Industrial Lubricants Inc

Located Pennsylvania, Industrial Lubricants, Inc., was a small manufacturer of lubricants used by industrial firms in their manufacturing processes. Most of the company’s customers were located in the 12 countries surrounding Industrial Lubricant’s only manufacturing facility. The president and owner, Carl Zenner, knew his company’s resources would not allow him to compete aggressively with the industry’s larger competitors. In spite of this limitation, Zenner wanted to be able to compete effectively in the market area his company presently served. To do so, he needed good estimates of the market potential for industrial lubricants in the counties in which the company’s customers were located.

Zenner and Peter Weld, the sales manager, developed a method they felt would lead to estimates of the market potential for industrial lubricants in each of the nearby counties. Three information sources were needed for these estimates: (1) a review of company sales records would be made in order to identify the most important customer industries; (2) a survey of those industries would be undertaken to determine the average annual consumption of industrial lubricants per employee; and (3) a search of secondary sources would be made to determine the number of people employed in each of the important customer industries in each of the counties served by the company.

A search of company sales records for the past 12 months showed that the bulk of company sales were concentrated in three industries – apparel products (SIC 23) chemical products (SIC 28) and fabricated metal products (SIC 34). These three industries were the ones that would be used in the proposed market potential estimation scheme.

The company hired an experienced marketing research firm to survey apparel, chemical; and metal fabricating companies located in the 12 surrounding counties. The research firm obtained the names and address of all such firms from a commercial service that provided such information for a fee. A sample of firms in each of the three industries was randomly selected; and those firms were contacted by telephone. Survey firms were asked to report the volume of industrial lubricants they used in the last year and their average number of employees during the last year. The survey findings showed that the annual lubricant consumption per employee was 20 pounds in the apparel industry, 125 pounds in the chemicals industry, and 50 pounds in the fabricated metals industry.

A US government publication, County Business Patterns reported the number of people employed during the January – March months in each SIC industry in each county in the United States. For example, for one of the counties in which industrial Lubricants did business, County Business Patterns reported 381 employees in the apparel industry, 1,337 employees in the chemical products industry, and 2,464 employees in the fabricated metals industry. Therefore for the one county the estimated market potential for industrial lubricants in each of the three target industries was:

Industry Lubricant Number of Market Potential
Cons per Employees (pounds)

Apparel 20 lbs 381 7,620
Chemicals 125 lbs 1,337 167,125
Fabricating 50 lbs 2,464 123,200
Total 297,945

County Business Patterns also reported the number of firms in each industry, broken done into eight size categories based upon number of employee. For example, the 2,464 fabricated metal industry employees referred to in the above paragraph were working or 94 firms. Twenty five of these firms had 1 – 3 employees, 16 firms had 4 – 7 employees, 21 firms had 8 – 19 employees, and 23 firms had 20 – 49 employees. Of the remaining nine firms, four had 50-99 employees, four had 100-249 employees, one had 250-499 employees, and no firm had more than 500 employees. When size of firm was taken into consideration only 32 of the 94 firms had 20 or more employees, and only 9 of the 94 firms had 50 or more employees.

Both Zenner and Weld wondered if some firms with the fewest number of employees should be excluded from the estimated procedure. It was probably not economical to call on very small firms, especially if lubricant consumption per employee was low. Conversely it would probably be more profitable to concentrate the company’s selling and marketing resources on the larger firms in the three customer industries. If only the larger firms were to be targeted, it would be necessary to decide on how few employees a firm would have to have before it was excluded from the market potential estimation procedures.

The market potential estimation procedure based on industrial lubricants consumed must be restricted to Chemical and Metal fabricating industries and has no relevance to number of employees. Number of machines installed in the factory will have relevance on the consumption of lubricants.

The advantage may be the Industrial Lubricants Marketing strategy can concentrate on these high lubricant consumption industries. There may be a disadvantage that larger companies may be already concentrating on some of the customers and Industrial Lubricants Inc., being a smaller company may not be able to compete on price basis.

Market potential estimates can change with time.