Zac Palet MKT 460 1:00pm 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 increase the suggested price of the BAM. Currently, the BAM is priced drastically lower than their other pieces of equipment and the aluminum version has a smaller profit margin because of this.
I suggest pricing the BAM so it will have similar profit margins compared to Loctite’s other pieces of equipment, which is about 25% when selling to distributors and 33% when selling to end users (excluding selling expenses). This means that the aluminum BAM would be priced at $165 for distributors and $185 for end users (costs from p. 5). Place: Loctite should expand their distribution network. Currently they only have about 71 general distributors (285*. 25 from p. 4) and 43 specialty distributors (285*. 15 from p. 4). One of Loctite’s main objectives is to expand their market share to 35% in the SIC industries (20-39).
So they should partner with distributors that specialize in the SIC industries (20-39). They should first partner with distributors that specialize in industries with the largest instant adhesive usage. This means that Loctite should first find distributors in the metal products, machinery (33-35) and electrical (36) industries because they use the most instant adhesives. There are about 15,070 instant adhesive users in the (33-35) industry (102,523*. 147 from Exhibit 1). Loctite will want to research what a good end-user company to distributor ratio is in that industry then use that to find how many distributors they want to partner with.
I am going to assume Loctite should use one distributor for every 100 end-user companies and that Loctite wants to achieve a 35% market share of the 15,070 users in the (33-35) industry. So I would suggest Loctite partner with a total of (. 35*. 01*15,070)= 53 distributors to sell to the (33-35) industry. They should continue to expand their distributors in all of the SIC (20-39) with similar rationale unless they are confident they can do the selling themselves. Remember 62% of instant users purchased their instant adhesives through distributors.
Promotion: Loctite and their distributors should include brochures on the BAM with all 1 lb. -packages of SuperBonder adhesives and with 10-packs of 1-oz. SuperBonder bottles during the launch period because these are the customers that would be the most interested in using a piece of equipment like the BAM. They should actively solicit inquires and orders on the brochures because this will lead to more immediate sales then brochures that are just developing awareness for the BAM. Including an address, phone number or Bingogram on the brochures and other promotions would be a very low cost way to solicit sales.
The price will have to be included in the promotions if Loctite tries to solicit orders. I would recommend a direct mailing program as well because it would be a relatively low-cost way to reach all of the potential buyers in the SIC (20-39) industries. I would not buy advertisements in selected magazines in the SIC (20-39) industries or general engineering magazines because it very expensive compared to other the other types of promotions and doesn’t segment instant adhesive users from non-users so a large percentage of the money spent on magazine ads would go to waste. 3. a. What are the economics of your marketing plan?
Loctite is the largest firm in the market and companies selling adhesive equipment will need a specialized sales force so the rivalry amongst Loctite and their competitors should not be very intense. Loctite views 3M as their only realistic competitor. However, the barriers to enter the adhesive industry are very low so the threat of new entrants could increase in the future. The largest substitute for adhesives is mechanical parts such as nuts and bolts. Adhesives have a clear advantage in functionality but North American industry still spends about $4 on mechanical parts for every $1 on adhesives.
However, adhesives are growing at an annual rate of 10% and slowly replacing mechanical parts. Loctite has a large number of potential buyers, which collectively decreases the buyers’ power, which is an advantage for Loctite. I took the treat of new entrants very seriously when considering my marketing plan. Loctite would be more vulnerable to the small European and Japanese competitors if they made the plastic version of the BAM because the smaller competitors may have enough capital to make a cheap adhesive applier as ell. By creating a higher quality version of the product they can set the industrys’ expectations and hopefully saturate the market with their product. I choose to not address the threat of substitutes when marketing the BAM. Adhesives are phasing out mechanical parts, not the other way around. A company must first be using adhesives before they would have use for the BAM. I thought it would be easier to cross-sell consumers already in the adhesive market. b. What are the critical assumptions in your economic analysis? 1.
If Loctite makes the aluminum version of the BAM competitors will not have enough capital to compete with Loctite’s superior quality. 2. Since Loctite is the largest firm in the adhesive market they will also be the largest firm in the adhesive equipment market. 3. Mechanical locking devices are the only substitutes for adhesives. 4. The growth in the adhesive market has resulted from firms choosing to replace their mechanical locking devices with adhesives. 5. Seasonality has no effect on the launch of the BAM and it can occur at any time c. Which of your assumptions are the most suspect?
My two largest assumptions are 2. and 4. above. An aluminum version of the BAM at a higher premium price will not be nearly effect if Loctite is not the largest firm in the adhesive equipment industry. If the market for mechanical locking devices is actually not decreasing as a result of the growth of the adhesive market then Loctite has much bigger problems. In this situation should not be focusing on the BAM, but rather educating potential customers of the advantages of using adhesives. 4. Examine the product/market and product/company fit of the BAM. What is your assessment?
The product/market fit of the BAM appears attractive. The overall adhesive market is increasing at 10% annually and instant adhesives are growing at a rate double to that. 26% of current users expected to increase their usage of instant adhesives and 51% expressed interest in improving dispensing technology. The sales of a product that effectively applies instant adhesives will likely grow at the same rate as the instant adhesive market. However, the product/company fit of the BAM appears very unattractive for many reasons that I stated in response to Q1.
Loctite is known for producing high quality products with expensive pricing and the BAM does not fit this image. The Systems Division has problems with the BAM and I expect the Sales Division would as well. Loctite just reduced their number of instant adhesives from 11 brands to 5 brands to reduce consumer confusion. Introducing a brand extension in their equipment line would follow the exact opposite strategy. Introducing the BAM would thus, have the potential to confuse customers and dilute Loctite’s existing brands in their equipment line. 5. What is Loctite’s current position in the market for industrial adhesives?
Loctite is the original patent holder and leader in the anaerobic adhesive market. In 1978 Loctite controlled 85% of the North American anaerobic market and also became the market leader for Cyanoacrylates (CAs). Howver, Loctite does not have nearly as big of a market share in the CA market. Loctite Eastman and Permabond combined collectively account for about 75% of the industrial CA market. Even though the barriers to enter the industrial adhesive market are minimal, few companies had the selling expertise to compete with Loctite except for 3M.
Loctite distinguishes their brand by making high quality adhesives that demand a premium price, which their customers are willing to pay. 6. What are the current objectives and strategy of the IPG in this market? Objectives: 1. Increase sales of instant adhesives to $4. 5 million. 2. Achieve a market share of at least 35% across SICs 20 through 39. 3. Achieve a substantial increase in awareness and trial of instant adhesives. 4. Solve the tip-clogging problem many instant adhesive users are having. Strategy: 1.
Broaden the reach of SuperBonder advertising through emphasizing advertising in general engineering magazines rather than industry-specific magazines. 2. Introduce the BAM to solve the tip-clogging problems associated with the smaller bottles. 3. Introduce the Gluematic Pen to solve the tip-clogging problems associated with the current bottles and tips. 7. What opinion would you have on the proposed BAM introduction if you held the following positions? Explain your answers. a. A Systems Division executive? A Systems Division executive would likely be strongly against introducing the BAM.
The Systems Division is known for their high-quality equipment. Other firms cannot compete with Loctite’s quality so they price their equipment as much as one-third lower. However, the BAM will not have the precise engineering like the Systems Division’s other products and will be priced at $175 (Loctite’s cheapest piece of equipment besides the BAM is $725). The BAM’s low price together with its cheap quality might jeopardize Loctite’s quality image. Adding a low-quality piece of equipment like the BAM to their product line would exponentially increase the System Division’s account maintenance, which is already high. . A Woodhill Permatex executive? A Woodhill executive would most likely not have a strong opinion about introducing the BAM because they sell instant adhesives to smaller consumer firms that would most likely not have use for the BAM. Currently, Woodhill sells to 75,000 retail outlets in the do-it-yourself market. Do-it-yourself outlets are known to be smaller outlets so it is unlikely they would ever need to purchase a product that would dispense one lb. of instant adhesive. c. An IPG salesperson? The sales force would not respond well to the introduction of the BAM.
The sales team is a group engineers that are experts in adhesives, not equipment. Additionally, they make a smaller commission percentage on equipment. They will not be able to sell the BAM as well adhesives and even if they could they would make less money selling it. However, there would be a silver lining: If a BAM is sold in a sales person’s territory they get commission on the sale even if they didn’t physically facilitate the transaction. If Loctite invests a lot into promoting the BAM, the sales team might get a lot of extra sales with little effort. 8.
Is the BAM a “trade down? ” If so, of what? The BAM is a trade down because Loctite already has several pieces of equipment that can do the same job as the BAM, but presumably better because they are priced well above the price of the BAM. Smaller consumer firms would not pay the premium prices for Loctite’s other pieces of equipment but they would also never have use for that type of equipment either. The larger industrial firms that would use the BAM on their assembly lines would be able to afford Loctite’s other equipment and would view the BAM as being an inexpensive alternative. . What did you learn about product line planning from the BAM situation? I learned that it is essential to engage the entire firm in the product line planning process. If the marketing team never communicated with the systems division and the sales force they would think the BAM is a great idea and the potential drawbacks would never have been heard. The marketing team must first convince the company that the product has benefits before the company can convince their customers.
