Individual Case Study for
The Problem - Should Zoecon commercialize the Strike Roach Ender brand by expanding distribution to the 19 city market area in the southeast United States?
Recommendation – Zoecon should commercialize the Strike Roach Ender brand to 19 states in the southeast area of the United States. My justification for this recommendation is documented below along with visual representation of facts presented in the case.
Earnings Potential – During the test market phase of the Strike Roach Ender product the sale of the product was broken down into those who tried the product initially and of those first time buyers, who repurchased the product. The test market showed that only 6 percent of the market tried product and of those 6 percent 30 percent bought 3 times their initial purchase. Let us assume that the factors of the test market are mirrored once they distribute to the 19 cities in the southern tier of the U.S. Table 1 below shows the potential profits given the same variables as the test market with a few changes. The biggest change is the fixed costs adjusted for a bigger market. Since the new market is roughly 4 times the size of the test market, I multiplied the expenses to match the new market accordingly. The test market numbers given in Table 1 shows a loss of $1,204,150, which is mostly attributable to the high market expenses. But if we look at the projected numbers in Table 1, we see that by introducing to a larger market the initial sales are enough to combat the expenses by the residual effect of repeat customers. Total sales increase 20 times while expenses only increase 4 times. This gives Zoecon a profit of $1,088,422.
Market Share Potential – Table 2 shows the breakdown of the market in terms of the 19 city distribution next year. The market is projected to grow at a rate of 10 percent for the next few years and this is represented in the market share growing from the 400 million in 1985. Considering...
The Problem. Zoëcon Corporation faces the following problem regarding the future of their Strike ROACH ENDER consumer product:
- Should Zoëcon commercialize the Strike ROACH ENDER brand by expanding distribution to the nineteen-city market area in the Southeast United States?
Recommendation. Zoëcon should not expand distribution of the Strike ROACH ENDER brand. This recommendation is based on an analysis of the following decision factors relevant to the case:
Profitability. Although 6% of households in the four-city test market tried the product and 30% of those became repeat buyers, the test market was not profitable. As Table 1 notes, losses for the test market exceeded $1.2 Million. Even accounting for an anticipated 10% growth in the pest control market, the forecasted losses for a nineteen-city market deployment exceeds $2 Million. Note that the forecast uses an industry-standard product launch cost of $10 Million and assumes a full year’s sales cycle rather than just the busiest six months. Extending the forecast, Table 3 shows that total sales dollars in 1986 would need to exceed $18 Million in order for Zoëcon to break even in the nineteen-city test market. This is a growth of over 32% as compared to the forecasted total sales dollar in Table 2.
Opportunity Cost of PCO Sales. If Zoëcon chooses to move forward with distribution of Strike ROACH ENDER, they will forego the opportunity to invest an additional $500,000 into sales of GENCOR to pest control operators (PCOs). As Table 4 indicates, they will need to generate $2.3 Million in sales in order to break even on the annual $500,000 investment. This is approximately 0.16% of the $1.4 Billion insect control market forecasted for 1986.
Missing Market Segment. Before beginning the four-city trial, market research indicated three segments among roach insecticide users: “end problem permanently,” “product that lasts,” and “low cost/convenience.” Zoëcon developed the GENCOR insect growth regulator (IGR) in response to public concern over the toxicity of household insecticides. Unfortunately, the market research does not seem to indicate this is a concern for the consumer ant and roach insecticide market.
Core Competencies. Zoëcon has a proven history of garnering support from expert organizations: veterinarians, pet stores, and PCOs. These groups are opinion leaders and able to effectively sell Zoëcon’s innovative IGRs. Despite the mild success Strike FLEA ENDER, the slow growth of that product has shown that selling into the consumer market is not yet part of Zoëcon’s core competencies.
Limited Partnership Opportunities. Unlike their experience with PRECOR, Zoëcon does not have the opportunity to sell GENCOR to competitors while still selling directly to consumers. In this case, Zoëcon must be willing to lose any profit potential with the makers of d-Con, Raid, and Black Flag in order to continue to market Strike ROACH ENDER. Although this decision factor does not directly impact financial results of the Strike ROACH ENDER product, it does remove a significant safety net utilized by Zoëcon when Strike FLEA ENDER did not enjoy immediate success.
I would have included the tables mentioned above, but converting them was a big PITA.
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