Loctite Adhesive

Marketing Strategy BUS 37000 Saturday Section Bond-A-Matic Product Marketing Plan Partha Srinivasan “I pledge my honor that I have not violated the Chicago GSB Honor Code during the Preparation of this assignment. ” Bond-A-Matic Marketing Plan Executive Summary With the introduction of a unique low-cost adhesive dispensing product named as Bond-A-Matic (BAM), Loctite Inc is seeking to resolve dispensing issues such as clogging in smaller adhesive bottles. As a leader in development of high-performance adhesives and sealants for industrial and consumer applications, Loctite has a mission to become the premiere worldwide marketer of instant adhesives for industrial use by 1985. By increasing product awareness & brand recognition for Super Bonder, a CA adhesive product line, Loctite has improved sales revenue in 1978 over the previous year’s sales. With the idea of complementing Super Bonder, Loctite is hoping to expand adhesive dispensing equipment sales by introducing this new product. Bond-aMatic will be positioned as the low cost dispensing equipment for Super Bonder adhesive users. Situation Analysis CA sales were increasing at a rate of about 20% annually (twice the total adhesive market growth) and industrial adhesive use is outgrowing consumer market.

Also based on a market research survey in 1977, it is found that 60% of purchasers bought less than a pound of CA adhesives while 55% of sales volume accounted for by small firms with fewer than 20 employees. By solving some of the problems (such as clogging) in dispensing adhesives, Loctite can improve its sales of industrial use CA adhesives. The current situation is further analyzed in detail in terms of consumer behavior, competition, Loctite’s core competencies & SWOT analysis for Loctite (see appendix A, C for information). Objectives for Bond-A-Matic Launch The launch of Bond-A-Matic product will be guided by two primary objectives 1) to catalyze Super Bonder sales with the help of complementary dispensing equipment in order to achieve corporate goals 2) To create a market for low cost high precision adhesive equipments by offering attractive price point for small firms. Plan of Action Product Strategy The main emphasis of Loctite’s product strategy is to create a high-quality, anti-clogging low cost product. The low pressure model was originally designed for Super Bonder 420 and 495. However, since this model can also handle Super Bonder 430 and 414 models, we will label the model to handle all 4 Super Bonder products. This could help with getting maximum contribution from the model that has lower material cost ($75). For the high pressure model, we can charge it a little higher premium (to breakeven for the additional material cost) and label it as the primary model for Super Bonder 416 but to also work for Super Bonder 430 & 414 products. Since many users (about 71% purchasers per Exhibit 3) use instant adhesives for only one application, this product labeling strategy should not significantly limit sales for High pressure model. The Gluematic tip is used to bond rough surfaces such as metals & plastics while the Vari-Drop applicator with needle is used for soft surfaces such as rubber. So including both Gluematic tip and Vari-Drop applicator in the package makes it convenient for consumers for ready to use for both surfaces. In addition, Loctite can also sell the applicators as replacement accessories.

Loctite should include a self-training kit & user manual along with an attractive packaging. We will subcontract the parts assembly work to third party to reduce costs. Since BAM can also be used to dispense a broad range of adhesives, future product strategy should be to make BAM usable for dispense all adhesive products (as it’s already capable to dispense many adhesives). Promotion Strategy Loctite should target small firms and include other SICs such as 75, 76 as these industrial segments seem to have very high % of user establishments that use instant adhesives.

The following promotion ideas should be considered: 1) Advertise Bond-A-Matic in magazines targeting small firms and specific industries. The focus should be to advertize BAM as a ‘Product that fits small firm needs’ instead of marketing it just as a ‘low cost solution’. This strategy would reflect better on the Loctite brand and would not jeopardize existing equipment (sold to large firms) sales. ) Combine BAM advertisements with the Super Bonder adhesive advertisement. This would help to promote joint sales as well as help reduce advertisement costs. The selling point for small firms is low cost equipment that optimizes use of high quality adhesive and reduces total cost. By eliminating clogging, providing faster application and reducing assembly errors (Exhibit 8), BAM will be positioned as the product that reduces mess and helps small firms save on labor and adhesive costs (more under pricing strategy). 3) Include brochures on Bond-A-Matic with 1 lb packages of Super Bonder adhesives with 10 packs of 1 oz Super Bonder bottles.

Include product information highlighting benefits such as anti-clogging, no mess/waste (and others in Exhibit 8), a response/ordering card with discount coupons. Sales personnel could follow up any leads that come from brochure response. 4) Include one year limited warranty (include warranty registration card) instead of 30-day free trial to reduce return expected costs. This plan would also go well with the Loctite brand image. ) Offer bulk purchase discounts and build proper incentives to sales force to persuade distributors and end users to avail this promotion. 6) Train sales team to determine the correct model and best fit for intended applications. Also provide them priority of sales (Super Bonder vs BAM) based on profitability of the product rather than sales generated from a given product. 7) Incentivize distributers to stock and sell BAM by providing a high profit margin (more detail under distribution strategy). Provide POP displays and other promotional material to the distributors and pursue them to actively work with plant and production engineers in the clientele. Pricing Strategy As explained under Product Strategy, low and high pressure models are priced differently to maximize contribution. We cannot do a value pricing based on the benefits as we do not have any quantifiable information about the benefits of using BAM. Though many industrial users are price insensitive (about 81% of surveyed users per Exhibit 3), we are not sure whether a higher price for the product would be attractive enough for small firms. So proposed pricing in Exhibit 10 is not changed but instead all the accessories will be packed with BAM and priced together. If we add Gluematic tip, Vari-drop applicator and needle prices to the base price of $175 for BAM, the final price to end user would be around $199. At this price, the unit contribution towards fixed costs/profit would be about $88 via direct sales (drop shipment) and $58 via distributors giving 25% commission to distributors (see Appendix A-Price for more details). The high pressure model could be priced at $228 to make up for higher costs to provide a unit contribution of $85 via direct sales and $51 via distributors (see Appendix A-Price for detailed pricing information). By keeping the prices for both low pressure model ($199) and high pressure model ($228) below capital expense limit of $250 allowed for plant & production engineers, quick purchasing decisions could be made by plant and production engineers without the need to involve design engineers and purchasing staff.

Distribution Strategy Loctite will take full advantage of its excellent relationship with the existing distributors. Since 62% of the adhesive users purchase instant adhesives via distributors (exhibit 3) and about 50% of Super Bonder sales are done via distributors, using the current selective distributors for BAM sales should work fine. Since the BAM is low maintenance equipment that provides an equal profit margin as adhesives (about 25% RefPage 4), Loctite should be able to convince distributors to carry BAM. Also Loctite has to create training programs along with promotional material and display materials for distributors to help them sell BAM more effectively. In addition to sales via distributors, Loctite should perform direct sales for customers requesting via mails. In the future, if Loctite expands the BAM product to all adhesives, having a broader distribution with retail channels, more specialized distributors etc would be ideal. Costs and Budget Assuming Loctite targets SICS 35-39 & SICs 75-76 there will be a total available market size of around 103K user (current & potential) establishments. Several assumptions are made (see Appendix B-Assumptions) such as the following: The market demand for low pressure & high pressure models are assumed to be equal (i. a potential firm would buy either low or high pressure model). So the average BAM price & cost are calculated as averages between low pressure and high pressure models for calculation simplicity.

The sales via distributors are assumed to be 80% and the remaining 20% via Loctite direct sale (with 10% drop commission to distributors). Also advertisement costs are assumed to be 20% of the proposed cost given in Exhibit 11. By selective magazine advertisements and combining with Super Bonder advertisements, the advertisements cost is assumed to be reduced. The number of sales calls generated via advertisements/other means is assumed to cover about 10% of the potential market size. Sales visits will be made only to the 285 distributors to reduce sales expense. Below is the short summary of the sales projection (detailed calculation, assumptions in Appendix B): Based on the calculations, Loctite will be able to break even after 3rd year and make profits from BAM product. Competitive reaction Based on the available information, the competitors for the dispensing equipment are small firms and do not have the required sales force/distribution channels. So Loctite does not have any significant competitor threat for equipment sales in the near future. However, larger adhesive competitors such as 3M could enter this market and compete aggressively on price and other benefits.

Loctite has to actively monitor the competitive landscape and make sure their product strategy would meet the competitive challenges. As mentioned earlier, Loctite should consider broader distribution to reach out to retail channels as well as extend product sales to all adhesives to reduce the threat due to competition and any other unfavorable conditions in the future. Action Programs This marketing plan is focused on the product positioning & promotion strategy to market the BAM product. These changes can be immediately put into place.

The sales staff will have to support this initiative by discussing and explaining these changes to distributors. The promotion strategy will require at least 3-4 months acquiring the necessary brochure preparation, revised packing and designing POP displays. Controls and Revisions In order to ensure proper implementation of the plan, constant monitoring and control of the marketing activities is needed. Sales and market share analysis will be performed each quarter to evaluate customer penetration, loyalty, distribution channel performance to identify any shortcoming in product positioning, pricing, advertisement strategies. Loctite also has to monitor the impact of CA adhesive sales & other dispensing equipment sales due to BAM introduction.

Customer data would be acquired from the distributors and consumer behavior needs to be analyzed. Similarly, customer and distributor surveys at regular intervals should keep Loctite abreast with the latest consumer/distributor demands and product perception amongst the consumers. While it is anticipated that the actual market and sales results will deviate from the target, proper monitoring mechanisms will help understand the deviations and help refine the targets. Comprehensive data on consumer and supplier demands will be used to reduce BAM product costs, by using just-in-time inventory management, lean manufacturing and improved economies of scale with better negotiated/reduced costs. Future Recommendations For future, it is recommended to evaluate a broader launch strategy by selling BAM to be usable for all dispensing adhesives (not just CA) and selling it via retail channels. Currently Super Bonder has good sales revenue (3. 44M) but the profit margin seems to be low (18%) at $620K. Having a broader distribution network and reaching out all profitable SICs through focused marketing would help to improve net margin as well as help Loctite achieve its objectives. Case for No-Go Decision There are several issues that pertain to the business case and value proposition of the BAM product.

Firstly, Sales force expressed the difficulties of assembly line workers for dispensing during 1977 sales leadership conference. However, Loctite seem to have addressed this issue in FY 1978 itself. As a result of market research study, Loctite introduced a built-in applicator allowing greater dispensing control for 1 ounce SB bottles. Unless there was a follow up survey to understand whether this change satisfied the dispensing needs, there is no sufficient justification to introduce this product to address the same issue. Also, this product request is only initiated from assembly workers point of view. So we need to know whether other industries will have similar issues for dispensing to make this a viable product to make. So a much more thorough analysis of the market needs should be performed before introducing this product. Even if we plan to introduce this product targeting small firms, the projected sales (see Appendix B) does not provide a compelling ROI to make such an investment.

Further, it also introduces new risks of cannibalizing more expensive dispensing equipments if the current equipment consumers perceive this product just as a low cost alternative. There were also concerns about BAM’s impact on Loctite’s and Super Bonder’s brand image. Moreover, the benefits from using BAM are not clearly quantified to justify the value for to persuade small firms to make this capital investment. The advertisements for Super Bonder were successful partly due to the quantifiable comparison (Exhibit 6, 7) with the competing product/technology. BAM missing such valuable marketing appeal makes it harder to market and convince customers/distributors. For an effective & aggressive advertising campaign, there should be sizable market with a potentially higher penetration prospective. BAM product’s total market reach is not clear since the CA adhesive market is fragmented and very diverse. Also it may be too expensive to reach all the potential consumers to make a successful launch.

Based on Exhibit 3, about 60% of the purchasers buy less than one pound and another 29% buy only 1 to 9 pounds annually. So, it would be hard to convince such low quantity adhesive purchasers to be interested in dispensing equipment unless there is a quantifiable annual savings using the equipment. Even with such savings, unless the CA adhesive usage level increases to a higher level, the need may not be very pronounced to make BAM an attractive product. Also, in terms of product development cycle, some key steps such as business analysis (as mentioned above) and test marketing are missing which are absolutely necessary before launching such as product (see Appendix D). Based on the above mentioned issues, it can be concluded that unless we have more detailed information on the product needs and a concrete business case, there is a serious risk of failure for launching the BAM product. Partha Srinivasan Appendix – A 5Cs & 4Ps Company Loctite sold over 300 adhesive products and has established itself as a market leader in high-performance adhesives and sealants for industrial and consumer applications.

With approximate sales revenue of $22. 4 million (70% revenue out of $32M) from selling anaerobics and CA adhesives, Loctite held a dominating 85% NA anaerobic market share in 1978. Loctite has established an internal goal of increasing Super Bonder sales by 31% ($3. 44M to $4. 5M) and market share of 35% in 20-39 SICs. Further, Loctite held 50% dollar market share of an approx $2. 9M market. Loctite held a premier brand image and was known for high quality products and was able to command premium prices among both distributors and end users. BAM provides an opportunity for Loctite to expand the breadth of its adhesive equipment products and develop strength in adjacent competencies for Loctite. Consumers Automatic adhesive dispensing equipment is generally used by large firms. During a 1978 survey, 51% of users expressed interest in improving dispensing technology. Loctite responded with a built-in cap applicator improving dispensing control for standard 1 ounce bottles.

Though the user satisfaction feedback is not available, BAM was developed to address the frequent adhesive clogging issue for assembly line workers. About 10% of the firms were concentrated within 16 SICs groups. About 55% of the instant adhesives were bought by small firms though in very small quantities and many of them used adhesives for only one application. More consumers were price insensitive (current & potential) but considered technical support is very important. Competitors While there were some significant competitors in the adhesive market such 3M (anaerobics), Eastman, National Starch and Chemicals Inc (CA market), adhesive equipment market did not have any significant competitors. Though the competitor products were quite cheaper (about $240) when compared to Loctite’s products (cheapest product, 200 console plus applicator at $725), competitors were small in size with limited marketing resources. BAM should be priced so that it would not be cannibalize but complement Loctite’s current product line and compete at lower end segment. Collaborators Loctite worked with its distributors to sell over 50% of their Super Bonder adhesives. A large number of its distributors sold diverse range of products and supplied to machinery and equipment manufacturers.

Loctite also had very good relationship with distributors and held very effective training programs. Due to these reasons, Loctite was able to command premium prices among distributors and end users. Loctite was using a selective distribution strategy (working only with 285 distributors out of 10,000 distributors nationwide) as it elieved that its distributors had good market coverage and provided a superior service. Some officials were concerned about their current distributor’s ability to work with the correct person to work with on the end user firm and called for a broad distribution approach.

Context The market for CA adhesive is growing at rate of 20% every year, with total adhesive market at about 10%. The need for adhesives in the industrial segment is growing faster than the consumer segment but industrial segment is more vulnerable to economic downturn. CA adhesive market is wide spread and fragmented than the anaerobics market. A large volume of CA adhesives were bought by smaller firms. Product The Bond-A-Matic product was developed in response to the sales leadership conference finding that assembly line workers had difficulties in dispensing CA from one-ounce and smaller bottles. The product was developed to leverage from the year’s innovative Gluematic pen’s tip applicator which facilitated precise adhesive placement to prevent clogging. The product had several benefits (highlighted under Exhibit 8), but none of the benefits were quantified. Price The proposed price of $175 for the BAM is targeted to provide a low cost solution for dispensing problems in small bottles. Loctite is skeptical about the impact of low price on Super Bonder brand image and sales of other products.

But this low price also provides an opportunity for quick purchase decisions for plant and production engineers as the capital cost is less than $250. Also this low price makes this product attractive for small firms that do not typically buy dispensing products. Though we do not know how to quantify the benefits for BAM, we know that the replacement cost would be relatively low. For instance, a single Gluematic tip (costing $1) can be used for atleast 40 ounces of Super Bonder (good for 12,000 dot applications). Below is the summary for BAM & accessories prices along with the newly proposed price for BAM package, and the current pricing model for existing dispensing equipments.

Place Consumers purchase adhesive mostly via distributors (about 60%), retailers (about 35%) and a little directly from the manufacturers. Loctite has a small but strong distribution network to sell its products. Promotion BAM product is targeted to sell along with Super Bonder which was heavily advertized in 1978(with about 30% advertising costs). This helped Loctite to improve Super Bonder sales from 62K pounds to 92K pounds. Though advertising was an excellent tool to spread the product awareness, it is expensive. So advertising should be kept at a minimal level until enough revenue is generated to sufficiently increase marketing (for instance, when broader distribution is planned). Therefore the BAM product is planned to sell mostly via distributors and direct sales (received via responses to brochures included in the Super Bonder package and other means). Appendix – B Diffusion Model for Revenue and Costs Prediction Because of the scatted customer distribution and customer possible reluctance to accept a new product the p and q values in the diffusion model are set at 0. 01 and 0. 5 respectively. Assumptions The potential market size for a given SIC is calculated based on the % of User establishment + Additional % of Potential User establishments multiplied by the number of user establishments for that SIC. Assuming Loctite targets SICS 35-39 & SICs 75-76, we will have a total market size of around 103K user (current & potential) establishments to sell both low pressure & high pressure BAM models. P is assumed to be really low since the small firms were not used to buying dispensing equipment and large firms usually bought the high-precision equipment with adjustable pressure regulator.

The demand for both low pressure and high pressure BAM models are assumed to be equal. So the average price is calculated as an average between low & high pressure models. Distributer sales assumed to be 80% and remaining via direct sales. Distributor sales commission for direct sales is calculated as 0. 80*0. 25 = 0. 20, distributor commission for drop sales is calculated as 0. 20*0. 10 = 0. 02 Only new sales calculated(i. e no equipment replacement sale and accessory replacement sales figures are considered) Sales personnel need to visit each distributor (total 285 distributors) yearly Sales calls assumed to be made atleast to 10% of the potential customer base Advertisement costs are assumed to be reduced to 20% of the proposed $51K by reducing number of advertisements on magazines and combining them with Super Bonder advertisement. Appendix – C SWOT analysis Strengths Leader in high-performance adhesives and sealants for industrial and consumer applications (85% market share in anaerobics) Strong distribution network and excellent training programs Strong brand image and known for selling premier products Opportunities Untapped market for small firms Improve marketing strategy for maximize product reach Weaknesses Least market knowledge on CA adhesive user behavior Little focus on adjacent competencies such as adhesive equipment sales Selective distribution nhibiting growth Niche (only high price) products that can be impacted during tough economy. Threats New players such as 3M in anaerobics due to low capital to entry and expiration of patents Fragmented CA market can lead to lower profit margins. Appendix – D Analysis of the new Product development Process for Bond-A-Matic Idea Generation: During 1977 Sales Leadership Conference, several salespeople highlighted difficulties of assembly line workers in dispensing CA from standard one ounce & smaller bottles. A FY1977 survey of CA industrial users also confirmed that a number of users were interested in improving dispensing technology. Idea screening: BAM is envisioned as a low cost adhesive dispensing system that leveraged from the innovative Gluematic tip to prevent clogging and mess around the assembly line.

Initial development: After extensive testing, 2 BAM models were developed to address high & low viscous adhesive products. Also some preliminary tests were conducted to confirm the faster operation (apply a dot of adhesive every 3 seconds) and tip durability (usable for about 40 lbs of adhesives). Marketing strategy development: Loctite was trying to understand the ideal target market segment, whether to productize both models, what accessories (Gluematic tip, Vari-drop applicator) to package with BAM. Loctite was also debating about low pricing and promotions such as 30-day free trial or 1 year warranty. It was also trying to analyze the need for an aggressive advertising via magazines, use its own sale force or do telemarketing. It was also considering direct mailing as an alternative for magazine advertisements. Business Analysis: There is not a lot of business analysis done to understand the business case for BAM. Loctite was concerned whether BAM would stimulate or cannibalize current sales and whether broader manufacturing would be possible. Without proper market segmentation analysis via market research and via market surveys, it would be hard to analyze the business case. Product development and market testing: There was no prototype testing or market testing before the launch. So there was very little knowledge on the market acceptance for this product. Commercialization: Loctite is considering commercialization early 1979 based on the marketing plan. It is evaluating impact on other products, pricing impact, quality assurance and advertising factors to make a decision on launching the product.

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