DuPont Large Group

DuPont Large Group - DuPont Freon Products Division Large...

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Unformatted text preview: DuPont Freon Products Division Large Group Discussion Professor Doug Cerf Donald Bren Graduate School of Environmental Science and Management Environmental Risk Management (ESM 286) Winter 2008 Printed on recycled paper-actually better, not printed at all Freon Products Division’s Options • Alternative# 1: Regulatory Adherence, “Status Quo” – Adhere to the regulations • Alternative# 2: Path to CFC Elimination, “Regulatory Capture” – Do better than the regulation • Alternative# 3: Full Stop of CFC Production – Go the extra mile Printed on recycled paper-actually better, not printed at all Analyze Options • Discuss as a large group – Specifics of each option – Benefits and costs/drawbacks of each option Printed on recycled paper-actually better, not printed at all Alternative# 1: Regulatory Adherence, “Status Quo” • Strictly adhere to US federal regulations, based on the Montreal Protocol, to reduce production of CFC’s by 50% by 1999; and continue to invest in both Ozone research and R&D of CFC alternatives. – Publicly declare commitment to adhere strictly to Montreal Protocol – Phase out production of CFC-11 & CFC-12 to meet target of 50% CFC production cut by 1999; and produce CFC-113, consistent with market demand – Increase Division’s R&D investment in line with Corporate R&D (as percentage of revenues), for both CFC-11/12 substitutes and Fluorocarbon Program Panel Printed on recycled paper-actually better, not printed at all Potential Benefits of Alternative #1 on Shareholder Value • Discuss • Details on following slides Printed on recycled paper-actually better, not printed at all Potential Benefits of Alternative #1 on Shareholder Value • Capture Rents – Capping production may increase prices and create market rents estimated at $600 million for 1988 and 1989, and $9 billion for 1990- 2000. – Our 36% market share should capture a commensurate share of these rents. – On the other hand, the EPA may tax these rents; so we cannot count on them. Printed on recycled paper-actually better, not printed at all Potential Benefits of Alternative #1 on Shareholder Value • Improved Product Portfolio Returns: – CFC-113 contributes 20% return on capital, and its customers are price-insensitive. – CFC-11 and CFC-12 contribute only 2% return on capital. – Cutting production of CFC-11&12 to 50% of 1987 levels will increase our Division’s gross margins in 1999. – After 1999, as CFC prices stabilize, we will seek to market substitute products with higher returns than both CFC-11 and CFC-12. • Market Opportunity for Substitutes: – Use the transitional period to help our customers switch from CFC-11&12 to alternative DuPont products such as HCFC-22. Printed on recycled paper-actually better, not printed at all Potential Drawbacks of Alternative #1 • Brand equity refers to the marketing effects or outcomes that accrue to a product with its brand name compared with those that would accrue if the same product did not...
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This note was uploaded on 08/06/2008 for the course ESM 286 taught by Professor Cerf during the Winter '08 term at UCSB.

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DuPont Large Group - DuPont Freon Products Division Large...

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