marketing article analysis
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TREMCO LTD. Paul Sagar, Marketing Manager, felt that a full re-examination of Mono Foam was in order.
He had been with the company for three years and had not participated in the first business plan for
this insulating spray foam product. His objectives were to: 1) grow sales volume and market share
for Mono Foam; 2) improve Mono Foam’s profitability; and 3) increase the total market for
insulating foams. The latter was a risky move. If he was able to cause consumers to buy more
insulating foam, they could decide to buy one of his competitor’s cheaper products rather than Mono
Foam.
Product Background
Tremco Ltd. manufactured and distributed protective coatings and sealants for consumers. It
also sold industrial applications including roofing and flooring systems for building maintenance and
construction, autobody sealants, and adhesives. The company was founded in 1928 by William
Treuhaft of Cleveland, Ohio. Over time, the company grew internationally coming to Canada
during 1962. In 1979, Tremco was sold to BF Goodrich which maintained it intact as an operating
division. In 1997, RPM International purchased Tremco for $230 million. Today, the company
employed 2,000 people in Canada with manufacturing sites in Toronto, Montreal, and Quebec City.
It also had an extensive Canadian distribution network with centres in Montreal, Calgary, Edmonton,
Halifax, Vancouver, Toronto, and Winnipeg.
The Consumer Products Division was unique to Canadian operations. No consumer
products were sold in the United States and only limited numbers of consumer products were
available in Australia and Sweden. The first consumer product in 1962 was Tremclad rust paint
which could be applied directly to metal surfaces and effectively controlled rusting. Later that
decade, the company added Instant Patch - a consumer roof repair product. In 1981, it launched
Mono caulking products. Each of these was a successful product in the Industrial Division applied
to a consumer market.
Annually a small executive delegation from Tremco attended the North American Hardware
Trade Show in Chicago, Illinois, looking for new product ideas and monitoring competitor
innovations. A few years ago, while touring the cramped lower floor of the show where small
companies hope to win sales of recently developed new products, Tremco’s Canadian executives
discovered the booth of Foam-o, a manufacturer from Norton, Ohio. It had created an insulating
spray foam. Foam-o was primarily a private labeller (i.e., it had no brand of its own opting, instead,
to place the labels of other companies on its products). Executives quickly discovered that Foam-o
had no Canadian presence and that the company would agree to give Tremco exclusive rights to
distribute the product in Canada. Foam-o was even willing to add a non-competition clause which
ensured that it would not try to enter the Canadian market either directly or indirectly (i.e., through an ------------------------------- This case was written by Marvin Ryder. Case material is prepared as a basis for classroom
discussion only. Copyright 2016 by Marvin Ryder, Michael G. DeGroote School of Business,
McMaster University, Hamilton, Ontario. This case is not to be reproduced in whole or in part by
any means without the express written consent of the author.
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American reseller). Knowing that no Canadian firm manufactured insulating spray foam, all of
these terms excited Tremco executives. The product would not be available in the Industrial
Division making it the first exclusive product for the Consumer Products Group in Canada.
Though insulating spray foam was first introduced to Canada ten years earlier, today there
were four companies selling expanding insulating foam in an aerosol format. Insulating spray foam
was used to seal drafts behind baseboards, around wall vents for dryers and fans, and fill cracks
around window installations. When sprayed, the sticky foam expanded to fill empty spaces and then
dried to form a semi-rigid barrier to air flow. Three brands, Great Stuff, Foam-it, and Touch ‘n’
Foam, were imported from the United States while the fourth, Sista, was imported from Germany.
Tremco had followed the progress of this product line as it was given limited shelf facing in the
caulking section of hardware, building supply, and mass merchandising stores. This placed it near
Tremco’s number one selling caulking product – Mono. However, unit volumes compared to
caulking sales were less than one to twenty.
The plan was quite simple. Tremco would import Foam-o’s product. The Mono brand
name was extended and the product was called Mono Foam (Mono Mousse in Quebec). This line
extension was supported by a limited amount of advertising in trade publications. Distribution in
retail stores was gained through Tremco’s national sales force and on the strength of the Mono brand
name. For Tremco, this was an easy decision. Tremco had an excellent warehousing and
distribution system. It did not incur any new product development costs. There was no additional
overhead other than working capital required for inventory.
Using a premium pricing system, Tremco was able to achieve a 30% contribution margin.
This meant that Mono Foam sold for about $8.00 a can at retail – about the same price as Sista and
twice the price of Great Stuff, Foam-it and Touch ‘n’ Foam. If consumers were not willing to pay
the premium price, Tremco was prepared to withdraw from the market. Nonetheless, the chance of
losing money on the project was low.
The Situation
For Mono Foam, sales peaked two years ago and then remained unchanged. Apart from
some modest trade advertising and sales force support, there had been no promotional investment in
the product. Communication with the consumer consisted of exposure only – through an attractive
rack and an available information brochure. This approach was not unusual as no competitor
supported its brand with anything more than infrequent trade discounts common to the industry.
Foam-It and Touch ‘n’ Foam supplemented their low price approach with a manufacturer’s agent
who targeted smaller independent hardware stores. Sista and Great Stuff were larger competitors
which were new and unknown to Tremco. Both had succeeded in getting exposure in chain
hardware stores – most notably Canadian Tire.
Although positioned as the quality leader, Mono Foam placed third in market share. (See
Figure 1) As a result, Mono Foam’s performance was seen as little more than a line extension that
generated only a limited operating income. The market size, measured in number of cans sold, also
remained stable and was virtually unaffected by the introduction of Mono Foam. Perhaps the
biggest problem for Mono Foam was the unwillingness expressed by Canadian Tire to put the
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product on its shelves. By not achieving full retail distribution, the product was not exposed to all
potential customers. Canadian Tire accounted for 25% to 30% of all hardware sales to consumers in
Canada.
Figure 1 Market Shares – Consumer Insulating Foa
As part of the re-examination of Mono Foam, Paul Sagar’s first step was to visit Foam-o in
Ohio. He discovered that in Europe insulating spray foam had a forty year history though in North
America the product was barely fifteen years old. Based on his knowledge of the use of caulking,
one would expect no difference in demand for spray foam between North American and European
consumers. However, Europeans were consuming five to ten times the volume of product. Foam-o
convinced Paul that the market had a need for the product and that, in North America, the product
could be in the primary stages of a growth cycle.
His second step was to gather market information. Sales to consumers acting as “do-it-
yourselfers” accounted for 90% of volume. The other 10% was sold to small contractors. No
market research was gathered on this group. Last year, 3.9% of Canadian households bought an
insulating foam product. This translated into 1,642,000 containers with a retail value of $13 million.
Canisters came in three sizes: small – 350 grams (45% of sales); medium – 620 grams (37% of sales);
and large – 935 grams (18% of sales). (See Table 1 for details) Based on some European data, Paul
believed the consumer market for foam could grow at a rate of 15% per year. Future growth would
be directly related to the market’s incidence of purchase. If 30% of households purchased the
product each year, the insulating spray foam market would be bigger than the caulking market.
Insulating spray foam was purchased year round but sales peaked in October, November,
December and January – the months when consumers were most interested in “winterizing” their
homes. Consumers also tended to purchase and then use an entire can of insulating spray foam
regardless of its size. This was partly due to the product as once the can was opened, insulating spray
Great Stuff 39%
Other 3%
Store Brand
4%
Touch'n' Foam 3%
Foam-it 9%
Mono 11%
Sista 31%
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foam had a three month shelf life. But this was also partly due to the multi-purpose nature of the
product. Once homeowners began filling cracks and blocking air leaks, they were able to find
enough to empty an entire can.
Table 1 Market Size - Consumer Insulation Foam
Product Size
% of Households
Purchasing
Total Households
Purchasing *
Average Units
Per Purchase
Total Units
Sold
350 gram 2.9% 380,000 1.93 733,400
620 gram 1.7% 230,000 2.63 604,900
935 gram 0.9% 120,000 2.53 303,600
All Sizes 3.9% 520,000 2.45 1,641,900
* Assumes approximately 13,300,000 households in Canada.
Although Great Stuff had the highest market share, it had no product in the 620 gram market
and finished second behind Sista in the 935 gram market. Its sales were concentrated in the small
350 gram market. Great Stuff was positioned as the low price foam with the same performance
attributes as Mono. Sista was the first insulating spray foam in the Canadian market and Sista
dominated the 620 gram market and had half the sales of Great Stuff in the 350 gram market. Sista
also enjoyed a dominant position in the Quebec market while Great Stuff fared better in the rest of
Canada. Tremco identified these two companies as its key competitors.
Last year, Mono added a 935 gram package to complement its 350 gram size. As the total
number of cans sold remained constant, one could assume that some cannibalization had occurred.
Nonetheless, a bigger volume of Mono Foam was sold. Revenues for last year were approximately
$624,000 with a contribution margin of $187,000. If the market grew as anticipated, Mono Foam’s
sales volume would be most affected by its market share. If it could aggressively acquire share then,
with its margins, it could benefit the most.
Paul’s third step was to talk directly with consumers. No competitor was undertaking any
primary or secondary marketing research. Most viewed insulating spray foam as a mature product
and a commodity. One competitor was quoted as likening the industry to fasteners. After all, “nails
are nails.”
Paul’s research provided some interesting findings. Only 20% of consumers showed
awareness of insulating spray foams. Awareness meant they could know the product well, have a
vague idea of the product, or have no idea about the product other than recognizing the name.
Approximately 25% of those aware had purchased the product. (See Table 2 for Mono Foam sales)
These people were very satisfied with the product and would purchase again if a similar need arose.
They had not purchased it instead of caulking and, in fact, saw the product as being completely
different from caulking. They were also loyal indicating that they would buy and had bought other
Tremco products.
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Table 2 Mono Foam Sales Volume (in cans)
Product Size Year 1 Year 2 Year 3
350 gram 100,700 110,300 84,600
620 gram - - -
935 gram - - 21,900
Total 100,700 110,300 106,500
For the unaware group, researchers explained the product, how it was used, and the benefits it
could offer. Consumers were asked to use a five point scale to indicate how likely they would be to
purchase the product. “Very likely” and “Likely” responses comprised 50% of the sample. This
“top box” score was the highest of all previous products researched by Tremco. When asked what
the most important factors were when buying an insulating spray foam, the top five consumer
responses were: 1) high insulation/”R” value – 22%; 2) easy to apply – 19%; 3) provides a tight seal –
11%; 4) seals air leaks – 11%; and 5) seals cracks – 6%. Given the small sample size, Paul had to
make the dangerous assumption that buying behaviour would be the same in Quebec as in the rest of
the country.
Paul’s final step was to visit with key retail accounts. (See Figure 2) One in four cans of
insulating spray foam were acquired at Canadian Tire. This retailer was concerned about Mono’s
relatively high selling price. It also preferred to carry products supported by mass media advertising.
In particular, it reacted better to products support by television advertising as Canadian Tire was a
heavy user of this medium. Given the small volume of insulating spray foam sold, Canadian Tire
did not feel it could justify a third product listing on its shelves. A listing was important to Tremco
as once granted, a product would be guaranteed exposure in all Canadian Tire stores. The retailer
might be interested in private labelling Mono Foam with the Canadian Tire name. Paul was given
assurances that Tremco was seen as a key supplier to Canadian Tire and there was a willingness to
continue the dialogue if any major new promotional effort was expended.
Next Steps
Paul tried to synthesize this information. “Mono” was a reputable and established brand name
which represented well-made products to consumers. Tremco had a good understanding of the
consumer insulating spray foam market as well as access to worldwide foam knowledge.
Unfortunately, Mono Foam was not significantly different from its competition. Given the need to
import from the U.S., the high American dollar, and the need to maintain a 30% contribution margin,
Mono Foam would have to be premium priced thus eliminating a certain percentage of
price-conscious consumers from the market.
One solution was to begin an aggressive campaign to expand the market to match European
consumption trends. Marketing research seemed to support Paul’s belief that a lack of consumer
communication and awareness were at the heart of the problem. If Tremco could launch a major
communications initiative it could increase the size of the market and with it, Mono Foam’s market
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Figure 2 Where Consumers Are Purchasing Insulating Foam
share. This strategy was not without its risks. Increasing demand for the product would
undoubtedly benefit lower priced competitors as price-sensitive consumers turned to alternatives
cheaper than Mono Foam. More of a concern, Tremco was betting that competitors would not
comprehend its actions and would not change any of their marketing tactics. In particular, Tremco
hoped its competitors would not launch any major communications campaigns.
A key question for Paul was how to communicate. He was limited to $100,000 for the
coming year by company executives. He considered many options. Given the complex nature of
the product, he could provide free samples to home owners. This would necessitate filling small trial
aerosol cans with the product. These were expensive to purchase and he would be limited to 25,000
given his budget. Another possibility was in-store demonstrations. A representative could visit a
retail hardware store with a small booth and, during store hours, visit with customers and show them
how the product worked. This approach would cost $250 per day. A variation on this would be
attendance at retailer trade shows where no homeowners would be allowed. Rona/Lowe’s, Home
Depot, and Home Hardware, to name a few retailers, held these two day trade shows twice a year. It
allowed companies, new and established, a chance to speak one-on-one with local retailers and
dealers. Booth rental was only a few hundred dollars but the big cost was the time of those who
would staff the booth. Bigger retail trade shows, like the one held in Chicago, could cost tens of
thousands of dollars to attend.
As the product filled a mass consumer need, Paul considered mass media advertising. Radio
was a portable medium but lacked a visual element. Magazines or newspapers could get the
message across but were relatively inefficient. By having to purchase space in dozens of
publications, there could be message overlap and wasted dollars. Television had broad appeal and
had been used successfully with its Tremclad line of paints and Mono caulking. Unfortunately, there
were few network television shows devoted to home renovation. If television was used,
sports-oriented programming would have to be targeted. He could try cable television. For example,
Home Hardware 16%
Rona/Lowe's 8%
Home Depot 11%
Costco 5%
Canadian Tire 24%
Co-op 3%
All Others 33%
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the Home and Garden Television Canada (HGTV Canada) channel offered lots of home renovation
programs but the audience was one percent of those watching sporting events on the networks.
Finally, Paul considered in-store advertising. He had seen small television sets equipped with a
built-in video player. A short video could be created which would play continuously in the store to
attract attention. To be successful, salespeople would have to get permission from store managers
and convince them that this set-up would not be a nuisance to their operations. A past trial of this
expensive system ($600 per store) indicated that only 1% of managers would permit placement.
A different approach would be to look for other elements of the marketing mix which, when
manipulated, would lead to share gains. Paul considered two additional sizes – medium and very
small. He wondered about dropping the branded product and moving into private labelling for
Canadian retailers. He could also reduce the contribution margin and lower the product’s price.
One key to future success seemed to be getting a listing at Canadian Tire.
