In addition, Star Chemical was not creating its own line of consumer products like many of their

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1 Patrick Davis Star Chemical Case Study Background: Star Chemical is a chemical supply company who has recently struggled due to the fact that it could not compete on price with its competitors and their clientele was moving elsewhere. In addition, Star Chemical was not creating its own line of consumer products like many of their competitors were because of their lack of knowledge in marketing and not having a specific product which they could sell. However, Star Chemical recently created a pool cleaning chemical which could launch them into the consumer market. The company is unsure about how they should go about the process. Their ideas for handling this were either to let the current sales force attempt to sell the chemical, use either a distributor, or start a whole new sales force. A few of the issues that were presented either way were: which channels should they use and markets should they penetrate, whether to sell in bulk or not, and whether to use a push or pull marketing strategy. Proposals for either sales strategy would be judged against a scale evaluating: effectiveness in reaching customers, profit potential, experience the company will gain, total investment required, and ability for company to cut short term losses. Pros and Cons of Using Current Sales Force: Pros: Have a better knowledge of the company it s culture and values Costs should be limited to advertising and training the current employees, as no new employees will be needed

2 Have a much better knowledge of the chemical field which could be applied to selling the new product Offers Star Chemical more power over the channels of distribution and which markets to penetrate than using a distributor would Gain experience in consumer goods market, creating more room for future growth and profits Cons: No experience with selling in consumer markets Company is already struggling, taking these employees away from the current sales could be disastrous if the pool chemical fails Don t know the most effective and efficient channels as well as a distributor or consumer goods sales person would Would be guessing as to which markets will be the most fruitful to penetrate Most likely have to use a pull strategy and incur a great amount of cost through advertising which they have no experience doing Pros and Cons of a New Sales Force Pros Experience selling consumer goods, comes in handy particularly when you will need to be able to compare your product with your competition s Knowledge and experience with the most effective and efficient channels of distribution

3 Better idea of which markets would be the easiest to penetrate whether it be the residential pools or business operated pools, better market coverage Most likely will already have some strong business relationships which they could bring with them to Star Chemical Ultimately Star Chemical is still in complete control and gains experience in consumer goods with a chance to grow Cons Fixed cost for Star Chemical will be much higher, will need to hire a whole new team and on top of will have some sort of training program to assimilate them to the company Will not be as knowledgeable about the technical aspects of the product as the current salesman are Possible internal company disputes if the other sales people feel slighted by the company which the sales manager believes could happen Cost of having to pull the product thru the channel with heavy advertising will be very expensive Pros and Cons of a Distributor Pros Will already have a market penetration strategy in place as they deal with products that are very similar Already have set channels of distribution they will be able to go thru with minimal level of effort as there is already trust built

4 Risk of chemical sales people being unhappy is lower than creating a new sales force Would be easier to push product through the distribution channels because of their knowledge of their buyers and experience with it, saving a lot of money on advertising Cons High cost for using a distributor Star Chemical will have less control over the channels that will be used and the markets which the distributor will enter Will limit the amount of experience that Star Chemical gains in selling consumer goods, therefore limiting any possible immediate growth opportunities Recommendation I would recommend to Star Chemical after weighing the pros and cons of each of the decision alternatives that they choose to hire a distributor. The biggest advantage to hiring a distributor is the knowledge and experience they have in the consumer goods market. While investing in a distributor will probably be the more expensive option initially, it is the safest bet. Star Chemical has no previous experience in selling or marketing consumer goods, and thus creating a sales force would be a huge risk to take on. Star Chemical would in all likelihood have to use an expensive pull strategy investing heavily into advertising, which as stated before they have had no practice doing. With the distributor, the pool cleaning chemical could be pushed through the distribution channels at a much lower cost because of the relationships the distributor has and with a much smaller investment in advertising. In addition, using a distributor will provide a much wider market reach for the pool cleaning product. If Star Chemical were to choice one of the other options, it could take months

5 of market research and at a much higher cost, to figure out whether the product would be received best at residential or commercially operated pools or a combination of the two. A distributor will allow Star Chemical to learn how to effectively penetrate markets and which channels are the most efficient, without experiencing as heavy of a learning curve if they were to create their own sales force. A huge factor in making this decision is the size of investment required by Star Chemical. Going in any direction besides using a distributor could have catastrophic effects. Transferring sales people to sell the new pool cleaner, presents a huge risk in that Star Chemical is then neglecting what got them to this point, and what they know they can succeed in, and that is chemical sales. The investment into a new sales force is a huge unknown for Star Chemical and the cost of advertising, salaries, training and any other aspects will add up. With a distributor and money spent is a sunk cost, so if the product does not pan out in your favor, you can simply stop and cut your losses. It would be hard to say that if you created a new sales force that you could easily cut your losses, as there would be jobs on the line and a heavy investment into advertising. However, if the use of a distributor does work to your favor, Star Chemical can slowly learn and understand what the most effective channels to use are when selling consumer goods. Star Chemical, could one day launch their own sales line, but for now the risk is too great with the uncertainty of how the pool cleaner will play out in the consumer market. So take a smaller profit margin for now and if the product is successful, then in the future consider creating your own sales force with more growth potential.