Case study Assessing new markets: innovative product concept testing Over the last few decades, it has become evident that companies that continuously think beyond their existing boundaries and invest in research, development and product or service innovation tend to be the market leaders. This case study summarizes an innovative market assessment approach undertaken to enable entry into new product and service segments with a company that is one of the leading jute products manufacturers. 22 Volume 4 Issue 4
Authors Rajib Maitra Manager Performance Improvement Ernst & Young, India Subhajit Mazumder Senior Consultant Performance Improvement Ernst & Young, India 23
Case study A key insight was that over half the respondents would prefer to buy the product directly from the manufacturer instead of any intermediary The company is one of the oldest jute products manufacturers in India. Over the years, it has established itself as a leading industry player and has a wide range of products for domestic and export markets. Traditionally, jute has always been the preferred fiber for manufacturing of packaging materials, especially for food grains, due to its properties such as high tensile strength, low extensibility and better breathability of fiber. The Indian Government also provides various incentives in the form of subsidies and price protection to the jute mill (jute manufacturing units) owners. Consequently, the bulk of the total production capacity of the industry is allocated toward manufacturing of traditional packaging materials such as sacks and gunny bags. The company is one of the few jute mills that has focused on products other than packaging materials and manufactures a wide range of diversified products (both woven and non-woven) known for their superior quality. The company has also built a strong reputation in the market for its business integrity, fair practices and focus on quality and innovation. Strategic objectives sowing the seeds of innovation The company engaged Ernst & Young to help with the project, which kicked off with a workshop that aimed to explore and understand the company s strategic objectives, its intended position and how strong the imperatives were for creating differentiation. The strategic objectives of the company included the following: Outperform the industry: achieve two fold annual turnover over the next three years and EBITDA margin higher than industry norm Grow as a diversified player: reduce contribution from traditional products and increase contribution from valueadded emerging product segments Enhance brand positioning and customer responsiveness The workshop also included a brainstorming session to develop a 360 degree view of the company, including perceptions of suppliers, customers and business partners. The output further reinforced that the company had indeed built a strong foundation that would form a great basis for achieving its strategic objectives. 24 Volume 4 Issue 4
Innovative product concept testing Assessing the market The first step was to assess market receptiveness and the potential for application of jute products in the following areas: Urban landscaping: applications of soil protection and slope stabilization Mine reclamation: prevention of slope failures in overburdened dumps and backfilled areas across mines Municipal solid waste (MSW) management: layers of separation and top cover in scientific landfill construction and landfill closures Automotives: jute-based composites in interior components The applications of natural fibers, such as jute, were nascent in the above areas. However, synthetic geotextiles have been more prevalent in some cases. Given this, the first most critical step was to understand the response of key stakeholders across the four application areas. We sought their perspectives on the product, its features and how beneficial it was perceived to be in each of the four areas. The approach This study was unique because of the industry it was focussing on and the very low levels of awareness of the products. This meant the standard templates and enablers normally used when carrying out a market assessment study just weren t applicable. In addition, because of a lack of standardization within the industry, potential customers for such emerging products were sceptical about using or accepting them without having first established their efficacy. All of these factors led us to decide on three key stages to our approach: 1. Dipstick study: to enable us to quickly understand the products and materials typically used in the four application areas; regulatory pressures (if any); the key functional and technical requirements from the materials and critical success factors that support and determine buying decisions. 2. Product concept testing: carrying out a one-of-its kind test marketing exercise involving concept presentation to the stakeholders, providing product samples of various kinds suited to different applications. 3. Market assessment: opportunity assessment and market sizing to understand the addressable market for the company. Figure 1. SWOT analysis at start of project Strong business fundamentals and domain knowledge Products good quality, innovative designs, captures market needs Technology and R&D company highly oriented toward latest technology and research Business innovation first to bring new innovative and diversified products, willing to reach out and cater to unmet needs of the market Strengths SWOT Weaknesses Sales and marketing structure currently sales and distribution structure has limited customer reach, poor distribution capabilities; lack of marketing communication People talent management and resulting lack of resource to focus on new models of sales and distribution; availability of skilled labor Brand perception limited brand recognition among end consumers in spite of being an industry leader Consumer preference customers today prefer natural fiber-based products over plastic and synthetic products Green consciousness increased consciousness toward greening and avoiding environmental impacts; supported by regulatory framework Opportunities Threats Substitutes cheaper product alternatives in the market (synthetic) with better distribution chains Resources availability of land and infrastructure for future expansions Technology collaborations threats from industry collaborations that may bring about innovation to the market more quickly 25
Case study The first, most critical, step was to understand the response of key stakeholders to the product, its features and its benefits Dipstick study Before a detailed market assessment could commence, we recognized that we needed to carry out a high-level assessment (dipstick study) to obtain an understanding of the current: Level of awareness of jute geotextiles and composites among the key decision-makers responsible for purchasing or design Existing penetration of jute geotextiles and jute composites in the four application areas Challenges perceived by key stakeholders in using jute-based Figure 2. Dipstick study framework Are the respondents open to using natural fiber-based geotextiles? Preference between natural fiber-based geotextiles Functional properties desired 6 Readiness to use Perceptions of natural fiber-based geotextiles 5 1 Past experience of using geosynthetic material Assessment principles Spend on chosen application areas 4 products to replace the synthetic geotextiles currently used Price sensitivity The framework used for the dipstick study is shown in Figure 2. Key findings from the dipstick study 1. Application area: urban landscaping One hundred percent of respondents to the dipstick study agreed that geotextiles are finding increasing application in the landscaping segment. What type of materials have been used? How was the initial experience? 2 Regulatory requirements and compliances Scope of application area 3 What are the regulatory requirements? How are the regulations acted upon and monitored? Identifying scope of application area What are the typical spends on application areas? How much of this is budgeted for geosynthetic materials? Typical spend on landscaping is increasing. Among the various subsegments of urban development, there is huge potential in the commercial space and luxury property development (see Figure 3). Architects tend to prefer natural fiber-based geotextiles, which would not harm the environment (7 of respondents). They are ready to pay slightly higher if they get natural fiber-based geotextiles with enhanced functional features. 2. Application area: mine reclamation Regulatory requirements mandate that mine reclamation and restoration is an integral part of mine planning and closure planning. Fifty percent of respondents believed these were critical elements of mine and closure planning. However, lack of awareness about natural fiber-based geotextiles and application of such products in mine reclamation is a key bottleneck for proliferation of usage and replacement of the widely used synthetic products. Going forward, geotextiles would be critical in achieving the mine reclamation and restoration targets (100% of respondents strongly agreed with this); consequently, the spend levels would increase from current levels. 26 Volume 4 Issue 4
Innovative product concept testing Figure 3. Typical spend on landscaping as a percentage of total project development cost Residential (large scale) Commercial Commerical luxury 1 Institutional Public and semi-public 2% 0% Source: Interviews/survey. 10% 1 20% 3. Application area: municipal solid waste management Very few landfills have been constructed in India as scientific sanitary landfills, which are more environmentally friendly (sampling was done across two cities in India). Only 3% of the solid waste in one sample city was being treated scientifically through methods such as composting, whereas disposal of 97% of the waste involved open dumping into landfills. Also, the application of geotextiles in sanitary landfills has been minimal due to the less evolved nature of solid waste management in the country compared with developed nations. Going forward, a number of new sanitary landfills would be constructed where geotextiles and geomembranes would be mandatory as per regulations. One hundred percent of respondents to the dipstick study agreed that geotextiles would be important in the near future and find increasing application in municipal solid waste management. However, acceptance of natural fiber-based geotextiles and application of such products in solid waste management compared with synthetic products needs to be tested due to requirements relating to significant durability. 27
Case study 4. Application area: jute composites in automotive interiors The key findings from interviewing the design team at one of the oldest automobile manufacturers in India revealed some of the following: Jute composites (jute fibers blended with polypropylene in the form of granules, which is an input to the induction moulding process) have been used in the past. Figure 4. Price premium respondents are willing to pay 33% 22% 4 However, there were certain functional challenges, such as distortion of form and shape of the automotive components after a period of time. Less than Source: Interviews/survey. to 10% Not applicable Most automotive original equipment manufacturers (OEMs) have discontinued the use of jute composites and they find minimal application in cars presently. Product concept testing Once the dipstick assessment was completed, the concept testing stage began. The primary objective of this stage, prior to conducting an extensive market assessment, was to give the stakeholders a sense of the product and gauge the level of acceptance. The two key enablers developed for demonstration to the market respondents were: Product concept notes (PCNs): a product concept note was prepared for each application area. This was a short (typically seven pages), designed document which explained how the jute products could be used for various different requirements; the technical specifications of the product; any past project credentials, etc. Sample products: Sample products of different kinds woven, nonwoven and open-weave of different thickness (measured in millimeters) and density (measured in grams per square meter (GSM)) were prepared for demonstration along with the PCNs. Many of the respondents were not even aware of the new jute-based products that might have potential to replace the more common synthetic products. Based on the functional features and touch and feel of the sample products, the stakeholders were asked whether they would be open to using these products. Key findings of the concept testing survey Almost all market respondents confirmed that the products were of a high quality. One hundred percent of respondents confirmed they would be interested in evaluating this new product segment as an alternative option. Since the products are natural fiber based, the respondents were even willing to pay slightly higher than for synthetic product substitutes (see Figure 4). Over half (56%) of respondents would prefer to buy the product directly from the manufacturer instead of any intermediary. This was a key insight 28 Volume 4 Issue 4
Innovative product concept testing The approach undertaken had to be innovative as there was no ready data available and each product segment needed significant awareness creation among customers for the next stages of defining the operating model for the company. Concept testing also involved detailed assessment of the regulations in each of the application areas, both existing and upcoming. Market assessment Having ascertained the efficacy of the products, detailed market size assessments for each of the segments were conducted. As an example of how we carried out the market size assessment, this section describes our approach for determining the market size for geotextiles in urban landscaping (see Figure 5). This approach involved assessment of market size based on findings from secondary research and also structured questionnaires applied across 100 leading landscape architects in India. Step 1: determine the estimated size of the real estate industry The size of the Indian real estate industry was determined from secondary sources and by approaching leading real estate consultants, such as JLL and Colliers International. Step 2: determine the real estate segment size relevant for landscaping The scope for landscaping varies across different segments in the real estate industry. Also, the market assessment revealed that only the large-scale or premium projects offer significant scope for landscaping. Hence, an appropriate filter was applied to determine the real estate market size relevant for landscaping (see Figures 6 and 7). Application of filters to determine market size, by revenue, for landscaping across Figure 5. Approach used for market size assessment of geotextiles in urban landscaping 1 2 3 4 5 Determine the estimated size of the real estate industry Determine the real estate segment size relevant for landscaping Estimation of industry-level aggregate costs for each of the chosen segments Statistical analysis of market assessment responses to estimated spend on urban landscaping for each segment Estimation of market potential for geotextiles in urban landscaping Figure 6. Summary of filters applied to customer segments to determine market size relevant for landscaping Customer segments Residential Commercial Retail Hospitality Institutional Public and semi-public Applied filter for determining relevant market size Projects comprising > 200 units: approximately 3 of the total residential size considered Projects with > 0.5 million sq. ft. built-up area: approximately 30% of the total commercial size considered Projects with > 0.25 million sq. ft. built-up area: approximately 40% of the total retail size considered Only premium projects considered in the initial sizing: 100% of the total hospitality size considered Only select large institutional projects are tracked: 100% of the total hospitality size considered Large public open spaces (softscapes) offer landscaping potential: approximately 50% of total public or semi-public size considered 29
Case study Knowing where the products could or could not be used helped define the potential market with much more precision real estate segments highlighted that the residential segment contributes almost 63% of the demand, followed by hospitality (10%) and other segments. Step 3: estimation of industrylevel aggregate costs for each of the chosen segments Industry size is based on sales price. To estimate the scope for landscaping, the aggregated cost of all project development within the sector needs to be considered. Typical sales margins on projects for the different segments were considered. Step 4: statistical analysis of market assessment responses to estimated spend on urban landscaping for each segment Spend on landscaping is volatile, depending significantly on factors such as design elements, area under consideration and planned materials and fixtures. It is usually limited by budget constraints and varies across projects. Landscaping is further categorized into hardscaping and softscaping. The natural fiber-based geotextile products find use in softscaping and hence estimated spend on the latter is relevant for determining the market size for geotextile products. Statistical analysis of market responses collated through structured questionnaires applied across 100 leading landscaping architects in India provided spend on landscaping as a percentage of total project development cost and also spend on softscaping as a percentage of landscaping cost (see Figure 8). However, the potential for applying geotextiles is different for different landscape design elements and the occurrence of the individual design elements also varies with the different real estate segments. The statistical analysis of the data collected through the interviews and questionnaires is summarized in Figures 9 and 10. Figure 7. Real estate market for landscaping by segment Figure 8. Segment-wise estimate of spend on landscaping and softscaping Overall real estate industry size Real estate sector Residential Commercial Apply filter Retail Hospitality Apply appropriate spend percentage on softscaping as per statistical analysis Segment-wise spend on softscaping Relevant size Institutional Public and semi-public 30 Volume 4 Issue 4
Innovative product concept testing Step 5: estimation of market potential for geotextiles in urban landscaping The filters, mentioned previously, were also applied on the estimated spend on landscaping in step four to arrive at the final potential for geotextiles (natural fiber and synthetic combined). Figure 9. Dispersion of landscape design elements across segments Segment Lawns Golf course Figure 10. Potential for application of geotextiles in landscape design elements Lawns Golf course Water body (with natural lining) Playing fields and arenas Water body (with natural lining) 10% 10% Playing fields/ arenas 1 Artificial gardens Residential 1 18% 19% 16% 32% Commercial 14% 20% 1 0% 51% Retail 21% 0% 20% 0% 59% Hospitality 27% 30% 23% 0% 20% Institutional 30% 0% 24% 20% 26% Public and semi-public 20% 0% 33% 18% 29% Conclusion The approach undertaken to ascertain market size for each of the application areas had to be innovative as there was no ready data available for each of the applications and each product segment needed significant awareness creation among customers. The use of product concept notes helped to articulate the product benefits as well as create awareness and also capture the implicit needs of the customers through a structured feedback mechanism. This approach would be very helpful to any business looking to launch new products or services that do not have an established parallel elsewhere. The concept testing enabled a more effective market assessment exercise. Knowing where the products could or could not be used helped define the potential market with much more precision. In the end, this innovative approach helped us to assess the market potential for all four application areas in a two-by-two matrix and provided an indicative go or nogo decision. Artificial gardens 1 Source: Interviews/survey. 0% 10% 1 20% 31