Rubbertech Inc.

(RTI) Strategy for launch of Rubber Tech Purifier (RTP) product Biswajit Sarkar

Author Name Biswajit Sarkar Student ID# 2245078 __________________________

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Executive Summary Rubbertech Inc. (RTI) is trying to launch its high-tech product RTP in the RSS industry plantations as a superior alternative to the currently used manual labor practices. While the beta test responses for the product are generally positive, there is conflicting information about the price-point which clients are willing to pay. Also, the feedback from the trade show is not positive enough, and the CEO is wondering whether it is due to the pricing strategy. The CEO wants a comprehensive marketing strategy to launch the product and make his company profitable with a few years. RTI has a superior and unique offering in a market where it has no meaningful competition. However, its main hurdles are archaic traditions and labor practices in the plantations, and their incapability to understand and harness change. But, the rubber processing plantation industry is also a price-taker, operating in a highly competitive and intensely commoditized market, plagued by frequent bankruptcies and labor issues. RTI should launch its RTP product with a message of cost-savings, and capable of producing superior and standardized quality RSS to address these very issues facing the plantations. It should target the large and the medium sized domestic plantations, with special emphasis on the medium plantations that produce the higher grade (95%) output. RTI should set two price-points for its product, and position the higher priced product as a premium offering and target the 95% grade medium plantations. It should position the lower priced product as an entry level offering and target its other two segments large and 85% medium plantations. Also RTI should use both the trade journal oriented pull and the telemarketing oriented push to market its brand and products. With a superior product and a comprehensive strategy, RTIs message should resonate with the plantations managers and position RTP as a superior alternative to the current manual practices and help the company become profitable. __________________________________________________________________________

Case Analysis RTIs product offering in the RSS market puts the company in a unique position. The offering has many of the attributes which its potential customers (the rubber plantations) need and there is also no meaningful competition. However, the biggest hurdle RTI has to overcome is archaic labor practices and inflexible attitude towards change in the plantations. RTIs customer base (the plantations) can be segmented by three main characteristics: geography (domestic vs. international), size (large, medium, small), and output RSS grade (95% vs. 85%). The segments RTI should target are the large and the medium domestic plantations, with a special emphasis on the medium 95% grade producers. The large and medium segments form 66% of the domestic market (Exhibit A), with a sizeable footprint both in terms of number (100 for large, 200 for medium) and potential RTP capacity requirement (1200 for large, 1400 for medium). 50% of the medium segment (100 plantations, 700 potential RTP-s) forms the sub-segment that produces the 95% grade product. RTI should not target international segment due to its relative small size (10% of the market), and low margin opportunities (Exhibit 4 in case). Within the domestic segment, RTI should also not pursue small plantations. There is virtually no cost savings from the plantations perspective (Exhibit B) and RTI requires a higher overhead (sales, telemarketing, tech support etc) to reach these clients with lesser return. However, RTIs offering will yield significant cost-benefit for both large and medium plantations from the clients perspective (Exhibit B, C). This 95% medium plantation sub-segment is more stable (lower bankruptcy), and can yield potential higher

revenue margin for RTI and thus forms a special attractive target. The plantations are in a commodity based price-taker industry and hence this extra cost savings by adopting RTP will give them significant competitive advantage. With the potential target segments identified, RTI should use the principals of 4 P-s to position its product. Internally, it has a single product, but its target segments have different needs (95% vs. 85% output grade). Taking advantage of this fact, RTI should offer two price points for its RTP product-line. It should promote a $10,000 entry-level brand yielding 15% margin for itself (Exhibit D), and advertise it as capable of producing 90% grade output. This brand should be sold to the large and 85%-grade medium plantations and the positioning should eliminate any threat from the Indian competition (Exhibit E). RTI should then promote a $14,000 premier-level brand yielding a 40% margin for itself (Exhibit D). It should advertise it as capable of producing 95% grade and target the medium plantations producing 95% grade exclusively. The conflicting feedback from its beta sites about pricing actually supports this 2-tier product pricing strategy. Even though the $10,000 price yields a negative return in the first year for RTI when sales costs are taken into account (specially in case of 85% medium plantations), it still yields a positive return in the long term (Exhibit F). RTI should target the 95% medium plantations more heavily because of the higher revenue margins it generates for RTI at the higher price point (Exhibit D, F). It should also try to sell more RTP-s to each client site and get a lock in for multi-year contract. Both these steps will help dilute the first years sales support cost overhead ($15,000 per site). It is also recommended that RTI try to charge the tech-support cost back to the client, which will help it to improve its subsequent years margin.

The promotion vehicle RTI should use for marketing its product should be ad placement in the Rubber Industry Journal. This will give it the necessary pull-based coverage to introduce the company brand and products offerings. Parallel to this, RTI should also use the telemarketing service component to reach its potential clientele - large and medium plantations. Since it is not going to target the 2000 small plantations for which the service was originally offered, RTI should negotiate the cost of this service and try to reduce it from $200,000 annual cost. It is imperative that RTI use this service because it is trying to fight traditional and inflexible behavioral patterns and perceptions, and hence a push-based personalized approach will be very effective. Also it is recommended that RTI not get into OEM model with any partner as this will not make it profitable in the first year and future order quantity is growth is not guaranteed. In conclusion, RTIs target clientele are in a commoditized industry plagued by traditions, inefficiencies, and inconsistencies. But it is also in an intense competitive period where output product quality and cost efficiency will determine future survival. In this context, RTI should launch its product with a message of cost savings, superior output quality, and operational efficiency. It should target the large and the medium plantations, with special emphasis on the 95% grade medium plantations. It should use a two pricedproduct strategy with the higher priced product targeting the 95% medium plantations, generating a higher revenue margin for itself. It should use both the trade journal based pull and the telemarketing based push to reach out to its potential client base. In the end, with a superior product and comprehensive marketing launch strategy RTP should be able to capture a significant portion of the RSS market and become a profitable company within a short period.

Exhibit A
Plant Size Number Plants Total Annual Productio n (Tons/Yr) 6,000,000 7,000,000 7,000,000 Average Plant Production capacity (Tons/Yr) 60,000 35,000 3,500 Averge RTP-s per plant (5000 Tons/Yr/RT P) 12 7 1 Potential Total Market for RTP 1,200 1,400 1,400

Large Medium Small

100 200 2,000

Market Segmentation details with capacity of each segment (large, medium, small), and potential RTP market in each segment.

Exhibit B
Plantation's cost savings - RTP vs. manual labor
Small Plantation Average Plant Production capacity (tons/ yr) RTP Production Capacity (tons/ yr/ unit) Cost of a machine Average machinesin plant Average labor in plant Machine OperatingCost (@$3000/ labor) Total Plantation OperatingCost Cost Savingsbetween RTP and Manual labor for whole plantation Cost Savingsper machine 3,500 Manual Labor (85%) 5,000 1,000 $10,000 1 1 4 $3,000 $13,000 $12,000 ($1,000) ($1,000) RTP Medium Plantation (85%) 35,000 Manual Labor (85%) 5,000 1,000 $10,000 7 7 35 $21,000 $91,000 $105,000 $14,000 $2,000 RTP Medium Plantation (95%) Large Plantation (85%) 35,000 60,000 Manual Labor RTP Manual Labor (95%) (85%) 5,000 750 5,000 1,000 $14,000 $10,000 7 12 7 47 12 60 $21,000 $36,000 $119,000 $140,000 $156,000 $180,000 $21,000 $24,000 $3,000 $2,000

For a small plantation, replacing labor with RTP yields negative savings. This assumes each plantation uses maximum machine capacity (1 for small, 7 for medium, 12 for large). Please take all the figures for relative comparison and not as absolute numbers.

Exhibit C
C s S v g fro p n tio 'sp rs e tiv a v rio sR Pp e o t a in s m la ta n e p c e t a u T ric s ( s u em xp n tio c p c - i. .1 R Pfo la ea d7fo m d m a s m a la ta n a a ity e 2 T r rg n r e iu )
M d m8 % e iu - 5 M d m9 % e iu - 5 L rg a e R PM c in P ic T ah e r e A s lu $ b o te $ % b rc s la o o t A s lu $ b o te $ % b rc s la o o t A s lu $ b o te $ % b rc s la o o t 8,500 2 00 4,5 2 3% 3.3 5 00 9,5 42.20% 4 00 2,0 23.33% 9,000 2 00 1,0 2 0% 0.0 5 00 6,0 39.72% 3 00 6,0 20.00% 10,0 00 1 00 4,0 1 3% 3.3 4 00 9,0 34.75% 2 00 4,0 13.33% 11,0 00 7,000 6.67% 4 00 2,0 29.79% 1 00 2,0 6.67% 12,0 00 0 0.00% 3 00 5,0 24.82% 0 0.00% 13,0 00 (7,000) -6.67% 2 00 8,0 19.86% (12,000) -6.67% 14,0 00 (14,000) -13.33% 2 00 1,0 14.89% (24,000) -13.33% 15,0 00 (21,000) -20.00% 1 00 4,0 9.93% (36,000) -20.00% 16,0 00 (28,000) -26.67% 7,000 4.96% (48,000) -26.67% 17,0 00 (35,000) -33.33% 0 0.00% (60,000) -33.33%

Note the higher absolute and % savings for the medium 95% at different prices compared to the other two. Suggested price-points are highlighted in yellow. Please take all the figures for relative comparison and not as absolute numbers.

Exhibit D
Revenue marg for RTI for a sing RTP at different prices. ins le
Larg Plantation - 12 RTP-s e Medium Plantation - 7 RTP-s RTP Price Abs olute Marg %Marg (per RTP)Abs in in olute Marg - firs year %Marg - firs year Absolute Margin - firs year %Marg - firs year in t in t t in t (per RTP) (with S aless upp cos t) (with S aless upp cos t) (with S alessupp cost) (with S aless upp cost) 8,500 0 0.00% (1,250) -15% (2,143) -25% 9,000 500 5.56% (750) -8% (1,643) -18% 10,000 1,500 15.00% 250 3% (643) -6% 11,000 2,500 22.73% 1,250 11% 357 3% 12,000 3,500 29.17% 2,250 19% 1,357 11% 13,000 4,500 34.62% 3,250 25% 2,357 18% 14,000 5,500 39.29% 4,250 30% 3,357 24% 15,000 6,500 43.33% 5,250 35% 4,357 29% 16,000 7,500 46.88% 6,250 39% 5,357 33% 17,000 8,500 50.00% 7,250 43% 6,357 37% Assumptions: 1. Cost of production and delivery of each RTP is $8500. 2. Absolute margin is calculated as RTP Price - 8500. 3. Number of RTP-s in a big plantation is 12. Number of RTP-s in a medium plantation is 7. 4. Absolute margin for large plantation is calculated as RTP Price - 8500 - (15,000/12) - the last component is the effect of Sales cost on each RTP at a site. 5. Absolute margin for large plantation is calculated as RTP Price - 8500 - (15,000/7) - the last component is the effect of Sales cost on each RTP at a site. 6. %Margin is calculated as (absolute Margin)/(RTP Price)

RTIs first year revenue margins at various price-points from a single RTP. Please note the margin decrease due to Sales costs. Suggested price-points are highlighted in

yellow. Please take all the figures for relative comparison and not as absolute numbers.

Exhibit E
RP T Cp c y t n/y/u it a ait (o s r n ) L b rr q ir d o e u a n po u t n a o e u e f r q iv le t r d c io M c in O eain C s ( e u e 1 b r@ 3 0 ) ah e p r t g ot r q ir s la o $ 0 0 M c in C s ah e ot T t lC s oa ot C s Sv g( ew e mc in a d a u lla o) ot ain sb t e n ah e n mn a b r RP r d c T po u t M n aL b r a ul a o (5 ) 8% 5 0 ,0 0 1 0 ,0 0 5 3 0 ,0 0 1 ,0 0 0 0 1 ,0 0 3 0 1 ,0 0 5 0 20 0 ,0 I d n r dc n ia po u t Idn n ia M n aL b r a ul a o po u t r dc (5 ) 8% 4 0 ,0 0 1 0 ,0 0 4 3 0 ,0 0 8 0 ,0 0 1 ,0 0 1 0 1 ,0 0 2 0 10 0 ,0

Comparison between RTP and the Indian product. RTP beats the Indian product (highlighted cells).

Exhibit F

Margins of a single RTP for all 3 target segments for RTI. This assumes Sales and Tech cost is covered by RTI, and maximum capacity RTP is sold per site (e.g. 12 for a

large and 5 for a medium plantation). Please take all the figures for relative comparison and not as absolute numbers.