Cutting a product’s price is easy but costly.
Salespeople tell the new CEO that their market development strategy is a cinch.
“Just cut the product’s price. We know our customers and how they think. Customers in the new geographic market think the same.”
The CEO does not agree to follow the salespeople’s mediocre strategy.
The product is a commodity, made by a non-proprietary technology. Shipping costs to the new market are high. Salespeople assume that the CEO will build production units in the new market. The assumption does not make sense.
The CEO decides, instead, to craft a good product development strategy.
The new market is large, with similar dynamics to the CEO’s current market. The CEO’s hypothesis is that customers in both markets have latent needs. Finding and meeting these needs, with an innovative product, is an opportunity to dominate both markets.
To confirm or reject the hypothesis, the CEO hires a skilled customer researcher to:
Discover latent needs through interviews with decision makers in the new market.
Analyze the gathered data and information to identify: 1. valuable latent needs, and 2. early adopter customers who want rapid launch of the innovative product.
Below is a case example of allying a well-crafted, product development strategy with a good market development strategy.
The head of Sales wanted Theo, as the new Managing Director, to approve building a plant in the US so Sales could enter the US market.
Sales’ justification of their market penetration strategy? “With over 20 years of experience (in Europe) we know what US customers will buy.”
Theo knew Sale’s strategy was naive. Only a drastic cut in price of the product would attract new customers. And, that option was not in the cards.
Theo hired me to research the US market for customers’ latent needs. He wanted to know if a clever product development strategy would lead to a new product that drastically cut the total cost to customers.
Theo’s unit and XYZ (the US competitor) suspend an additive in a large volume of liquid and ship it to paper mills. All Theo’s plants are in Europe. All XYZ’s plants are in the US. Shipping costs are high.
To answer Theo’s question, I began a series of 30 elicitation interviews with decision makers in the US market. After completing the 22nd interview, the answer was clear.
Customers would only switch to my client’s additive if it cost 50% less.
The 23rd interview provided a surprise! A mill’s head engineer first gave the same answer, switch only if the cost was 50% less. Then he continued, “I would not switch even if your client offered to cut the cost by 50%.”
“Together with XYZ we are building a vessel to make the additive on site. We don’t need to pay for shipping liquid. The new process allows us to fine tune the additive’s properties. ”
I made a quick call to the Building Permit office of the city where the engineer’s paper mill is located. They sent me a pdf file of the documents the city had approved for building the on-site vessel. Operation of the vessel was to begin in 4 months.
The on-site vessel would use a byproduct from the paper mill as one component of the additive. The chemistry and equipment to do this were non-proprietary. The mill’s cost to use the additive was cut by 50%. Success would allow XYZ to attack Theo’s market.
One week after my elicitation interview with the paper mill engineer, I flew to Europe. And, presented the results of the project to Theo and his engineering team.
Two months after the meeting Theo’s unit began building an improved version of XYZ’s on-site plant at a paper mill in Sweden.
Fifteen months after production in Sweden, 70% of Theo’s customers had partnered with his unit to construct on-site vessels.
Five years after the meeting, Theo’s unit kept European market share. It was making serious dents in the US market share held by XYZ.