HydroCan Helping The Golf Course
HydroCan is start-up business located in Canada. Recently, HydroCan created a new product called StaGreen. StaGreen is a chemical fertilizer with a very important difference; it can reduce the need for watering on most types of grass by 40%. HydroCan has extremely limited resources and cannot increase production capacity for at least 2 years. HydroCan hired Stone Age Marketing Consultants to formulate a marketing strategy for StaGreen. The decision problem is that HydroCan and the Stone Age Marketing Consultants need to choose a target market for StaGreen and determine how to position StaGreen within the chosen market.
The target market for StaGreen could be either the consumer market or the commercial market. After reviewing the information at hand, I recommend that HydroCan targets the commercial market instead of the consumer market for a few important reasons.
First, the commercial market in Canada is comprised of 1800 golf courses, and many commercial properties such as office complexes and apartment buildings. On average, golf courses in Canada spend $300,000 on course maintenance, 66% of which is spent on water usage costs and fertilizer purchases.
Second, over the past year, golf courses have been the target of many political debates about groundwater pollution because of the many chemical fertilizers used in the upkeep of the courses. Many courses will be searching for a solution to this political issue; the solution is StaGreen.
Lastly, the game of golf has experienced steady growth in the last decade. The number of golf courses is expected to increase over the next five years, creating more opportunities for HydroCan to profit.
The company HydroCan is composed of four agricultural engineers and a financial accountant. HydroCan hired Stone Age Marketing Consultants to help decide which market segment they should target, how they should position StaGreen, and what type of launch strategy to use.
After researching both the consumer and commercial markets, Stone Age Marketing Consultants held a conference to look over the research they had compiled and make a final decision.
Because HydroCan is a start-up business, it does not have a significant amount of funds to use for the launch of its product; HydroCan’s resources are very limited right now. It is also important to consider that HydroCan must launch StaGreen in the month of February, right before the peak selling season for chemical fertilizers (April to September).
Each of the available target markets has advantages and limits associated with them. One possible target is the consumer market. Its first advantage is the popularity of gardening. Last year, Canadians spent close to $2.3 billion on gardening, $332.4 million of which was on fertilizers for their lawns (see figure 1).
The second advantage of the consumer market is the fact that 4 out of every 10 people do not have a concrete brand preference when choosing fertilizers; almost 50% of consumers buy products depending on in-store promotions, such as sales or discounts, and the recommendations of the sales staff of the store. A third advantage of the commercial market is the growing trend in the area of home improvement. Market research has shown that over the past few years, home improvement stores have been on the rise; these types of stores are expected to steadily increase in the near future.
The consumer market is not without limits. Webster’s Dictionary defines an oligopoly as, “a market which is dominated by a small number of firms that own more than 40% of the market share.” The consumer market can be considered an oligopoly; it has 2 main competitors: Scotts Co. and Ortho Chemicals. Each of these companies controls 25% of the market, for a total of 50% of the market share.. This means that the consumer market will have many barriers to entry, such as large financial requirements, availability of raw materials, and access to relevant technology. A second limit of the consumer market is the budget it requires. Expenditures alone amount to $555,000, in order to cover seasonal discounts, in-store displays, magazine advertising, newspaper advertising, and sweepstakes. After adding in employee wages, totaling $500,000, and then the fixed costs of production, totaling $700,000, launching StaGreen into the consumer market would cost an estimated $1,755,000.
The other available target is the commercial market. The biggest advantage of the commercial market is Canada’s 1800 golf courses. Canada’s golf courses spend anywhere from $104,000 to $800,000 a year on course maintenance. Fertilizer was found to represent $72,000, or 24% of the $300,000 average spent on course maintenance at a golf course each year. Another sizable advantage is the recent political debates in the news, criticizing golf course owners for contributing to groundwater pollution. Although it is unintentional, the large amounts of chemical fertilizers used by golf course owners have been a major contributing factor to the groundwater pollution. The final advantage of the commercial market is a predicted increase in the number of golf courses in Canada due to rapid growth in the popularity of the game of golf. Market research estimates that the number of golf courses in Canada will increase by 22% to 2,200 within the next five years (see figure 2).
Although there are some significant advantages to the commercial market, there are also a few significant limits. The biggest limit of the commercial market is that golf course owners are extremely brand loyal regarding fertilizers used on their golf courses. Golf course owners rely heavily on products that they have tried, that they know work. The business of the course depends on how well the course is maintained, so it will be very hard and time consuming to convince golf course owners to switch their fertilizers. Although brand loyalty is a limit, it can also be seen as an advantage because if a course owner switches to StaGreen and likes it, they will then be loyal to HydroCan. A third limit, closely related to brand loyalty, is time. It will take a long time to convince golf courses to switch their fertilizers to StaGreen; HydroCan will have to hire 10 extra employees to help the golf course owners sample StaGreen on patches of grass to see its amazing effects. The last major limit is the cost of the commercial launch. Expenditures in this case amount to $325,000. We must then add the employee wages, totaling $750,000, and the fixed costs which remain the same at $700,000. The cost of launching StaGreen in the commercial market would be $1,775,000. The commercial launch is $20,000 more than launching StaGreen in the consumer market.
Based on the information at hand, I recommend that HydroCan targets the commercial market. Although the launching StaGreen in the commercial market will cost $20,000 more, I believe that the opportunity for profit is much greater. I also believe that profit will be made much more quickly in the commercial market because of the potential amount of money each golf course could invest in HydroCan. For example, if HydroCan convinced just 50 golf courses to switch to StaGreen, the company would receive $3,600,000 in revenue, assuming that each course spent the average $300,000 on course maintenance. The revenue from these 50 courses would cover all of the costs associated with the launch of StaGreen, and leave a whopping $1,825,000 of profit. There are 1800 courses in Canada, and the number is only expected to grow, so 50 courses is not significant overall, but still leads to significant profit. It is currently February, so HydroCan still has time to gear their marketing plan toward a launch to the commercial market. I recommend setting a goal to switch 50 golf courses to StaGreen this year. Next year, the goal can be raised higher.
There are a couple of implementation issues that will occur if HydroCan chooses to target the commercial market. The employees of HydroCan will first have to decide on which golf courses they want to visit. Then, the employees must travel to those golf courses to show their owners how StaGreen works. The expenditure of $100,000, included earlier is the cost of all of the samples that the employees must use to demonstrate how StaGreen works. The biggest issue with the commercial market will be the time required to make these trips to the golf courses, and then convince the owners to switch fertilizers. Immediately after launching StaGreen, HydroCan needs to pick target golf courses to visit, gather the samples they need, and go. These visits need to be made as early as possible to allow the golf course owners time to consider using StaGreen, and then possibly try StaGreen on their golf courses.