Survey: New applications key to fueling growth

20:06 PM | April 28, 2014 | Vincent Valk

Mestanza: Market understanding is critical.

Finding ways to expand the uses of existing products in new applications will be a key growth driver for specialty chemical makers in the coming years, according to a SpecialChem (Paris) survey of industry executives. The survey finds that 42% of respondents plan to acquire new customers by using existing products in new applications. Some 41% of respondents also say that they will acquire new customers via developing new products for markets they already serve. Just 17% of respondents say that growth will come from existing products in existing markets, half as many as a similar survey conducted by SpecialChem in 2013, the firm says. However, many companies underestimate the role of market understanding in successfully penetrating new applications and markets, SpecialChem says.

The survey, conducted early this year, comprises 234 responses from executives and managers in specialty chemicals. Respondents are most active in four sectors—plastics and composites, paints and coatings, personal care and cosmetics, and adhesives and sealants. Regionally, 39% of the respondents are from Europe, 28% are from North America, and 17% from Asia. Many occupy product management and business development roles at leading specialty chemical manufacturers.

The survey found that customer acquisition —be it via new applications or new products —was crucial to meeting income targets. Over 40% of respondents say that more than 15% of their companies’ two-year income targets are contingent on bringing in new customers, with another 52% saying 5–15% of the target is contingent on new customer acquisition. About 77% of respondents say that meeting goals for acquiring new customers is “challenging” or “very challenging,” the survey finds.

In terms of moving into new markets, a lack of both market connections and market understanding are key problems, says Raphael Mestanza, chief innovation officer at SpecialChem. “When you are trying to enter a new market or play in adjacent spaces, you step out of your comfort zone,” Mestanza says. “Typically in a new application, the new market is structured differently, and you do not have access to the right connections.” Often, companies will launch products into new markets with limited data about that market’s needs and just one or two examples of possible customers; this can be a recipe for failure, he adds. “I’ve always been surprised that companies make important business decisions based on such few data points,” he says. “Companies also underestimate the internal resources required to manage the development of new business.”

For launching new or improved products into known markets, “companies tend to think because it is higher perform[ing] it will automatically be accepted by the market—and at a higher price,” Mestanza says. “That’s a big mistake I always see. Companies don’t take the time to validate the market need for this higher performance or to understand if the market is willing to pay more in a specific subsegment.”

Such mistakes—which have always been costly—are growing more expensive. “In the past, with the resources and profitability companies had, you could undertake many projects at the same time and, statistically, a couple would probably succeed,” Mestanza says. “Now, resources are shrinking, and companies need to be much more selective. There is less room for failure.” The survey finds that companies that invest more in market understanding are more likely to find success with new projects. Companies are also aiming to market additional services based on that understanding: 17% of respondents call additional services a “differentiating factor” in 2014 compared with just 6% in 2013.

“The most effective players are presenting themselves as solution providers to real problems that they can discuss with the downstream markets. They do this by validating where the unmet need truly is and gathering enough data points not only to find where the problems are but also define who is willing to pay to solve them,” Mestanza says.