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Pintura Corporation: The Lena Launch Decision case study delves into the factors affecting consumer behavior towards environmentally-friendly products. This case study also presents the company's plan of the launching of its product "Lena", a powder-based coating, and discusses its feasibility and cannibalization of the existing market.
John A. Quelch, Katherine B. Hartman
Harvard Business Review (917523-PDF-ENG)
March 31, 2017
Case questions answered:
- What is IFG’s current position in the market for general industrial coatings (GIC)? What is IFG’s current position in the market for wood coatings?
- What are IFG’s current objectives and strategies in these markets?
- Using the sales and product adoption data provided, estimate the annual sales of powder-based coatings by customer group. (Assume Lopez’s estimates for the percentage of customers who will switch to powder-based coatings are correct.) Are your estimates favorable to the product introduction?
- Using the estimated growth rates for IFG wood coatings by customer group, calculate a five-year sales estimate per customer group based on the expected annual growth rate and expected growth in market share. Are your forecasts favorable to the product introduction?
- Examine the cannibalization potential of Lena to IFG’s existing product lines. Using the contribution data provided and your estimates of powder-based coating sales by customer group (from Question 3), estimate how contributions might be affected if IFG’s existing customers switched coatings. What is your assessment of the product potential given cannibalization expectations?
- Consider Lena’s strategic role in IFG’s product line using your cannibalization estimates, the product/market fit, and overall product/customer fit. What is your overall assessment?
- What would your opinion be of the proposed introduction if you were: a. An executive from another division of Pintura? b. An independent distributor? c. An IFG salesperson?
- If IFG introduces Lena, what marketing program should it use? Be specific and include all the elements of the marketing mix. 4Ps and target customer segments and/or emphasis.
- What are the economics of your marketing plan? What are the critical assumptions in your economic analysis? Which ones are the most suspect?
- Should the review team move Lena forward to the full development stage? Why or why not?
- Whether Pintura Corporation's Lena should be launched or not?
- Would the launch of Lena lead to cannibalization?
- Can the growth of 5% be attained?
- Should Lena be Launched?
- Will it help in achieving the 5% annual revenue growth of IFG?
- Will the introduction of Lena cannibalize the market of solvent-based coating products?
- Should Lena be launched under the Pintura brand or as a separate brand?
- What could be the Marketing Mix to be followed if the product is launched?
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Case answers for Pintura Corporation: The Lena Launch Decision
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Introduction – Pintura Corporation
Pintura Corporation is an extremely large company that has over 600 products sold through 20 brands. These products are mostly high-grade paint and coatings.
This diverse product offering serves an equally diverse array of customers, which is reflected in the organization of the business in 3 major parts, the Industrial Finishes Group (IFG), the Consumer Products Group (CPG), and the Pintura International (PI). Together, these segments generate an impressively large annual revenue of four billion dollars.
To continue generating such impressive revenues, the company must continue to offer products that address consumer needs, mirror shifts in market growth, adhere to environmental regulations, and do so in a profitable manner.
Furthermore, the products which accomplish these ends must be cohesive within the product line of offerings and must align with the overarching goals of the company and segment. Lena, a powder-based coating in development, is a promising product that stands out in its capacity to fulfill consumer needs, grow market share, and increase long term revenue.
Analysis & Recommendations
The company objectives and IFG segment objectives align well with the Lena product. Pintura Corporation, as a whole, has an explicit goal of producing more environmentally friendly products. Powder-based coatings are significantly more environmentally-friendly than the current highest-selling type of coating, solvent-based coatings.
Also, the powder-based coatings are more energy-efficient than the water-based coatings, the other environmentally friendly option offered by Pintura. IFG has an explicit goal of increasing revenue by 5% annually, and Lena contributes to this goal through its high contribution margin of 42% and by increasing market share over time, through gaining new customers and stealing share from competitors. (Exhibit 2 & 3). The increase in market share also aligns with IFG’s implicit goal of maintaining a large percentage of the GIC in the US.
IFG makes 25% of Pintura Corporation’s sales, making them a significant but not majority contributor to the company’s bottom line. However, IFG does a majority of the research and development in the company, with products developed in IFG often moving in some form to the other two segments.
This information is relevant because it reveals that IFG is the innovation center of the company and that the products developed in this segment set the tone for innovation throughout the company. To that end, as environmentally conscious products are a significant initiative of the company, IFG must continue to be a leader in this area.
IFG has shown leadership in this area through its success in the water-based coatings area based on the results of a significant survey of executives. Lena could help IFG, and thus the whole company, establish market leadership in environmentally friendly products in another major coating area.
The product strengths of Lena not only match the goals of the company but also match the shifting consumer demands and the changing market trends. The solvent-based coating market is at a mature stage, and it is declining, and the water-based market has flat growth. This situation reveals the stagnation state of the liquid coating market. Meanwhile, the powder-coatings demand is increasing at 10% annually.
Thus, introducing a player in the powder-coating market is essential to the longevity of the company, as it must grab the new market share as the market grows to shield from the shrinkage of sales in the liquid coatings market. The reduction in the solvent coatings market is especially sure to continue due to the volatile organic compounds (VOCs) which they emit through the application process, which are likely to become even more heavily regulated by government environmental policies in the future.
Also, powder-based products have superior durability, attractiveness, and quality. These characteristics are important because the consumers value quality, reliability, and consistency from their coatings, so the product strengths are reflective of consumer concerns.
Ultimately, the many strengths of the powder-based product are only helpful if the product is successfully sold to the industry customers through strategic STP. The customer group that has been identified with the most potential for the Lena product is the wood segment of the end-user substrate groups. This segment is comprised of the furniture, flooring, cabinetry, and other wood furnishings.
The flooring and cabinetry segments are focused on durability and cost-effectiveness, while the furniture and other furnishings segments are focused on aesthetics and differentiation. Lena can meet the needs of both segments by reducing product waste in the application, which reduces costs, and by improving the aesthetic differentiation of products by elevating the quality of beautiful hardwoods and masking the imperfections of lower quality woods.
The versatility of the product is another commercial advantage. All of these factors of differentiation, quality, and attractiveness meld together to illuminate the strong premium value proposition of Lena. These value-adding qualities can be communicated to manufacturers through the direct sales force, independent distributors, and other promotional activities. Also, launching Lena would give IFG a first-mover advantage in the powder-coating market for hardwoods, as it is a unique patented formula.
The pricing decision is crucial for the success of Lena after development because the product must be profitable and must be in line with perceived customer value. The price also must take into account the initial investment many customers would need to make in the UV equipment that is used to apply the product. The ideal identified price was determined to be $38, and this price captures the premium and superior quality of the product and provides the company with an excellent contribution margin of $15.96 per unit, or 42% of sales.
The contribution margin is very salient to the concern of water-based coating cannibalization. The higher contribution margin of Lena compared to water-based coatings makes the impact of cannibalization less critical. It is also because the product being cannibalized is less profitable than the product which is sold in its place. (Exhibit 3 & 4).
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