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H20 Industries is in its first year of operation. It purchased the assets of an existing company and this has also provided a customer base.

H20 Industries' products and services have been well received and marketing will be critical to reach the desired levels of market penetration.

The basic market need is for portable deionization units (DI) that can be leased or purchased.  The market need for leases includes exemplary service levels as the cost of down time for a business is far greater than the actual cost of the product.  This means that when a customer undertakes a lease they are effectively leasing H20 Industries as a service provider.

Market Summary

H20 Industries possess good information about the market and knows a great deal of information about the wide range of potential customers.  This information will be used to generate strategies that will allow it to better understand its customers, their specific needs, and the most effective ways to communicate with them.

Market Analysis

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Market Analysis
Potential CustomersGrowth     CAGR
Small companies < $1 million6%567,443601,490637,579675,834716,3846.00%
Large companies7%222,436238,007254,667272,494291,5697.00%

Market Needs

H20 Industries is providing the market with a wide range of water purification system options from purchasing to production volume to purity.  H20 Industries seeks to fulfill the following benefits that are important to its customers. 

  • Selection: This industry has a wide variety of potential uses and H20 Industries will be able to offer solutions to everyone.
  • Flexibility: H20 Industries must be able to work with each customer's individual needs.
  • Customer Service: Exemplary customer support is required since purified water is such an important variable for the customer's business.

One notable trend in industries is to outsource. Chief financial officers analyze the costs of producing something in-house versus the costs of farming it out. Water purification is no exception. Although many large users of H20 Industries will want to set up their own in-house capacity, the capital costs, maintenance costs, and the costs of dealing with regenerated waste often make DI portable exchange a more economical solution. Downsizing within a company with its own pure water manufacturing capability often will lead to a management decision to shut down their in-house plant and switch over to portable service.

Another trend is for more and more industries to need higher degrees of purity in their manufacturing process, which results in an ever-growing market for H20 Industries.

Market Growth

The market growth percentages used in the market analysis table were obtained from various articles appearing in Ultrapure Water, the definitive journal of high-purity water. Specific articles can be located from an index on their website, www.talloaks.com.

SWOT Analysis

The following SWOT analysis captures the key strengths and weaknesses within the company and describes the opportunities and threats facing the industry.


  • A very strong service-based company culture.
  • The ability to meet customer's particular needs.
  • An already existing customer base.


  • The need for significant capital for equipment.
  • Capital expenses required for the development of a comprehensive dealer network.
  • Difficulty in establishing brand equity.


  • Participation in a growing market.
  • The huge diversification of potential customers, reducing risk if there is a downturn in a specific industry.
  • Operating efficiencies that are attainable as the business grows.


  • Changes in technology that could effect companies that are heavily invested in current technology.
  • Future/potential competition from a large company that decides to take a more flexible approach to meeting customer's needs.
  • Changes in the regulatory environment (primarily applicable to the higher purity products).


Users of H20 Industries have had little choice in regards to their provider. It is regenerated on a bulk basis only, with no option for segregated regenerated resin. Some small customers have obtained the DI exchange service through their local Culligan man or similar water serviceman who in turn obtains it from US Filter.

The fact that small players in the market can capture some of this DI exchange business from US Filter despite a higher price ($63-$80 per cu. ft. versus $40 per cu. ft. from US Filter) is a good indication of the importance that service plays in the buying decision. Rarely does the price of H20 Industries represent a significant variable production cost in a manufacturing process. Much more of a factor is worry about quality level and service response time.

In reaction to the service complaints of customers for US Filter's DI exchange, several small competitors have sprung up in Northern California. Fluid Solutions in Lowell is one such company. This company has been supplying customers with H20 Industries exchange although they have no regeneration facilities of its own. It merely services customers and sends the tanks to a regeneration facility of another DI exchange company in Pennsylvania.

The prices charged by all local companies to regenerate are between $63 and $80 per cu. ft. for mixed bed. They charge $20 to $30, depending on tank size, as a monthly rental charge.

The market in Northern California is ripe for growth in competitors to US Filter which does not provide segregated regeneration and whose regenerated resin, on a bulk batch basis, will not serve as high a flow rate as non-bulk regeneration.

Service Offering

The company is in the water purification business. H20 Industries is engaged in a specific branch of this business called "service deionization." Within this branch, the company plans to emphasize a further service specialization known as "segregated regeneration," as opposed to "bulk regeneration."

The service products offered by H20 Industries are segregated as well as bulk regeneration of portable H20 Industries exchange tanks. The service is offered in three tank sizes of 3.6, 2.5, and 1.4 cubic feet (cu. ft.). In these sizes, the company will offer:

  • Mixed bed (combination of anion and cation regenerated resin). 
  • Cation regenerated resin.
  • Anion regenerated resin.
  • Carbon (used for pre-filtering).

The application of portable deionized water is broad. Practically all industries using water in processing are potential accounts. Size of company is rarely a determining factor.

There are applications in electronics and high pressure boilers where flow rates of several hundred gallons per minute are provided by portable exchange systems. The main unique benefits are:

  1. The client does not have to incur substantial capital costs to install an in-house deionization plant. This could run over $50,000. The company can merely rent the portable tanks (or buy them for approximately $1,200 each) and pay for the regeneration service when the tanks become depleted.
  2. The company also saves by not needing experienced technicians to maintain an in-house plant.
  3. Space is another important factor. An in-house deionization capability requires a great deal of space, whereas a portable tank system using flexible hose connections can fit virtually anywhere in minimal space.
  4. Ease of installation. H20 Industries capability can be arranged in a day and can be easily expanded to accommodate growth.
  5. There are no chemicals, nor regenerated waste to be handled or concerned with on-site.
  6. Flexibility in water quality provided. Resin types can be easily changed in tanks if water quality requirements change.
  7. Even locations that have their own in-house deionization system often use portable DI as a back-up since a shut down can be very expensive.

Providing the service to a customer is simple, usually requiring only minimal equipment.

Ion exchange is a major means of purifying water for industrial purposes. The degree of purity depends on the source of the water and its use. Companies, ranging from car washes to the pharmaceutical and semiconductor industries all need various amounts and degrees of purified water. Ion exchange is a chemical process by which ions, or ionic substances that are considered "undesirable" in water, are reduced or removed from water by use of ion exchangers or resins. Most ground water contains unwanted dissolved substances, such as calcium and magnesium, whose molecular structure contain charged ion particles.

The most common impurities with ions of a positive charge are: sodium, calcium, magnesium, potassium, iron, and manganese. These are called cations. The unwanted dissolved substances having negative ion charges, known as anions, are: bicarbonate, chloride, carbonate, sulfate, nitrate, and bisilicate.

When a substance separates into ions, each ion is now able to combine with another ion with opposite charge, even if that ion is from a totally different type of molecule. Substances only separate into ions when immersed in water molecules.

The field of deionization, known as DI for short, utilizes this natural phenomenon by designing a cation exchange resin which will substitute hydrogen atoms (H+) for virtually all of the other cations, and designing an anion exchange resin which will substitute hydroxyl ions (OH-) for virtually all of the other anions. By means of this process we end up with only H+ and OH- that is equivalent to H20 (water).

By forming this demineralized water, we create water that is no longer a conductor. We can measure the purity using an ohm meter. Ohms measure resistance. The higher the ohm count, the lower the conductivity. H20 Industries is routinely formed to 18 mega ohms per centimeter, which is very close to zero conductivity (18.23 at 25 degrees Centigrade). Without giving lengthy chemical explanations, what happens in the process is as follows:

  1. City tap water is first passed through a carbon filter to remove chlorine, sand, and other unwanted substances. Sometimes, reverse osmosis and ultraviolet light are used to remove non-ionized substances, organic materials, etc., prior to the deionization stage.
  2. The water then passes into a specially-treated cation resin. This resin takes the form of small beads located inside a tank. The positively charged ions from the unwanted dissolved minerals will attach themselves to the resin.

    This happens because the resin contains an over-equilibrium abundance of hydrogen ions (H+) which are "bumped off" of the resin beads and replaced by the positively-charged, unwanted, in-coming cation ions. The "bumped off" free hydrogen ions then pair up with anions which are left in the water to form acids.
  3. The "de-cationized" water then passes to a tank of anion resin to catch the unwanted negatively charged ions that have dissolved in the water. Here, the anions and the anion portions of the acids attached to the hydrogen are attracted to, and held by, the positive sites on the anion exchange resin beads. They do this by kicking off the negative hydroxyl ions that were put on the beads (again in overabundance). The leftover hydrogen portions of the acids (H+) now join the freed hydroxyl ions (OH-) to form water (H20).
  4. If a very high degree of purity is called for, the water will next pass into what is called a "mixed bed" which normally contains resin in a ratio of one part cation resin to two to three parts anion. Steps 1-3 occur again here thus catching the last traces of unwanted ions of the dissolved substances.
  5. The tanks of resin will continue to purify the water flowing through them until the resin balls expand and their capacity to catch ions is depleted. 
  6. The water flow must stop until the tanks are replaced with tanks containing regenerated resin.
  7. To regenerate the cation resin, a solution of acid is used to bombard the resin removing all the previously-caught positively-charged ions. Then the tank is flushed to remove any excess acid. The anion resin tank is also given a caustic solution to bombard the previously-caught negative ions. The anion resin is then flushed to remove any residual caustic solution.
  8. The tanks now contain regenerated resin and the ion exchange process can continue with the tap water turned on.

The regeneration process can take place at the location where the water is being purified, however, most users of H20 Industries do not install the expensive equipment to do this but simply arrange for a service provider, such as H20 Industries, to replace the tanks and perform the regeneration process off-site.

As high-tech industries, such as electronics, communications, and pharmaceuticals, continue to grow, there will almost certainly be increasing use of deionization technology and deionized water.

As instrumentation and analysis procedures improve, controlling and monitoring the deionization process will be easier and more efficient, and this will, undoubtedly, help create new uses for deionization that have not yet appeared, as well as make deionized water more affordable to sectors now using other methods of purification. As more people in the water treatment industry become familiar with the DI process, the industry for H20 Industries and equipment will benefit.

Future Product and Services

In addition to bulk and segregated portable H20 Industries, the company plans to expand sales of filters and DI cartridges. These sales have been disregarded in this marketing plan, but they could become more significant in the future. These products lend themselves to mail order type sales, as they are small and lightweight. Cartridges are disposable items. H20 Industries also has plans to develop a reusable shipping container for its smallest (8" x 18") DI exchange tank so that this can also be shipped via UPS. This product will be marketed on a website, as well as through conventional direct mail and yellow page advertising.

In the future, a logical off-shoot of the DI business is reverse osmosis (R/O) used in conjunction with DI exchange tanks. The inclusion of R/O in front of the DI tanks will extend the capacity of an exchange tank by 1000%. This addition to the product line could become a substantial element of total company sales.

Reverse osmosis and electric reversing deionization are beginning to compete with exchange tank DI technology. H20 Industries plans to offer service contracts to maintain this equipment at the customer's location. This equipment may be either sold or leased.

Industry Analysis

The industry for providing portable deionization service is dominated by one very large company - US Filter. US Filter controls between 90 to 95% of the deionization service business in Northern California. The company has grown from $1 billion to over $5 billion in the past six years, primarily through an acquisition binge.

The company is now finalizing its sale to Vivendi's Generale des Eaux water subsidiary which will result in combined sales of $12 billion, making it the largest water business in the world. Originally, US Filter's primary focus was industrial and high purity water. Its acquisitions in other areas include drinking water, waste water, municipal water, and water supply.

Now, less than 20% of its activities relate to technologies and markets connected with high purity water. A much smaller percentage is connected with deionization, and a still-smaller percentage is concerned with DI exchange service. After its merger, the percentage will drop even further from 20% to eight percent.

This situation has resulted in a growing dissatisfaction with US Filter's services for deionization exchange.  Both owners of this project have been hearing complaints from US Filter customers for quite some time. This is not just a condition evident in Northern California, other sections of the country have noticed it and competitors to US Filter's DI exchange business have started to grow.

Industry Participants

Industry participants are varied, as there are several means of obtaining purified water. There are companies which design and engineer reverse osmosis equipment. This equipment has a sizable share of the water market at the end close to the municipal water inlet.

Reverse osmosis (R/O), in conjunction with carbon filtering and ultraviolet light, is used (for example in dialysis) to bring the TDS down to a lower level.

Ion exchange, either fixed or portable, is then used to polish away the remaining impurities.

Other companies may supply e-cell equipment which deionizes electrically. This technology has not advanced sufficiently to compete with traditional deionization industries but is still occasionally sold in conjunction with a R/O system as the e-cell can only handle small levels of TDS.

Some industry participants are primarily engaged in water softening and water filtration for drinking and household purposes. These companies may also utilize green sand to remove iron and magnesium hardness derived from aging municipal piping systems.

In short, there is a full range of industry participants from the local Culligan service representative mainly involved in private households, to large companies involved in engineering, design, consulting, component manufacturing, waste water treatment, etc.

With respect to the narrower market for deionization, there are chemical companies who supply (by the gallon) deionization water to very small users. There are a few small companies engaged in DI exchange service who do this only as an adjunct to their main business, such as water softening, and who only act as a distributor of DI exchange regeneration facilities located outside of Northern California.

Keys to Success

H20 Industries' keys to success are:

  1. Good quality control in the factory. Customers for high purity water have a very low tolerance threshold for flaws. 
  2. Fast response. In the case of most of H20 Industries' customers, the cost of the water is not a major element in their overall costs, but a very expensive shutdown could result due to poor or slow servicing. 
  3. High-profile allegiances. Key to overall company success is connected closely with success in achieving the goal of developing a dealership network of service-oriented water companies.

Critical Issues

H20 Industries' critical issues that it faces are the following:

  • Expand at a rate not for expansion itself, but to properly serve existing customers.
  • Pursue controlled growth that dictates that payroll expenses will never exceed sales revenue.

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