knowledge because of which they chose products just as they chose household cleansers. All they expected out of the pool products was to make the pool look clean. More than 80% of the residential pool owners maintain their pools by themselves who generally purchased supplies from local retailers and pool service professionals.

4.1.3 Competitors Key players in the residential pool market were Keystone Chemicals, Kymera and Jackson Laboratories with Purity, Hydropill and Clearblu as their corresponding clarifiers in the market. Each had a share of 15 to 20% in the residential pool market. The favourite clarifier of pool service professionals was Clearblu with its chemically effective flocculant. Keystone‟s Purity and Kymera‟s Purity had no strong impact in reducing the need for chlorine or enzymes. However Clearblu reduced the need of other chemicals by 15% which is not emphasized by the Jackson laboratory. This higher dosage has in fact became a disadvantage as it caused inconvenience to the pool owners and service professionals who buy in bulk.

4.1.4 Marketing Strategy The company‟s R&D had proven the capabilities of Coracle in reducing the need for Chlorine, shock treatments and enzymes. This reduced the annual chemical costs by 25 to 30 %. This was considered as the unique selling point of Coracle and rightly promoted in the company‟s marketing campaign. Product launch in September 2006 was accompanied with the launch of website for Soren Chemicals‟ products. Press release was made in the trade journals for the pool service professionals and retailers. Coracle‟s ability to trap E-coli was emphasized in the campaign. The company received 2000 inquiries from the service professionals and retailers to which they responded with brochure and technical notes.

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4.2 COMMERCIAL POOL MARKET ANALYSIS 4.2.1 PRODUCT The pool clarifier produced by Soren chemicals for commercial pool market is named as Kailan MW. Quantitatively, this product is supplied to pools with volume more than 1 million gallons.

4.2.2 USPs OF THE PRODUCT   

Capable to attack the organic contaminants which escapes the conventional filters Effective for a larger period Very less quantity is enough. i.e. 1 gallon for 5 lakh gallons of water

4.2.3 MARKET SIZE     

Commercial pools  Water parks  Revenue  Market growth projected, 2007  Market share in 2006 

300,000 1,000 $30 (million) 7% ($32.1 million) 20% ($6.1 million/ $30 million)

4.2.4 DEMAND DRIVERS   

Number and size of the commercial pools Number and size of the water parks Increase or decrease in the bathing load (number of swimmers / unit time) o Population increase or decrease (by citizens or by immigrants) o Changes in habits and lifestyles o Changes in climate

4.2.5 BASIC NEEDS OF THE COMMERCIAL MARKET  

4.2.6

Concern for swimmers‟ safety Minimization of water borne skin diseases and health issues

BUYING BEHAVIOUR OF CUSTOMERS

The commercial pool owners and water park owners usually purchase water clarifiers advised by the safety inspectors, equipment builders and maintenance personnel. The formulators of these water clarifiers always make sure that they have a good relationship with the customers so that their product brand is always on top of the customers‟ mind. The customers on the other hand purchase the product keeping in mind the safety of the swimmers. Thus the whole buying behaviour in commercial market is tied up with quality, assurance, advice and recommendation.

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4.3 Studying the macro dynamics

Figure 4-1: Macro Dynamics of the Industry

4.3.1 Potential new competitors: With a presence of more than 9 millioin residential pools across the country, it was a niche market. With high entry and low exit barriers it was an attractive market for competitors. With no big players in the market, there was an opportunity to create a strong brand image. The market provided easy access to the distribution channels.

4.3.2 Competitors: The formulators were supposed to be using a diluted version of Kailan MW. This had become a serious threat for the company. The launch of their residential pool cleaner would also face competition from other existing products in the market. Keystone chemicals, Kymera and Jackson limited are the existing players in the market.

4.3.3 Customer’s bargaining power: The distributors sold multiple products from different manufacturers. The customers had a variety of options to choose from. Most of them were price competitive.

4.3.4

Suppliers bargaining power: The residential pool cleaner was their own product developed by research on their existing product Kailan MW. The supplier dynamics remain unaltered.

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4.4

Figure 4-2: SWOT Analysis of Soren Chemicals

4.4.1 Strengths: One of the key strengths of the company was hat it already had an established product for the commercial pools. The major issue with most of the pool cleaners was found to be that they did not clear the organic contaminants. The residential pool cleaner developed by Soren chemicals dealt with organic contaminants as well. The cost incurred by the pool owners annually when using other products was more, that made Coracle a more effective cleaner as compared to other existing products.

4.4.2 Weaknesses: Since Coracle was a better performing product in terms of its functions, it was priced slightly higher than the competitor‟s products. Soren chemicals was already dominating in the commercial pool cleaner market but their inexperience with the B2C marketing proved to be a major cause for a slow start upfront. Soren chemicals was dealing with dealers and formulators but the proposition of selling Coracle with its own brand label was not incentivized enough to attract them. Distributors and retailers needed a better and more attractive incentive. Moreover, the effectiveness of the product in the long run was an important value adding point which was not projected by the positioning of the brand.

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4.4.3 Threats: The fragmented consumer market was a big challenge for the company. Also, distributors‟ demand of a 30% margin to launch the product under its own brand label was not feasible. In the meanwhile, formulator s had launched a diluted version of their own product Kailan MW. Competitors such as Jackson Labs, Kymera etc. had already launched their products in the market.

4.4.4 Opportunities: There are 9 million personal swimming pools across the country. That makes it a huge market for residential pool cleaners. The market currently does not have any established brands. This provides Soren chemicals an opportunity to launch Coracle under it own brand name and set a platform for itself to launch other products as well. It was easier for Coralce to capture market share since most of the pool owners rated perceived cleanliness as the biggest factor when considering to buy a pool cleaner.

4.5

Distribution Channel

Distribution channels for chemical agent manufacturers in US market are given at Figure 4-3. Soren chemicals used two different channel structure for its products. Kailan MW, which was for commercial users, was mainly sold through formulators mostly under their private branding. The formulators offered customized services to these commercial pool owners. For resident pool owners, Soren Chemical decided to take the product Coracle through the wholesaler-retailer channel and forbade any private branding. Distribution through mass retailers was very expensive option and, therefore, not possible for a new entrant like Coracle.

Figure 4-3: Distribution Channel of Chemical Agents Industry

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P a g e | 15 4.6 Comparison with key competitors There were three major competitiors of Coracle, namely, „Purity‟ by Key Stone Chemical, „ClearBlu‟ by Jackson Labs and „HydroPill‟ by Kymera. Professionals considered ClearBlu to be most effective among the existing clarifiers as it reduced the use of other chemicals (e.g. chlorine) by up to 15%. Coracle was superior to all these existing products as it reduced the use of other chemials by 20% to 30%. Soren Chemical made this the central theme of message strategy for marketing Coracle. 4.6.1

Comparison of Prices for end Consumers

The landed annual cost for end consumers are compared at Table 4-1. Coracle with $39 per annum was the least cost options for household pool owners, although price per pack was more compared to the others. Therefore, pack size may be reduced to 5 gallons to make appeal to consumer psyche. Additionally, Coracle reduced the usage of other chemicals by $75 per annum and contributed to a net savings of $36 for the end consumers. On the other hand other products fell far behind when we compared them on the basis of net benefit.

Table 4-1: Comparison of Prices for End consumers Price/Annum/Consumer

Soren Chemical

Cost of a Container/SKU ($) Total Qty in a Container (gallons) Qty per treatment (gallons) No. of Treatments possible in a container No of Months a Container will last Average no. of Containers reqd. for 5 active Months in a year Annual Cost ($) Reduction in other Chemical usage Net Quantitative Gain for the Consumer

$25 0.5*128 = 64 10 64/10 = 6.4 6.4/2 = 3.2 1.5625

Key Stone Chemical $15 0.25*128 = 32 5 32/5 = 6.4 6.4/ 4 = 1.6 3.125

$39.06 $ 75 (25%) $ 35.94

$46.88 0 - $ 46.88

Jackson Labs $15 1*128 = 128 32 128/32 = 4 4/4 =1 5 $75 $ 45 (15%) -$ 30

4.6.2 Distributor & Retailer Margin Coracle was not getting any support from channel partners, mostly, wholesalers vis-a-vis the competitor products. This can be due to the fact that wholesaler margins were least in case of Coracle. At Table 4-2 we can see that the wholesale margin and retailer margin for Coracle was $ 9.96 and $5.86 per consumer per annum respectively. This was the lowest in the industry. As the landed price for the consumer was least for Coracle, and it also reduced usage of other chemicals, which used to generate a fair profit for the channel partners, the channel partners would be ultimately losing by promoting Coracle. The benefits those Coracle marketed to the end consumers e.g. least cost, reduction of other chemical usage, were not in the interest of the channel partners. Therefore, the margin for Coracle must be increased to keep the channel partners compensated.

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Table 4-2: Distributor & Retailer Margins for Soren Chemicals and competitors Per Annum Per Consumer

Soren Chemical

Key Stone Chemical

Jackson Labs

Retail Price Retailer‟s margin (15%) Distributor‟s Margin (30%) Other Chemical Usage Reduction in other Chemical usage Reduction of Retailer margin

$39.06 $ 5.86 $ 9.96 $ 300 $ 75 (25%)

$46.88 $ 7.03 $ 11.95 $ 300 0

$75 $ 11.25 $ 19.13 $ 300 $ 45 (15%)

$ 11.25 (15%)

0

$ 6.75

Reduction of Distributor margin

$ 12.75 (20%)

0

$ 7.65

Net Benefit to Retailers Net Benefit to Distributors Qty of Clarifier sold for estimation of storage space

- $ 5.39 - $ 2.79 100 gallons

$ 7.03 $ 11.95 100 gallons

$ 4.50 $ 11.48 640 gallons

5 Recommendations 5.1 Increase Consumer Awareness 5.1.1

Market potential

The market potential of the residential pool market is highly lucrative. There are a total of 9 million residential pools in the United States. As much as 80% of the residential pool owners clean their pools by themselves. But only 25% of the pool owners are actually aware of the role of water clarifiers. So 25% of 9 million, that is, 2.25 million pool owners use clarifiers regularly. If we consider the annual average cost of using clarifiers at MRP 50$, the total residential pool market at present is $ 112.5 million. The current market share of Soren Chemicals is $ 111,000, which is only 0.1% of the total market share. The company must focus upon a. Increasing awareness about Coracle among the 25% category of active clarifier users b. Address the remaining 75% of the market by creating awareness about using clarifiers

5.1.2 Understanding consumer psyche The primary concern of residential pool owners is to maintain hygiene of the swimming pool. They desire water to be clear to appeal the aesthetics of the pool. Moreover, these buyers are not technically sound about the intricacies of the clarifiers they use. They are unaware of the fact that water which appears clean after using some clarifier may still have several harmful pathogens invisible to the naked eye. Taking advantage of this fact, some formulators sell diluted versions of Kailan, which eats up the market share of Coracle. The pool owners buy based on the suggestions of the specialty pool retailers and pool service professionals. Hence, the awareness about Coracle needs to be done at 2 levels: a. 9 million residential pool owners b. 40,000 to 50,000 pool service professionals

5.1.3 What customers need to know Residential pool owners need to know the following facts: a. Core benefit that differentiates Coracle from competitor products: it removes the biological contaminants invisible to the naked eye

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P a g e | 17 b. How distributors are getting away by using inferior products which clears water without decontaminating it c. Long term economic benefits of using Coracle and removing the perception that it‟s a high priced product d. Added advantage of Coracle, that it reduces the need for using other cleaning chemicals by almost 20% to 30% being cheaper in the long run

5.1.4 Steps to address pool service professionals The service professionals need to informed about the USP of Coracle. By using Coracle, their periodic maintenance visits to the pools would reduce and the chemicals usage will also decrease. This will save money and increase their profit margins. This message must be conveyed to the professionals clearly by targeted marketing campaigns and thorough feedback mechanism.

5.1.5 Steps to address the residential pool owners  

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Using proper advertising, customers must be informed about the key differentiating advantages of Coracle over other products available in market. A Coracle branding strategy can be designed to focus upon following product highlights: o Saves cost upto 100$ annually o Reduces chemical consumption by upto 30% o Requires less monthly treatments o Combats water-borne pathogens o Gives clear water, free from cloudiness o Reduces chlorine consumption o Satisfies perceived cleanliness Customers must be informed about the difference between clear water and pathogen free water by conducting Pool cleanliness rating competitions and giving prizes for the actually clean pools. To ensure that customers value Coracle, company should conduct pool water testing services free of cost to show how Coracle treated water is biologically safe. Company must address the key problem of high price perceived by customers by clarifying how Coracle would be cheaper in the long run as it reduces chemical consumption Company must also highlight the fact that Coracle is required every alternate day whereas the competitor‟s product requires daily usage. Company should consider e-mail marketing rather than direct marketing to reach to the consumers as it is a cheaper and faster than the direct mail.

Table 5-1: Price comparison of Advertising Costs Cost per 50,000 mail/email Production (or Artwork) Digital Proofing Printing, Binding, Addressing Mailing

Print $ 1500 $ 120 $ 26,000 $ 21,000

Email $ 300 $ 350

Time lapse 50,000 Mailings Production (or Artwork) Digital Proofing Printing, Binding, Adressing Mailing

Print 7 days 1 day 5 days 4 days

Email 4 hours Instant Instant 2 hours

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P a g e | 18 Total 17 days Source: TheWebshoppe.net, Cost Comparison

6 hours

Moreover, Soren chemicals can collect detailed information about their customers using website tracking software. By the promotional campaigns, company must resolve all the key worries of the customer. This shall create a brand name for Coracle in the long run and increase the demand for the product automatically. These steps will go a long way and help to establish Soren Chemicals in the B2C market by strong brand identity.

5.2 THE DISTRIBUTOR ISSUE The problem is that the distributors are not well motivated to sell Coracle. They do not have enough incentive to create shelf space for oracle. The main reasons for this apathy are:

5.2.1 Other Water cleaning chemicals market cannibalization The main USP of Coracle is that using Coracle will reduce the use of other pool chemicals by approximately 25%. Now since the distributors sell other water cleaning chemicals also, it will lead to a decrease in overall sales for them. The USP of Coracle clashes with Distributors interest.

5.2.2 Low margin for Distributors even in absence of water cleaning market cannibalization They sell the water clarifiers of other national brands under their own private label at around 20% margin, and the average cost of the clarifiers of other major competitors are around $15. Coracle, on the other hand: a. Is being sold at a much higher price, i.e. $25 b. The margin which they are providing at present is also around 20% despite of selling price which is very high as compared to other national brands. c. Soren chemicals is also not permitting distributors to sell Coracle under their own private labels, unlike their major competitors. The current analysis of net wholesaler Distributor margin is given below:        

Annual sales of chemicals (Excluding Clarifiers): $300 Reduction in Sales if Coracle is used: 25% Reduction in net Sales: $75 Standard Margins of wholesaler distributors: 15% Reduction in Margin: $11.25 Approximate number of treatments done per annum: 10 Reduction in Margins per treatment: $1.13 Margins offered by Coracle to wholesaler distributor per treatment: $0.59

5.2.3 THE SOLUTION The only way to motivate Distributors is to increase their margin and then to convince them that they will earn a net positive revenue despite losing the market of other water cleaning chemicals. The present quantitative analysis of “cost per treatment” of Coracle is given below: • • • • •

Distributor Profit: $1.28 Distributor Selling Price: $3.6 Retailer Cost Price: $3.6 Retailer Selling Price: $ 4.73 Total cost of consumers if they use Coracle = (47.3+225) $ = 272.3$

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P a g e | 19 • Total cost of consumers if they do not use Coracle = (50+300) $ = 350 Now, assuming that a pool owner gets his/her pool cleaned approximately 10 times, the consumer will save $(350-272.3)/10 per treatment, i.e. $7.7 per treatment. This also means that we can increase the margin to wholesale Distributors by $(0-7.7) to increase their incentives and thus their motivation to make shelf space for Coracle. That means that even if wholesaler distributor margin is increased $(0-7.7) per treatment, then also the ultimate consumer will be at a profit if he/she uses Coracle.

6 References 1. Administrator. (2010, April 24). www.prospectpoolsllc. Retrieved from http://prospectpoolsllc.com/blog/?p=63 2. Kasturi Rangan V, S. Y. (2010, April 09). www.hbr.org. Retrieved from http://hbr.org/product/Soren-chemical-why-is-the-new-swimming-poolproduc/an/4188-PDF-ENG 3. www.poolguy.com. (n.d.). Retrieved from http://www.ecosmarte.com/Ebook/The_Comprehensive_Guide_to_Swimming_Pool_ Ownership.pdf

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