The Case of the Commercial Development Manager’s Stalking Horse

Ned felt available market research on wood adhesives didn’t meet his needs.

Ned’s Problem

Ned wants to know why builders use plywood rather than OSB¹ structural panels. Thin sheets, bonded by adhesive, form plywood panels. Wood particles, bonded by adhesive, form OSB panels.

Manufacturers of the panels use either PF². or MDI³. adhesive systems. Ned is Commerical Development Manager for a business unit that produces MDI.

Ned’s Solution

In the past, Ned and I worked together on projects to understand a market’s value chain. For this project he created a stalking horse to probe decision makers at each link of the wood-based, construction industry chain. Ned wanted to figure out what each link really wanted … and why.

Stalking-horse gambit

A stalking-horse gambit tests a speculative product concept. Using this gambit. an elicitor moves a respondent into the Professor role. Most Professors share little-known, information about the industry with the elicitor.

In Ned’s speculative product concept, he adds glutaraldehyde to adhesive systems. Glutaraldehyde can inhibit microbial growth in wood, a possible benefit to respondents.

Market research tasks for eliciting and analyzing information needed by Ned

• My first task is to build a list of 120 well-informed people in the wood-based construction materials market.
• Second task is to chose, at random, people on the list and cold-call them.
  All respondents hear the following phrase. “My client is working on an innovative wood adhesive system. They add glutaraldehyde to present adhesive systems. It inhibits microbial growth;”
• Third task is to analyze data collected during the calls. For statistical significance, I used the Central Limit Theorem in the analysis⁴. 

Executive Summary: Market Research on Adhesives Used For Bonding Wood Structural Panels

Thirty respondents entered into deep one-on-one conversations with me.

• They were from the four main links in the home-building, value chain.
  
  • Forest owners, Mill operators, Distribution channels, Building contractors.

Many provided insight on why builders use plywood rather than OSB.

Building Contractors

“George, our industry uses plywood because it’s been around for a long time. OSB only became available in 1981. A new panel must pass federal, state, and local regulations on building materials
Also, we are slow to change from what we know best. Even though OSB is cheaper per square foot, our firm stays with plywood.”
     Business Development Director … D.R. Horton Inc.

“I’ve tried to get my carpenters to try OSB. They say ‘If plywood was good enough for my daddy, it’s good enough for me.’ ”
     Owner … Executive Craftsmen

Distribution Channels

“Most OSB producers have weak distribution channels.”
     OSB Sales Assistant …Potlach Corp.

Mill Operators

“”Overcapacity in OSB resulted in plummeting OSB prices. Overcapacity will depress prices for more than five years.
We, like competitors, thought building OSB mills in the center of forests was a great idea. Federal regulations allow us to use small diameter trees for OSB starting material.
To make the logistics work, we built mega-mills They came on line when the next down cycle of home building hit.”
     Technical Director – OSB … Louisianna-Pacific

Forest Owners

“Both we and Loisianna-Pacific own forests, make OSB panels in mega-mills in the forests, and distribute the panels. When, as now, the roller coaster of the construction industry dips, our profits disappear.”
     Business Development Director … Weyerhaeuser

Outcome

Ned’s business strategy is to improve the cash flow his business unit contributes to the firm over the long term. Based on what he now knows about the unhurried adoption of innovations by building contractors, Ned decided to:

• Not lower the price of MDI, even though demand exceeds supply.
• Initiate deep conversations, 3 years from now, with new respondents in the home building chain.
• Plan to add MDI production capacity, 5 years from now.

Present (22 years on from this market research project)

• MDI cash flow improves as adoption of OSB panels accelerates.
• OSB panels now account for 66% of the structural panel market.
• Ned is VP of the business unit.

Lessons Learned

End users’ needs drive adoption of a product, not suppliers’ needs.

Endnotes

1. OSB (Oriented strand board) Wikipedia referenced 5/5/20 
2. PF (Phenol-formaldehyde resins) Wikipedia referenced 5/5/20 
3. MDI (Methylene diphenyl diisocyanate) Wikipedia referenced 5/5/20 
4. Central Limit Theorem