The Situation:
The Executive Committee of Acme Chemical, a medium sized producer of industrial chemicals, is trying to determine which of two new products to introduce, but it is really a market targeting problem. Both products have similar gross margins, although each is somewhat less in margin than Acme’s existing oxidizer product. The stakes are very high, new products are the lifeblood of Acme, and a product failure could be catastrophic to the company. Tempers are short and passions are high in the conversation between Ralph, VP R&D; Sarah, VP Marketing; and Carl, El Bosso Grande.
Ralph: Compound A-115, the new electrolysis agent, is the new product for us! Why, for precipitating a synergistic reaction in silver electrolysis, A-115 has a distinct advantage over everything else in the market!
Carl: That makes sense Ralph. Acme has always avoided me-too products and if A-115 is that much better… Sarah, what do you think?
Sarah: I’m much more in favor of B-227, the new plastic oxidizer, because we have a reputation in the plastic compounder market – our existing plastic oxidizer is already well known. Plus, the newer, beta-prednigones based oxidizers, like B-227, are now 60% of total oxidizer product sales.
Ralph: The problem is that B-227 isn’t any better than any other beta-prednigones oxidizer, and it is actually inferior to the oxidizer product we already have. If Acme can’t sell the best oxidizer product on the market – and we can prove it is the best plastic oxidizer product- then there is something wrong with our marketing.
Carl: Just the same, others are cutting into sales of our oxidizer. The board of directors has been giving me the once-over on that one! Oxidizers are still 25% of Acme sales, but our oxidizer sales declined 10% last year. Sarah, what is the explanation?
Sarah: Well, it’s a tricky field. The plastic compounding process in which these oxidizers are used is always a touch-and-go situation; everybody is always trying something new.
Ralph: All the more reason to go with A-115! We have a real breakthrough here. I agree with Carl, that is our strength.
Carl: How about that Sarah? The oxidizer market is a real dog fight. Total oxidizer product sales are about $40 million annually, and growing, but there are three entrenched competitors and several low-price, off-brand, competitors. Why not stay out of this fight if the market is as tricky as you say?
Sarah: I just don’t feel right about it. The electrolysis market is much smaller, only about $10 million in annual sales, and, according to our survey, 95% buyers seem to be satisfied with Baer Company’s product.
Ralph: But Baer is the only competitor. Plus, as you say, our oxidizer sales have been declining while the total industry sales are increasing. We aren’t doing very well with oxidizers’ instability are we? The electrolysis field is much more stable than oxidizers and Baer’s share is very stable too.
Sarah: Well, I really don’t know much about the electrolysis buyers and how they… it’s really a different industry.
Ralph: Electrolysis is a different branch of chemistry too. But, I have every confidence in our lab team. I can’t see any reason why we would run into trouble. The A-115 product has a +3 superiority on the 100 point Sigma scale – here! This chart makes it crystal clear!
Sarah: But introducing an electrolysis product spreads us pretty thin. Maybe we should concentrate on our greatest know-how…
Carl: But maybe we should diversity a bit too? You know the old saying about all the eggs in one basket.
Sarah: But if it’s a good basket…
Ralph: Nonsense! It’s the eggs in the basket that count! B-227 isn’t a good egg and the A-115 is a golden egg!
Carl: Eggs! I’m sick of hearing about eggs! Just make sure we don’t lay one.
Question to be answered:
Which segment, plastic compounders or silver precipitators, should Acme target?