ZOECON CORPORATION: TERM PAPER
Millions of potential customers are becoming health oriented. Hence, they will not buy insecticides that kill insects and may harm users too, but rather, they will use chemicals that have a product that will destroy the insects on the long run without harming humans. This is the most important single change in the insecticide market in which Zoecon is operating. The company now has a new product, namely the Strike Roach Ender, and it intends to launch it. Prior to the launching, the company ran a market testing for the product in four major cities which are considered as representative of the general population of 19 cities which will later constitute the whole market. Now that the test marketing is over, the company has to decide what to do with the product. Various options are available:
Based on the result of the test marketing, the company may launch the product nationwide in the 19 major cities. The result of the test are very positive. In the 1.17 million households resident in these cities, 57% had tried the product. This relates to 969,000 households in all. Product trials, however, do not mean anything. It is the repurchases that give meaning to the results. The results show that 30% have made repurchases, that is, 290,700 households in the markets. The product launched in the market came in different package forms. These were the Roach Ender priced at $4.99 and accounting for 66% of the sales and the $3.99 fogger which accounted for the 34% of the sales. The total budget of the test included expenses and costs of $1,478,000.
The test market helped the company identify a number of market segments and target markets. First of all, the majority of the customers wanted to reach a permanent solution for roaches, although many of them preferred an immediate result which killed the roaches immediately. Secondly, there were target customers who liked to compare and contrast products and brands before they finally made up their minds. And finally, there were customers who purchased the product if it was easy and cheap to get. The point is that all three segments are intertwined such that the company has to take into consideration these different behaviors of its target market.
Two risks are present with this alternative. First of all, the managers have to be aware of the different segmentations of the consumer market. As we have seen, these segments are intertwined such that it would be difficult to define the exact needs of consumers. Secondly, the test marketing proved to be successful in four cities, but how accurate would a projection of revenues and costs would be onto the 19 cities? Such a projection can never be certain, although it is taken for granted that the four cities represent in one way or another the rest of the national population. The positive thing, however, is that costs are going to be less as the company reaches economies of scale.
Another option for Zoecon’s managers is to launch the product in the professional pest control market, to the pest control operations, commonly known as PCOs. Distribution to the PCOs takes place through distributors. These distributors purchase wholesale quantities and distribute to the PCOs on retail basis, depending on the needs of these PCOs. It is noticed that PCOs are industrial users who may utilize the product for various purposes. In contrast to the 55% profit Zoecon makes in the consumer market, the PCO market provides the company with a profit margin of 51%. Nevertheless, the 51% in the PCO market is much easier to get, especially that Zoecon need not invest in advertising or marketing since the PCOs manufacture new products which they market at their own expense.
Finally, the company has the opportunity to sell the chemical formula to other insecticide companies. This way, it would not have to invest in any marketing or advertising. However, in such a situation, the company will be simply giving up its entire market share to its competitors, especially if these are able to develop new products in the future at a pace that is faster than Zoecon is developing its new products. Furthermore, Zoecon may not be able to enjoy control on pricing, since the buyers (who are competitors right now such as Johnson) will have the upper hand in deciding what price the product should be launched at in the market, since they are the owners of the brand.
Solution: In my opinion, Zoecon should take a decision that will be in conformity with the results of the market testing and at the same time, with the long term objectives of the company. I propose that two steps be taken.
Step A: The company should launch the Rider in the consumer market because the market testing has proven to be successful. The company can decrease its costs and at the same time, even if the cities in which the testing took place were not very representative of the national population, the percentage of error will be very slight. The ability of the company to price its products and meet the demands of its target market, and at the same time, the high profit available in this market should not be overlooked. Potentials for the future with the development of new products are also great.
Step B: The company should sell to PCOs because these will not compete against any of Zoecon’s products in the market. At the same time, this market is an important source of both cash and easy profit, since there will be no risk involved in high investment in advertising or marketing campaigns. However, it is not possible to concentrate on this market alone while ignoring the consumer market because the consumer market represents the backbone of Zoecon’s market.