Reference no: EM131709084

MARKETING: Channel of Distribution.

QUESTION: The Star Chemical Company is seeking an efficient way to distribute a new germicidal chemical for swimming pool cleaning. It needs to identify the distribution alternatives and find the best one. Star Chemical has called you to consult on this problem. Management would receive a clear picture of its major distribution alternatives. It would also like you to propose a method for evaluating the major distribution alternatives on a quantitative basis.

Problem Situation:

The Star Chemical Company is an old-line manufacturer of chemicals with annual sales of $500 million. In recent years it has experienced a profit slump, mainly because of excess capacity and severe price competition. Industrial buyers choose their chemical suppliers chiefly on price. They pay some attention to delivery reliability and service, but generally they show little loyalty. Star had been more profitable in the past because of superior production efficiency, but competitors had built newer plants and were enjoying equal or lower costs than Star.

A number of stockholders were critical of Star's management for not getting into consumer products. Other chemical companies had integrated forward into making and branding some of the final products that were sold to consumers, thereby capturing the value added and sheltering these products from strict price competition. Star Chemical had not done this, primarily because of its lack of experience in consumer marketing and the absence of any specific product opportunities.

Star's research and development department recently formulated a new line of chlorinated organic chemicals that function as bleaches, germicides, and oxidants. Ralph Hemstead, the R&D director, suggested that one of the uses of the line could be a germicidal chemical for the swimming pool market. He believed that the new chemical would have qualities superior to those of existing swimming pool chemicals. Top management was interested because this offered an opportunity to enter the consumer market on a small scale and gain experience.

A new products committee consisting of the research director, sales manager, marketing research manager, and advertising manager met to discuss what to do with this new consumer product opportunity. They knew that there were a great number of swimming pools in the United States (residential pools, motel pools, public pools, school pools, etc.). Most of the private residential pools were found in states with warmer climates, although some were located in all big cities. Pools required periodic chemical treatment to keep them safe to use. Pool owners and managers bought their supplies through department stores, hardware stores, garden supply stores, pool specialty supply houses, pool service firms, and so on.

Star Chemical's sales force had no experience selling to wholesale or retail firms in the consumer area. However, the sales manager felt that the sales force should be given a chance to sell the new product to the appropriate channels of distribution. Otherwise the company's salespeople would feel bypassed and demoralized by losing a chance to make commissions on the new product. The other managers, however, felt that the company's sales force should not be diverted from its regular job and that a new sales force or distributor could handle the new task more efficiently.

The members of the new product committee realized that there were many alternative approaches to the marketing of this germicidal chemical. They recognized the need for clear criteria to make a choice among distribution alternatives. The members agreed to judge alternative proposals against the following criteria (percentages show the criterion's rated importance):

1. Effectiveness in reaching swimming pool owners

2. Amount of profit if this alternative works well

3. Experience company will gain in consumer marketing

4. Amount of investment involved (lower investment considered preferable)

5. Ability of company to cut short its losses