Rohm and Haas

Situation Analysis

Rohm and Haas is a diversified chemical company operating in four distinct business segments

of which the focus of the case is on biocide products division of the specialty chemicals group.

The biocide product manufactured by the firm caters to the needs of the metal working industry.

Its major product – Kathon 886 MWX operates in the Central system market where the company

enjoys a healthy 30% market share of the $18 million market. However, Kathon 886 MWX is a

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very powerful biocide and is not suitable for small-capacity tanks (capacity less than 1000

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gallons). In view of this, Rohm and Haas has found a new opportunity in the Individual system

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market (reservoir capacity less than 1000 gallons) and they have launched a new product –
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Kathon MWX to address this opportunity. Kathon MWX targets 150,000 customers in the
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Individual systems segment where the market for biocides is still developing and competition is
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less. In addition, a large part of the target customer base use substitute products such as

deodorants and bleaches which in general have little effect on microorganisms. The company has
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estimated the market size for individual segment to be at $20 million and aims to achieve sales
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revenue of $200,000 in the first year. However, the actual sales revenue was only $12,000 in the

first five months. The challenge lay in the fact that despite being a superior product with obvious
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benefits, Kathon MWX is unknown to a large fraction of target population and thus less than 6%

of the initial target was achieved. Joan Macey wishes to re-evaluate Rohm and Haas’s marketing

strategy in order to tap into this huge segment and to significantly increase sales of Kathon

MWX.

Problem Definition

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 As mentioned above, the sales of Kathon MWX touched 6% of the annual targeted sales for

1984. Continuing in this trend, Kathon MWX will have a negative impact on the firm’s bottom-

line. Joan Macey has to come up with a marketing strategy that suits well with the product and

the targeted customer segment which will promote the sales of the product.

Analysis of alternatives:

Alternative #1: Fixed pricing to end-users

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Products Marginal Distributors Retail Retailer

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cost/pound price/pound price/pound Margin

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Dowicil 75 - $2.34 $10 $7.66

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Tris Nitro - $4 $7.75 $3.75

Kathon MWX $4.00 $9 $16 - $48 $7 - $39

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Kathon MWX is priced from $1.01 per packet ($145/144) to $1.25 per packet ($180/144) for the

distributors based on the quantity they purchase. Rohm and Haas does not specify fixed prices to
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end-users. Therefore, the prices to end-users varies from $2 to $6 per packet. These prices could

have the following effects on the customers. Cheaper price could represent low quality while
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higher prices may push the customers away from the product. For first step, Rohm and Haas
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should fix the price to the end-user. Kathon MWX has two competitors – Dowicil 75 and Tris

Nitro. Dowicil 75 is not the primary competitor as it cannot be used for tanks less than 500

gallons (a market survey revealed that 50-100 gallons of reservoir size is the most common size).

The other competitor, Tris Nitro, which according to is priced at $7.75/pound. However, Tris

Nitro is considered less effective against bacteria and ineffective against fungi and they worked

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 only for about 3 days. Therefore, Rohm and Haas has to control the pricing of the product to

maintain uniformity ($3/packet for the extra value being delivered by the product over its

competitors). This price will also provide higher margins to the retailers over other competitive

products ensuring further focus and promotional efforts from the retailers for this product over

the others.

Alternative #2: Initiate a new promotion campaign

The product launch has been accompanied with a wide press release announcing the availability

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of the product, Kathon MWX. However, the announcement only included information about

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Kathon MWX and its benefits. Based on the actual sales revenue vs. estimated sales revenue, the

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company’s advertising strategy hasn’t been successful. Rohm and Haas should initiate a new
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advertising strategy that explains both the value of the product and the estimated savings to the
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end-user. The superiority of the product over its rivals should be advertised clearly. This
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advertising strategy is needed as the target customer segment of Kathon MWX is small

companies that are interested in low cost and ease of use. By using Kathon MWX, users can
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keep the fluid 2-5 weeks longer, therefore according to Exhibit 1, if they keep the fluid for 2
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more weeks, they can save upto $7,565 per year and upto $12,609 per year if they can keep the

fluid 5 more weeks. Thus, by showing such cost benefits to the users, Rohm and Haas can
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influence the customer decision in purchasing the product.

Final recommendation:

The final recommendation would be that Rohm and Haas should initiate a new promotion

campaign in order to increase the awareness of the product and to promote its cost benefits to the

customers. This will ensure that the end-user will be more inclined to purchase the product over

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 its competitors and also over the substitutes. The promotion campaign should not only clearly

deliver the cost benefits (Exhibit 1) of the product but also the effectiveness of the product over

its substitutes. Also, taking a closer look at alternative#1, controlling the pricing and maintaining

it might seem to be an effective strategy in general but in the case of Kathon MWX, the target

customer base primarily uses substitutes instead of the metalworking fluid biocides. Therefore,

the direct competition of Kathon MWX is the substitute products (household disinfectants,

deodorants) which are much cheaper and Kathon MWX should not compete with them in the

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price point of view (as the value provided through Kathon MWX is much higher than the

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substitutes). A big chunk of the customers of Kathon MWX are industrial supply houses who are

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small family managed businesses and they will be more inclined to make a purchase once they
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understand the cost benefits of the product in the long-run. Assuming that the new promotion

campaign will create an increase in the sales volume. Achieving a 508 boxes sales volume
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annually (vs. 1350 annual sales target) will ensure that Rohm and Haas has met the breakeven
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sales target for Kathon MWX (Exhibit 2).

In addition to implementing the alternative #2 (initiating a new promotion campaign), Rohm and
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Haas should also consider the following inferences that are based on the market survey

performed. Only 20% of the users remember receiving the Kathon MWX information packet,
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therefore it will be more appropriate to perform a follow-up survey to understand customer

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feedback and incorporate in future promotions. Participants in the survey were also apprehensive

about safety and handling systems. Addressing the concerns would have been a better strategy

along with explaining the cost-benefit details.

Macey has to understand that metalworking fluid generally accounts for more than 90% of a

formulator’s business and many of the products are sold under the formulator’s private brand

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 names. Rohm and Haas has not offered private branding on Kathon MWX and is selling under

its own brand to promote their new product. But, not offering brand name will discourage

formulators from promoting the new product. The product Kathon MWX could keep the

Metalworking fluid for 2-5 weeks longer than normal. This can possibly cannibalize the

formulator’s primary business of selling metalworking fluid and might discourage the

formulators to promote the product. Therefore, Rohm and Haas could also consider the option of

having their own distribution department instead of distributing through the formulators but this

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strategy will require high investment on sales personnel and is not the immediate recommended

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solution for a product that is having a negative impact on the bottom line.

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In the end, implementing a new marketing strategy along with all the other considerations
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mentioned will ensure that Kathon MWX’s benefits are promoted more effectively to the target

customer base and will lead to increase in the sales of the product.
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Appendix

Exhibit 1: Cost Benefits of using Kathon MWX

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Metalworking fluid (50 gallons diluted) $11.36

Waste disposal (per gallon) $1.36
Total waste disposal cost per cycle
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(diluted) $68.00
Total cost per year per machine $1,031.68
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Number of machines 22
Total cost $22,696.96

Extension of 2 weeks
Total cost per year per machine $687.79
Total cost $15,131.31
Savings $7,565.65

Extension of 5 weeks
Total cost per year per machine $458.52

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 Total cost $10,087.54
Savings $12,609.42

Exhibit 2: Break-even analysis

Average price per box $163.33

Cost per box $72
Boxes sold 74

Sales Revenue $12,086

COGS ($5,328) $72 manufacturing cost/box * boxes sold

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Gross Margin $6,758

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Advertising cost ($19,000) 5 months * $3,800 per issue

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Samples ($200)

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Net Income rs e ($5,683)
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Average price per box $163.33

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Cost per box $72

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Advertising cost ($45,600) 12 months * $3800 per issue

Samples ($800) 200 samples in 3 months

Breakeven sales volume 508.05

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