Rohm & Haas Essay

Rohm & Haas recently introduced a new product, Kathon MWX, in order to exploit an untapped portion (reservoir capacity under 1,000 gallons) of the biocide market. Even with limited competition within this segment, Kathon MWX has not been able to produce its annual target revenues, only capitalizing on roughly 6% of said target in a 5 month period. Large-scale distributors, who exhibit the most buyer power and influence over end customers in the industry, threaten manufacturer brand equity by relabeling all biocide maintenance products under their own brands.Even though Rohm & Haas does not allow distributors to change the label on Kathon MWX, the lack of end customer awareness for the manufacturer brands has detrimentally limited sales due to precedent relabeling habits in the industry. Rohm & Haas can achieve and possibly surpass its sales targets in the short-term by increasing price and incentivizing distributors with higher margins, and in the longer term by strengthening sales channel relationships with industrial supply houses and machine tool shops, as well as mitigating risk of brand cannibalization of other products by relabeling Kathon MWX.Analysis Kathon MWX At the end of December 1983, Rohm and Haas introduced Kathon MWX, a biocide, which is specifically geared toward smaller, individual tanks.

Research shows that in best case scenario, Kathon MWX can save an end user up to 54% of annual cost when used. (See exhibit 1). However, despite Kathon MWX’s high quality and relatively low price, Rohm & Haas has been struggling with its sales of the product and establishing market share. Kathon MWX has not even reached a tenth of its targeted revenue during the first half of the year.Currently, the maintenance biocide market for small reservoir end users is near equally dispersed among a few large players, but its $20 million potential is far from realized due to the infancy stage of demand. We believe that Kathon MWX’s introduction did not yield the expected results primarily due to misaligned positioning, pricing and channel target strategies.

Before Kathon MWX’s introduction, Rohm & Haas focused supplying biocide (Kathon 886 MW) to large scale users (8,000 – 250,000 gallon reservoirs) and has built its channel infrastructure around large istributors, or formulators, and 325 end users to sustain this business model. With the introduction of Kathon MWX, Rohm & Haas has entered a new, small-scale market segment with 150,000 end users who primarily obtain the product through stores and supply houses then distributors. Due to brand relabeling by distributors, the Rohm & Haas or Kathon brand names do not carry any brand equity to the small-scale end users. While Rohm & Hass has advertised, no one knows or remembers who they are, and it is daunting for 6 salesperson team devoted to the biocide product lines to market to such a large nationally dispersed customer base.The company cannot keep using its model of calling formulators 33% of the time and visiting customers the rest, the process will take decades. Combined with formulator brand relabeling, it becomes nearly impossible for the end user to have any awareness on which brands are superior.

The distributors act as gatekeepers to this market and lack of brand awareness makes it even more challenging to create any kind of leverage for Rohm & Haas. Competition & Pricing Rohm & Hass identifies itself as the price and quality leader in the industry.There are three major competitors who each own a similar 15%-20% share of the maintenance biocide market that challenge Rohm and Haas’s market position with only a couple of entrants (serving only large-scale, central system users). Each competitor follows a similar marketing model with small sales forces, reach out to distributors then hit as many end users as possible. The distributors, in essence, are the true competitors of market power who seem to be driven by not necessarily price, but margin and brands.

In smaller reservoir sizes, distributors receive a $3. 75/pound margin ($4 cost) on Angus product (serving 25 gallons), a $7. 66/pound margin ($2. 34 cost) on Dow Chemical product (serving no less than 500 gallons), and a, for the most part, $1/packet margin ($1 cost) on Rohm & Haas product.

The higher margin products also miss a benefit either in fungi or smell reduction. Why should Rohm & Haas expect large volume sales and scale economies on the industry quality leading product when it’s offered on the dollar menu?The distributors operate a toll-booth and the highest bidder gets to pass. Rohm & Haas needs a competitive value proposition that cannot be refused. Evaluation & Recommendation Little or no brand awareness of Kathon 886 currently exists. By rebranding Kathon MWX– a brand extension of Kathon 886, Rohm and Haas Brand does not add any value to the brand nor to the positioning of the new product. We recommend that Rohm & Haas markets Kathon MWX under a different name that better describes the product and by which customers can recognize it.We suggest that that the new brand name suggests something about the benefits of Kathon MWX, but more than a name is needed. To develop brand awareness for the rebranded MWX among end customers in the short-term, the company can continue its current strategy of pursuing distributors and have them include the new brand name with the package.

However, the strong sell comes from raising prices (and margins) to distributors (see exhibit #2). Rohm & Haas can inherently raise its prices to a competitive level, give a larger margin, by over 400%, to distributors and raise its own margins by over 500%.The 1,350 box target volume just turned into 270, but we believe the distributors will sell much more than that with the added incentive. We believe that as the company is targeting a new customer segment whose needs revolve around biocide for smaller, individual tanks and in the long term, it needs to extend its distribution network to industrial supply stores, machine tool shops, and local small stores. With the limited sales force available, we can target the stores and shops in major cities in the proximity of small & mid size metalworking industries.This will ensure that the product is within direct reach of the end consumers after the initial sale has been made through the distributor package. Rohm & Haas can take many other avenues to help ensure that the above advantage can be sustained.

If it has not already, to avoid copycats, it must protect its intellectual property through the use of patents. Another idea is if the Kathon MWX packets are recyclable or reusable after depletion, end consumers can send them back for a small credit, and Rohm & Haas can also become the green leader by decreasing its environmental footprint.The added benefit is that Rohm & Haas can then reach more end customers faster through this incentivized correspondence. If you have 20 sales people max trying to reach 150,000 customers, why not have the customers come to you and feel good and earth-friendly about it? This is assuming the packets can be recycled. In the end, Rohm & Haas needs to incentivize the distributors as the pushing arm while they can sit back and focus on the pull.