Case Review:

Rohm and Haas

ENGM 181

Gaurang Desai
Amir Golnabi
Allie McKendry
Jens Moebius
Harinarayanan Ranganathan

Thayer School of Engineering 11/4/2010

 Background
2

1983: $2B worldwide sale from 4 segments

Kathon microbiocide products: $25M

Polymers, resins, Industrial Agricultural

Plastics
and monomers chemicals chemicals

Fluid Process Specialty Petroleum

chemicals chemicals chemicals

Kathon 886 MW Kathon MWX

Thayer School of Engineering 11/4/2010

 Background
3

Metalworking fluid: 60 million gallons in the US

Biocides kill microorganisms in metalworking fluids

Product name K 886 MW K MWX

Treatment capacity 1,000 gal 50-100 gal reservoirs
Market potential $18M $20M
Sale Volume $5.4M (1983) $0.2M (target in 1984)
Actual sale during
$2.1M $12,000!!!
1st five month

Thayer School of Engineering 11/4/2010

 Optimistic Prospects for MWX
4

Great market potential ($38M)

Maintenance biocides likely to gain market share

Several advantages:
Easy to use
No maintenance
Safe
Higher effectiveness
Large customer surplus

Thayer School of Engineering 11/4/2010

 ... But it doesnt sell!
5

Lack of need recognition for biocides

Lack of brand awareness among end consumers

Lack of MWX awareness

Lack of awareness of the benefits of MWX

Lack of incentives for distributors to sell MWX

Thayer School of Engineering 11/4/2010

 End-User EVC of Kathon MWX
6

Compare costs incurred by end-user who does and does

not use Kathon MWX

Not Using MWX Using MWX

Fluid Concentrate Purchase $ $
Fluid Disposal $ $
Risk of Fluid Disposal % %

EVC Reference Value Differential Value

Thayer School of Engineering 11/4/2010

 End-User EVC of Kathon MWX
7

Assumptions
Maintenance biocides extend fluid life indefinitely
1 Gal Undiluted Fluid 25 Gal Diluted Fluid
1 Packet of MWX 50 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: Dispose Fluid

Shops using MWX: Add MWX

Other Variable and Fixed Costs Ignored

Thayer School of Engineering 11/4/2010
 End-User EVC of Kathon MWX
8

Fluid Concentrate Purchase Cost Calculation

$5.68/Gal Concentrate

$5.68 1 gal concentrat e 1,100 gal dilute

$249.92/cy cle
1 gal concentrat e 25 gal dilute 1 cycle
Fluid concentrate purchase cost per cycle for
small machine shop

Thayer School of Engineering 11/4/2010

 End-User EVC of Kathon MWX
9

Fluid Disposal Cost Calculation

$1.36/Gal Dilute

$1.36 1,100 gal dilute

$1,496.00/ cycle
1 gal dilute 1 cycle
Fluid disposal cost per cycle for
small machine shop

Thayer School of Engineering 11/4/2010

 End-User EVC of Kathon MWX
10

EVC Reference Value Differential Value

Not Using Biocide Using Kathod MWX
Fluid Concentrate Purchase $249.92 $249.92
Fluid Disposal $1,496.00 $1,496.00
Risk of Needing Disposal 100% 0%

Reference Value (Price of Not Using MWX) = $249.92/cycle

Differential Value (Savings from MWX Use) =

($1,496.00 x 100%) - ($1,496.00 x 0%) = $1,496.00

Thayer School of Engineering 11/4/2010

 End-User EVC of Kathon MWX
11

EVC $249.92 $1,496.00 $1,745.92/ cycle

$1,745.92 1 cycle 50 gal diluted

$79.36/pac ket
1 cycle 1,100 gal diluted 1 packet
Cost small machine shop is willing to pay
per MWX packet

Thayer School of Engineering 11/4/2010

 Break-Even Price for Distributor
12

Compare revenues accrued by distributor which does and

does not sell Kathon MWX
Difference in revenues will be MWX break-even price

Only Concentrate Concentrate & MWX

Fluid Concentrate Sales $ $
MWX Sales $0.00 X
Total Sales $ $+X

Thayer School of Engineering 11/4/2010

 Break-Even Price for Distributor
13

Assumptions
Same as previous
Yearly Based Calculations
1 Distributor 1 Small Machine Shop
Distributor Revenues = Machine Shop Costs
Distributors only products for sale are fluid concentrate
and MWX

Thayer School of Engineering 11/4/2010

 Break-Even Price for Distributor
14

Selling Only Fluid Concentrate

$249.92 13 cycles
$3,248/yea r
1 cycle 1 year
Revenue per year for distributor selling only fluid to small machine shop

Selling Fluid Concentrate and MWX

$249.92 $x 13 cycles
$249.92 (13x)/year
1 year 1 cycle 1 year
Revenue per year for distributor selling fluid & MWX to small machine shop

Thayer School of Engineering 11/4/2010

 Break-Even Price for Distributor
15

Only Concentrate Concentrate & MWX

Fluid Concentrate Sales $3,248.00 $249.92
MWX Sales $0.00 13X
Total Sales $3,248.00 $249.92 + 13X

X $230.62/cy cle
Revenue distributor will earn for selling MWX to small machine shop per cycle

$230.62 1 cycle 50 gal dilute

$10.48/pac ket
1 cycle 1,100 gal dilute 1 packet
Break-even price a distributor will charge per MWX packet sold to small machine shop

Thayer School of Engineering 11/4/2010

 NPD Process
16

1. Idea 2. Idea 3.Concept 4. Marketing 5. Business 6. Product 7.Market 8.

Generation screening development Strategy analysis Development Testing Commercialization
and testing development
Is the Idea Is the product Will this Have we got a Have product Are product sales
worth idea Can we find a Can we find a product technically and sales met meeting
considering? compatible good concept cost-effective meet out commercially expectations? expectations?
with consumers say affordable profit goal? sound product?
companys they would marketing
objectives, try? strategy?
strategies, and
resources?

Opportunity Launch
Analysis Product Design Marketing Mix

Thayer School of Engineering 11/4/2010

 Errors in the NPD Process
17

Marketing Strategy Development

No private branding for MWX

Lack of incentives for distributors

4. Marketing
Strategy
Development

Can we find a
cost-effective
affordable
2. Idea
marketing
screening
strategy?
3.Concept 6. Product
Is the product 7.Market
1. Idea idea development 5. Business Development 8.
Testing
Generation compatible and testing analysis Commercialization
Have we got a
with Have product
Is the Idea Can we find a Will this technically and Are product sales
companys sales met
worth good concept product commercially meeting
objectives, expectations?
considering? consumers say meet out sound product? expectations?
strategies, and
they would profit goal?
resources?
try?

Thayer School of Engineering 11/4/2010

 Errors in the NPD Process
18

Lack of Market Testing

Did not know how distributors perceived the product

Did not know how end users reacted to the product

7.Market
Testing

Have product
sales met
expectations?
2. Idea
screening 4. Marketing
Is the product
3.Concept Strategy 6. Product
1. Idea idea development development 5. Business Development 8.
Generation compatible and testing analysis Commercialization
Can we find a Have we got a
with
Is the Idea Can we find a cost-effective Will this technically and Are product sales
companys
worth good concept affordable product commercially meeting
objectives,
considering? consumers say marketing meet out sound product? expectations?
strategies, and
they would strategy? profit goal?
resources?
try?

Thayer School of Engineering 11/4/2010

 Recommendations for Increased Sales
19

Allow private branding

Can produce good results in the near future
Does not have a long term perspective

Market cost effectiveness of Kathon-MWX

can be cost intensive

Emphasize safety features

Removes a major barrier about the product

Increase incentive for distributors

Can reduce unit profit but has potential for a sales volume upsurge

Thayer School of Engineering 11/4/2010

 Thank you!
20

References

Kotler, Philip, and Kevin Keller. Marketing Management. 13th ed. Upper Saddle River, NJ:
Prentice Hall, 2009. 574. Print.

Rangan, V. Kasturi; Lasley, Susan; Rohm and Haas (A): New Product Marketing Strategy, HBS
No. 9-587-055. Boston: Harvard Business School Publishing, 1993.

Thayer School of Engineering 11/4/2010