Case Review: Rohm and Haas

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Case Review: Rohm and Haas

Thayer School of Engineering

11/4/2010

Background
2

1983: $2B worldwide sale from 4 segments Kathon microbiocide products: $25M Polymers, resins, and monomers Plastics Industrial chemicals Agricultural chemicals

Fluid Process chemicals

Specialty chemicals

Petroleum 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 Treatment capacity Market potential Sale Volume Actual sale during 1st five month K 886 MW 1,000 gal $18M $5.4M (1983) $2.1M K MWX 50-100 gal reservoirs $20M $0.2M (target in 1984) $12,000!!!

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 doesn‘t 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 Fluid Concentrate Purchase Fluid Disposal Risk of Fluid Disposal $ $ % Using MWX $ $ %

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 concentrate 1,100 gal dilute × × = $249.92/cycle 1 gal concentrate 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 Fluid Disposal Risk of Needing Disposal $249.92 $1,496.00 100% $249.92 $1,496.00 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/packet 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 Total Sales $ $0.00 $ $ X $+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

Distributor’s 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...
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