Soren Chemical: Why Is the New Swimming Pool Product Sinking?

SOREN CHEMICAL: WHY IS THE NEW SWIMMING POOL PRODUCT SINKING?

Soren Chemical was founded by Timothy Soren in 1942 to sell industrial-strength cleaning solutions. It was mainly concentrated on business-to-business sales and had little emphasis on creating consumer awareness of their products. However, in 2002, the company had started investing on products responding to opportunity posed by consumer market. Soren Chemical introduced Kailan MW, a clarifier which is used primarily in large recreational water park facilities with typical capacities of one million gallons or higher. Since this product only supply the large facilities, the company further developed Coracle, a clarifier targeting smaller pools with lower volume of swimmers and less intense maintenance program. However, the result has been disappointing for Coracle sales. Coracle had been budgeted at $1.5 million in sales, but it only sold $111,000, which is only 7.4% of the target. The main issues identified that had caused the lagging of target sales are a) lack of support from distributors and retailers to create shelf space for Coracle product, b) the end-users do not fully understand the safety and cost-saving benefits of Coracle, and c) the high pricing of the product in comparison to competitors.

To analyze the appropriate pricing point for Coracle, we will base our decision on the provided information in the case.

Less support from Distributors and retailers because of net benefit from offering Coracle

Retailer Distributor

Annual Chemical Sales (See Exhibit 3) 300 255

Reduction in Sales due to cannibalization* 25% 25%

Reduction in Chemical Sales Revenue 75 63.75

Industry Gross Margin 15% 20%

Reduction in Margin/Earnings 11.25 12.75

Number of treatments per annum 10 10

Reduction in Margin/Earnings per treatment 1.13 1.28

Margins offered by Coracle per treatment** 0.59 1.17

Annual Net benefit/(loss) from offering Coracle per treatment -0.54 -0.10

*Coracle reduced the need for additional chlorine, shock treatments and enzymes and other chemical costs which are also offered by distributors (Average of 20%-30% cost savings)

**Margins offered by Coracle is computed as follows:

Retailer Distributor

Annual cost price 39.06 39.06

Gross Margin 15% 30%

Margins offered by