Rohm and Haas Case Study

1. Purpose of the Report:

Joan Macey, the Rohm and Haas market manager for Metalworking Fluid Biocides,
was reviewing the marketing approach for the recently introduced Kathon MWX
maintenance biocide. Rohm and Haas is one of several manufacturers that develop
liquid biocide chemicals for eliminating microorganisms in metalworking fluids. The
company currently manufactures the Kathon 886 MW concentrate biocide, the leading
biocide in the concentrate biocide market. Kathon 886 MW is a very powerful
concentrate used for large-capacity reservoir systems (above 1,000 gallons) and is too
powerful for small fluid reservoirs. As a result, the company developed the Kathon MWX
maintenance biocide for use in small-capacity tanks (less than 1,000 gallons). The
problem is the new product is not selling as expected and Joan is not sure why. The
purpose of this analysis is to:
Evaluate the strengths and weaknesses of the current marketing plan
Recommend whether the current marketing strategy should be continued,
rejected, or modified
2. Recommendations:
Continue with the current marketing strategy with the following changes:
Establish a fixed price for end-users
Provide product demonstrations at customer businesses with free samples
Develop a follow-up survey for customers using free samples and develop a call
back system to ensure distributors follow up on leads
Demonstrate the product at trade shows
Develop a new print advertisement with a cost / benefit analysis where typical
household disinfectants are used in place of a maintenance biocide
o Display the savings opportunity prominently on the advertisement
o Explicitly state the safety and ease of use on the product
o Keep the advertisement short minimize word usage
Allow formulators to privately brand using a fixed specification that cannot be
deviated from
3. Analysis:

Market / Customer Analysis:

The maintenance biocide market is a $38 million industry with competitors using
all sorts of methods to treat metalworking fluids. Maintenance biocides are starting to
be considered the preferred choice for bacteria and odor control and by 1993 are
expected to completely replace the concentrate biocide market. The end-user for the
maintenance biocides are the metalworking operators and shop foremen in the machine
shops. These individuals are generally the decision making units for purchasing the
product as they are the most familiar with the equipment and what is required to
maintain them. The decision making process for selecting a maintenance biocide
involves determining whether the product is needed for their operation and if so, what is
the least expensive, most effective, and easiest to use solution available. Many
consumers are unaware of the need or benefit of a maintenance biocide in small
capacity fluid reservoirs so first hand customer training and education is usually
required.
Industry / Competition Analysis:
The maintenance biocide industry is composed of four major manufacturers each
with a 15 20% market share with products that range in price and fluid capacity
treated. These manufactures provide biocide solutions in many different forms and it is
up to the end user to determine what is best for their application. A lot of time and
energy is spent developing biocide solutions therefore the barriers to entry into the
market are rather substantial. The main competitors in this market utilize different
marketing and sales approaches with some manufactures choosing to sell directly to
end-users and others choosing to sell to formulators and distributors before passing the
product on.
Company SWOT Analysis:
Strengths
Known for developing Kathon 886 MW, the primary maintenance biocide on the
market, generally 10 times more effective than competitive biocides
All salespeople have advanced technical degrees to support the customers
Positive return on net assets for the past five years
Weaknesses
Products sold to formulators and then redistributed to end-users under the
formulators name (except for Kathon MWX) and not their own brand difficult to create
an identity in the market
Financial goals not well defined market size required to meet goals not well
understood
Opportunities

 Maintenance biocide market estimated at $38 million and projected to continually

grow
50% of consumers that use products to eliminate microorganisms use household
disinfectants many potential consumers unaware of the value or benefit of a
maintenance biocide
Threats
Competitors developing and introducing new products
Metalworking operators use makeshift efforts to control microorganisms, unaware
of the need for biocide chemicals
Safety concerns associated with product, regardless of whether they are
warranted or not word of mouth panning the product for safety reasons
Conclusion
Rohm and Haas have a great opportunity to tap into the market of small capacity
fluid reservoir metalworking systems by leveraging existing technology and the
customers desire for the product. The companys sales force is comprised of technically
trained personnel that custom tailor solutions to fit a customers needs. By selling
directly through formulators and distributors though, the company has made it difficult
to develop their own identity. These outlets privately brand solutions derived from the
Rohm and Haas products so the Rohm and Haas name is not as known in the industry as
it could be. New products now packaged with the Rohm and Haas name appear no
different to some consumers than a product from a brand new company on the market.
Customers are unaware of their position and experience in the market and may be
apprehensive of trying a new product they may not even know they need. Rohm and
Haas have also not defined their marketing and financial goals very well other than to
say they seek to gain 1% of the estimated $20 million market for Kathon MWX. This
equates to a financial goal of $200,000 in sales in the first year however at a bulk price
of $145 per box of 144 packets, this sales volume could serve nearly 15% of the
estimated 150,000 consumer market over 1 year. A 15% market penetration for the first
year of a product is very aggressive and difficult to realize. This is a very optimistic
target for the company and one that should be reevaluated. The opportunities are
available for the company to meet this target however with the threats in the market
and the lack of brand recognition it will be very difficult for the company to meet their
first year objectives.
Evaluation of Marketing Strategy (4Ps):
Product:
Strength
Customer requested desired by customers satisfied with the performance of
Kathon 886 MW but required a solution for small (50 100 gallon) reservoirs

 No maintenance required
Safe to handle and easy to dispose of
Compatible with ~70% of the metalworking fluids as compared to 45% for the
competition
Always in demand considering evaporative losses must be replenished in
systems
Extends fluid life an additional one to two weeks for annual savings up to
$54,000
Extends fluid life indefinitely when used in conjunction with makeup fluid does
not require a complete flush of the fluid reservoir
Weaknesses
Cannot be used for all varieties of metalworking fluids (limited to ~70%)
Must be continually replaced every 2 4 weeks
Some concerns within the industry regarding the safety of the product
End users unaware of the value or need for their product
Conclusion
Kathon MWX is a superior product to its competitors by being an inexpensive, safe,
and easy to use package. The product is more compatible with existing fluid systems
than any competitor and when used properly can virtually eliminate the need for a full
fluid system flush. The product faces stiff competition from a number of competitors
though and a misinformed market would rather waste time with household disinfectants
than using a proper chemical solution. Customers will always be concerned with safety
and price and household chemicals are seen as the easy solution, regardless of if they
actually work or not.
Price:
Strength
Discount pricing offered for purchasing in bulk
Pricing used for Kathon 886 MW demonstrates to their customers the ability of
the company to sell competitive products at a fraction of their price (26% 47% the
cost of the competition)
Weaknesses

 No fixed pricing for product final price to consumer varied between $2 and $6
per packet high prices stifle interest and varying prices encourages consumers to shop
around thereby increasing the potential for a competitive product to be purchased
Low price may provide the perception of low quality or value to the consumer
Arbitrary price no budget analysis performed to determine the level of sales
and price required for the product
Conclusion
Kathon MWX is priced from $1.25 per packet all the way down to $1.01 when
purchased in bulk. These prices are very low which benefits the manufacturer by
spurring interest in consumers because it provides an inexpensive solution for treating
metalworking fluids. These prices are rarely seen by the end-user, however. Rohm and
Haas does not specify a fixed price to consumers therefore final prices actually range
anywhere from $2 per packet all the way up to $6. Prices that may seem high to the
consumer will steer them away from a product, particularly when the product is new
and unproven. At the same time though, low prices also hurt interest because the
consumer may perceive the price to mean the product is of low quality or value. Rohm
and Haas should ensure the product is sold at a fixed pricing scheme through all the
distributors so that consumers may still take advantage of bulk pricing while ensuring
they will receive the same price regardless of where they go. This will eliminate the
need for customers to shop around. Rohm and Haas also have not performed a breakeven analysis to determine the price required for a level of sales necessary before a
profit is observed. The price of the product appears arbitrarily set and without this
information it will never be known what the appropriate price or volume should be to
become profitable. It is known that the cost to manufacture a packet is $0.50 however
this price cannot be used as the selling price as the company has research and
development costs to recuperate. This information must be evaluated and a reasonable
sales goal defined before an appropriate fixed price can be set.
Promotion:
Strength
Print advertisements placed in industry journals and machinist magazines directly
targeting the end user machinists and shop managers (DMU)
Free sample provided upon request
Weaknesses
Many small customers unaware or just dont understand the need for a
maintenance biocide
Company does not sell directly to end users must rely on distributors to sell
products knowing the distributors sell competitors products as well

 Only 20% of recipients of the free samples remembered receiving them

distributor follow-up was unsuccessful
Conclusion
The marketing strategy for Kathon MWX included print advertisements directly
targeting the end-users. These advertisements were not very successful in generating
interest in the product because the advertisement did not appeal to their target
audience. The DMU for the Kathon MWX are machinists who are interested in
machinery, not chemistry. These consumers are only interested in the cost, safety, and
ease of use of this product. A new advertisement should be developed with a cost /
benefit analysis to explain the value of the product and what a customer can save and
even show how much they can save when compared to household disinfectants. The
savings should be highlighted within the advertisement and the safety and ease of use
should be explicitly stated. Free samples were also provided as part of the campaign to
generate business. The free samples were provided by request and a distributor follow
up was expected. This did not occur very effectively and only 20% of the recipients
actually remembered receiving the product. Rather than simply mailing free samples to
the end-user, the company and distributors should perform demonstrations at the
consumers place of business where possible to demonstrate the safety and ease of use
and ensure the samples are actually used. A follow-up survey should also be developed
and a system implemented to ensure that all consumers that received a free sample
are contacted during the trial period or directly after to gauge feedback while still fresh
in their mind. A follow-up visit would be recommended following the trial period to
ascertain the effectiveness of the product and attempt to gain sales. In addition to the
promotion activities mentioned above, the product should also be demonstrated at
trade shows to give many customers a hands-on demonstration to prove how safe the
product is. The market is estimated to have 150,000 potential customers therefore onsite visits are not possible for everyone. A trade show demonstration will allow the
company the opportunity to educate many people at one time.
Places or Channels of Distribution:
Strength
More than 18,000 outlets available between formulators, industrial supply
houses, and machine shops
Weaknesses
Private branding of Kathon MWX not permitted therefore costing the company
distribution outlets that were uninterested in selling off-brand products
Inability to sell directly to consumers impacts the ability of the company to
continually gauge customer needs directly
Conclusion

Kathon MWX is developed by Rohm and Haas and then delivered to formulators
who in turn provide the packets to large companies or other dealers including industrial
supply houses and machine shops. Even though there are only a handful of formulators
in the industry, each formulator has its own customer base therefore expanding the
available distribution outlet to more than 18,000 outlets with over 150,000 customers.
With distributors though comes the problem that the company loses its continuous oneon-one contact with the consumer and therefore impacts their ability to communicate
and effectively evaluate the consumers needs. By restricting the formulators from
privately branding the product the distribution potential of the product is limited as
some distributors were not interested in distributing the product if they could not
distribute it as their own. This directly impacts the potential market exposure of the
product. Rohm and Haas should reverse their position and allow for private branding
provided it is done according to a well defined specification. The company would still be
able to control all the major features of the product while allowing the formulators and
distributors to continue marketing products as their own.
Sales Goals Calculations
Sales goal $ 200,000
Cost per box $ 145
Number of boxes required to reach sales goal 1379
Packets per box 144
Number of packets 198,576
Weeks in year 52
Number of weeks before a new packet is required 6
Number of packets per year per customer 9
Number of customers 22,064
Size of market 150,000
Percentage of market 14.71%
Comparative cost of treating a 10,000 gallon system with Biocide (for one cycle)
Name Cost % Markup vs. Kathon 886 Cost of Kathon 886 Compared To Competitor
Dowicil 75 $ 269.64 277.65% 26.48%
Grotan $ 151.20 111.76% 47.22%
Kathon 886 $ 71.40

Savings Calculations
Metalworking fluid concentrate (per gallon) $ 5.68
Waste disposal (per gallon) $ 1.36
Kathon MWX (per packet) $ 2.00
Gallons of fluid treated per packet of Kathon MWX 50
Weeks per year 52
Typical machine shop size (machines) 22
Typical fluid reservoir Capacity Per Machine (gallons) 50
Typical lifespan of fluid (weeks) 4
Typical machine shop annual fluid usage w/o Kathon MWX (gallons) 14,300
Typical machine shop annual fluid usage cost $100,672
Minimum extended lifespan of fluid w/ Kathon MWX (weeks) 2
Typical machine shop annual fluid usage w/ minimum extended lifespan using
Kathon MWX (gallons, rounded up) 9,900
Typical machine shop annual fluid cost w/ minimum extended lifespan using Kathon
MWX $ 70,092
Minimum savings w/ Kathon MWX $ 30,580
Savings as a percentage of typical annual fluid cost w/ minimum extended lifespan
using Kathon MWX 30.38%
Maximum extended lifespan of fluid w/ Kathon MWX (weeks) 5
Typical machine shop annual fluid usage w/ maximum extended lifespan using
Kathon MWX (gallons, rounded up) 6,600
Typical machine shop annual fluid cost w/ maximum extended lifespan using
Kathon MWX $ 46,728
Maximum savings w/ Kathon MWX $ 53,944
Savings as a percentage of typical annual fluid cost w/ maximum extended lifespan
using Kathon MWX 53.58%

Minimum savings w/ Kathon MWX if only 1 packet served 25 gallons of fluid $

15,290
Maximum savings w/ Kathon MWX if only 1 packet served 25 gallons of fluid $
26,972
Savings as a percentage of typical annual fluid cost w/ minimum extended lifespan
using Kathon MWX, 1 packet serves 25 gallons of fluid 15.19%
Savings as a percentage of typical annual fluid cost w/ maximum extended lifespan
using Kathon MWX, 1 packet serves 25 gallons of fluid 26.79%