New Products for New Markets
Using a 2x2 Matrices To Provide a Framework Around Product Development
Welcome back to another issue of this newsletter focused on product development. Today, I am tackling something a bit more esoteric or rather it feels esoteric to me. Also, I realized that within these emails I send out I write them as if I am writing to a singular person when I know the audience is diverse. There is a plurality of “you” out there and just know that I tend to think of you at two extremes: myself and my mom. My goal is to write something that I would enjoy and something that my mom might enjoy or at least come away with a better understanding of what I’m writing about.
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When you are working in product development it can be difficult to understand what you are really trying to do in all of the meetings that you will inevitably end up sitting through. Not all meetings are bad, but most are often bad because there is no clear product development philosophy or framework to operate within. Sometimes, as the chemist, scientist, or engineer you just want to get in the lab and start producing stuff. This might feel productive, but if you don’t know where you are going how can you arrive?
A strong leader can often lead a team through the product development process without any sort of framework on their vision alone. Start-ups that tend to come out of universities at first, I think, tend to operate on this basis of vision as they build out their minimum viable product. Once a company has brought a product to market we can think about how that company would fall into the 2x2 matrix below:
At best the 2x2 matrix is a tool in your tool belt. It is often used in established or mature companies to organize product development efforts. The “old” market tends to be where that company has a presence and is selling to their customers and “new” markets tend to be existing markets where that company has no presence. For instance if you are working at SC Johnson and you are making Zip Lock bags for sandwiches then you are making an old product for an old market. A new product within the Zip Lock bag space might be a better closure, a better bag material, or a bag designed to be re-used multiple times with the intent of selling that back into the “old” market. We can think of going from the bottom left of the 2x2 to the bottom right of the 2x2 as “incremental innovation.” If you are working in product development in the chemical industry there is a good chance that this is your job.
Taking an old product to a new market using our Zip Lock bag example might be as a way for outdoor enthusiasts looking to keep electronics dry during a white water rafting trip or to keep the smell of food inside of the bag in order to not attract bears when camping. A bag that is fit for purpose for these functions might have already existed within the SC Johnson product portfolio and it is really just about getting those products to the right distributors and thus to the right customers. Perhaps even under a specific brand name. There is little to no innovation or R&D investment needed.
In the top right of the 2x2 matrix we can think of this as developing a new product for a new market to the company. Let’s imagine SC Johnson doesn’t have a Zip Lock bag that would be fit for purpose for white water rafting or keeping smells inside the bag. They would then need to go figure out how to make a product fit for purpose for the “outdoor enthusiast” market. This would require scientists and engineers to translate the voice of the customer into an actual product (at least according to a design for six sigma approach). This quadrant is by far the hardest market to develop products. We can think of the results of the first 2x2 matrix in the next 2x2 matrix below:
The upper right quadrant is the highest risk area to operate and requires significant time compared to the other quadrants, but the reward might be worth it. It might take ten years to bring your product to market, but that investment and difficulty might also be a nice protective moat to defend against competitors. This quadrant is about hitting home runs. We can think of Origin Materials and their chloromethyl furfural platform chemical or Verdox with their carbon capture polymers as existing in this quadrant.
The bottom right/top left often means to gain new business or keep existing business it is a zero sum game where either you are the winner and someone else is the loser. This might be cannibalizing your own product with something better or risk getting displaced by a competitor or a substitute. We can think of Evonik’s investment into rhamnolipid biosurfactants as being in this quadrant even though it took them a long time to get there.
The top left of the matrix is as simple as trying to sell into new markets with the stuff you already have on the shelf. In this quadrant you might be a cheaper substitute or an easier to use solution. This might be a bit risky, but it is a quick way to short term sales growth. A great example of this was the transition in oriented strand board away from phenol-formaldehyde resins (PF) and towards polymethylene diisocyanate (pMDI) resins. Both of these products have been around for a very long time, but using pMDI over phenolics in engineered wood was relatively new about 10-15 years ago. Another good example would be Eastman using their specialty polyesters to displace polycarbonate water bottles. Granted, both of these examples have regulatory/consumer concerns driving the change such as formaldehyde emissions and bisphenol A, respectively.
The bottom left is where you don’t want to be as a product development professional because your job is to just maintain the business without any investment and any product that gets “developed” here is likely just cost cutting such as using a cheaper supplier or figuring out how to incorporate “waste” material that your procurement team found for pennies on the dollar. In the event the business needs to cut costs you might be one of those costs to get cut.
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What If Your Market Doesn’t Exist?
Using a 2x2 matrix is a useful tool for product development teams, but they are limited because they only allow us to look at two variables at once. One trap of looking at old markets versus new markets for a company is that we are still stuck within markets for products that currently exist. In the 2x2 matrix below I use this framework of existing versus non-existing markets for new and old products.
I think this framework is best used to determine if you should attempt to commercialize your own research. I think a great example in this space are the new food coating start-ups that are developing food protective coatings that are edible. Apeel and Mori are good examples of creating a completely new market that didn’t exist.
When we think of protective packaging for perishable foods we think about plastics with good barrier properties such as polyethylene or polyethylene terephthalate. Apeel and Mori thought of protective coatings for perishable food as something that is actually applied to the food instead of putting that food in a plastic box. Their coatings protect the food, is edible, and doesn’t change the flavor, look, or feel of the food they are protecting. The value proposition to the food distributors is that there is less risk on inventory spoilage and to the end customer it is a sustainability/less packaging/longer home shelf life value proposition. These start-ups created a whole new product category that didn’t exist before (I’m not counting wax coatings) and solved a pernicious problem.
This concept of creating markets is powerful. DuPont and ICI built themselves on making the first synthetic polymers and using those synthetic polymers to increase productivity of their customers. Polyethylene for instance helped displace paper bags and the synthetic bag market was born. The original intent though of a polyethylene bag was not a “single-use” application at least according to the inventor’s son in The Independent:
Plastic bags were invented to save the planet, according to the son of Swedish engineer Sten Gustaf Thulin who created them in 1959.
The bags were developed as an alternative to paper bags, which were considered bad for the environment because they resulted in forests being chopped down.
They were significantly stronger than paper bags, which meant – in theory – they could be used over and over again.
Raoul Thulin, son of Sten, told the BBC: “To my dad, the idea that people would simply throw these away would be bizarre.
“He always carried [a plastic bag] in his pocket folded up. You know what we’re all being encouraged to do today, which is to take your bags back to the shop, he was doing back in the Seventies and Eighties, just naturally, because, well, why wouldn’t you?”
Creating completely new markets for both new and existing products can unlock new levels of productivity and solve problems that people tend to just accept because, “that’s the way things are.” I think we tend to see this in software a lot. For instance, I’m writing this newsletter off of a $400 Chromebook without having to buy any software and I’m making a small amount of money via a platform called Stripe. When I was a kid that would have been “unbelievable.” Getting technologies down the cost curve from specialty to commodity often can create new markets as well such as personal computers.
These 2x2 matrices can be used to help align resources within your company and help you figure out what you might need to be successful in developing a new product. If you are aiming at developing a new product for an old market there is likely certain performance and cost constraints you will have to stay within. If you are developing a new product for a non-existing market, figuring out how much to charge and if your product could be profitable is really difficult because you don’t know how much you can charge. People might pay you double what you think is possible or they might laugh at your “pen that writes in space” because they just use pencils.
If you are stuck in the old products and old markets quadrant my advice is to get out or learn how to surf.
What are you working on?