Hydrocan is a small start-up company that came up with a new lawn product known as StaGreen. Since the company had no professional marketer or marketing department, it needed advice on how to market its product. Hydrocan needed advice how it could identify its target group. Moreover, Hydrocan needed advice on the type of strategy it could use while launching its new product.
The company wanted to know how to position StanGreen in the new market. Therefore, the management of Hydrocan approached Stone Age Marketing Consultants for advice on how to market StaGreen. Therefore, this article analyses the methods that Stone Age used to enable Hydrocan to launch StaGreen successfully. Moreover, it provides recommendation on further marketing strategies that can be used to enhance the marketing process of the StaGreen.
Background & Statement of the Problems
Hydrocan was seeking to launch StaGreen into the market. Therefore, the company approached Stone Age marketing Consultants for advice. Stone Age marketing Consultants did an analysis on the costs, prices, and mode of communication in order to formulate a comprehensive market launch strategy for StaGreen. In order to achieve their objectives, Stone Age marketing Consultants met with Hydrocan.
They outlined StaGreen’s characteristics that distinguished it from other products in the market. Moreover, Hydrocan Company had to identify the target market for StaGreen. Hydrocan hoped to capture customers either in the commercial market or in the consumer market. The marketing consultants saw the need to use different marketing strategies due to the difference in markets. Therefore, they performed a research in order to investigate the viability of either a consumer or commercial launch.
Data obtained from the consumer market showed that the consumers spent $945 million on gardening products. From this value, consumers spend 620 million dollars on lawn maintenance of which 52% was spent on fertilizers. If Hydrocan wanted to enter this market, it would be competing with firms that manufactured fertilizers (Hale, 1996).
The consumer fertilizer market was highly competitive. The top two firms in the industry were Scotts Co. and Ortho Chemicals. These two firms had a market share of approximately 50%. Scotts Co. had the largest market share with two powerful brands. However, research showed that 40% of the consumers had no brand preference (Hale, 1996). Therefore, they relied on store advertisements and staff for advice. Most of the consumers could not recall the manufacturers and brand names.
Retailers sold lawn products in the consumer market. Discount stores sold 60% of the fertilizers while 30% of the sales occurred in specialty stores. Home improvement stores sold 10% of the total fertilizer sales (Hale, 1996). On the other hand, manufacturers of fertilizers utilized 20% of the sales on marketing. Most manufacturers were aware that the consumer market needed exemplary selling skills (Hale, 1996).
Research on the commercial market yielded results showing that the market consisted of 1800 golf courses and some commercial properties. However, the most viable markets are the golf courses. 24% of the total costs spent on maintaining golf courses was spent on fertilizers purchase.
Golf courses bought their supplies from small firms that specialize in products designed exclusively for grasses (Hale, 1996). It was extremely hard to convince the golf courses to abandon their preferred brand of fertilizers. However, golf course owners were concerned about pollution caused by fertilizers. Therefore, they were contemplating the use of an alternative product.
Hydrocan could produce 180,000 kg of Stagreen on monthly basis. They proposed a pricing strategy that reflected the quality of StaGreen. In a case where the company decided to target the consumer market, they would package Stagreen in bags of 10 kg (Hale, 1996). The price of StaGreen would be $22.50 with the variable costs accounting for 52% of the sales.
From the sales of StaGreen, discounting stores could take up to 25% mark-up while specialty stores would scrape up to 35% mark-up. In case the company used wholesalers, they would take up to 15% mark-up. The company has fixed costs of 700000 owing to renting equipment and site. Other costs include $ 80,200 to cover administrative costs, $ 20,650 to cover research and development and $ 12,350 accounted for miscellaneous costs. Partners were willing to forgo their salaries.
The marketing department was allocated a budget of $555,000. Hydrocan divided this amount among various tasks including seasonal discounts, in-store displays, newspaper advertisement and sweepstakes. Hydrocan plans to use discounts to bait the retailers. Moreover, Hydrocan use discounts in order to reduce the storage costs.
The in-store displays would cost the company $250 per display. The purpose of the sweepstake was to increase customers’ awareness on the existence of Stagreen. The company planned to hire 20 workers in the sales department (Hale, 1996). Hydrocan paid a salary of $25,000 to each worker. The duties of the workers would be to sell the product through the different channels. Moreover, the workers offered training through seminars.
In case the company decided to target the commercial market, the company had to increase the size of StaGreen’s bag to 50 kg. The selling price per bag would be $150. The company would sell directly to the commercial users or to the wholesalers.
The variable costs would drop to 40% of the total sales due to the high prices charged in the commercial option. The contribution margin would form 60% the total sales. The fixed costs were to remain relatively the same. On the other hand, the marketing and distribution cost would change because costs related to seasonal discounts, advertising, and sweepstakes would not be applicable (Hale, 1996).
However, the company would increase the number of sales representatives to 30 in order to handle the demands of the commercial markets. In addition to this strategy, the company had set aside $100000 for offering free samples. The distribution costs in the market would fall if Hydrocan chose the commercial market. This is because the demand is independent of seasons in the commercial market.
Both markets present strong cases. They both have merits and demerits. However, the company faces a decision to start trading as soon as possible. Moreover, they lack sufficient capital to invest in both the commercial and consumer markets unless they showed that they could earn profits. Hydrocan cannot increase their capacity unless they have been operational for at least two years. Therefore, Hydrocan has to choose between the two markets basing their decision on the information provided by Stone Age marketing consultants.
Hydrocan executives are faced with a decision between two competing alternatives. Each of the alternatives has its advantages and disadvantages. Taking the consumer market for instance, they have an advantage of large market. The consumer fertilizer market accounts for 52% of the total sales in lawn maintenance products.
Therefore, the consumer sales are approximately $322.4 million. Hydrocan has a good chance of claiming a portion of this market. Another merit that observed in the consumer market is the lack of firmly established brands. The article clearly states that 40 % of the consumers have no brand preference (Hale, 1996).
Moreover, most of the customers do not remember brand names. In fact, the only established brands in the market are Turf builder and Miracle Gro manufactured by Scotts Co. Both of these products are advertised as maximum growth products and are not necessarily aimed at offering lawn care.
Therefore, if Hydrocan invests in this market and establish a brand they can claim a good portion of the market. Moreover, if they ensure that the consumers remember the name of StaGreen brand, Hydrocan may be successful. The fact that consumers do not remember the brand names makes them gullible and easy to capture. With this in mind, the strategy of using a sweepstake to increase awareness is a viable marketing idea.
This is because the strategy increases the awareness and captures the attention of the consumers thus making them to remember the brand name. The consumer market also has several distribution channels that enable the companies to reach their customers. This is an advantage to Hydrocan Company since it is entering a new market. Therefore, Hydrocan is not required establish new distribution channels for their products.
Hydrocan may also use these distribution channels to ensure that they reduce their storage costs. In addition to all these factors, the major market-share holders are both based in the United States. In this case, Hydrocan has an advantage of establishing itself as a Canadian based brand. Establishment of a local brand will enable Hydrocan to compete with the two major market-share holders. Hydrocan offers a unique product.
However, the consumer market also has its demerits. One of the demerits is the fact that the market is highly seasonal. 70% of the total sales take place between the months of April and September. Therefore, this becomes a demerit because, during the other months, the companies will be paying the fixed costs while the business levels are extremely low.
The fixed cost may include storage costs rent paid on factory premises, and fixed overheads such as security costs. Moreover, the prospect of using marketing to increase the sales during the period of low sales may not work. This is because seasonality of the gardening industry is due to the weather conditions and not because of consumer preferences or behaviour.
In the consumer market, Hydrocan are competing with fertilizer manufacturers. From the article, we learn that the consumer market for fertilizers is highly competitive. Therefore, when Hydrocan launches Stagreen in the consumer market, they should expect tough competition. The probability of beating tough competition when a company is a late entrant is usually very low unless the management of the company comes up with a foolproof marketing strategy.
The commercial market has its advantages too. One of the merits is the fact that the use of fertilizers has come under a lot criticism. The golf courses who are the major customers in the commercial market are being criticized for polluting the environment especially the ground water. Therefore, this situation is an advantage to Hydrocan Company since they have a StaGreen.
StaGreen is different from the fertilizer offered by different companies. In addition to this, StaGreen is specialized in enhancing growth of grasses used in lawns and golf courses. This is an advantage to Hydrocan since all the other competitors in the market offer fertilizers that specifically nourishes the grasses are small firms or divisions of the larger chemical companies. Fertilizers pollute the underground water.
Another advantage in the commercial market is the fact that the companies in this market spend less than 9% of their total sales on marketing. This means that the companies in this market are making high profits due to low expenses. Considering the fact that Hydrocan is a firm in the pioneer stage the concept of reduced market costs will be a relevant option to ensure survival. The other advantage of the commercial is that it is not seasonal.
Therefore, companies can trade all year long without high fluctuations in the sales. The ability to trade throughout the year presents the company with an incentive to survive. This is because, as long as they are able to meet their breakeven point, they can manage to keep paying their fixed costs. In the process, they will be trading and establishing a brand for their products.
The disadvantages of entering the commercial market also exist. Companies try to build long lasting relations with their customers. This is a challenge to Hydrocan. Moreover, the golf courses are very rigid when purchasing fertilizer. Therefore, it takes tremendous marketing effort to ensure that the golf courses switch brands. This means that, even though Hydrocan is offering a unique product, it will take an enormous amount of effort before they can dislodge their competitors in the market.
The market is also considerably smaller than the consumer market and has no distribution channels. Therefore, when entering this market Hydrocan has to establish its own distribution channels. Moreover, they have to dislodge the competitors who hold the 1800 golf courses before they can claim a sizeable amount of the market.
Analysis of Alternatives
After checking the pros and cons of the options available, it is suitable to analyze the alternative Hydrocan should choose. The two options have in their own advantages and disadvantages. However, it is all comes down to the main objective of operating a business when choosing the market.
Hydrocan operate with the aim of making a profit. On the other hand, marketing is a tool used to maximize the profits of any company. In order to decide between the two alternatives in the market, Hydrocan may use models. This article uses porters five forces model.
This model operates on the assumption that there are five forces in the market. These forces determine the level of competition expected in the market. These forces include the supplier power, buyer power, competition, and availability of close substitutes and the ease of entry. Therefore, when choosing the market to sell StaGreen, Hydrocan needs to identify the operation of these forces in the market. When utilizing this model, Hydrocan marketers have to compare the two market situations.
In the case of supplier power, most of the companies in the consumer market use more or less the same distribution channels that consist of three major players. The discount stores make 60% of the sales. Home improvement stores and specialty stores sell 10% and 30% respectively.
In this light of events, we find that the supplier power is not a major determinant when choosing the market to sell Stagreen. This is because all companies use similar suppliers. On the other hand, commercial market has no suppliers. Therefore, the power of a company to supply in this market is a major player in determining the sales that companies will make.
In the case of buyer power, the consumer market has consumers who purchase commodities can purchase good up to 322.4 million dollars. This represents a significant ability to purchase. However, the buyers can only purchase Stagreen between the months of April and September.
This represents a downside in the purchasing power of the consumers. On the other hand, the 1800 golf courses use up to 300,000 to 800000 dollar to maintain the course. 24% of this cost represents cost used to purchase fertilizer. Therefore, the buyer power on this market is also viable. Moreover, they purchase the fertilizers and lawn products throughout the year.
Competition in the consumer market is a little bit slack despite the fact that the article indicates there is high competition in the market. This is because two of the firms in the industry hold up to 50% of the market. On the other hand, the commercial market has established firms.
These firms have developed relations with the clients making it hard for a new entrant in the market to dislodge them. Competition is usually associated with ease of entry. Therefore, the higher the completion the easier it is to enter whereas the lower the competition the harder it is to enter. Therefore, considering the two cases it is easier to sell StaGreen in the consumer market first than in the commercial market.
Lastly, in the consumer market the customers are not product specific. They can either use the fertilizers or use StaGreen. This shows that it is easier to enter the consumer market since they can easily substitute fertilizer for Stagreen. On the other hand, the commercial market is product specific, and buyers choose fertilizers according to the effect they have on grass.
Therefore, for Hydrocan to enter this market, it is a compulsory for them to provide fertilizer specifically for grasses. Hydrocan is lucky in the sense that StaGreen is highly specific in enhancing the growth of grass. Therefore, buyer in the commercial market can embrace StaGreen since they are seeking an alternative to fertilizers.
The recommendations on this article are based on alternative analysis using the Porters five forces model. Basing the argument on pros and cons then it is advisable for Hydrocan to enter the consumer market. This is because it is easier to enter the consumer market due to the high competition level. Moreover, Hydrocan Company does not require a supply channel and the buyer power is extremely high.
Another recommendation is that the Hydrocan should desist from entering into the commercial market since the ease of entry is extremely demanding. Logic demands that companies should not try to enter into extremely difficult market situations especially in cases where there is an alternative. Therefore, it is advisable for Hydrocan to establish itself in the consumer market first, make profits, then try to break into the commercial market.
Hydro is a company that has invented a new product known as StaGreen. This product is used in the lawns and gardening sector. Therefore, Hydrocan wishes to commercialize the product. They engage the services of Stone Age Marketing Consultants who provide them with information on the two target markets. Using Porters five forces model, this article determined a suitable market where Hydrocan may start its trading activities.
Hale, T. A. (1996). Green Pastures: The Launch of StaGreen by Hydrocan. Purchasing Management Association of Canada, 4 (2), 127-133