I recommend that Marketing Managers and Product Managers obtain a copy of the The path to improved returns in materials commercialization published in “McKinsey On Chemicals” in which Michael Boren et al., (August 2012) describe six “failure modes” to be aware of in the commercialization of new materials and provide advice on avoiding these potential pitfalls.
Repeated experience of failing to successfully negotiate these traps is seen as a reason why chemical companies have more recently preferred to invest in incremental product line extensions. Boren et al., not only identify causes for this well recognised phenomenon, which leads many to see the chemical sector as a “low risk, modest gain” investment, but they also propose some solutions through organisational change.
The six failure modes are divided into three value proposition-related failure modes and three value chain-related failure modes. The value proposition-related failure modes are:
• Disequilibrium of risk – customers’ perception that the risks associated with new product introduction
outweigh the perceived benefits.
• Poor segmentation – an overestimation of the breadth of market appeal for a new product, leading
to overinvestment in capacity and poorly targeted sales efforts.
• Utopian illusion – the mistaken belief that a new product’s shortcomings relative to incumbent
technologies will be overlooked in favour of its differentiating virtues.
Each of these pitfalls can be successfully negotiated, according to Boren et al., by detailed market analysis leading to the targeting of market entry with less risk-averse customer segments that place a higher value on the perceived benefits and care less about its deficiencies. Addressing value proposition failure modes also requires an organised cooperation between technicians and marketers to rigorously quantify the benefits and dis-benefits of a new material for each market segments that has been identified as attractive for market entry. I would add that this should be done early in the innovation process i.e. there is a need for marketers to guide technicians to develop products that attractive, innovative customer segments want rather than identify a market need for products the technicians have developed.
The value chain–related failure modes are:
• Stifled by the loser – where benefits provided to the end-user threatens the value position of an
intermediate value chain player, they will hamper its adoption.
• ‘Drop-in’ solution – market scepticism, often fuelled by the owner of an incumbent technology,
that a genuine ‘drop-in replacement’ for a qualified, existing product exists, which occurs particularly
in extended value chains with regulatory constraints.
• Value chain complexity – a conflict exists between end-user’s – particularly OEM’s – need
for assurance of product availability before new product promotion and an intermediary’s reluctance
to invest in capacity before end-user sales are guaranteed.
Producers of new materials need to carefully identify potential points of resistance throughout the value chain and if necessary introduce new business models to sidestep value chain barriers. The authors recognise that establishing value chain partnerships can reduce the overall risk to the manufacturer and the commercialiser, giving them a strategic advantage and reducing the time to market adoption. Manufacturers that own their complete value chain inherently have this advantage.
In practice, chemical product commercialisation is often a “grey area” of responsibility between technicians and marketers, even when launch procedures in place. New product introductions may lead to the discovery of new features and faults when more innovative customers apply the new product in ways that may not have been considered during design.
In complex, highly competitive markets incremental product improvements, with poor but predictable returns on investment will continue to be the norm unless, as Boren et al., suggest, the specialist discipline of product commercialisation is recognised. The authors call for organisations to introduce well-trained, commercialization experts, who are skilled in strategic segmentation and have the knowledge and creativity to introduce new, value chain disrupting, business models where necessary. It can be argued that a commercialization expert should also be a facilitator, able to bring together technicians, marketers and senior management early in the innovation process and to act as an independent arbiter to the progression of projects, to support marketers in generating innovation-relevant market segmentation criteria and to manage the budgeting expectations of senior management when they are considering innovation delivery timescales.