Harper: Cost and Attractive Markets Essay

How good is the product? The product in theory has great potential able to save costs in two major industries, ceramics in paints. Looking at both individually: 1) Paints: Potentially 12 – 18 cents of savings to original estimations, however research with client has shown great difficulty. Was not working well due to suspension problems, was unable to have the right shine for use in white paints. Furthermore, once quality of end product was acceptable, savings was found to be 3cents per a gallon, which was deemed not worthwhile. However more wear on tear on machinery due to abrasive properties of domimite. 2) Ceramics: Huge initial investment to switch over the dies but estimated to be a large number of advantages: a. Strength of tile improves b. Minimal moisture expansion c. If used more than 20% thermal expansion goes down reducing tile mfg time. d. Low temperature in kiln e. Reduces Variable cost of tile by 17% through the above mechanisms. Tile industry Fixed cost is huge due to machinery, labor etc. However actual tests have not been so conclusive. While advantages of them are seen, there have been issues with warping and with cracks. Penetration with smaller suppliers but failed to interest medium and large manufacturers. What obstacles has Harper encountered in developing the market for Dominite? Single source player, very unattractive to large customers Testing has been inconclusive Failed to find right mixture Failed to sale the higher grade material Penetrated the wrong market segment Should Harper try to sell the Dominite operation? It Depends ï Å  How much for? For the right price, certainly. It comes down to how realistic are the new projections that came out in 1985. Can we really meet those targets? I doubt it. How much do we need to sell to break even? Assuming we use 1985 costs for 1986 we would need to sell? Doing the math I assumed everything was a fixed cost except for the 35% of the plant cost(if I took anything else as a variable cost it would go more than the price)giving us a VC of 48. There fore we would have needed to sell 54 thousand units which is way way way more. I do feel that selling costs and admin costs should be part of variable costs, but when I calculate it that way our VC is more than our price which is fucked up. Basically we really need to sell more or sell the entire division. If the decision is not to sell the Dominite operation, what changes should be made in the current sales program? What are the most attractive markets? What offer should be presented in terms of value proposition and price? Basically our sales are not doing too well. Take one look at the original projections and our current sales data. Stuff of nightmares. The question is how can we improve it? We have been using trade shows, industry magazines and cold calls. They have gone as far as to leverage their contacts within the pain industry but it is still not clicking. I think we need to spend some serious R&D time. Our sales pitch so far has been hey, use some dolomite and shit will get better. My recommendation would to actually figure out what formula works for which application and actually sound like we know what we are talking about when we go to the customer. The most attractive markets are obviously paint and ceramic given our product. Let us look at each one of those individually: 1) Ceramic: 33% of market is 4 big guys, this is key. Any one of them will buy 40 – 60 thousand tons a year and we will be able to break in. At all costs we must try and get to one of these customers. 33% is medium players amounting to 12 companies. The customer trying to buy us out is in this category. No data on how much they buy but I find it to be a lot less than what we need to even break even 33% left are all small which we have been hitting. 2) Paint: 25% of the market is with big guys and 75% with the small guys. Again we have to target the big players. The small guy stratergy is not cutting it. Though given the technical difficulties with paint and the minor margins we make, I am wondering if we should save on those sales resources and move them to ceramics. Our valuation offer is basically price saving and reduced time for manufacturing. Our price is competitive with talc which is the product we directly compete with, however we are barely making it. It’s a hard call and I want to discuss with you guys in the meeting tomorrow. Are any changes needed in the Dominite sales organization? First of all we are cannibalizing our own sales resources with the introduction of superfine. I think we need to dedicate resources solely to dominite to make an impact. Second of all all the above points I made about hitting the right market segments.