Rohit Singh, product manager for Zanlon in the Bulk Plastics Division of Polymer Industries, faced a dilemma. As Singh prepared his annual marketing plan for the coming year, he had to decide whether to recommend a price decrease or an increase, and whether to budget for significantly higher sales volume or only modest volume growth but at higher prices. He was sure that the price of Zanlon would tend to drift downward over time, following the product life-cycle pattern of all plastics. There would probably be significant increase in unit volume as the product was used more widely. Singh was concerned with the timing and the amount of a price change, if any.
Zanlon was an engineering plastic with properties that were useful in many applications traditionally served by steel, zinc, and aluminium as well as other plastics such as nylon and ABS (acrylonitrile butadiene styrene). Applications for Zanlon existed in the automotive, appliance, plumbing and hardware, and communications fields. It could be cast to precise dimensions, extruded, and machined like metal, and it weight considerably less than zinc, brass, or steel. It had high heat and impact resistance. And unlike the materials it could replace, Zanlon resin could be made in a variety of colors.
Zanlon competed directly with Nuclan, which was made by Pyramid Chemical Corporation. Generically, both were nucleopolymides (NPAs) and both sold for Rs.75/- per kg. Pyramid, the first market entrant, accounted for about two-thirds of the market. Polymer Industries had the other third of the market, which was growing at an annual rate of 33%.
Nuclan and Zanlon differed in three respects. First, Zanlon was slightly less flexible than Nuclan, which was advantageous in some applications and disadvantageous in others. Second, Zanlon set faster, enabling molders to cut molding time by 5-40%. Finally, Zanlon in colors cost moulders Rs.4/- a kg less than Nuclan in colors. Polymer Industries sold color capsules that molders could mix with natural color Zanlon (a translucent gray) to form over 500 different shades, at a cost of Rs.3/- per kg over the base price of Rs.75/-. This color system was not available to Nuclan users and was not technically feasible. Nuclan in colors had to be formulated at the Pyramid plant and sold at Rs.7/- per kg premium. Color applications represented about 40% of all NPAs sold.
Zanlon and Nuclan also offered significant economic advantages over metals. Zanlon and Nuclan cost much less than zinc and brass and offered the industrial user additional savings in machining costs. In comparison, nylon sold at slightly lower price than Zanlon but was not as heat resistant as the NPAs. ABS was half as costly but had much lower heat and chemical resistance and strength than the NPAs. Although the market for ABS was many times larger than those for the NPAs, ABS use was limited largely to decorative applications such as trim for major appliances.
Zanlon cost Rs.20.8 to make, of which Rs.8.3 was variable cost and Rs.12.5 was fixed. Marketing, technical development, and administrative costs amounted to Rs.22.1, leaving a pre-tax profit of Rs.32.1 per kg. Accordingly, Singh enjoyed a wide range of price decision. At different levels of price reduction, Singh might hope to
(1) increase market share against Pyramid,
(2) protect Zanlon sales in certain limited applications for which nylon seemed suitable and was a lower-cost material,
(3) or compete against ABS, now in short supply, for the huge decorative plastics market.
In the meantime, he recognized that substantial market opportunities for displacing zinc and brass still existed in automotive, appliance, and plumbing fixture applications. Zanlon would probably be an attractive alternative for these applications even if Singh were to increase its price.
January 9, 2018
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