On May 15. 1984. Joan Macey. Rohm and Haas market director for Metalworking Fluid Biocides. was reexamining distributer purchases of Kathon MWX. a new biocide that killed micro-organisms in metalworking fluids. She found that entire gross revenues to distributers for the first five months were 74 boxes against a freshman mark of 1. 350 boxes. “I have a ace merchandise but I can’t sell it. ” she said. “I am in the procedure of reexamining our attack of taking this merchandise to market. but at this point I am non convinced we have a better option. ” Macey was besides responsible for the selling of Kathon 886 MW. a liquid biocide used in big metalworking fluid armored combat vehicles ( above 1. 000-gallon capacity ) . Kathon 886 MW was a powerful biocide. and really little measures were sufficient to handle big armored combat vehicles.
Because of its low-use degree. Kathon 886 MW was non suited for smaller-capacity armored combat vehicles. and Kathon MWX was developed specifically for usage in armored combat vehicles with less than 1. 000-gallon capacity. Kathon 886 MW had a gross revenues volume of $ 5. 4 million in 1983 ; gross revenues for the first five months of 1984 were at the budgeted degree of $ 2. 1 million. Kathon MWX had been launched in December 1983. with a targeted gross revenues volume of $ 0. 2 million in 1984 ; gross revenues in the first five months were approximately $ 12. 000. Macey estimated the market potency for Kathon 886 MW to be $ 18 million and Kathon MWX to be $ 20 million. Explaining the hapless gross revenues of Kathon MWX. she said: The entire use of Kathon MWX and its replacements is nowhere near the $ 20 million possible for this market. Many little users are either incognizant or don’t see the demand for biocides in their metalworking fluid intervention. We do ill because we do non hold adequate competition to construct primary demand.
In 1906. Otto Rohm and Otto Haas founded the company in Germany to sell chemicals to that country’s leather tanning industry. The U. S. subdivision opened in Philadelphia in 1909. At the terminal of World War I. Otto Haas incorporated the American subdivision as an independent company. Over the old ages it became a leader in chemical engineering. particularly in acrylic emulsion polymers. 1 In 1983. the American company reported world-wide gross revenues of $ 2 billion derived from four concern sections:
1The engineering involves scattering. or emulsifying. certain monomers in a fluid such as H2O. Then the monomers are “polymerized”-linked together through a chemical reaction. The ensuing emulsion polymer retains the viscousness of H2O. When exposed to air. the H2O evaporates and a uninterrupted. tough movie remains.
Professor V. Kasturi Rangan and Susan Lasley. MBA ‘85. prepared this instance as the footing for category treatment instead than to exemplify either effectual or uneffective handling of an administrative state of affairs. All quantitative informations non publically available have been disguised. Copyright Â© 1986 by the President and Fellows of Harvard College. To order transcripts or bespeak permission to reproduce stuffs. name 1-800-545-7685 or write Harvard Business School Publishing. Boston. MA 02163. No portion of this publication may be reproduced. stored in a retrieval system. used in a spreadsheet. or transmitted in any signifier or by any means-electronic. mechanical. run offing. entering. or otherwise-without the permission of Harvard Business School.
Polymers. rosins. and monomers-for applications in pigments. industrial coatings. cosmetic coatings. and building merchandises Plastics-for applications in marks. fanlights. containers. and automotive merchandises Agricultural chemicals-herbicides and antifungals for harvest diseases. Industrial chemicals-for lubricators and fuels. H2O intervention. and the preparation of a broad assortment of industrial and consumer merchandises
The company’s merchandise lines consisted of over 500 different merchandises. Exhibit 1 gives the tendency of gross revenues and net incomes by concern sections. The Industrial Chemicals concern section consisted of three merchandise groups: Fluid Process Chemicals. Petroleum Chemicals. and Specialty Chemicals. The Kathon microbiocide merchandises with 1983 gross revenues of $ 25 million were portion of the Specialty Chemicals Group. Surface active chemicals ( called wetting agents ) and water-soluble polymers were the other merchandises marketed by the Specialty Chemicals Group ( see Exhibit 2 for an organisation chart ) . Joan Macey was market director for microbiocide applications in the metalworking fluid and latex/adhesives markets. Latex/adhesives biocides ( 1983 gross revenues of $ 2 million ) were sold straight by the Forte Chemicals gross revenues force to about 50 compounders for usage in emulsions. pigments. sealers. and adhesives. The metalworking fluid biocides-Kathon 886 MW and Kathon MWX-were sold through a web of formulator/ distributers.
All of them manufactured and sold metalworking fluids every bit good as any subsidiary merchandises such as biocides and corrosion inhibitors. As market director. Macey was responsible for explicating the selling schemes for the three merchandises under her charge. all of which were sold by the Forte Chemicals gross revenues force. Fourteen of the 40 sales representatives employed by the Industrial Chemicals concern unit worked for the Specialty Chemicals Group and were responsible for selling all the merchandises of the group ( wetting agents. biocides. and polymers ) to assorted markets. Salespeople were assigned to sole districts and were supervised by three territory directors who reported to a national field gross revenues director based at the Philadelphia central office. All members of the gross revenues force had college grades in chemical science. chemical technology. or related Fieldss.
The salesperson’s function was to offer aid and advice to the user in preparation or procedure design. for illustration. urging appropriate chemical degrees for chilling tower intervention or detergent preparations. Get downing wages for trainees ranged from $ 20. 000 to $ 27. 000 yearly. and the experient sales representative could gain $ 50. 000 to $ 70. 000. Salesperson were evaluated on several aims. including new history activity. market incursion. and measure sold in lbs. Six of the 14 sales representative had most of the biocide clients in their several districts. On norm. they spent approximately 20 % to 30 % of their clip on all biocide clients ; about tierce of this clip was spent on metalworking unstable formulators ( the primary clients for Kathon 886 MW and Kathon MWX ) . The remainder of the clip was spent sing users. Many of these calls were made jointly with the formulators’ sales representative.
Metalworking Fluid Biocides
Metalworking fluid. as the name implies. is used in operations such as turning. milling. crunching. honing. and boring. The fluid is directed onto the surface of the metal being machined to lubricate and chill the work piece and the machine tool and to take french friess and dust from the work country. In 1983 about 60 million gallons of metalworking unstable dressed ore were produced in the United States. About all of it had to be diluted with H2O by the user. Water was typically 90 % to 95 % of the mixture after dilution. The diluted fluid was so placed in a reservoir and pumped to a nose that directed the fluid to the machined piece ( see Exhibit 3 ) . A tray built into the workstation caught french friess. and the used fluid was filtered and returned to the reservoir for reuse.
Microorganisms such as bacteriums. Fungi. and yeast flourish in the warm aqueous environment of metal machining. and their growing additions with hapless store care. They break down the metalworking fluids. and as the micro-organism develop. they multiply in long ironss to choke off filters. flow lines. and drains. Their fetid. metabolic byproducts discoloration and corrode work pieces and foul the work environment. Biocides are chemicals that kill the micro-organisms in water-based metalworking fluids without impacting unstable public presentation. They have many applications in fabricating merchandises such as cosmetics. paper detergents. and latex pigments. They are used. every bit good. in H2O intervention and oilfield boring. Chemical companies formulate metalworking-fluid dressed ores by blending emulsified oils and particular additives.
Formulators frequently add biocides to the metalworking fluid dressed ore to supply some initial protection against taint. The dressed ore is so sent to users who dilute it for their machining operations. Metalworking fluids are depleted by H2O vaporization and unstable loss and must be replenished each twenty-four hours. As the fluid ages. the dressed ore biocide no longer adequately protects it. and a care biocide must be added to widen unstable life. A metalworking system kept free of bacteriums. barm. or fungi utilizations fluid for a much longer period of time-one or two hebdomads longer than the three to four hebdomads for a less well-maintained system.
Regular intervention with care biocides and make-up metalworking fluid ( every one or two hebdomads ) extends unstable life about indefinitely and does non necessitate a complete flushing of the fluid armored combat vehicle. The concentrate biocide market was estimated to be $ 30 million in 1983. Industry beginnings predicted a downward gross revenues tendency. nevertheless. because of the turning usage of care biocides. The care biocide market was estimated to be about $ 38 million in 1983. but if industry anticipations were right. it would replace about all of the concentrate biocide market in 10 old ages.
Kathon Metalworking Fluid Biocides
Kathon 886 MW. a liquid. was the primary care biocide on the market. Too reactive to be used in the metalworking fluid dressed ore. it extended the life of diluted fluids in cardinal system reservoirs. Kathon 886 MW was a broad-spectrum biocide by and large 10 times more effectual than competitory biocides. One gallon of Kathon 886 MW protected 8. 000 to 10. 000 gallons of metalworking fluid in a cardinal reservoir ab initio for three hebdomads. About 10-15 gallons of a competitory merchandise would be required to make the same occupation. In 1983. Kathon 886 MW had a 30 % portion of the $ 18 million care biocide market for big systems. It was distributed by 12 major metalworking fluid formulators. who sold it as portion of a unstable care bundle to their clients.
From a practical point of view. because of its low usage degree and toxic belongingss. it could non be used in metalworking fluid reservoirs smaller than 1. 000 gallons without making abuse jobs and safety hazards. Customers who were satisfied with the public presentation of Kathon 886 MW had asked for a convenient. safe-to-use version for their smaller ( 50- to 100-gallon ) reservoirs. A market study revealed that this was the most common reservoir size for little machines. Rohm and Haas technicians responded with an intense merchandise development attempt that led to the development of Kathon MWX. After efforts to explicate a water-soluble solid merchandise had failed. a alone packaging design to present liquid biocide was developed ( Exhibit 4 ) .
It was a 5. 5 ten 7. 5-inch water-permeable plastic package incorporating two ounces of diatomaceous earth2 soaked with Kathon 886 MW. The package was designed to hang into the metalworking fluid reservoir by a strap suspended on a fictile hook and could handle 25-75 gallons of metalworking fluid for 2-4 hebdomads. The client merely placed the package in the metalworking fluid ; H2O so flowed through the package and bit by bit transferred the biocide from the diatomaceous Earth to the fluid. The used package could be removed from the reservoir for disposal at the first mark of failure ( olfactory property ) or in one month. No care was required. and the package was safe to manage and distribute.
In spread outing the unstable care market to include little machine applications. it was estimated that the possible existed for $ 20 million in added gross revenues volume. Although Kathon 886 MW and MWX were care biocides. they could be used in merely 70 % of the metalworking fluids. Incompatibility with the dressed ore biocide in the original preparation rendered them uneffective with the other 30 % . By comparing. nevertheless. competitory care biocides were compatible in merely about 45 % of commercial metalworking fluids.
In 1983. there were about 325 possible clients for Kathon 886 MW or tantamount merchandises. and an estimated 150. 000 possible clients for Kathon MWX. Postpone A interruptions down the metalworking industry by machine size. Biocide users worked with either nonferrous metals such as aluminium. Cu. wolfram. and Ti or ferric metals such as Fe and steel. Nonferrous metals In the domestic market. nonferrous metals were used chiefly to do aluminum sheet. foil. and tins in large-scale. to the full automated. high-velocity fabrication installations. Cardinal systems used metalworking fluid in reservoirs every bit big as 150. 000 gallons. Nonferrous operations required the metalworking fluid to be kept wholly free of bacteriums because of the sensitiveness of the metal to staining. and microbiologists and chemists were frequently employed to develop biocide interventions and proctor systems closely.
Kathon 886 MW was the favorite biocide of many of these companies and held approximately 70 % -80 % of a $ 3 million- $ 5 million market. Ferric metals The ferric metal industries ranged loosely from the large-scale machine-controlled industry of merchandises such as automotive and farm equipment to the smaller-scale production of pumps. instruments. aircraft parts. and nuts and bolts. Customers with big graduated table fabrication installations had cardinal systems similar to those in the nonferrous industries. but bacteria degrees in the metalworking fluid were non every bit critical to ferric metals as they were to nonferrous metals. 3 Though Kathon 886 MW was adopted by many for its cost effectivity. its overall portion of the $ 12 million $ 16 million ferric market ( lone cardinal systems ) was merely 15 % -20 % .
Postpone A Metalworking Industry Fluid Systems
Metalworking Fluid System Central system Central system Individual system Reservoir Capacity ( gallons ) 50. 000 to 250. 000 8. 000 to 30. 000 50 to 1. 000
Number of Metalworking Machines 170 1. 530 1. 701. 000 Number of Plants 25 300 150. 000
Table B lists the major rivals in the biocide market. In 1983 Rohm and Haas. Lehn and Fink. Dow Chemical. and Angus Chemical each had about a 15 % -20 % portion of the care biocide market. It was assumed that Lehn and Fink and Angus Chemical each employed three sales representatives for metalworking biocides. Lehn and Fink sold straight to distributers and end-users. and distributers were supplied at 10 % off list monetary value. Angus Chemical sold to distributers and end-users at the same monetary value. Olin Corporation’s Triadine-10. introduced in 1983. was well-received by the market. Two other major chemical companies were be aftering entries into the care biocide market: Union Carbide with Gluteraldehyde and ICI with Proxel. both for cardinal systems. Rohm and Haas chemists conducted comparative trials ( see Exhibit 5 ) to show that Kathon 886 MW was still the most cost-efficient biocide for cardinal systems.
The most widely known merchandise for single systems was Tris Nitro “Sump Saver” tablets. an Angus merchandise. One two-ounce tablet treated 25 gallons of metalworking fluid. Macey estimated that distributers paid $ 4. 00/pound ( eight tablets ) and sold them to clients for $ 7. 75/pound. Unlike Kathon MWX. these tablets dissolved in the metalworking fluid. They were by and large considered less effectual against bacteriums and uneffective against Fungi. and they worked for merely about three yearss. Another merchandise. Dowicil 75. came in water-soluble bundles that were dropped into the reservoir. Each 2. 5-pound bundle treated 500 gallons of fluid. Macey estimated the cost to distributers at $ 2. 34/pound and a resale monetary value of $ 10/pound.
While Dowicil 75 performed good against both bacteriums and Fungis. it had a heavy ammonium hydroxide olfactory property. released methanal. and could non be safely used in reservoirs with capacities less than 500 gallons. Some metalworking operators in little stores. in a stopgap attempt to command the olfactory property released by bacteriums. poured family bleaches. germicides. deodourants. and similar stuffs into their smaller reservoirs. The olfactory properties of these stuffs normally combined with the bacterial olfactory property to do the working environment even worse for the workers. These replacement stuffs besides interfered with the chilling and lubricating public presentation of the metalworking fluid.
Table B Competitors’ Merchandises
Maintenance Biocide Company 1. Lehn and Fink 2. Dow Chemical 3. Angus Chemical 4. Olin Corporation 5. Millmaster Onyx 6. RT Vanderbilt 7. Merck Onyxide 200 Vancide TH Tektamer 38 A. D. Concentrate Biocide Grotan Bioban P-1487 Triadine-10 Central Systems Grotan Dowicil 75 DBNPA Tris Nitro Triadine-10 Dowicil 75 Tris Nitro Stand-Alone Systems
The first degree of distributers in this industry were the metalworking fluid formulators. They purchased biocides. both dressed ore and care. straight from the makers. The dressed ore biocide was incorporated into the metalworking fluid at the clip of its preparation. The formulators so sold the metalworking fluid straight to big companies and to other traders who resold it to smaller histories. Metalworking fluid by and large accounted for more than 90 % of a formulator’s concern. As a service to clients with big cardinal reservoir systems. distributers provided a care bundle that normally included bringing. fluid readying. hebdomadal monitoring for micro-organism. and care biocide interventions. Other special-purpose chemicals such as pH adjustors and corrosion inhibitors were provided as needed. Many of these merchandises were sold under the formulators’ private trade name names. Most formulators engaged in R & A ; D. credence testing of manufacturers’ additives. and systems supervising. In 1983 the entire gross revenues of 10 big national formulators were approximately $ 200 million.
Another 20-30 formulators had a combined gross revenues volume of some $ 100 million. Several hundred little formulators had gross revenues of $ 0. 5 to $ 1 million each. Because of the figure and atomization of the ferric metalworking industries. big formulators distributed their merchandises through a secondary distribution web. dwelling chiefly of industrial supply houses and machine tool stores. Industrial supply houses ranged from little. family-managed companies in rural countries to big. professionally managed companies in urban countries. Some specialized in functioning peculiar industry sectors. They were “supermarkets” for their clients. A supply house serving a ferric metalworking industry. for illustration. might transport several trade names of biocides. safety accoutrements. uniforms. little all-purpose tools. store cleansing and care supplies. work tables. manus trucks. concrete blocks. spill absorbents. and manus soaps.
The 1982 Census of Wholesale Trade listed 14. 327 industrial supply houses in the United States. A major metropolitan country might hold over 100 supply houses functioning a assortment of industries. Industrial supply house gross revenues in 1982 amounted to about $ 40 billion. Inside salespeople took telephone orders from regular clients and nonprescription orders from walk-in clients. Outside sales representative generated new histories and called on regular clients. Machine tool stores specialized in distributing and serving machine tools and points used with them like spare parts. tool spots. metalworking fluids. and biocides. Some besides served as beginnings of metals. There were 3. 654 such companies in the United States. and in 1982 their gross revenues were $ 8. 7 billion.
Typically. big industrial companies ( e. g. . General Motors. Caterpillar Tractor ) purchased biocides straight from makers or from their distributers ( formulators ) . They used the secondary web of industrial supply houses and machine tool stores for assorted points ( such as safety equipment or paper towels ) that were non critical to their line of concern. Small companies. nevertheless. frequently relied entirely on industrial supply houses and machine tool stores for all their demands.
Marketing Strategy for Kathon MWX
Ten of Rohm and Haas’s 12 distributers ( formulators of metalworking fluid ) agreed to administer Kathon MWX in add-on to Kathon 886 MW. The company offered private stigmatization on Kathon 886 MW. but non on Kathon MWX. Though many formulators asked for private stigmatization. merely one distributer declined to transport Kathon MWX when turned down on a petition for its ownbrand merchandise. Explaining the principle for this policy. a company director said: Kathon MWX is the industrial equivalent of a consumer packaged good ; it is a “baggie” merchandise packaged at the mill. We need some uniformity in bundle design.
Furthermore. we want the end-user to cognize it’s a Rohm and Haas merchandise. Our end-users barely see the Kathon 886 MW membranophone because our formulators include the merchandise as a portion of their care service. But Kathon MWX is different ; we expect the end-users to make the care themselves. Kathon MWX was packed in boxes incorporating 144 packages. each package weighing two ounces. Measure monetary values to distributers per box of 144 packages were as follows: 1-2 boxes 3-4 boxes 5+ boxes $ 180. 00 165. 00 145. 00
Joan Macey estimated the fabrication cost per package to be approximately 50 cents. The company did non stipulate a monetary value to end-users. but most formulators charged end-users and other traders $ 2/packet. Some formulators had a strong secondary distribution web dwelling of 200-300 industrial supply houses. and in such cases. the secondary degree of distribution was known to add a 10 % border. One of the company’s distributers with a gross revenues force of 700 commissioned reps claimed that he could sell each package for $ 6 to the end-users. The merchandise launch ( December 1983 ) was accompanied by a imperativeness release in 40 metalworking industry diaries denoting the handiness of Kathon MWX.
The proclamation included information about features of Kathon MWX and its benefits. Full-page advertizements bing $ 3. 800 each were placed in five issues of American Machinist between February and June 1984. Interested readers could acquire farther information and a two-packet sample by make fulling out a reader service voucher. Over 200 such enquiries were received from the February. March. and April advertizements. All enquiries were forwarded to distributers. Rohm and Haas responded straight with a transcript of the really colourful ad. a material safety informations sheet. a set of proficient notes. and a “howto-use” brochure ( see Exhibit 4 ) . Distributors were expected to follow up on the leads and generate orders. In malice of all these attempts. the gross revenues in the first five months of the launch period hardly touched $ 12. 000.
Joan Macey’s Dilemma
Disappointed with Kathon MWX’s gross revenues public presentation. Macey began a reappraisal of her selling program to take any necessary disciplinary stairss. She besides sought sentiments from two of her co-workers in the Forte Chemicals division who had successfully launched and established new merchandises. Her first co-worker advised:
You are excessively difficult on yourself. Joan. New merchandises don’t win nightlong. It takes old ages for the merchandise to acquire market credence and longer still to acquire dealer support. If you feel comfy about your original selling program. it’s worthwhile giving it a opportunity. We are in the concern of forte chemicals. we offer solutions to customers’ jobs. We are non in the manner concern! Her 2nd co-worker felt otherwise ; he agreed that Kathon MWX’s initial selling attack was likely non best suited for the merchandise. He encouraged Macey to reexamine the selling program. stating. “The merely good intelligence on Kathon MWX is that you know there is a job ; therefore you can repair it. ” Regardless of what she might finally make about her scheme for marketing the merchandise. Macey thought it would be a good thought to reach the 200 chances who had responded to the reader service vouchers. Macey employed a summer trainee who was working toward an MBA to carry on a telephone study.
Explaining her principle for the study. she said: I wish I could exhaustively research the market. but that’s non possible. Frankly. what else can I make with the limited budget I have for support activities? Kathon MWX has to demo some initial motion before farther resources are justified. It is imperative that I make a speedy determination. After all. I have other merchandises to pull off and my foreman has the full biocide concern to pull off. One has to put Kathon MWX in its proper position. A speedy study should make that. The study revealed several major facts: 1. On norm. clients discarded used metalworking fluid after three hebdomads. Rancidity and dermatitis4 were the primary grounds for this. and most clients believed that bacteriums. non metal atoms or rough chemicals. caused the dermatitis.
Although most study participants had their used fluids hauled off. few knew how much this service cost. Those who did cognize gave figures of $ 0. 29. $ 0. 55. $ 1. 80. and $ 2. 00 per gallon of used fluid. Merely approximately 20 % of the participants remembered having the Kathon MWX information package. When asked about the image of the merchandise conveyed by the promotional literature. many said that the merchandise was deserving seeking. Despite their disposition to utilize Kathon MWX. they expressed some apprehensiveness about its safety. An account of the proper handling technique normally overcame these frights. Users obtained metalworking fluids from tool stores. oil companies. formulators. and industrial supply stores.
The bulk sourced from two or more little. local tool or supply stores within 30 stat mis of their concerns. every bit good as one of the big national formulators. Users on occasion found it necessary to compose to a big national distributer for supplies that were non locally available. About 50 % of the users used merchandises runing from family germicides to metalworking fluid biocides to kill odor-causing bacteriums in their machine sumps. The bulk of these merchandises did non look to work. yet the end-user typically continued to utilize the merchandise. Merely half of the participants who had tried a biocide could retrieve its name. None had tried Kathon MWX.