1. Should IPG introduce the BAM? Why or why not?
I do not think Loctite should launch the Bond-O-Matic 2000 (BAM). Loctite manufactures high quality equipment and adhesives and the BAM would dilute this quality. Consumers are willing to pay a premium price for Loctite’s products because they know they are getting a high quality product. The BAM could damage the company’s image because it is priced well below the company’s normal pricing at $175. This could corrode customers’ relationships with all of Loctite’s products, especially their SuperBonder adhesive which would share the Loctite name and a similar brand name. Loctite’s other pieces equipment all have a profit margin around 25% when selling through a distributor and 33% when selling directly to the end user (Exhibit 9). However, the aluminum BAM would have profit margins as low as 12.5% and 22% respectively while also having the cheapest sales price of Loctite’s line of equipment.
72% of purchasers from distributors and manufacturers stated that technical service was important in their choice of an instant adhesive supplier. The large amount of account maintenance is already a headache for the systems division. Introducing the BAM would expand this problem and Loctite may not be able to effectively provide the technical service that their customers value. The tip to the BAM, if used properly, would be good for only 12,000 dot applications while the BAM contains enough SuperBonder for 13,600 dot applications ($850/per ounce*16). This is a factor that will surely draw complaints for the maintenance division and corrode Loctite’s image of quality.
The sales force would not respond well to the BAM. They are highly specialized adhesive experts. However, they are not well versed in selling equipment. Additionally, they make a smaller commission percentage on equipment. It is unlikely that the sales force will sacrifice valuable time to educate them selves on a product they will make less money selling so Loctite would either have to pay for their training or hire more sales staff. Either option would create more costs to fund a project that would already be making very small margins.
Advertising the BAM could prove to be very costly if the product does not sell. However, the advertising could be too effective and produce more demand for the BAM than Loctite could handle at this time. Loctite does not have a certain advertising strategy to hedge against these unfavorable outcomes.
Additionally, there may not be as large of a demand for this product as the marketing team thinks. Exhibit 3 showed that only 11% of firms using instant adhesives purchased 10 or more pounds annually while 29% purchased between one and nine pounds and 60% purchased less than a pound. Furthermore, 71% of purchasers used the instant adhesive in only one application. These statistics suggest there would be more demand for a product that dispenses smaller amounts of adhesives so it would be smarter for Loctite to concentrate their marketing efforts on the Gluematic Pen instead. Loctite already has several pieces of equipment (Exhibit 9) for the 11% of firms that use a lot of instant adhesives.
Furthermore, The $48,000 investment already spent on the development of the BAM is a sunk cost and therefore should not be considered when making decisions about the future of the BAM.
2. What marketing program do you recommend for the BAM? Be specific and include all of the elements of the marketing mix.
Product: I would only launch the aluminum version of the BAM because it is a higher quality product. It has the higher pressure to handle more viscous adhesives so the gluematic tip doesn’t clog. Tip clogging was the problem that prompted the idea for the BAM in the first place so introducing the plastic version that would only work for select adhesives could anger customers that were irritated to begin with.
Price: Loctite should...