Producing customers the formulotor industry

Much of the expansion of turf chemical use parallels changes in the industry of turf chemical production. In particular, the formulator industry—companies that purchase raw chemical inputs to combine them into consumer chemical products -have dramatically changed their relationship to consumers in recent years. Specifically, since the late 1980s, formulator firms have turned to "pull" marketing: direct advertising by mail, radio, and television. This departs radically from traditional ("push") marketing, where formulator companies fill seasonal bulk orders to independent retail hardware and garden stores, who interact with customers (Baker and Wruck 1991; Williams 1997). "Pull" marketing means the direct marketing of products by formulators, with familiar company names like Scotts and Bayer. This change in strategy is notably recent and has been received by the trade as revolutionary, innovative, and crucial for industry survival (Journal of Business Strategy 1989; Cleveland Plain Dealer 2000; Robbins and Sharp 2003a and b).

The strategy requires a shift of resources towards the production of image and brand recognition and the devotion of significant budgets towards market research and the investigation of household chemical habits, with the specific goal of changing them. The concomitant massive increase in advertising costs is directed not only to television, radio, and print advertising, but also to toll-free hotlines, instore sales representatives, web pages, and email lists (Hagedorn 2001; US Securities and Exchange Commission 2001). Scotts, the industry leader, commonly spends twice as much as traditional firms to advertise its product, spending millions of dollars on television advertising, where traditionally such expenses were shouldered by retailers (Jaffe 1998; Scotts Company 2000). This marketing revolution has proven somewhat successful and consumer spending on lawn chemicals has increased in many markets, despite declines in other areas of herbicide and insecticide sales (National Gardening Association 2000).

Why increase a long-shunned and somewhat risky shift to direct marketing strategies and shoulder the considerable costs associated with it? The answer to this question centres on the narrowing margins in the industry, which have created an imperative to expand the number of chemical users and the intensity of chemical use per lawn. Firstly, the industry has become increasingly reliant on big box discount stores and home improvement warehouses, as small hardware stores and other traditional retailers shun the standing warehouse stock required for seasonal industries like lawn care, and as they disappear altogether (Bambarger 1987; Cook 1990; Williams 1997). Mass sales and bulk wholesaling reduces formulator industry receipts as a result (Scotts Company 2002).

Secondly, the formulator industry has undergone a series of aggressive and capital-intensive product acquisitions in recent years, which have reduced credit ratings and stock share prices, while increasing standing debt, aggravated by closed facilities, severance packages, and product recalls (Baker and Wruck 1991; Chemical Week 1998; Cleveland Plain Dealer 2000). The Scotts Company, in a prominent example, spent $94 million on interest payments in the fiscal year 2000, a figure inflated by the high interest rates of that year, placing tremendous pressure on cash flow (United States Securities and Exchange Commission 2001).

These kinds of increased expenses and reduced receipts have been coupled with the rising direct costs and opportunity costs associated with the difficult patenting systems, increased regulation of inputs, and environmental citations and fees from government agencies (Scotts Company 2001; United States Securities and Exchange Commission 2001; Scotts Company 2002a; Scotts Company 2002b).

The environment itself poses further barriers to accumulation, since lawn products sell most vigorously in Spring and Summer, while highest expenses and debt service payments tend to come in Fall and Winter. Wet years slow fertilizer sales, dry ones decrease pesticide sales, and cold seasons retard sales overall (United States Securities and Exchange Commission 2001; Scotts Company 2002a and b).

In sum, the formulator industry is in a production squeeze with tight and decreasing margins, ongoing consolidation, and debt. It is this business climate that drives the revolution in high-expense, high-risk, direct sales and its concomitant increase in chemical usage. At the same time, moreover, agrochemical firms, who supply raw chemical materials to the formulator and applicator industries, also face increasing pressure to find, produce, and exploit household chemical markets.

0 0

Post a comment