The Case of the Lead User Who Originated a New Market
Kim needs to answer Hal, a lead user1 whose disruptive innovation fits Kim’s product strategy
“In the next decade will you build a plant to manufacture your ultra-pure, gallium organometallic?”
Kim’s answer can be “Yes.”But, before replying, he needs research on customers and market dynamics in the lighting market that Hal’s innovation will disrupt2.
Kim engaged me to provide market research about Hal’s emerging market. He knows my B2B market research method3 will provide the information he needs. (We’ve worked together before.)
Background on the problem
Hal is a Senior Materials Scientist at major aerospace firm. He invented the MOCVD process4. Using MOCVD and ultra-pure, gallium metalorganic samples, supplied by Kim, Hal can grow a superior light emitting diode (LED5). LEDs use only 10% of the energy required by an incandescent lamp.
Hal’s firm wants to scale-up to commercial production of LEDs in the next decade.
Kim directs business development at OrgCorp, a supplier of pyrophoric metalorganics. The firm produces and ships these hazardous liquids in a safe manner.
The firm’s major customers use the liquids as catalysts to produce billions of lbs per year of polyolefins. Catalyst cost is an insignificant part of polyolefin production cost. Customers prize OrgCorp’s on-site services. They include safety training and fast help with out-of-the-blue safety problems.
In non-catalyst markets, Kim develops opportunities fitting his firm’s oligopolistic6 strategy. Barriers to suppliers planning to enter an oligopoly market include:
- High investment requirements
- Strong customer loyalty,
- Economies of scale.
Market research tasks for gathering and analyzing information needed by Kim
- My first task is to build a list of 110 well-informed people in the emerging market for LEDs (light emitting diodes)
- Second task is to chose, at random, people on the list and cold-call them.
All respondents will hear the following phrase. “My client has created a low cost process for producing light emitting diodes. On a bench scale they’ve used this process to fabricate LEDs in good yields.”
- Third task is to analyze data collected during the calls. For statistical significance, I used the Central Limit Theorem7 in the analysis.
Executive Summary: Customers’ Feedback and Market Dynamics in the Market Hal’s Innovation Will Disrupt
32 respondents entered into deep interviews with me.
When I analyzed the interviews, answers to Kim’s points-in-question came into view.
- The emerging market for LEDs fits Kim’s oligopolistic development.strategy.
Ultra-pure, gallium metalorganic’s cost is an insignificant part of LED production cost.
- On-site service essential: a. Training in safe handling this pyrophoric metalorganic b. Fast response to an emergency in production.
“Your client needs to be as responsive as XXX (he mentioned my client’s name). One of our research chemist was badly burned when he ignored safe handling protocols.
Our safety officer shut down all LED research. I called XXX about our problem.
Overnight their chief engineer flew to our site for an all-day training in safe practices. At the end our safety officer allowed us to resume research. XXX didn’t charge us a penny for this service. When we scale up production, XXX will be our supplier.”
Mgr., Optoelectronics Research — Bell Laboratories
3. Hal’s destructive innovation will invade the value networks of the incandescent lighting industry at a snail’s pace. Respondents were aware of Hal’s work.. But, most opted to put resources into fierce development battles with current competitors.
“Look your client’s material is used in a process that’s only just moved out of the laboratory. We’re watching it but it’s not worth spending time on the process now. We’ve got current competitors who are cutting incandescent’s production costs.”
Dir,. R&D Lighting … Philips Lighting
Kim requested, from the firm’s Board of Directors, the funds to build a plant to manufacture ultra-pure, gallium organometallic. The Board approved.
In his presentation to the Board, Kim cited:
- The market research project’s findings.
- The fit of Hal’s disruptive innovation with the firm’s oligopolistic strategy.
- The firm’s experience in successful commercialization of their first product. A catalyst innovation that disrupted the business model of olefin polymerization .
After 3 years, the plant was up and running, supplying early adopter customers.
After 10 years, a new plant was built to meet demand.
After 20 years, a new and larger plant was built to meet fast, growing demand
Now, the world-wide market for the ultra-pure, gallium organometallic is $89M/yr. Four other pyrophoric metalorganic producers are members of the oligopoly. For 32 years, they’ve collected high. double-digit returns on their investments in production and service.
Profitable product development is a bet that chosen barriers will be enduring.
- The Lead User Method is a market research tool used by firms or individuals seeking to develop breakthrough products.
- Lead users face needs that will be general in a marketplace … but face them years before the bulk of that marketplace encounters them.
- Lead users are positioned to benefit significantly by obtaining a solution to their needs.
- Lead users are customers who adapt, modify, or transform a proprietary offering.
When using the tool, the market researcher collects information about both needs and solutions from the leading edges of the target market and from analogue markets, markets facing similar problems in a more extreme form. Wikipedia, accessed 4/15/20
- Disruptive Innovation In business theory, a disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market-leading firms, products, and alliances. The term was defined and first analyzed by the American scholar Clayton M. Christensen and his collaborators beginning in 1995, and has been called the most influential business idea of the early 21st century. Wikipedia, accessed 4/15/20
- Rule of 30 System for B2B customer research.
- MOVPE (metalorganic vapor-phase epitaxy) is a process for growing crystalline layers to create complex semiconductor multilayer structures. It has become a major process in the manufacture of optoelectronics. Wikipedia, accessed 4/15/20
- Light Emitting Diode Wikipedia, accessed 4/15/20
- Oligopoly: An oligopoly is a market form where a market or industry is dominated by a small group of large sellers (oligopolists). Oligopolies differ from price takers in that they do not have a supply curve. Instead, they search for the best price-output combination Wikipedia accessed 4/15/20
- Central Limit Theorem for statistically significant analysis of customer feedback.