Problem:
Apex is a medium-sized chemical manufacturer with annual sales of $60 million. It is now trying to determine which of two new compounds it should bring to market. The two products were expected to have the same gross margin percentage. But, there is little agreement among Apex's executive regarding which product should be launched. Given resource scarcity the company can only select one of the two products under consideration.
Summarize the pros and cons and recommend a product.
Compound A-115
Compound A-115 is a new electrolysis agent. The market for electrolysis agents is $10 million and stable. The A-115 product precipitates a synergistic reaction in silver electrolysis and does so better than any other product on the market. Apex believes A-115 is a real technical breakthrough and would be perceived as a winner with customers in the electrolysis market. Currently, there is only one competitor in the field, Hamfield. It claims that over 95 percent of its customers are currently satisfied with its products. Apex did a customer survey and confirmed that, indeed, most of Hamfield's customers were satisfied with the product they currently used. Still, Apex believes that customers would gravitate to the clearly superior A-115 product offering. However, even with its product superiority, Apex is not known in the electrolysis market and has no presence there. There is some question about battling a well-entrenched company like Hamfield.
Compound B-227
Compound B-227 is a plastic oxidizer. The market size for plastic oxidizers is $40 million and growing. There are two types of products used in this market: beta-prednigones and stigones. Betas represent about 60 percent of the total market and stigones account for 40 percent. The company has a reputation in the oxidizer field but it only produces stigones. B-227 would be its first beta product. Apex believes it has the best stigones and it currently does dominate that segment is the plastic oxidizer market. However, betas are cutting into Apex's stigone sales with the company losing 10 percent of its sales per year. It seems that many customers are insisting on betas. The plastic oxidizer market is also very competitive. There are three strong competitors and at least 6 other companies selling off-brand or commodity-based betas. Still, the oxidizer market is very important to Apex since it represents 25 percent of its total sales and it does not wish to abandon this market. Apex believes that the B-227 provides an opportunity to compete in the beta segment while still producing stigones and retaining its customers who currently buy its stigones. It is uncertain about the market reaction to its entry into the beta segment of the market.