Zoe AtlasGroup #4 Case: Soren Chemical
A. Market SizeCoracle is one of the clarifiers developed and
produced by Soren Chemicals, which targets residential pools. They
are a smaller size than commericial pools and water parks, that are
served by other clarifiers, like the Kailan MW, which is also
produced by Soren Chemicals. Very small quantities of Kailan MW are
sufficient to treat large volumes of water but it is unsuitable for
smaller-scale applications such as residential pools due to the
fear of misuse and safety risks. The targeted residential pools of
Coracle have a lower volume of water, a lower volume of swimmers,
and a less intense maintenance program. It is estimated that there
are 9 million residential pools in the United States. As
demonstrated in Table A on page 5 of the case, the average length
of pool usage is 5 months, from May to September, with less people
swimming in cold weather from October to April. Currently, Coracle
has three leading competitors for residential pool-use clarifiers:
Keystone Chemical, Kymera, and Jacson Laboratories, and each of the
competitors has a 15% to 20% share of the residential pool
clarifier market. This means that there is roughly 40% to 55% of
the market share left to Coracle and other smaller competitors. If
you factor in Coracle's three main competitors along with the many
other smaller-scale suppliers, it can be suggested that roughly 15%
of the market share is what Coracle needs to address. This means
that the addressable market share is $7,846,373. Based on this
analysis, the first year goal of $1.5 million in sales is
reasonable for Coracle. If you divide the addressable market size
of $7,846,373 by 5 (5 months of average pool usage), it comes to
around $1.57 million, only slightly higher than the target $1.5
million.
B. Channel Structure One of the reasons Soren Chemical is
struggling to sell Coracle is because it is new to developing a
brand and relatively inexperienced with marketing to wholesalers,
retailers, pool services and consumers. This inexperience has led
to miscommunication in its marketing channels, causing only 30% of
consumers who inquired about Coracle to actually receive the
information regarding the product. In addition, 70% of consumers
stated that Coracle was not even offered by their distributers.
Soren Chemical launched the product in September, which is the last
busy and most suitable month for swimming. The sales team did not
consider the effects of doing so, which will impact the sales
revenue extremely for the first year. First off, consumers,
wholesale distributors, pool service professionals, pool specialty
retailers and mass retailers need time to know the new brand and
its value. Second, the stocks of those groups will impact the
sales, especially since it was launched in the last busy
maintenance month. If at the end of September, consumers decide not
to use the pool until May, they may not maintain the pools at the
end of that month since in May, they will need to clean again after
a long time of non-use. Third, Soren did not position their product
correctly. The consumer market of residential pools is focused more
on aesthetics and perceived cleanliness. It is risky for Soren to
bring Coracle into the market without a suitable emphasis, focusing
on what the consumers want more. Finally, there is an unclear gap
between Kailan MW and Coracle even though Kailan MW targets
commercial pools and water parks, while Coracle targets residential
pools. There are still at least two formulators who dilute Kailan
MW with a private label and sell to distributors for consumer
markets. This will contribute to Coracles competition too. C.
Pricing Options Soren should increase their retail price to offer
economic incentives for wholesale distributors to carry and promote
Coracle. Currently, distributors are the main obstacle in Coracles
distribution because even though the marketing initiative targeting
service professionals and specialty retailers is well-received,
many people have stated that Coracle is not offered by their
distributors. By offering a higher profit margin to distributors,
they will be able to start carrying and promoting Coracle to
retailers who have already shown an interest in the product. This
is because previously distributors didnt want to carry Coracle
because it reduces the sales of other brands. Therefore, an
increase in price, will translate the demand into increase in sales
volume. In addition, increasing the price will continue to build
Coracles brand awareness among retailers and consumers as the
distributors will be motivated to promote the new product and
achieve a platform where Sorens pool-related products can all be
sold through the Coracle name directly to consumers. The financial
implication involved in the price increase is determined by the
margin by which Soren can raise Coracles price to give distributors
the economic incentives to carry Coracle yet still beat the
industry average of annual cost savings that it can promote to end
users. Coracle is actually worth more to end-users than they
currently realize. As explained in the case, the lack of
advertising of the product and its benefits has created a
misunderstanding for the public. Coracle is not only a safer
product, but despite its high cost, will actually save people money
in the long run. Therefore, if people were made aware of these
benefits, the consumer would most likely be willing to pay more for
the product. Given Coracles superior performance, as per the
analysis above, the product should be priced higher. As explained
by Exhibit 1 in the appendix, a price of approximately $32 per
container is an appropriate price. Some of the constraints are
changing the already set price, especially since it is already
higher than its competitors, there will need to be a large amount
of advertisements done to increase the awareness of the change of
price and distributors and retailers might start bargaining for
more as they see the changes in the strategy of the company. D.
Channel Members Pricing Considerations As explained in the case,
distributors typically had a 20% gross margin on most products, but
they expected to maintain a 30% gross margin with selling Coracle,
since its a differentiated chemical agent. By raising the retail
price, distributors will have a higher profit margin, which will
incentivize them to carry the product. Retailers and service
professionals usually take a 15% gross margin, which resulted in
the original suggest retail price of $25. By raising the retail
price to around $32, retailers and service professionals will be
able to take a higher gross margin. This will differentiate Coracle
from the other products, as retailers will be able to take a high
gross margin than they can with other products. Therefore,
retailers will be more willing and enthusiastic to sell Coracle,
which will result in more sales for the company.
E. Recommendation The root of the problem is that pool-cleaning
professionals are not well or properly aware of this product. In
order to fix this, most of the action plan should be focused on
marketing the product. First, the marketing budget needs to be
increased so that they can advertise to all interested groups.
Second, there needs to be a clear message to the users of the
problem who are less advanced. These people need to be made aware
of the facts concerning the product. A clear, distinguishing
message that clearly demonstrates the difference between this
product and the inferior products needs to be established. Third,
there needs to be clear margins for the distributors who may sell
the diluted product.Appendix:Exhibit 1Distributor Cost Price: $2.32
(Soren's Ex-factory Price)Distributor Profit Loss: $1.28Distributor
Selling Price: $3.6Retailer Cost Price: $3.6Retailer Profit Loss:
$1.13Retailer Selling Price: $ 4.73Annual Cost of Clarifiers to
customers: $47.3Total cost of consumers if they use Coracle: (47.3
+ 225)= $272.3Total cost of consumers if they dont use Coracle:
(50+300)= $350Therefore, Soren can increase by: $7.7 (350- 273.2=
77.7 divided by 10 = 7.7)$25 (original price) = 7.7= $32.7
