Loctite Case for Understanding B2B

In 1953, Professor V. Krieble retired from the Department of Chemistry at Trinity College in Connecticut and began experimenting with various compounds. One of’his patented inventions was an unusual anaerobic-a chemical that remains in a liquid state while exposed to air but turns into a tough, binding solid in the absence of air. This chemical, which he called “Loctite,” would lock nuts and bolts against loosening from vibration. In the beginning; no one believed that a liquid could do the job that Loctite was claimed to do.

But it did, and the result was phenomenal. Today Loctite offers a series of “amazing chemicals”that keep metal assemblies together. These compounds can and do replace lockwashers, gas~~ts, tape, rivets, screws, and other mee chanical fastenerS. The adhesives and sealants the company offers rely on the fourth generation of This case is based in part on a longer report developed in 1991 by Ramune Kubiliunasat The Freedonia Group, Cleveland, Ohio. It is also based on various Loctite publications, including annual reports, product brochures, catalogs, and journal articles.

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This version was developed by An GASKET’ SEALANT GUIDE Import OE Endorsed Non-Hafdening Formula 19971 81998 t/ t/ t/ t/ t/ t/ t/ t/ t/ II’ t/ t/ ‘.. Hardening Formula Threa Sealant Positioning t/’ t/ , t/ t/ t/ For Gasket . t/ 400°F t/ t/ t/ 400°F t/ t/ t/ 400°F t/ t/ t/ t/ 350°F t/ Gasket Sealant Temperature Range t/ 600°F t/ t/ t/ 400°F II’ t/ 300°F t/ t/ 450°F t/ tI’ Withstands Sensor Safe High Pressures Source; Loctite Auto p. 4. + Consumer Group Product Catalog 1992 (Cleveland~ Loctite Corporation) .1 ~ CASE8 . LOCTITE 4! s- 701 anaerobics to provide very strong bonding.

The compounds span a range of functions and perforin wt;ll under adverse conditions in industrial, automotive, and consumer applications. Loctite’s corporate strategy is research, diversification, and marketing ”within itsskiijs”; it is devoted to its fiunily of specialty chemicals and will not eQter , (see lExhibit 1 for details). About 25 percent of Loctite is owned by Henkel (Germany). ‘ CORPORATE STRATEGYAND TACTICS Between 1985 and 1990, Loctite experienced excellent growth; sales grew at the rate of 17 percent per year and net income at 25 percent per year.

The company is dedicated to inaintaiiling this pace with a group of loyal employees around the globe. Indeed, Loctite benefited from being in foreign marketS; today it derives 60percent ofits sales from outside the United States. Loctite expects its future growth to come from expansion beyortd North America and Europe. It also plans to expand into electronics and medical markets, beyond its current emphasis on general industrial, automotive, and household applications. Loctite may make selected acquisitions in the futUre, but into unrelated fields. .

The (:ompany began teSt marketing its first productS in the mid-1950s and was granted its first patent in 1959. Sales reached n million in 1961. In i963, the company changed its name from American Sealants to Loctite. In the early 19708, the company acquiredPermatex, a famous name in automotive cements, :qid Woodhill Chemical, a marketer of househOld chemicals. Expansion continued based on internal growth, and the company has been highly successful in terms, of sales, net income, arid other indicators. Loctite joined the elite tanks of the Fortune 500 in 1990 EXHIBIT1 Loctite Rankings in the Fortune 500 ‘ Fortune mag3zine tanks the largeSt 500 Americart industrial companies by sales volume for the prior year. Fortune alsOtanks the 500 companies by selected financial results and stock market performance. Shown below are the comparative rankings for Loctite Corporation among the FortUne 500 companies. . Sales Profits Assets Stockholders’ equity Market value (318191) Profit as a percent of: Sales Assets Stockholders’ equity ‘ ‘ $576. 4 67. 4 489. 3 320. 2 1,257. 9 11. 9% 13. 8% 21. 1% $1. 86 22. 8% 10. 9% 30% 17% million million million million

Rank 486 242 422 317 201 Rank 32 30 74 Rank not calculated not calculated 101 Rank 30 116 Earnings per share: 1990 % change from 1989 1980-,. 1990 annual g1:Owthrate % Total teturn to investors 1990 1980-1990 anrtual growth rate . , Source: fortune, April 22, 1991, p, 305. Par~ ~ 704 CASE 8 . LOCTITE global level. The consumer market is doing well despite the tecession in the United-States, led by the single biggest produ,ct, “Super Glue,” in all its various package formats. ‘ The automotive aftermarket is especially big in the United States; but Loctite hopes to expand its sales abro1! d.

MARKETINGSEALANTS As in adhesives, in the”sealant market Loctite follows a policy of reaching bOth industrial users and households (the do-it-yourself market). In the industrial sector ~tsare used mostly in construction:, followed by other industrial segments and the automotive sector; percentage distribution in the United States is about 50, 25, and 25 percent, respectively. In construction, the sealants are used both in new buildings and for m~tenance and repair of . existing buildings of all kinds. In automotive manufacturing, the compounds are used in structural sealing applications.

Silicones can replace gaskets, and SYnth~ticrubber sealants are used to seal out moisture and -diri:About 20 , , pounds of sealants are used. in’ thepI:oduction of a medium-size car, a ~gure bound to rise as p~tics substitute for metals. Other industrial applications include aircraft, rail, and marine equipment and other manufactured products, ranging from electronics to tluid power equipment (including professional maintenance and repair of such items). While industrial users are the proving ground for high-performance sealants, these coni. , ical assistance in the form pf charts, tables, and . other how-to advice. See EXhibit3 for a typical matrix showing which sealant to use in which ap- plication. , Loctite seeks to motivate both its employees and its distributors. , Company’ personnel are intimately involved in developing catalog items and in fo~mulating promotional campaigns. There are seasonalvariations in terms of what will be promoted and with what kind of theme, bonuses, and other forms of incentives offered to dealers. Recentlythe company featured T-shirts, jackets, videotapes, and other items as rewards.

Loctite believes in marketing just the I1ght product for the job, so it offers detailed, assistance and advice to its managers, dealers, a,nd ultimate users. The automotive after~arket ca~og now carries dozens of items in the sealant-category alone, with specific applications pinpointed in great detail. As noted earlier, there is a possible danger of product proliferation, but Loctite knows both the garage mechanic and the do-it-yourselfer well. QUESTIONS 1. How can a company survive by relying basically on a single technology, a single family of specialty chemicals, and a commitment to diversifying only within this core business? . Loctite is stressing growth in special niche markets and in moving aggressively in foreign marketplaces. What information do you think it is using to identify fast-growing markets? 3. Loctite has proven to be knowledgeable about its distributors and how to merchandise adhesives and sealants to them. Evaluate Loctite’s merchandising program. 4. What would you include in internal memoranda to employees and in letters sent to outside distributors and dealers to keep them motivated? Would you use similar incentives and rewards? ounds are also used widely in the automotiveaftermarket and by, households. For such markets, Loctite packages its, products in various kits for specialized applications. The merchandising of the product line, in all its variety, is aggressive, relying on quantity and special discounts plus offers of various inceritive plans to a wide range of , intermediaries: warehouse distributors, jobbers, and dealers. But Loctite could not achieve success by promotion alone. Accordingly, it extends tech-

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