New Product Marketing Strategy

Marketing Case Presentation by Group-2

Agenda

Background Prospects Problems Calculation of price that end-user willing to pay for Kathon MWX Break-Even Price for Distributor Recommendation

Background

$2B Chemical giant having presence in 4 segments Strong player in metalworking biocides with two brands Kathon

886 MW- for big reservoirs [1,000 gallons] Kathon MWX- for smaller reservoirs [50-100 gallons] Kathon 886 Kathon MWX MW
Market potential (Estimated) $18M $20M

Sale Volume
Sales during first 5 months

$5.4M (1983)
$2.1M

$0.2M (target in 1984)

$12,000

Prospects

Maintenance biocide market estimated to be $38Mn Several advantages:

Highly effective and better product Low or no maintenance Safe Easy to use Safe

Problems
Pricing Channel for distribution Lack of
Awareness for

biocides as product Brand awareness for all brands MWX awareness Knowledge of the benefits of MWX

Calculation of price that end-user willing to pay for MWX

Assumptions Maintenance biocides extend fluid life indefinitely 1 Packet of MWX treats 50 Gal Diluted Fluid 1 gallon Undiluted Fluid gives 25 Gal Diluted Fluid Typical Small Machine Shop

22 Machines x 50 Gal Tank = 1,100 Gal/Cycle

4-week Cycle based Calculations

Shops not using MWX have to dispose Fluid Shops using MWX only have to add MWX

Other Variable and Fixed Costs Ignored

Source: Exhibit 6

Calculation Contd.

Fluid concentrate purchase cost per cycle

(Price of metal working fluid Conc.= $5.68/gal Concentrate)

($5.68/gal conc.) X (1gal/25 gal dilute) X (1,100 gal dilute/cycle) = $249.92/cycle

Fluid disposal cost per cycle (Waste disposal cost = $1.36/Gal Dilute) ($1.36/gal diluted) X (1,100 gal diluted/cycle) =$1,496.00/cycle

Calculation Contd.

Total Cost saved by customer by using MWX = Cost of Metalworking fluid concentrate + disposal cost =$249.92+$1496=1745.92/Cycle Cost small machine shop is willing to pay per MWX packet =(1745.92/cycle) X (1cycle/1,100 gal diluted) X (50 gal diluted/pack)= $80/pack (apx.)

Break-Even Price for Distributor

Assumptions Same as previous 1 Distributor serves 1 Small Machine Shop

Distributor Revenues = Machine Shop Costs

Distributors profit only depends on fluid conc. and MWX

Break-Even Price for Distributor

Revenue per year for distributor selling only fluid= =($249.92/cycle) X (13 cycle/year)= $3248/year Revenue per year for distributor selling fluid & MWX = =($249.92/cycle) + ($x /cycle) X (13 cycle/year)= $(249.92+13X)/year Equating the both we get- X= $230.62/cycle Revenue distributor will earn for selling MWX = $230.62/cycle Break-even price a distributor per MWX packet = ($230.62/cycle) X (cycle/1,100 gal diluted) X (50 gal diluted/pack) = $10.5/pack (apx.)

Recommendation

As we see that distributor can break even at $10.5 and customer is willing to pay $80. We can raise the price to increase end user perception. This can be done successfully by image pricing. At present channel distribution salesmen are spending only 710% of their time to engage with biocide customers which should be much more Highlights on safety benefits. Take mixed brand strategy. Educate customers about the long term benefits of switching. Projected revenue $9.66Mn in 1993 [considering company maintains the same market share]

Concentrated biocide. $30 Mn. (1983) Maintenance biocide. $38 Mn. (1983) Market share = $5.4 Mn.+ $12K out of $38Mn. by sales.

THANK YOU!