Chemicals & Materials Now!
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Posted on June 9th, 2016 by Michael D. Brown in Chemical R&D
Nearly every company has long-term strategies aimed at growth. Of the countless ways to grow a business, innovation is among the most important growth “tools” available to chemical companies. Innovation is especially powerful when conducted to exploit shifts in markets caused by macrotrends and changing customer needs.
Exploiting market trends involves identifying customers in market segments that are growing faster than the overall market and selling them innovative products and services so that you can grow along with them. The elegance of this approach is that by letting market trends do the “heavy lifting” of growth you avoid ugly competitive dynamics from simply taking share from competitors with undifferentiated “me-too” products in slow growing markets (e.g. hand-to-hand combat, price discounting that sometimes lead to price erosion).
This sounds simple except for the fact that the global chemical industry is mature and growing at or slightly above GDP, nominally 2-3%/yr.
Fortunately most markets within chemicals, even the most mature, have segments that are growing at rates greater than market average and sometimes significantly so. Savvy marketers know how to find these opportunities and capitalize by steering innovation and product development resources toward them and away from those growing significantly less than market average.
Types of Growth Opportunities
Let’s examine four different types of growth opportunities and simple examples of how innovation might help exploit them (See Figure above):
Opportunity 1 – Enter a new fast-growing market where all segments and customers are growing at the same pace as the overall market. An example is market entry into the broad chemicals market of an emerging country that is fast growing due to demographic and economic trends. Innovation might be developing a simple product line to establish a quick market position and enjoy early fast growth.
Opportunity 2 – Enter a segment(s) of an existing market that is growing faster than the overall market as a result of customers shifting to that segment from another segment(s). Segment D is growing faster as a result of customer shifting from segment C. An example might be innovation of a new herbicide for soybeans to exploit shifts in farmer planting patterns to soybeans and away from corn or other crops. The soybean herbicide would grow faster than the market as farmers plant more soybeans and less corn.
Opportunity 3 – Within an existing segment, introduce a new technology that displaces an incumbent technology. Technology Z is taking share from technology Y within segment E. An example might be a new polyurethane foam taking share from polystyrene foam in insulation for the commercial construction segment.
Opportunity 4 – Simply grow by taking market share from competitors with undifferentiated products. Again, this is a less elegant way to grow and one which risks negatively disrupting market dynamics.
Opportunities 1 – 3 are examples of growth from market trends. Each opportunity can be exploited by appropriate innovation aimed at that trend.
Growth opportunities can be subtle and evolve in complex ways which requires time and effort to identify and understand. Companies committed to growth need to have dedicated resources constantly hunting. Some ideas for hunting growth include:
- Researching trends impacting not only your markets but also those around you including customers, distributors, consumers, regulators, etc. A classic tool for analyzing trends is the “STEEP” model. STEEP breaks trend analysis in to discrete types (Sociological, Technological, Economical, Environmental and Political) to make sure markets are examined from several dimensions. It also makes research and the subsequent analysis easier.
- Searching patents and published literature to identify areas of innovation, especially innovation that is disruptive to established markets. Don’t just search within the chemical industry as innovation outside the industry can sometimes have an indirect impact on chemical industry trends.
- Understand evolving changes in end-user requirements (downstream from the chemical market). This includes changes to industry specifications and building codes that are changing due to increasing performance requirements, environmental regulations, shifting trade patterns and shifting consumer preferences.
- Closely monitor “voice-of-customer”, particularly those customers who are leaders in their markets. Learn how they are adapting to macrotrends and how that will translate to changing dynamics for your products sold to them.
Identifying growth is not enough. Products and services are needed to monetize your effort which requires innovation and development. Make sure the innovation is appropriate for the particular opportunity and brings a good balance of competitive differentiation along with nimbleness and time to market. For instance, entry to an emerging country market may require simple innovation of basic products so that entry can be quick to enjoy early growth. On the other hand, displacing an entrenched incumbent technology in a mature market may require more sophisticated innovation to assure new products are sufficiently differentiated.
Also, remember to play defense as market trends cut both ways. Sometimes innovation can even help to bolster a segment being impacted by negative trends by upgrading products to fight off new entrants.
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Michael D. Brown
President, StrategyMark Inc
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