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,
and monomers

Industrial
chemicals

Plastics

Fluid Process
chemicals

Specialty
chemicals

Kathon 886 MW

Thayer School of Engineering

Agricultural
chemicals

Petroleum
chemicals

Kathon MWX

11/4/2010

Background
3

Metalworking fluid: 60 million gallons in the

US
Biocides kill microorganisms in metalworking
Product name K 886 MW
K MWX
fluids
Treatment
capacity

1,000 gal

50-100 gal
reservoirs

$18M

$20M

Sale Volume

$5.4M (1983)

$0.2M (target in
1984)

Actual sale
during 1st five
Thayer School of Engineering
month

$2.1M

$12,000!!!

Market
potential

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 Differenti
alValue
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
1galconcentrat
e 1,100galdilute

$249.92/cy
cle
1galconcentrat
e
25galdilute
1cycle
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 1,100galdilute

$1,496.00/
cycle
1galdilute
1cycle
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 Differenti
alValue
Not Using
Biocide

Using Kathod
MWX

Fluid Concentrate
Purchase

$249.92

$249.92

Fluid Disposal

$1,496.00

$1,496.00

100%

0%

Risk of Needing
Disposal
Reference Value
(Price

of Not Using MWX) = $249.92/cy

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
1cycle
50galdiluted

$79.36/pac
ket
1cycle 1,100galdiluted 1packet
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 breakeven price
Only
Concentrate

Concentrate &
MWX

Fluid Concentrate
Sales

MWX Sales

$0.00

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 13cycles

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

Selling Fluid Concentrate and MWX

$249.92 $x
13cycles

$249.92
(13x)/year
1 year 1cycle 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
1cycle
50galdilute

$10.48/pac
ket
1cycle 1,100galdilute 1packet
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
Generat
ion
Is the
Idea
worth
considerin
g?

2. Idea
screening
Is the
product
idea
compatible
with
companys
objectives,
strategies,
and
resources?

3.Concept
developm
ent and
testing
Can we find
a good
concept
consumers
say they
would try?

Opportunit
y Analysis
Thayer School of Engineering

4.
Marketing
Strategy
developm
ent
Can we find
a costeffective
affordable
marketing
strategy?

5.
Busines
s
analysis
Will this
product
meet out
profit
goal?

6. Product
Developm
ent
Have we got
a technically
and
commerciall
y sound
product?

7.Market
Testing
Have
product
sales met
expectation
s?

8.
Commercializ
ation
Are product sales
meeting
expectations?

Launch
Product
Design

Marketing Mix
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
Developm
ent
2. Idea
screening
1. Idea
Generat
ion
Is the
Idea
worth
considerin
g?

Is the
product
idea
compatible
with
companys
objectives,
strategies,
and
resources?

Thayer School of

3.Concept
developm
ent and
testing

Can we find
a good
concept
consumers
say they
would try?
Engineering

Can we find
a costeffective
affordable
marketing
strategy?

5.
Busines
s
analysis
Will this
product
meet out
profit
goal?

6. Product
Developm
ent
Have we got
a technically
and
commerciall
y sound
product?

7.Market
Testing
Have
product
sales met
expectation
s?

8.
Commercializ
ation
Are product sales
meeting
expectations?

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
expectation
s?

2. Idea
screening
1. Idea
Generat
ion
Is the
Idea
worth
considerin
g?

Is the
product
idea
compatible
with
companys
objectives,
strategies,
and
resources?

Thayer School of

3.Concept
developm
ent and
testing

Can we find
a good
concept
consumers
say they
would try?
Engineering

4.
Marketing
Strategy
developm
ent
Can we find
a costeffective
affordable
marketing
strategy?

5.
Busines
s
analysis
Will this
product
meet out
profit
goal?

6. Product
Developm
ent
Have we got
a technically
and
commerciall
y sound
product?

8.
Commercializ
ation
Are product sales
meeting
expectations?

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