ChemBridge Case Study
Questions:
1. What is your evaluation of ChemBright’s Strategy? How sound is the business at this
point? What challenges could Steve Vitale make to improve the company’s profitability?
2. What should Steve Vitale do about the price war? Is it really a price war against Steve?
3. If this threat is surmounted, what avenues of expansion appear most compromising for
ChemBright?
Answer:
1. What is your evaluation of ChemBright’s Strategy? How sound is the business at this
point? What challenges could Steve Vitale make to improve the company’s profitability?
Pros: ChemBright’s main strategy is transportation advantage, to locate an operation in
New England and to sell to the New England market. Because distribution is the key to
private label bleach manufacturer, as transportation costs were a high portion of the cost of
this bulky, low – value products. Since the major supplier, Poulson shipped from New
Jersey, a local operation should have a cost advantage. Also ChemBright choose a location
that would be on the “backhaul”routes of the chain’s trucks.
Favourable market trend: the growth of private – label household chemicals in New
England had been rapid in the 1980s and 1990s, paralleling a national movement in
consumer acceptance of private – label products generally.
Supermarket chains’ net profits had declined from over 2% of sales in the 1970s, to 0.7%
to 1.14% between 1987 and 1995. This profit squeeze encouraged them to turn to higher
margin private – label products. According to Exhibit 1, buying from ChemBridge can get
net profit as 20% for bleach, a huge increase from Poulson (2%) before price war.
Shorter lead time (only 3 days compared to Poulson’s 10 day)from location advantage and
make to stock production , also one single production line allowed for flexibility .
customers like to feel that they can get three days and leave themselves some leeway. A
good selling tool. Also having three days consistently keeps us on our toes and allows to be
sufficientely geared to meet emergency orders the same day.
Cons:
Why start with bleach? Relatively low margin for ChemBridge and also a lot of
specification from customers. May choose to start with ammonia or fabric softeners will be
better?
The cost advantage to customers is too implicit, may not easily to be seen by customers.
As Vitale said:” since our customers’ trucks will be stopping anyway, it won’t cost them
much to add cases of other products to the load. That’s when our leverage will begin to
