FUNDAMENTALS OF CHEMICAL MARKETING N o . 4 in α Series
Marketing N e w Chemical Products WROE. ALDERSON, Aldenon & Sessions, Broad & Walnut Sis., Philadelphia, Pa.
Analysis a n d planning lead to the marketing of a continually evolving product line as the basis for a company's long-run plans for expansion
L ME marketing of new products is of 'vital concern to the chemical industry. N o industry is more prolific in its devel opment of new products. Few industries are confronted with more complicated channels and processes for the marketing of their products, and market planning, analysis, and promotion face a severe challenge in n e w products programs. W h e n a product is designed to meet a special need, laboratory tests can go only part way in determining its effective ness. The ultimate test of a product is under actual conditions of use. T h e best product which can be designed in ad vance may still fall short of what is needed by consumers. From that point on, mar ket research can play an essential part in improving the product and adapting it more fully to use requirements. Management has important decisions to make as to how specialized a new prod uct should be. It must offer some point of difference or advantage to appeal to any prospective buyers. On the other hand· if it is styled too closely to the needs of a very limited few, it may never attain the volume which makes mass production feasible or profitable. While this con sideration is probably more significant with mechanical products, examples can readily b e found for chemical products. Synthetic detergents, for example, would actually need to contain only a small amount of water softener if used outside of the hard water area of the northeastern United States. Rather than make sepa rate products for each section of the coun try, a standard product is made with enough water softener to handle almost t h e hardest water In general use. While this means wasting softener in some states, It means an over-all economy because of t h e savings made possible in streamlined production and distribution.
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Λ primary concern of market analysis is to determine the degree of specializa tion which will favor the best over-all marketing results, combining the size oi the market that can be readied and the intensity of interest i n the new product that can be expected. Estimates of mar ket potential should bear definite dates, and when an analyst estimates that a cer tain quantity of a product can b e sold in 1953 or 1954, the· inclusion of the date reminds him to take realistic account of various trend factors. To hazard such a dated estimate h e must consider how fast his company can bring facilities into pro duction, what is the chance of produc tion economies which can liring down the price, what are the market prospects of the various using industries, and what competitors can ne expected to d o in the meantime. Λ development of sales methods and clianiitls is a very imgmrtunt phase of the technology of marketing. Chemical com panies are more and more confronted with problems o f this type as they move further toward finished consumer products. Selling a packaged consumer product through retail outlets» Is «in entirely dif ferent operation from the contract sale of
.DECEMBER
bulk tonnage to manufacturer*. More than one chemical company has decided that it would like to have a product or a line of products bearing its name going over the retail counter to consumers. Generally it has been iound that such a marketing operation called for selling techniques that were entirely outside the range of experience of the existing sales organization. It is quite possible, of course, for any substantial company to build the kind of an organization it needs if it is fully determined to put out a new line of products. Watch the W a y the Ball Bounces It is easily possible, on the other hand, that Mich a step will turn out to be waste ful of resources as compared to using facilities that are already in existence. Available distribution opportunities can be arranged according to a scale represent ing the degree of their natural interest In a product Skill in distribution engineer ing includes the art of finding and Interest ing the class of trade which has most to gain from helping a new product to be come established. The closer the com pany approaches mass marketing at the consumer level the more It will be nece*.
\ ¥ r o · Aldersoe has spent more than 2 5 years in marketing and economic research. H e is a past president of American Marketing Association, a co author of -Marketing" and cocditor of 'Theory in Marketing." He has served with ΟΡΑ and the For eign Economic Administration. H e formerly worked for Curtis Publishing Co. and has been consultant on distribution costs, pricing practices, and marketing policies. His work on problems of competition ana monopoly. In economics and marketing, and in ioneering new concepts and research techniques av© earned for him several awards.
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More and more chemical products are being offered at every level of distribution, and like the situation in a modern super market, addition of a new product may mean drop ping of an old one
sary to use a variety of trades and to try to get the best results from them as a team. The management of such a diversi fied distribution structure requires sound information and extensive marketing strategy. Generally it would b e constructive to assume that the job is that of creating marketing channels rather than merely using existing channels. Sometimes there is a deceptive appearance of available channels because of the existence of physical facilities such as stores and ware houses. These organizations need to be motivated and in some cases adapted to handle the new products, so t o that de gree the marketer is always cutting chan nels for his product rather than following a groove created by somebody else. Super markets may seem like large and roomy establishments t o the casual eye. From an operating standpoint, shelf space is so tight that taking on a new product often means dropping an old one. In the chemical field, channels may often have to lie created physically as well as psycho logically. Ours is α chemical age with more and more products of α chemical nature being offered at every W e i of dis tribution. Physical facilities simply d o not exist for the distribution of all of the chemical products that will b e o n the market five years from now. A dramatic example of how fast these changes can happen is offered b y the introduction of anhydrous ammonia as a fertilizer. This material has to be forced into the soil in semi-liquid or gaseous form. Special equipment had to b e designed to perform this operation. T h e equipment was too ex pensive to b e purchased for use o n most of the individual farms. T h e ammonia
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has to b e stored in tanks which will w i t h stand considerable pressure. Throughout the southeast, where this product is n o w in use, a w h o l e n e w service industry has sprung up in t h e last f e w years. T h e s e establishments have a number of storage tanks and look something like wholesale distributing stations for gasoline. Appli cator trucks load at t h e station and drive out to the f.»rm where the ammonia is discharged into the ground. This market for anhydrous ammonia c uld not have developed without a channel of distribu tion and n o channel w a s in existence which c o u l d handle the product. Very often it will be found that the market for some new chemical and the market for a piece of equipment must stand or fall t o gether. Principles Are Emerging Market planning is beginning to have a set of recognized principles, so that plan ning, no less than research, can b e carried out in q u i t e an objective way. A good procedure i s to list three or four major alternatives and to test each one of these against t h e marketing facts. T h e facts may point definitely to the selection of o n e cif the alternatives or suggest the possi bility of various combinations. The next step is to determine the scale of market ing action. A convenient device for this purpose is t o mark off the extremes of the scale as t h e first step towards deciding o n the best point somewhere in the range. T h e model marking the top limit might b e called the "maximum effort plan.** W e start with a n assumption as to the maxi mum resources available and h o w t o %uc them most effectively. T h e lower limit might be established b y setting u p the
CHEMICAL
"minimum result plan." When t h e a p proximate scale has been determined there are other principles which come into play in designing further details. An adequate plan must take account of the time factor in a variety of w a y s and relate it t o the business cycle and the competitive situation. T h e three funda mental factors which must b e kept in bal ance over the period of planning are pro duction capacity, potential demand at a given price, and the promotional expendi tures which may be necessary to turn p o tential demand into actual sales. T h e n e w product may require the construction of a costly n e w production unit. This in vestment may have to be amortized in the space of a few years since the product may in turn he rendered obsolete b y a still bet ter produit. The product must b e priced low enough to offer some hope of capacity operation and high enough to yield a mar gin over costs when opemting at that level. The initial price, the rate at which it will IK» reduced, the amount of promotional expenditure that will b e necessary to maintain the original jump on oompetition must h e carefully weighed and kept in balance- with the investment in plant facilities. Tims, while market planning utilizes the results of market analysis, the program for launching the new product must also take account of established sales and investment policies and t h e feel ings of management concerning t h e e c o nomic risks which will confront them over the planning period. What lias been said about planning pertain* t o the introduction of a n indi vidual product. There are broader reaches of planning concerned with the development of a whole product line.
ANO
ENGINEERING
NEWS
Each new product introduced b y an established company may b e regarded as a new feature or its line as a whole. The way in which a product fits into the line from the viewpoint of marketing as well as production is a very basic consideration in selecting n e w products for development. Industrial corporations may b e divided generally into those w h i c h are oriented to basic raw materials and those that are oriented to the market. T h e mechanical industries manufacturing such articles as refrigerators and television sets are good examples of industries that are clearly oriented to the market. Their products would not come into existence at all except to serve specific purposes and they would not be useful for other purposes. T h e chemical industry begins at the other end of the line and many companies continue to b e fundamentally oriented to raw materials. A manufacturer may start from some simple raw material such as sodium chloride and undertake to make any or all products which can profitably be manufactured from that substance. His products enter into final consumption in many end uses and through many channels of distribution. Such a manufacturer normally sells to other manufacturers and has little contact with the e n d users. In recent years, many chemical manufacturers have been perplexed about their situation in the market and have tried to reach forward toward products that were closer to the consumer. T h e goal of greater profits through marketing consumer products often turns out to b e illusory. A manufacturer selling to industry may look at t h e relatively high price paid by the consumer for products with a similar chemical base and assume that there are greater profits in that direction. Actually the reason for t h e high c o n sumer price is t o cover t h e costs of marketing. The manufacturer selling packaged products to t h e consumer does not have any higher profits on the average than t h e chemical manufacturer supplying formulators. Another motive for getting into c o n sumer lines is t o attain greater stability in t h e market. This goal has considerably more substance than that of looking for a d d e d profits in this direction. T h e manufacturer who can establish a preference
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PROMOTIONAL EXPENDITURE.
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for a branded product normally enjoys a considerable degree of market stability. A third w a y of looking at this basic issue is t h e comparative evaluation of all opportunities for expansion. That is to say that the chemical company w h i c h w a n t s to grow can expand horizontally b y getting into products requiring a different type of raw materials or it c a n expand vertically b y carrying its present products closer t o ultimate consumption. T h e r e is no general answer to this issue for all companies but there is a w a y of looking for an answer which might b e implemented by market analysis and planning. That is t o chart the flow of all products made b y the company all the w a y from t h e basic raw materials t o the final end use. While most of these lines will be divergent in t h e case of a company oriented t o basic raw materials, it may turn out that s o m e of these lines converge further on in distribution channels. That is to say that several o f the products made may turn up later o n as ingredients of finished products with q u i t e similar uses or distributed b y the
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same marketing channels and methods. Wherever several of these lines converge the company has a possible point of concentration at which it might establish itself closer to the consumer market. Each point of concentration represents an opportunity t o make a group of products which could b e handled through t h e same sales organization, and whether the company should develop such products depends on both production and marketing considerations. T o produce them it will need additional raw materials and additional processing equipment. To market them it will need a sales and advertising organization and program quite different from that required to sell to industry. If there are several such points of concentration in the picture, analytical techniques can evaluate them relatively t o each other. One group of products would presumably turn out to b e a better bet than those represented by any other point of concentration. The opportunity represented by t h e introduction of these new products might then b e compared with the best opportunity available for expansion in a horizontal direction. The best policy on this fundamental issue would undoubtedly change over a p e riod of time. That is to say that after a period of expansion in the horizontal direction, a company would b e well a d vised to reconsider opportunities for expansion in the vertical direction. The wider the range of basic raw materials o n which the company was working t h e greater chance there would b e of points of concentration in t h e subsequent flow of these products which w o u l d justify e x pansion in t h e vertical direction. In any case, it is hoped that the discussion of this issue will indicate the necessity for combining analysis and planning at every step. Analysis provides t h e building blocks for planning but longrange planning identifies the issues to which analysis should be applied. At this level of consideration, it is not the marketing of individual n e w products which should be stressed but the marketing of a continually evolving product line as t h e basis for t h e company's long-run plans for expansion. Fourth in * series of p a p e r · presented before sion of Industrial and Engineering Chemistry in Atlantic City cm Sept. 1 6 .
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