Background/Problem statement:Rohm and Haas found the new opportunity to enter to the market of small capacity metalworkingsystem. Although they estimated the $200,000 sales revenue but they gained $12,000 for the first fivemonths, The End users did not realize that new Kathon (MWX) can solve the problem of rancidity. Rohmand Haas does not have its own identity for its products because they sell their products directly to theformulators and formulators brand the MWX solution privately.Customer and Product characteristicMWX is a good product that satisfies the customer need for machine with less than 1000 galloncapacity, this product is easy to use and safer to handle, also it is the most compatible product amongthe other competitors. In one stage, Rohm and Hass customers are machine tools shops and industrialsuppliers who sell product to the individual system machines, these customers need good delivery andhigh margin. Market research shows that end users have a demand for the products that can eliminatedermatitis causes, these customers are price sensitive and want safety and ease of use, which the MWXcan fulfill these needs , also by using MWX, the end users don’t need to do maintenance frequently andaccording to table 1 they can have a good amount of saving.PricingMWX is priced from $1.01 per packet($145/144) to $1.25 per packet(180/144), however these pricesare not end users price, and company does not specify a fixed price to consumers. Therefore, the pricefor end user varies from 2$ to 6$. These prices could have two different effects on customers, cheaperone could represent the low quality for customer while the higher price may push them away from theproduct. For first step Rohm and Haas should fix the price for end user. MWX has two competitors, firstone is Dowicil 75 but this product is not really competitor because it is just useful for tanks over 500gallons. The other competitor is TrisNitro which according to Table 2 it would cost $18 for the same levelof consumption as one MWX packet. Therefore the maximum price that company could charge it wouldbe $18 while the minimum price is equal to the manufacturing cost ($0.5)Promotion the company’s advertising strategy wasn’t successful, the target for MWX are customers who areinterested in low cost, ease of use and safety, Rohm and Haas should have a new advertising which canexplain the value of product and the amount of customer saving. According to the case exhibit 6, byusing Kathon MWX, users can keep the fluid 2-5 weeks longer, therefore according to Table 1 ifcustomer keep the fluid just for 2 more weeks they can save up to $33,557 per year and if they keep itfor more 5 weeks they can save up to $55,929. Thus, by showing this kind of cost benefit analysis on thepackage, they can have more influence on customer decision. The free sample was a good idea but only20% of customer remembered they received the sample, therefore it would be more appropriate ifcompany can attach flow up survey. in this way company can get a feedback and estimate how many of
its’ customer received the sample. As there are 150,000 potential customers in 17,981 distributors, inaverage, each distributor should have 8 free samples, according to table 3 break even analysis showsthat for cover the cost of free sample, company should sell 96,000 more packets.Position and DistributionRohm and Hass can continue selling the product to formulators which has low distribution cost and asformulators are responsible for 886MW, this policy could emphasize on the relationship withformulator. the other option is they can have their own distribution department or use the third partyfor distributing the product with their brand name. but, this strategy needs high investment on salespeople. According to table 3 company should have 1360000 increase in sale which is almost equal tomarket capacity (1,701,000) also if we assume carrying each box would cost 50$ they need to have 48%increase above their target. Conclusion as the cost for competitor product is $18 and sales force haveclaimed that he can sell each packet for $6 it would be reasonable if Rohm and Hass make a fixed priceof $10 for MWX( table3-1 shows the break even analysis with fix price of $10). For promotion, companyshould use free sample for advertising but according to break even analysis it would be better if Rohmand Hass give sample to 50% of the main distributors and by adding the survey they can have feedbackabout their sample, also they should have explanation about cost/benefit analysis on their package. Asadding sales reps would cost too much for company, they should allow distributor and formulatorsmarket the product.
Exhibit1Primary Distributor Level: Large national Formulators: 10 Middle Size formulation: 20-30 SmallFormulators: Several Hundred Secondary Distributor Level= 17981 Industrial supply houses: 14327Machine Tools shop:3654Exhibit2Rohm and Haas Goal Sales Goals 200,000$ Cost per Box 145 Number of box required to reach the goal1,379.31 number of packet (144 per box):198,620.7 weeks in year 52 Number of packet per year percustomer=52/4=13 number of customer= 15,278.5 Size of market 150000=10% Number of metalworking machine=1701000Table 1Regular Life of Fluid Typical Machine Shop Size Typical Fluid reservoir Capacity Number of order per YearTypical Lifespan of fluid Cost (5.68+1.36) Annual Usage Cost Saving 4 22 50 13 14300 7.04 100672Minimum Last 4+2 22 50 8.67 9533.33 7.04 67114.67 33557.33 Maximum Last 4+5 22 50 5.78 6355.567.04 44743.11 55928.89Table2The cost to distributor/per pound Retail Price/per pound cost per 50 gallons day’s work cost per 4 week4 7.75 1.94* 3 18.08 Tris Nitro 10 product use in tank over 500 gallons Dowicil 75 2.34 0.50 2 2.00 28 2Kathan *each tablet is 2 ounces and work for 25 gallons therefore each pound works four times for 25gallons=7.75/4
Table 3-1($2 fixed Price)Break even analysis Cost Price Variable Cost Contribution Margin sale Number of pocket Goal Increase Insale free sample 720001 2 0.5 0.75 96000 198620 0.48 Third Party Distribution 695172 2 0.5 0.75 92689198620 0.47 55 sales reps 20625003 2 0.5 0.75 2750000 198620 13.85 27 sales reps 10200004 2 0.5 0.751360000 198620 6.85Table 3-2 ($10 fixed Price)Break even analysis Cost Price Variable Cost Contribution Margin sale Number of pocket Goal Increase Insale free sample 720001 10 0.5 0.95 75789.47 198620 0.38 Third Party Distribution 6951722 10 0.5 0.95731760.00 198620 3.68 55 sales reps 20625003 10 0.5 0.95 2171052.63 198620 10.93 27 sales reps10200004 10 0.5 0.95 1073684.21 198620 5.411)150,000/18000=8.33=8 8*18,000*0.5= 72000 2) $50/144= 0.35 it would increase the variable cost by0.35 ….0.35*198,620(number of pocket required to reach the goal) 3). If we assume each sales personcan cover 5 distributor per day with 260 work day a year, and visit each distributors 4 times a year(seasonal) one sales person can visit 325 (260*5/4) distributors . for cover all secondary distributor(17981.exhibit 1) company need 55 sales person ,if we assume they need 40% experienced and 60%trainees the total salary will be : (22* 60,000+33*22,500)= 2062500 4) if we assume that company needto cover just 50% of the main distributors they will need 46 sales persona year want to cover half of thedistributors (17981/2=8990) it need 27 sales person if we assume they need 11 expertise and 16trainees the total salary cost will be =11*60000+16*22500=1020000Table 4Net sale Polymers Plastics Industrial Chemicals Agricultural Chemicals others industries Total 1979 626345 265 243 111 1590 1980 665 345 303 295 117 1725 1981 753 376 324 308 124 1885 1982 707 353331 336 101 1828 1983 745 390 336 337 68 1876 Growth Rate 19.01 13.04 26.79 38.68 -38.74 17.99Average Growth Rate per Year 4.68 3.34 6.24 8.80 -9.96 4.34