Sales and Distribution Management

Case: Soren Chemicals-Why Is the New Swimming Pool Product Sinking?

Submitted To: Prof. Tinu Jain
Submitted By: I.B. Anand (PGPJ02027)

Case 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- Kalian 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.

Soren Chemicals Company

 Founded in 1942, generated revenue of $450 Million in 2007.

 Over 350 products, wide range of Industrial chemicals and water-cleaning solutions.
 Kailan MW and Coracle are two types of water-clarifiers.
 Historically Company had concentrated on B2B sales but now it is investing selectively in
developing products for consumer markets.

Commercial Use Clarifier Market Characteristic

 Market Size: $30 Million (2007), relatively mature market

 Distribution Channel: Manufacturer-Formulators-Water parks & Commercial Pools
(Formulators carry full range of pool-cleaning products and provide value-added services
tailored to customer specs)
 Key Influencers: Formulators, water-safety consultants, Pump & Filter mfg.
 Buyer Behavior: Professional and understand the use, benefits and importance of clarifiers
for their business. Safety of their customers matters most.

Marketing Strategy for Kalian MW

 Strong partnership with Formulators.

 Sold under “Private Label Brand”.
  Product USPs are attacks organic debris which can pass through filters, effective for long
period, lower qty needed.

Residential Pool Clarifier Market Characteristic

 Business Model: B2C

 Market Size: $67 Million (9000000*25%*$50*14.88/25), Untapped market in nascent stage.
 Distribution Channels:
a. Manufacturer-Distributors-Retailers/Pool Service professionals-Pool Owners
b. Manufacturer- Mass Retailers-Pool Owners
 Key Influencers: Pool Builders, Cleaning & Servicing cos., independent contractors, Retailers
and Wholesale Distributors
 Buyer Behaviour: Lack of awareness among Pool-Owners (emphasis on aesthetics and
perceived cleanliness)
 Major Brands: Clearblu, Hydropill and Purity

Marketing Strategy for Coracle

 In order to reach wide and fragmented market, adopted 2-level distributor channel with
margins as per industry norms.
 No private-labeling, focus on building Soren as consumer brand.
 Packaging highlights product benefits and potential savings.
 New website formed during product launch
 Press release in three trade journals targeting professionals and retailers.
 Good enquiry system adopted- receiving queries, sharing technical data with them and
passing on the interested customers information to appropriate wholesale distributors.
 Aggressive pricing vis-à-vis competitors.
 Realistic target of $1.5 Million (2.2% market share)
 Survey conducted in 6 months after product launch to gauge customer feedback.

What Went Wrong??

Reasons for Failure

 Lack of support from Distributors: Distributors are focused on selling unbranded products/
diluted kailan thereby earning better margins. Also, since use of Coracle will reduce the
consumption of other pool chemicals by 20%-30%, its promotion will result in reduction of
their overall revenue.
 Lack of awareness among Pool Owners: Customers are happy with pool looking clearer and
hence get satisfied with compromised products at lower price.
 No exclusive demand of Coracle from Pool Service Professionals and contractors

Distributor’s 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:

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.

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

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
forcommercial users, was mainly sold through formulators mostly under their private branding.
Theformulators offered customized services to these commercial pool owners.For resident pool
owners, Soren Chemical decided to take the product Coracle through thewholesaler-retailer channel
and forbade any private branding. Distribution through mass retailers wasvery expensive option and,
therefore, not possible for a new entrant like Coracle.
Distributors and 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 4-2we 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 oth
erchemicals, 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.

Per Annum Per Soren Chemicals Keystone Chemicals Jackson Labs

Consumer
Retail Price 39.06 46.88 75
Retailer’s Margin 5.86 7.03 11.25
(15%)
Distributor’s Margin 9.96 11.95 19.13
(30%)
Other Chemical Usage 300 300 300
Reduction in Other 75 0 45
Chemical Usage
Reduction of Retailer 11.25 0 6.75
Margin
Reduction of 12.75 0 7.65
Distributor’s Margin
Net Benefit to Retailer -5.39 7.03 4.50
Net Benefit to -2.79 11.95 11.48
Distributor
Quantity of Clarifier 100 gallons 100 gallons 640 gallons
sold for estimation of
storage space
Solution for Distributors

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$
- 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.

Recommendations (for Immediate 3 Months)

 Create Pull Demand by aggressive marketing campaign targeting 40-50K Pool Service
Professionals and independent contractors-
a. Aggressive Mailing campaign
b. Huge advertising in trade journals

c. Prominent display counter in trade-shows

d. Message should be centered around 20-30% savings of pool chemicals by use of Coracle
resulting in higher profits for professionals and contractors.

e. Focus on Lower annual cost compared to ClearBlu ($39.06 vs $56.25)

Recommendations (Considering Long-Term Results)

 Impart education to Pool Owners regarding adverse effect of waterborne diseases: Live
Demos in societies, buzz around rewarding cleanest pool in city etc. This will increase the %
of customers using clarifiers regularly
 Made Pool Owners aware about potential savings and economic benefits of using Coracle.
 Price revision to $30: Survey indicates acceptable treatment price of $50/annum. Retail price
of $30 will lead to treatment price of $46.8/annum, hence acceptable. Soren will have
cushion to bear the marketing expenses and additional distributor margin to promote sale.