Development of Organic Chemicals in the Sixties

the same facts of life in the sixties that have always affected the industry. ... to investment, in both time and money, in a way that will ... mercia...
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Development of Organic Chemicals in the Sixties L. PAUL SAXER

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Market Development Department, Commercial Development Division, American Cyanamid Co., New York, Ν. Y.

The competitive sixties probably will not require new techniques for marketing new organic chemi­ cals, but only a continuing refinement and applica­ tion in practice of established principles. W e face the same facts of life in the sixties that have always affected the industry. The marketing approach is inevitably tied in with business success. Therefore, potential profit from a new activity must be related to investment, in both time and money, in a way that will conform with company objectives. The re­ lationship between investment and the likelihood of success must be established as early as possible. New products, moreover, must have recognizable traits which will warrant customers' interest. The competitive sixties can be expected to place a greater burden on people responsible for choosing a product for promotion. They will need the back­ ing of a patient management and every trick in the book to get new products accepted and on a com­ mercial basis as quickly as possible.

M a r k e t i n g new organic c h e m i c a l s , as a l l i n the field are r u e f u l l y a w a r e , i n v o l v e s p r o b l e m s c o m m o n t o a l l new p r o d u c t p r o m o t i o n . T h e c o m p e t i t i v e sixties w i l l p r o b a b l y n o t r e q u i r e techniques w h i c h are new to those experienced i n d e v e l o p ­ m e n t , o n l y a c o n t i n u i n g refinement a n d a p p l i c a t i o n i n p r a c t i c e of t h e established p r i n c i p l e s . T h e s e c o m m e n t s , t h e n , are n e c e s s a r i l y a r e v i e w of some o l d t r u t h s . T h e t e r m " m a r k e t i n g " s h o u l d be defined i n a t t e m p t i n g t o d e a l w i t h t h i s subject. A l t h o u g h m a r k e t i n g is g e n e r a l l y associated w i t h sales a n d d i s t r i b u t i o n , new p r o d u c t m a r k e t i n g of o r g a n i c c h e m i c a l s c a n n o t be considered as a n e n t i t y separate f r o m p r o d u c t conception, research, m a n u f a c t u r i n g , a n d service. T h e a c t i v i t i e s i n t h e e a r l y stages are i n t i m a t e l y r e l a t e d , w i t h emphasis s h i f t i n g b a c k a n d f o r t h . T h e successful v e n t u r e w i l l e m b o d y a constant flow of i n f o r m a t i o n f r o m each aspect of the e n d e a v o r t o the others. T h e c a p a b i l i t i e s of the people i n q u e s t i o n w i l l determine the extent to w h i c h t h i s interchange is efficiently c a r r i e d out. T h e business press keeps r e m i n d i n g us of the o p p o r t u n i t i e s w h i c h lie ahead i n t h e " f a b u l o u s s i x t i e s . " T h e m a n concerned w i t h o r g a n i c c h e m i c a l s is p a i n 130

CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.

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f u l l y sensitive t o t h e areas of present o v e r c a p a c i t y i n h i s segment of t h e i n d u s t r y . W h a t d o these observations h e r a l d t o guide a c t i v i t y i n n e w organic c h e m i c a l s i n t h e next decade? I n l o o k i n g a t t h e s i t u a t i o n f o r t h e sixties, w e face t h e same facts of l i f e w h i c h h a v e a l w a y s affected the i n d u s t r y . T h e emphasis o n t h e i r i m p o r t a n c e w i l l p r o b a b l y become m o r e acute, of course. O n e w a y t h e y m i g h t be s t a t e d i s : 1. T h e marketing approach is inevitably tied i n with the successful running of a business. A n d the successful running of a business, even i n organic chemicals, must be the basis for action, taking precedence over "sentimental" factors i n choice of product and potential profitability of the product. 2. Applied research i n all industry is constantly increasing (up b y a factor of 15 since 1930). Researchers i n a well-run company must account for their time i n applied research. They have been bombarded with an increasingly overwhelming n u m ber of new organic chemicals i n recent years. Companies i n allied fields are turning to production of organic chemicals for "diversification." Foreign producers are aggressive at low prices. 3. A s we have mined out the more obvious areas laid bare b y previous fundamental research i n organic chemicals, new ventures are increasingly likely to require very large amounts of capital investment i f they are to be really profitable. These three statements, if allowed, lead to three corollaries: Potential profit from the new activity must be related to the investment i n money as well as to the energy required for development i n a way which will conform to the objectives of the particular company. The product should have recognizable traits which will warrant the expenditure of customers' research time. The crucial relationship between extent of commitment and likelihood of successful results must be established at the earliest possible moment. E a c h o r g a n i z a t i o n i s l i k e l y t o present a different basis f o r a t t e m p t i n g t o d e a l w i t h these circumstances. N e v e r t h e l e s s , each a s s u m p t i o n - c o r o l l a r y c o m b i n a t i o n p e r m i t s some general c o m m e n t . Business Responsibility A good d e a l has a l r e a d y been s a i d a b o u t t h e first area u n d e r t h e general h e a d i n g of "business r e s p o n s i b i l i t y . " N e w p r o d u c t people e v e r y w h e r e owe t o t h e i r m a n a g e m e n t t h e r e s p o n s i b i l i t y f o r choosing a c t i v i t i e s w h i c h h a v e t h e best p o s s i b i l i t y f o r success. E x p e r i e n c e shows t h a t success w i l l r e s u l t m o r e q u i c k l y if a p r o d u c t i s chosen t o fill a n a c t u a l need r a t h e r t h a n i f i t m e r e l y seeks t o ferret o u t t h e need. I f , t h e n , p r o d u c t choice seeks t o fill needs, i t follows t h a t c a r e f u l m a r k e t a p p r a i s a l t o c o n f i r m t h e o r i g i n a l j u d g m e n t w i l l be r e q u i r e d before t h e p r o g r a m gets b e y o n d t h e p o i n t of n o r e t u r n . W e expect t h a t successful m a r k e t d e v e l o p m e n t of o r g a n i c c h e m i c a l s i n the sixties w i l l i n t h i s m a n n e r be s t r o n g l y d i rected t o w a r d specific m a r k e t s even more t h a n i n t h e p a s t . T h e r e is n o t h i n g e x c l u s i v e a b o u t d i s c o v e r y of needs t o be filled. P o t e n t i a l customers a r e v o c a l a b o u t w h a t t h e y w o u l d l i k e t o see a c h i e v e d . C o m p e t i t o r s are l e a r n i n g about those needs a l l t h e t i m e . I t w i l l be necessary t o t h i n k i n c r e a s i n g l y i n terms of t e c h n o l o g i c a l strength i n choice o f p r o d u c t versus c o r r e s p o n d i n g needs, strength based o n p a t e n t s , r a w m a t e r i a l s , a n d m e n a n d t h e i r s k i l l . R a t i n g of projects a n d p r i o r i t y as never before t a k e s o n new significance. B e c a u s e a s i z a b l e l a b o r a t o r y o p e r a t i o n c a n produce so m a n y organic c h e m i c a l c a n d i d a t e s , t h e decision t o m a r k e t , based o n best chance of success, w i l l d e m a n d prime attention. CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.

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T h e foregoing emphasis o n p r o d u c t s to meet needs does not exclude the d e s i r a b i l i t y of d e v e l o p m e n t of p r o d u c t s n o t a i m e d a t a specific target. M a n y of the largest v o l u m e p r o d u c t s t o d a y began i n t h i s m a n n e r . D e s p i t e reduced l i k e l i h o o d of recurrence, such experiences w i l l u n d o u b t e d l y be repeated. T o be p r o m o t a b l e , however, a new p r o d u c t for w h i c h no use c a n be v i s u a l i z e d w i l l h a v e t o a v o i d b e i n g a r e r u n of e s t a b l i s h e d p r o d u c t s . I t w i l l r e q u i r e new a t t r a c t i o n s , c h e m i c a l or economic or p r e f e r a b l y b o t h . P r i c i n g has a l w a y s been the heart of m a r k e t i n g . F o r the most p a r t , o r ganic c h e m i c a l s h a v e been p r i c e d i n reasonable r e l a t i o n t o t h e i r cost at a g i v e n l e v e l of m a n u f a c t u r e w i t h r e d u c t i o n s as a p p r o p r i a t e . W h e n a specific end use is g o v e r n i n g the m a r k e t a c t i v i t y , however, i t is often necessary t o d e v i a t e f r o m the t r a d i t i o n a l a p p r o a c h . D . S. A l c o r n of U n i o n C a r b i d e C h e m i c a l s , s p e a k i t i g of h i s firm's experience i n p r o v i d i n g o r g a n i c c h e m i c a l s t o the s y n t h e t i c r e s i n industry, said: Pricing is another factor of the utmost importance. A realistic approach i n keying the price of a new product to its intended use is absolutely essential. The old approach to pricing was to manufacture a material i n pilot or semiworks quantity at high cost and to price the limited output at equally high levels. A s business volume built up, there were downward price adjustments made i n line with production economics realized through the larger volume. The modern approach to pricing is through a chemical developed for a specific end use, and then priced with competitive materials i n that end use i n accordance with its worth. A volume price is immediately put on the material i n an attempt to get to volume usage as quickly as possible. M a r k e t d e v e l o p m e n t of organic c h e m i c a l s i n the sixties w i l l u n d o u b t e d l y c o n t i n u e t o r e q u i r e a readiness o n the p a r t of the s u p p l i e r at some p o i n t i n the c h r o n o l o g y t o t a k e aggressive p r i c i n g a c t i o n . M o s t responsible firms w i l l p a y s i z a b l e prices f o r s m a l l a m o u n t s of e x p e n s i v e l y p r e p a r e d m a t e r i a l . T h e y do expect, however, t h a t the s u p p l i e r c a n g i v e t h e m a d r u m p r i c e a n d a long-range p r i c e o n l a r g e r v o l u m e , so t h a t t h e y c a n base t h e i r o w n p l a n s a c c o r d i n g l y . U n less the c h e m i c a l is c o m p l e t e l y e x p e r i m e n t a l , customers w a n t t o be sure t h e y c a n get d r u m q u a n t i t i e s for e v a l u a t i o n a n d , i n f a c t , seem m u c h more l i k e l y t o w o r k w i t h p r o d u c t s where d r u m q u a n t i t i e s c a n be p r o v i d e d . T h i s l a t t e r f a c t tends to d r i v e the p r i c e over onto the side of s u b s i d i z a t i o n , a t least f o r a t i m e . R e g a r d l e s s of the a p p r o a c h t o p r i c i n g w h i c h is t a k e n , the responsible a c t i v i t y w i t h new o r g a n i c c h e m i c a l s i n the sixties w i l l be r e q u i r e d to show a r e l a t i o n s h i p between p r o f i t a n d the necessary i n v e s t m e n t . T h i s depends u p o n the m o s t a c c u r a t e p r e d i c t i o n of p r i c e a n d v o l u m e r e l a t i o n s h i p . U n l e s s the m a r k e t i n g f u n c t i o n is geared t o m a k e use of a l l a v a i l a b l e k n o w l e d g e w h i c h c a n be a p p l i e d a n d r e a p p l i e d t o ensure the a c c u r a c y of t h i s p r o j e c t i o n , the chanees of u n s a t i s f a c t o r y results w i l l increase g r e a t l y . I f we are to a v o i d t h e k i n d of s i t u a t i o n w h i c h hae p l a g u e d the t e x t i l e a n d other c o m m o d i t y i n d u s t r i e s for y e a r s , o r g a n i c c h e m i c a l d e v e l o p m e n t people m u s t be t h i n k i n g a l o n g these lines. Making the Product Attractive T h e second b r o a d area i n v o l v e s the lengths t o w h i c h we c a n expect t o h a v e t o go i n t r y i n g to p r o m o t e new organic c h e m i c a l s i n terms of c o m p e t i n g f o r customers' research t i m e . C e r t a i n l y the first step i n t h i s respect is t o a t t e m p t t o l e a d f r o m s t r e n g t h w i t h the uniqueness of c h e m i c a l s t r u c t u r e . A s e m p h a s i z e d b y M r . A l c o r n , t h e " m e t o o " a p p r o a c h has a l r e a d y p r o v e d e x t r e m e l y u n l i k e l y to produce a p r o f i t c o m m e n s u r a t e w i t h the i n v e s t m e n t i n v o l v e d . CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.

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A t least some of t h e w a y s t o w a r d w h i c h o t h e r c h e m i c a l s h a v e t u r n e d t o c a p t u r e t h e researcher's a t t e n t i o n are c l e a r l y s h o w n i n a few specific examples. F u n c t i o n a l i t y i n t h e n e w p r o d u c t is m o s t i m p o r t a n t w h e r e t h e u l t i m a t e a p p l i c a t i o n i n v o l v e s i t s use as a n i n t e r m e d i a t e o r as a m o n o m e r . D e v e l o p m e n t of b i s p h e n o l , e p i c h l o r o h y d r i n , a n d p e r o x y g e n a t e d c o m p o u n d s are examples r e s t i n g u p o n t h i s t y p e of s i t u a t i o n . O u r o w n d i a l l y l m e l a m i n e is a s i m i l a r e x a m p l e . I f t h e o b j e c t i v e i s t o fill needs, t h e n specifications of t h e p r o d u c t m u s t be developed t o c o n f o r m t o the r e q u i r e m e n t s of t h e c u s t o m e r . I n c r e a s i n g r e f i n e ments i n t h e p u r i t y of ester p l a s t i c i z e r s t o meet t h e r e q u i r e m e n t s of electric grade a p p l i c a t i o n s h a v e offered a n e x a m p l e of t h i s sort. A n e w p r o d u c t f o r t h i s field m u s t meet or surpass the e s t a b l i s h e d p e r f o r m a n c e , i f i t is t o s t a n d a chance of f a i r e v a l u a t i o n . I n d i c a t i v e of a n a l l - e n c o m p a s s i n g a p p r o a c h is t h e d e v e l o p m e n t of t h e m a r k e t i n d e p t h . T h e p r o m o t i o n of toluene d i i s o c y a n a t e furnishes a n excellent e x a m p l e . T h e producers of t h i s p r o d u c t as a n element i n f o a m h a v e been forced t o go a l l o u t i n d e v e l o p i n g techniques of f a b r i c a t i o n of t h e finished p r o d u c t , t o d e m o n s t r a t e t o t h e u l t i m a t e user of f o a m t h a t systems c o n t a i n i n g T D I are i n d e e d c o m p e t i t i v e w i t h a n d s u p e r i o r t o t h e e x i s t i n g f o a m ( n o n c h e m i c a l ) p r o d u c t s . T h e t e c h n i c a l service charges w h i c h r e s u l t f r o m s u c h a n e n d e a v o r l o o m large. Y e t , w i t h o u t t h e m , t h e chances of success were s l i m . I n d e v e l o p i n g o r g a n i c c h e m i c a l s i n t h e s i x t i e s , t h e m a r k e t i n g m a n (as w e l l as those i n v o l v e d i n a l l t h e r e l a t e d a c t i v i t i e s ) m u s t v i s u a l i z e t h e l i k e l i h o o d of the c a n d i d a t e ' s r e q u i r i n g a m a s s i v e effort of t h e sort described f o r c o m m e r c i a l d e v e l o p m e n t . H a v i n g done so, he m u s t estimate t h e chances of t h a t v e n t u r e being r e p a i d . Reappraisal I n t h e t h i r d area of a c t i v i t y m e n t i o n e d , t i m i n g under t h e t h r e a t of r e a d y r e p r i s a l w i l l become even more acute t h a n i n t h e p a s t . Successful d e v e l o p m e n t of o r g a n i c c h e m i c a l s , a g a i n as is t r u e i n a l l d e v e l o p m e n t w o r k , w i l l r e q u i r e r e a p p r a i s a l even m o r e f r e q u e n t l y , t o be c e r t a i n i n t h e e a r l y stages t h a t t h e r e l a t i o n s h i p between l i k e l i h o o d of success a n d c o m m i t m e n t is most c l e a r l y understood. A Case History L e t us e x a m i n e i n t h e l i g h t of these t e x t b o o k l i k e comments a case h i s t o r y to see w h a t lessons m a y be l e a r n e d . I n F i g u r e s 1 a n d 2 is p l o t t e d t h e experience of a group of p r o d u c t s f o r p a r t of t h e i r d e v e l o p m e n t career as experienced b y t h e A m e r i c a n C y a n a m i d C o . T h e s e a r e chosen as " a n average group of p r o d u c t s " — t h e y d e m o n s t r a t e reasonable g r o w t h ; t h e p r o d u c t s were n o t " m e t o o " ; t h e y serve a b r o a d m a r k e t w i t h m a n y uses. D u r i n g t h e y e a r s of effort w h i c h h a v e been i n v e s t e d t o d a t e , there h a v e been repeated t r i a l s , losses, a n d t r i b u l a t i o n s . F i n a l l y , a n d most e n c o u r a g i n g , t h e corner appears t o h a v e been t u r n e d w i t h r e g a r d t o a payoff o n t h e v e n t u r e . Some definitions are necessary t o i n t e r p r e t t h i s i n f o r m a t i o n a d e q u a t e l y . F i g u r e 1 shows t h e sales p r i c e o n a p e r p o u n d basis. I t also demonstrates cost on a p e r p o u n d basis. B e c a u s e there are s e v e r a l p r o d u c t s i n v o l v e d , these n u m b e r s h a v e been a v e r a g e d o u t . M o r e o v e r , t h e cost does n o t i n c l u d e p r o v i sions f o r research a n d d e v e l o p m e n t expense. H o w e v e r , i t w a s felt t h a t t h e l a t t e r figures were n o t sufficiently s i z a b l e o n a p r o r a t e d basis t o affect t h e results unduly. CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.

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RELATIVE SELLING

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Figure I.

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Sales price and cost on per pound basis RELATIVE AVERAGE INVESTMENT, DOLLARS

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Figure 2.

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Total investment prorated on a dollar basis and per cent return

F i g u r e 2 shows the t o t a l i n v e s t m e n t p r o r a t e d o n a d o l l a r basis. T h e r e t u r n is expressed o n a per cent basis, b u t t h e t w o d o n o t e m p l o y t h e same scale. CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.

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T h e case t a k e n here i s a n e x a m p l e of p r o d u c t s " p r i c e d t o meet t h e m a r k e t . " T h e best possible e s t i m a t e of properties versus r e q u i r e m e n t s a n d c o m p e t i t i v e materials was made.

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O u r p e r i o d of e x a m i n i n g t h e r e c o r d begins w i t h t h e i n i t i a l large c a p i t a l i n v e s t m e n t . I f t h i s c u r v e i s t r a c e d b a c k w a r d , i t w i l l be e v i d e n t t h a t there w a s a p r e v i o u s p i l o t experience whose expense does n o t show i n t h i s discussion. T h e v a r i o u s increments i n c l u d e one increase i n t h e p h y s i c a l i n v e s t m e n t b u t f o r t h e m o s t p a r t reflect increased w o r k i n g c a p i t a l necessary t o c a r r y t h e l a r g e r sales volume. A l t h o u g h t h e m a n n e r i n w h i c h t h i s i n f o r m a t i o n m u s t necessarily be p r e sented obscures t h e f a c t , a t one p o i n t there w a s a serious process p r o b l e m w h i c h resulted i n s i z a b l e cost increases f o r one aspect of t h e p r o g r a m , a l t h o u g h , f o r t u n a t e l y , t h i s w a s offset b y a n i n c r e a s i n g sales v o l u m e i n another aspect, so t h a t t h e net effect o n p r o f i t w a s a p p r o x i m a t e l y zero. W h a t conclusions c a n we r e a c h f r o m t h i s experience a b o u t t h e d e v e l o p m e n t of n e w organic c h e m i c a l s ? F i r s t of a l l , because t h i s t o o k p l a c e d u r i n g t h e supposedly " l e t h a r g i c fifties," t h e n p r e s u m a b l y i n t h e " c o m p e t i t i v e s i x t i e s , " t h e a m p l i t u d e of t h e effects m a y be even greater. I f t h i s i s so, there i s a n ever greater b u r d e n p l a c e d u p o n those responsible f o r choosing a p r o d u c t for p r o m o t i o n t o get s o m e t h i n g w o r t h y of t h e k i n d of effort t h a t i s l i k e l y t o be r e q u i r e d . S e c o n d l y , w h e n p l a n n i n g t o subsidize t h e v e n t u r e , t h e m a r k e t d e v e l o p m e n t m a n h a d better h a v e a v e r y p a t i e n t m a n a g e m e n t . F i n a l l y , once a course is chosen, he w i l l need e v e r y t r i c k i n t h e b o o k t o get his p r o d u c t accepted a n d o n a successful c o m m e r c i a l basis i n t h e m o s t r a p i d manner. E a r l i e r discussions h a v e d e a l t w i t h t h e p r o b l e m of m o v i n g f r o m test t u b e to t a n k c a r o n t h e m o s t compressed possible t i m e schedule. T h e comments i n t h i s d i s c u s s i o n h a v e l a r g e l y been a l i g n e d t o w a r d a t e x t b o o k a p p r o a c h designed for m i n i m u m r i s k . D e s p i t e a l l t h e fine phrases a b o u t t h e l a t t e r , t h e f a c t r e m a i n s t h a t u n d e r t h e pressure of t h e need t o get results i n t h e c o m p e t i t i v e sixties, j u s t as i n t h e p a s t , t h e people p r o m o t i n g n e w organic c h e m i c a l s w i l l i n m a n y cases " g o f o r b r o k e , " i g n o r i n g t h e i n c r e m e n t a l a p p r o a c h i n f a v o r of t r y i n g to get t h e j u m p o n others w h o m i g h t be able t o d o t h e same j o b . S o m e s u c h v e n t u r e s w i l l u n d o u b t e d l y be c o s t l y , w a s t e f u l of t i m e a n d m a n p o w e r , a n d w i l l become f a i l ures. O n t h e other h a n d , some w i l l m a k e a l o t of m o n e y I

CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.