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TRACER= A iW ARKT HALLr 1OE:s A C0AS STUDY
OF A NIRKBTING PLAN FOR DOW AGROSCIZNCB8
Cara Martin, Patrick Byrne, Richard Weldon and Ken Buhr
Teaching and Learning Paper TLP 00-1
TRACER: A New Market Challenge: A Case Study of
a Marketing Plan for Dow AgroSciences
Cara Martin, Patrick Byrne, Richard Weldon, and Ken Buhr
Abstract: This paper is based on an internship experience as an agricultural chemical
sales representative with Dow AgroSciences in South Georgia. Tracer is Dow
AgroSciences' newest chemical on the market. As Tracer has obtained market share,
competing chemical companies have formulated their own brand of a similar product.
The case study describes and evaluates alternative actions Dow AgroSciences can
implement in order to maintain their market.
Key Words: market share, competition, marketing alternatives
*Opinions and perspectives expressed in this paper may or may not represent the views
of others, particularly, Dow AgroSciences.
The following case analysis is for educational purposes only. The numbers are
estimates and should not be used for any purpose other than this case.
Pesticide usage began to take hold in the United States after World War I. As
usage increased, concern over safety issues also increased. In 1954, public
health concerns began to be noticed. Congress amended the Federal Food,
Drug, and Cosmetic Act by requiring the Food and Drug Administration (FDA) to
set residue tolerance levels for pesticides used on raw produce. The levels were
determined by using a risk/benefit analysis. Public health risks were weighed
against benefits to the food supply. In 1958, a controversial addition known as
the Delaney Clause, mandated that pesticides that may remain in processed
foods beyond the acceptable level for raw produce and that had been found to
cause cancer in laboratory animals would not be approved for any use on food
crops, regardless of any benefits. The Environmental Protection Agency (EPA)
was created and given the responsibility for setting residue tolerances in 1970.
The Federal Environmental Pesticides Control Act was amended in 1972 to
require all pesticides manufactured in the United States to be registered with the
EPA. In 1976, Congress passed the Toxic Substances Control Act, which
required the EPA to monitor the production of chemical substances and to
impose testing requirements on chemical manufacturers to determine any threat
to the environment or to public health. The increased regulations led to dramatic
research and development costs for chemical manufacturers. Exhaustive
toxicology tests for pesticide effects on the environment, fish and wildlife, and
human life was required before a chemical could be registered. In 1988, any
pesticide registered before November 1, 1984 was required to reregister with the
EPA. With increased costs and a mature domestic market, pesticide
manufacturing firms began to consolidate. The number of firms fell from 286
companies in 1986, to about 238 in 1991.
During the 1990's a considerable amount of political discontent for the domestic
pesticide industry was displayed. The Clinton Administration announced a
program to reduce the use of agricultural pesticides in the United States, and
favored the proposed Circle of Poison Prevention Act. This act would prohibit
U.S. manufacturers from exporting pesticides that are banned in the U.S.
Currently, there are no reported decreases to pesticides usage due to this act.
Cotton is grown throughout the southern United States. The Southeast, Mid-
South, Southwest, and West are all areas of cotton production. The following
states all produce cotton: California, New Mexico, Arizona, Texas, Oklahoma,
Mississippi, Arkansas, Louisiana, Missouri, Alabama, Tennessee, Alabama,
Georgia, Florida, South Carolina, North Carolina, Virginia, and Maryland.
There are 38,494 businesses in the United States that are in the cotton industry.
These businesses include farms, gins, merchants, warehouses, cottonseed oil
mills, and textile mills. Farms account for 35,032 of the businesses. These
businesses support 443,353 jobs, with farms contributing to 173,446 of the work
force. The cotton industry revenue totals $40.1 billion. Actual farm revenue
equals $6.1 billion.
The Southeast states are categorized as Alabama, Florida, Georgia, North
Carolina, South Carolina, and Virginia. The following chart illustrates the
corresponding acreage with each state:
STATE TOTAL COTTON ACREAGE
ALABAMA 570,000 17%
FLORIDA 89,000 3%
GEORGIA 1,500,000 44%
NORTH CAROLINA 820,000 24%
SOUTH CAROLI/NA 320,000 9%
VIRGINIA 98,000 3%
Source: USDA NASS (3-31-99)
Out of the total 3,397,000 total cotton acreage approximately 65% or 2,208,050
acres is Bt cotton, while 35% is of the acreage is planted with conventional seed.
Today, cotton is being influenced by world market conditions. The Asian
economy plays a huge role in the market demand, as the United States typically
exports 40% of the crop. With Asia's economy crisis in 1999, there was a loss in
cotton textile and apparel retail demand by Asian and Latin American consumers.
This economic crisis caused prices of cotton to be driven down as the supply
exceeded the demand.
Domestically, the cotton industry is influenced by genetic engineering or
biotechnology. Biotechnology has redefined the agricultural industry. With the
invention of Roundup Ready seed by Monsanto Corporation, specialized seed
was able to withstand heavy doses of Roundup herbicide without harming the
crop while killing the weeds. The introduction of Bt cotton or seed injected with
Bacillus thuringiensis to control pests such as budworm and bollworm, has
limited the need for insecticides. However, as generations of insects have come
into contact with the Bt cotton, resistance has begun to be a factor.
AGRICULTURAL CROP PROTECTION MARKET
The United States is the world's largest manufacturer of pesticides, followed by
Germany and Japan. Approximately, 85% of domestic pesticide sales are to the
agriculture industry, with the remaining 15% going to residential users.
Herbicides account for more than half of U.S. pesticide consumption, while
insecticides account for one-quarter of the market. The remainder is filled by
fungicides and other miscellaneous chemicals.
Crop Protection Consumption in the
Source: Bayer Chemical Company
There are several trends in the chemical market. Research and development
costs have risen to high levels and are expected to continue increasing as
environmental safety continues to be of importance. It is currently estimated to
cost approximately $100 million dollars to get a new agricultural chemical to
market. Low-dosage pesticides is a trend that has developed through increased
Biotechnology continues to be the largest trend not only in the cotton industry,
but also in the entire agricultural industry. Genetic engineering of plants to
produce their own biological insecticides has decreased the demand for
conventional insecticides. A relatively new trend is the innovative use of
adjuvants. Adjuvants include a wide range of inert additives that make a pesticide
more effective. The market for adjuvants is considerably smaller than the
pesticide market, but adjuvants benefit from regulations in the pesticide market.
Adjuvants lower pesticide dosage requirements and do not need to be registered
with the EPA.
The agricultural crop protection industry is a $23 billion industry that is comprised
of small companies to chemical giants. About 25% or $5,750,000,000 of crop
protection sales are credited to insecticides. Main players in the insecticide
market include Dow AgroSciences, Dupont, Zeneca, Novartis, and Bayer. These
companies play the largest role in the cotton crop protection market.
HOME I CONTACT US
Dow AgroSciences is a global company that provides pest management,
agricultural, and biotechnology products. Major market segments targeted
include corn, cereals, soybeans, cotton, fruits and vegetables, rice, horticulture,
turf and omamentals, range and pasture, forestry and right-of-way management.
Dow also prides itself in being the technological leader in the urban pest control
division. While not being a new player in the agricultural market, Dow's newest
insecticide,Tracer, has made Dow an innovative leader. Tracer insecticide for
cotton and tobacco is a new chemistry insecticide that controls all primary worm
pests while protecting beneficial. Dow AgroSciences' insecticide sales are $520
million and claim 9% market share.
I The miracles of science-
Dupont is one of the oldest continually operating industrial enterprises in the
world. While best known for brands such as Teflon, SilverStone, Lycra, and
Stainmaster; Dupont has made its mark in agricultural chemicals. Vydate L
insecticide is a versatile insecticide/nematicide that quickly controls a variety of
insects in fruit and vegetable crops as well as cotton, peanuts, soybeans, and
tobacco. Lannate insecticide controls insects in a variety of crops including
cotton. Beet armyworm, budworm, and bollworm are included in a broad-
spectrum of control. Lannate is a quick kill insecticide that resists washoff.
Asana insecticide is another Dupont product used in cotton to kill tobacco
budworm and cotton bollworm. Asana's strength lies in its claim of longer-lasting
control. Dupont's insecticide sales are approximately $230 million and retain a
market share of 4%.
Visit the global
Zeneca Ag Products might not have a well known name like Dow or Dupont,
however, their presence in the agricultural chemical industry can not be ignored.
Karate Z insecticide has been the leader in the control of primary and secondary
pests in cotton. It is also a proven overspray in genetic engineered cotton.
Zeneca's insecticide sales are $510 million and they capture 9% of the market.
Novartis Crop Protection was formed in January 1997 by the merger of Ciba
Crop Protection and Sandoz Agro. The acquisition of Merck & Co., Inc.'s crop
protection division developed six months later. This combination has lead
Novartis to be the leading U.S. crop protection provider in the marketplace. It
has top products in weed, disease, and insect control. Zephyr insecticide for
cotton offers powerful mite control with a long residual. A strong feature for this
insecticide is its ease on beneficial. Curacron 8E insecticide offers broad
spectrum insect control for cotton. Curacron 8E is featured as a tank mix for
secondary pests. Novartis' insecticide sales are $180 million and capture 3% of
Bayer's crop protection and animal health businesses are combined in a division
known as Life Science Operations. Increases in innovative products and greater
sales potential has helped to increase sales by 3% from the previous year.
Profitable Bayer insecticides include Baythroid which carries a broad spectrum of
action on both chewing and sucking insects in cotton. Enduro controls primarily
chewing insects but has good control of some sucking insects in cotton. It
strengths lie in long duration of action as well as a rapid initial effect. Bayer's
insecticide sales remain strong at $1,065 million and hold 18% of the market.
The remaining $3,245,000,000 of insecticides or 56% are sold by numerous
agricultural chemical companies. These insecticides may be off-patent and/or
generic brands as well as specialized products. (For the purpose of this case
only chemicals companies with patented cotton insecticides were mentioned.)
The first success requirement in the crop protection industry is development of a
product that will provide effective control of target insects. The insecticide should
be differentiated from other products in the market and be patented. The
chemical should be priced where the grower can see the benefit of paying for the
chemical compared to the profit/loss if nothing was used. Chemicals are
commonly priced at 60%-100% manufacturer's gross margin. Crop protection
chemicals are distributed through companies such as Helena, Southem States,
and Chem-Nut. Distributor margins are approximately 3%. Promotional activities
include grower meetings, advertisements, university cooperation, trips to dealers,
giveaways (hats, pens), technical bulletins, and most importantly sales
representatives. Through advertisements in industry publications, such as
Progressive Farmer, chemical companies can capture customer's attention to a
certain brand or product. Extension agents through universities play an
important role in a chemical's success, as growers rely on their advice and
chemical recommendations. Universities also play a role in public relations as
university tests and co-op projects are strongly publicized. The sales reps can
promote a product at both the dealer and grower levels. Personal contact and
word-of-mouth are critical success factors in the industry.
SOUTHEAST COTTON INSECTICIDE MARKET
The Southeast cotton market is comprised of 3,397,000 acres. Bt cotton
constitutes 65% of this acreage or 2,208,050 acres. Non-Bt accounts for the
remaining 35% or 1,188,950 acres. Through Dow AgroSciences' cotton
insecticide literature, it is estimated that spraying one acre of conventional cotton
for a full season of control is approximately equal to $86.23. This includes an
average of three to four insecticide sprays. Insecticide costs associated with one
acre of Bt cotton equal $37.25. Bt cotton is sprayed, on average, once or twice
in a season.
By multiplying the total 1,188,950 non-Bt acres by $86.23 cost of insecticide per
acre, the Southeast cotton insecticide non-Bt market is equivalent to
$102,500,000. Calculating the 2,208,050 Bt acres by $37.25 cost of insecticide
per acre, totals the Southeast cotton insecticide Bt market as $82,200,000. The
total Southeast cotton insecticide market is:
$184,700,000 total Southeast cotton insecticide market at the grower's cost
Dealer margins are approximately 5%. This translates into the dealer's cost of
$175,500,000 ($184,700,000 .95). Distributor's cost is approximately 2%.
Distributor's cost calculates to $172,000,000 ($175,500,000 98). This denotes
total manufacturer's revenue as $172,000,000.
Dow AgroSciences is headquartered in Indianapolis, Indiana. It is a global
company that is a leader in pest management, agricultural, and biotechnology
products. Dow has world-wide sales of over $2 billion and employs over 3,500
people. Dow AgroSciences began as a joint venture in 1989 between the
Agricultural Products Department of The Dow Chemical Company and the plant
sciences business of Eli Lilly and Company that resulted in the creation of
DowElanco. In 1997, The Dow Chemical Company acquired 100 percent of
DowElanco and the new wholly-owned subsidiary was renamed Dow
AgroSciences in 1998.
Dow AgroSciences is positioned for the future with a top line of agricultural
products as well as an advanced research and development facility. Trusted
crop protection products such as Lorsban, FirstRate, FrontRow, and the latest
breakthrough, Tracer, has made Dow AgroSciences a leader in the agricultural
A NEW CHEMISTRY DISCOVERED
Dow AgroSciences puts great effort in research and development towards safer
and more effective insecticides for growing agricultural needs. In an effort to
develop such products, Dow has traveled the earth in search of naturally
occurring organisms that do not compromise efficacy. Averaging over 40,000
soil samples each year, testing microorganisms with beneficial properties as well
as marketable qualities, a breakthrough was found in 1982. A new species of
microorganisms, known as Saccharopolyspora spinosa (carrying both bacteria 0
and fungus traits), was discovered in a soil sample from the Virgin Islands.
From this discovery, a new class of insect control was developed....the
naturalytes. Products within this class are based on natural metabolites derived
from living organisms. With a novel molecular structure and mode of action,
excellent crop protection typically associated with synthetic products is obtained.
However, low human and environmental risk is achieved.
Dow formulated Tracer Naturalyte insect control. A metabolite of
Saccharopolyspora spinosa, spinosad, is the active ingredient used in Tracer.
Tracer is the first product within the Naturalyte insect control to be marketed
worldwide by Dow. Spinosad has been found to control main pests in a variety of
crops including vegetables, cotton, trees, turf, and ornamentals. It provides
control equal to or better than synthetic chemical insecticides on worms,
maggots, flies, and leafminers. Spinosad offers relatively low levels of
mammalian toxicity. This translates into reduced risk for those who handle, mix,
and apply the product. Also, there are relatively high margins of safety for avian
and aquatic species. These low environmental toxicity issues allow for less
governmental regulation and fewer regulated nontarget compliance measures.
Spinosad allows rapid re-entry of treated fields by growers and consultants. This
feature is critical at harvest time when getting the crop harvested on time plays
an important factor in profits. The Environmental Protection Agency determined
that spinosad met reduced-risk material criteria. This led Tracer to receive the
first registration of a new active ingredient for food use under the new Food
) Quality Protection Act.
TRACER ENTERS THE MARKET
Tracer was labeled for cotton on February 14, 1997. It has since been labeled
for use on tobacco as well. Tracer controls cotton bollworm, tobacco budworm,
beet armyworm, fall armyworm, European corn borer, cabbage looper, and
soybean looper. It has proven to control cotton pests comparable to the best
pyrethroids available in today's market. Tracer holds 45% of the Southeast
cotton insecticide market in acreage. Tracer's suggested retail price is $740 per
I gallon but due to competition and dealer's use of kickbacks to make up profits,
Tracer is generally sold for approximately $580-600 per gallon. This translates
into approximately $11.00 per acre. Non-Bt cotton is usually sprayed twice with
Tracer. Once in early season and once in late season. A pyrethroid is sprayed
mid-season when beneficial are not as important. For two sprays at $11.00 per
spray, total Tracer cost per acre on non-Bt cotton is $22.00. Bt cotton is usually
sprayed once to cut back risks of escaped insects that may be resistant to the Bt
gene. One spray at $11.00 is equivalent to $11.00 per acre. Tracer revenue for
non-Bt cotton is calculated by taking the 1,188,950 acres multiplied by 45%
market share and multiplied by grower cost of $22 per acre. Non-Bt revenue
equals $11.77 million. Tracer revenue for Bt cotton is calculated by taking the
2,208,050 Bt acreage multiplied by 45% market coverage and multiplied by
grower cost of $11.00 per acre. Bt revenue equals $10.93 million.
+ 10.93 million
$22.7 million total revenue for Tracer
Total dollar market share is calculated by the $22.7 million in revenue divided by
$172 million total manufacturer's revenue.
$22.7 million/$172 million = 13.2%
The customer type are cotton and/or tobacco growers in the Southeast. The
customer need is a fast-acting, long-lasting insecticide that kills resistant pests
before profit damage to the crop begins. The means is through research and
development, a formulation of a new insecticide, that offers insect protection, with
no resistance. Tracer's distinctive competency is being first in the market with a
unique type of chemistry that allows for effective killing of target pests with no
resistance and protects beneficial insects. Tracer's promotional activities
account for approximately 1% of Tracer's sales. This equals $227,000. This
money is budgeted towards magazine advertisements, brochures, technical
bulletins, giveaways, and grower meetings. Not included in this budget are sales
rep salaries and recommendations by consultants and extension agents.
Tracer also has a number of other advantages. Tracer has shown no
compatibility problems when tanked mixed with other crop protection products. It
carries a one to two-hour drying time. With a quick drying time and resistance to
wash-off after drying, 50% of Tracer will remain on plant surfaces after a one-
inch rain. Tracer controls insects through ingestion and contact activity. It also
has ovicidal control if sprayed directly on eggs. Tracer's mode of action impacts
the insect's nervous system. Rapid excitation is caused by persistent activation
of nicotinic acetylcholine receptors and prolongation of acetylcholine responses.
With this new mode of action, Tracer fits well with resistant management
programs. It has shown no cross-resistance and can be rotated with all other
classes of existing products.
The insect selectivity of Tracer has made it a powerful tool with Integrated Pest
Management (IPM). Although Tracer does not offer a quick kill (3 -4 days), the
insects stop feeding quickly and damage to the crop is stopped. The four-hour
re-entry interval allows growers and consultants to quickly get back in the fields
to continue their work. This benefit is especially important at harvest when time
is crucial and time means money. Tracer is used at a relatively low rate. Rates
between 1.5 to 2.9 ounces per acre allow Tracer to go a long way. Tracer also
had the advantage of being labeled for both cotton and tobacco as many farmers
who grow one also grow the other. This enables growers to put left over
chemical to use. One of the most critical benefits of Tracer is the safety to
beneficial. Beneficial insects are insects that prey upon insects that damage the
crops. Lady beetles, lacewings, big-eyed bugs, and minute pirate bugs are a few
examples of beneficial insects that a grower likes to see in his fields. Tracer
allows beneficial insects to survive or rebound quickly, while killing the target
The greatest disadvantage that Tracer has is the price perception of $580 per
gallon or $11.00 per acre. Although when looked at a per gallon basis the dollar
amount appears high, when compared on a per acre basis to a common
pyrethroid for $7.00 per acre, the cost difference is not as significant. Dow
incurred enormous research and development costs of $2,000,000 to launch
Tracer. It is commonly estimated that the first three years of a new chemical's
sales are allocated to recouping the cost of research and development. Due to
initial high pricing and a misunderstanding of new low-dosage chemicals,
chemical companies frequently have a bad reputation with growers as price
gougers. However, Dow has worked to defend itself through holding grower
meetings, advertising, and personal contact with sales representatives. By
explaining all the benefits of a low-dosage chemical with no-resistance and the
importance and cost savings in protecting the beneficial insects in the field,
Tracer was able to gain some hold in the marketplace. Dow also claimed that the
costs of getting Tracer to market were far greater than any previous product
launch. In order to keep investing in research and development, Dow would
need to remain profitable. Growers were willing to spend the extra cost for a
chemical that did not have any resistance for target pests and also allowed
beneficial insects to keep target pest numbers relatively low. By keeping
beneficial in their fields their chance of spending additional funds on several
sprays was lower. Chances of stopping secondary pests from flaring also
As Tracer continues its presence in the market, deals are being made between
distributors and growers. Instead of growers buying Tracer from distributors that
just carry it in inventory, they are shopping around for distributors that can offer
the lowest price. As the price keeps falling, growers wonder why the price was
so high in the first place. Although distributors are hurting their margins when
they engage in price battles, today's market is so competitive that many are
dropping their prices to a level where they are not making a profit in order to gain
customers. In doing this, dealers turn to Dow for additional kickbacks and free
chemicals to make up for their losses.
A main disadvantage of Tracer is the inability to control sucking insects. Many
growers need control for sucking insects, such as stink bugs, as much as they
need worm control. To combat this problem, Dow has done some marketing
effort with Zeneca's brand of pyrethroid Karate Z. Karate Z is the number one
cotton insecticide on the market. Karate Z kills plant bugs, stink bugs, bollweevil,
and other sucking insects that Tracer misses. The insecticide program was
designed to control pests through a rotation program that maintains beneficial
during the early season by using Tracer, targets a wider variety of pests during
mid-season by using Karate Z, and then returns with Tracer to control pyrethroid
resistant caterpillars in the late season. Currently this program has fit well with
many cotton growers' insect management programs. However, Dow has done
little to push such a program. The main marketing efforts have been on Tracer
itself. This has tended to turn away customers due to the price and the
misunderstanding of how to work with Tracer's benefits to the customer's
*. Easy on beneficials...less spraying & stops secondary pests from flaring
*:* Compatible with tank mixes...use with other chemicals
Quick drying time...rain fast
*: New chemistry...no resistance
Unique mode of action...contact, ingestion, ovicidal
Good fit with Integrated Pest Management Systems
Can be used on both cotton and tobacco...farmers often grow both
o* Low rate...1.5 to 2.9 oz. per acre
Four hour reentry time...get back in field faster
First of this type of insecticide on the market...market leader
4- No control of sucking insects
*o Priced higher than average pyrethroids
Not a crop rescue treatment....only kills black head egg to % inch worm
DUPONT AND STEWARD...CHALLENGE
DuPont was established in 1802 in Delaware by a French immigrant, Eleuthere
Irenee du Pont de Nemours, to produce black powder. Today it is one of the
largest chemical companies in the world. DuPont focuses on competing globally,
sharpening its business focus, increasing productivity, extending technological
achievements, and environmental excellence. DuPont is committed to building
on its position as a leading supplier of materials and crop protection products.
This is based on the knowledge that chemistry and biotechnology will continue to
An example of continuous technology demonstrated by DuPont is the formulation
of Steward. Steward is a broad-spectrum worm insect control agent. Utilizing
Indoxacarb as the active ingredient, Steward has an advantage over current
insecticide choices, including Tracer. Steward claims not only to kill worm
species but has also shown control of selected sucking insect pests in field tests.
Steward's primary mode of action is through ingestion, although it can be
absorbed on contact. The active ingredient inhibits sodium ion entry into nerve
cells, resulting in paralysis and death of the pest species. Steward is primarily for
use in cotton. It has demonstrated performance in multiple U.S. cotton insecticide
test sites. It has a residual for 7-14 days. Pest knockdown occurs within 1 to 2
days, but the insects will stop feeding quickly.
Steward has an excellent environmental profile. It is used at a low rate that will
reduce environmental loading. It has shown to have low toxicity to mammalian,
terrestrial mammals, and birds. Steward's new mode of action and lack of cross-
resistance to existing control products allows it to be used effectively with IPM
programs. Steward is also safe to beneficial insects. Although Steward is not
currently registered with the EPA, DuPont hopes that they will soon be able to
release Steward into the market.
Controls all major worm pests and controls certain sucking insects
*: Knock down in 1-2 days
*. Excellent environmental profile
*: Effective with Integrated Pest Management Systems
Safe to beneficial insects
o* Tracer first on the market...may be old news
*. Primarily used on just cotton
-** Dupont known for weak sales force...lack of important marketing effort
o* Weaker control of budworm than Tracer...an important target pest
As Steward threatens to enter the market upon EPA registration, Dow has
greater concerns than farmer's concerns for high prices. In cotton test trials,
Steward has shown all the benefits that Tracer has plus the added benefit of
killing sucking insects, such as stink bugs. This is an important trait as this will
save farmers from buying additional chemicals for sucking insects. Dupont is
expected to position Steward against Tracer. Not knowing what price strategy
DuPont will use to introduce Steward into the market makes Dow's reaction
strategy is hard to predict. However, in the past Dupont's pricing strategy has
leaned towards the high end of the market and price is estimated to be between
$600 to $800 a gallon. Dow can do nothing and hold their position as a novel
agricultural chemical. They can reduce Tracer's price in anticipation of Steward
coming into the market and hope to maintain market share. Dow could also
continue and increase its promotional strategy of Tracer as part of a rotational
plan with Zeneca's pyrethroid, Karate Z.
Dow can maintain their current position in the market after the introduction of Steward.
4* No additional costs
Displays confidence in product
*o Steward rumored to not be as effective as Tracer on budworm
Dow known for having stronger sales force and marketing effort
** May lose sales to Steward
May have to be reactive later instead of proactive now.
Both Tracer and Steward will provide cotton growers with the ability to control
target worm pests. Dupont has indicated that in the testing of Steward, the
added benefit of sucking insect control was determined. However, in consultant
reports, the sucking insect control was not that significant. Also, there have been
reports on Steward's control of budworm, an important target pest, to be less
effective than Tracer's control. If Dow assumes that the above information will
work in Tracer's favor, and that Steward will not be a large competition factor,
then Dow should hold their position. However, it is likely that innovative farmers
will try Steward for at least one season.
Tracer currently holds a 13.2% dollar market share for the Southeast cotton
insecticide market with sales totaling $22.7 million. By remaining status quo and
not taking an aggressive stance it can be estimated that Tracer will lose
approximately 3% of its sales in the first year after Steward's introduction. This is
a loss of $681,000 and would drop Tracer's dollar market share to 12.8%. This
may not be a significant loss the first year, however, Steward could continue to
take hold in the market. Estimating Tracer losing 5% sales in the second year, is
equivalent to a $1,135,000 decrease. Future losses could continue to become
greater as other chemical manufacturers patent their own low-dosage chemical
and Tracer's distinctive competency becomes obsolete. Alternative 1 will lower
sales to $22 million and decrease dollar market share to 12.8%. Profit
In anticipation of Steward entering the market, Dow has the option to lower
Tracer's price to protect market share.
o May gain more customers before Steward is registered
4* Increase market share as sales increase
o* Common for new technology to lower price over years
4* Dow has already recovered significant R&D expenses
o* Dupont will need high returns to recoup R&D costs
4* Cause distrust among growers for Dow...price should have been lower from
* Customers may switch to Steward anyway...innovators will try new products
4* May start price war
4* Uncertainty in Steward's pricing strategy
Quantitative analysis for a 10% decrease in price assumes there will be no gain
in acres due to changes in the competitive market. It is assumed that as Steward
enters the market other branded insecticides will also implement price changes.
Non-Bt: 1,188,950 acres 45% market $19.80 new price/acre = $10.6 million
Bt: 2,208,050 acres 45% market $9.90 new price/acre = $9.8 million
Total Tracer revenue: $20.4 million (a decrease of $2.3 million dollars)
New market share in dollars = $20.4 million/172 million acres = 11.7%
To maintain a 13.2% market share:
$2.34 cost/oz 2 oz = $4.69 cost per acre
$22.00 revenue/acre (2 sprays) $4.69 = $17.31 contribution per acre
$17.31 535,028 (1,188,950 *.45) = $9,261,326 total previous price contribution
$19.80 $4.69 = $15.11 new contribution per acre
$9,261,326/$15.11 = 612,927 acres of non-Bt cotton need.
Increase of 84,899 acres
Same cost of $4.69 per acre
$11.00 revenue/acre $4.69 per acre = $6.31 contribution per acre
$6.31 993,623 (2,208,050 .45) = $6,269,758 old contribution total
$9.90 $4.69 = $5.21 new contribution per acre
$6,269,758/$5.21 = 1,203,408 acres of Bt needed
Increase of 209,785 acres
Total of 1,288,307 acres needed to maintain 13.2% market share with a 10%
decrease. Alternative 2 will decrease sales to $20.4 million and lower dollar
market share to 11.7%. Profits total $11,511,720.
Currently Dow uses some marketing efforts to be part of a combined
management program with Zeneca's insecticide, Karate Z. By increasing this
effort Tracer can gain market awareness while also maintaining an alliance with a
* Increase customer's awareness of Tracer by association with popular
Gain new customers by promoting a top insect management program.
4* May increase sales.
4* No decrease in price
4* Get advertising efforts by not only Dow but also by Zeneca
-* Better chance of protecting market share with total solution
,* Steward is one product that does what Tracer and Karate Z do together.
4* Won't change high price perception for Tracer.
*: May decrease sales of Tracer compared to full season usage.
*o May still need to lower price
This alternative will benefit both Dow and the grower. By marketing a successful
insecticide program, Dow can maintain the $580 per gallon price by giving the
grower relief of using a cheaper pyrethroid during mid-season, when protection of
beneficial is not so important. Although, Dow would not have sales of a full
season use, the chances of increased sales and higher profit is more likely
through a combined program. Also advertising benefits would not only come
from Dow's effort but would also come from Zeneca's advertisements for the
For this alternative it is assumed that Dow will keep Tracer's price at $580 per
gallon with the knowledge that the market will naturally continue to force down
price. Also, since Steward is expected to enter the market at the high end, or
approximately between $600 to $800 per gallon, Tracer's price will most likely be
lower anyway. Allocation for advertising will increase from 1% of sales to 3% of
current sales. This is an increase from $227,000 to $681,000. With the increase
in advertisements and promotional activities surrounding the Tracer/Karate Z
program Tracer acreage share is projected to increase 4% for non-Bt acres and
1% for Bt acres during the first season.
Previous acreage = Non-Bt: 535,028 5% increase: 561,779
Bt: 993,623 1% increase: 1,003,559
Total Tracer market by acres: 1,565,338
1,565,338/3,397,000 = 46% market share of Southeast cotton acres
Tracer Revenue: Non-Bt 561,779 22 = $12.4 million
Bt 1,003,559 *11= $11 million
Dollar market Share: 23.4/172 = 13.6%
Alternative 3 will increase sales to $23.4 million and increase dollar market
share to 13.6%. Profits total $12,636,000.
Alternative 3 is the best market strategy for Dow. Dow is currently known for
their strong marketing capabilities. Due to a very competitive market and the
unstable agriculture industry, Dow should do their best to maintain a positive
image in the marketplace. By channeling marketing efforts towards an effective
and top insecticide combination treatment between Tracer and Karate Z, Dow
can advertise all the advantages of using Tracer while working with, instead of
against, a strong competitor. This alliance will give Tracer a greater advantage in
the market regardless of Steward's pricing.
This alternative will only increase market share in acres by 1% and market share
in dollars by .4%. Although these are not big increases, they are significant in
the chemical industry. With the constant strain on companies to compete in an
aggressive industry, increasing the amount of acreage by any amount is
important. Getting innovative farmers to try the Tracer/Karate Z program will be
the main focus of the advertising campaign for the first season. As they see how
beneficial the program is to their crop and most importantly yields and profit, they
will continue to use the program on an increasing amount of their cotton acres.
The customer type will remain the same as cotton growers in the Southeast. The
customer need will change in that an effective cotton insecticide that is fast -
acting and long-lasting is not the major component. The new need is an
insecticide program that will allow the grower to obtain target pest control by
using different chemicals, rates, and chemical intervals while maximizing profits.
The means will change to the marketing and promotion of the Tracer/Karate Z
program through sales representatives, grower meetings, and advertisements.
The distinctive competency will change slightly in that it doesn't hold the same
strength as it previously did. As more chemical manufacturers market low-
dosage cotton insecticides Tracer's uniqueness in the market will diminish. The
new distinctive competency will be an unique combination program with the
leading cotton insecticide. The product, price, and distribution will remain the
same. Promotion will slightly increase by 2%.
Pro Forma $/acre Total
Sales $11.00 100% $23,400,000
COGS 4.69 43% 10.062.000
GM $ 6.31 57% $13,338,000
Advertising .33 3% 702,000
Profit $ 5.98 54% $12,636,000