Market-Driven

Product Development Strategy:

Achieving Alignment between
Product Development and
Markets
Bruce B. Karr
and
Jon T. Gabrielsen
August 2007

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

Introduction
Recently Blue Canyon met with the Vice President of Product Development at a large
multi-product, multi-segment company. As we talked, he lamented that all day long he
is bombarded with ideas and requests for products to be developed. He shared just a
few examples of just the past couple of weeks, noting also the source of the request:
I just got back from a meeting with our largest distribution customer in our industrial
segment. They want us to develop this new feature on the primary product we sell
to them. They are certain that it is the wave of the future and will be a huge hit for
them and us. [Industrial Segment Salesperson A]
All that my distributors do is pound us on price, price, price. We need to put
significant product development resources into developing lower cost products for
this segment. [Industrial Segment Salesperson B]
Last week, I went along on a series of major contractor customer visits with our
distributor in Dallas. Many of the customers we visited are clamoring for product
changes that would ease installation. I think that they would be willing to pay a small
premium for the significant labor savings that they would gain on installation.
[Industrial Segment Regional Sales Manager]
All our sales people in the consumer segment want to do is sell the heck out of our
current products and maximize their commissions. The operations folks love them
because they keep the plants humming. But they havent a clue what the unmet or
emerging needs are in their segment, nor do they care. They are of absolutely no
use to us in terms of gaining market intelligence about future product development
needs for their segment. How are we supposed to know what to tell product
development to work on if those closest to the customers dont even know?
[Product Marketing Consumer Segment]
I just returned from a trade show for our commercial segment where I benchmarked
the product features of all of our competitors. We are way behind in new features.
Here is a list of all of the features that they have that we dont offer. We need to
develop and offer all of them too. [Product Marketing Commercial Segment]
I ran into a guy at a technical association meeting last week who has developed this
incredibly fascinating technology that he is willing to license to us. I am absolutely
convinced that we should buy the license. Not only could we incorporate it into our
current products, but it also could potentially lead to a whole new product line for us.
We need to buy this license immediately before one of our competitors snaps it up.
[Engineer]
In the process of working on that application development for our top customer in
the commercial segment, we inadvertently have uncovered a means to offer some

2007 Blue Canyon Partners, Inc.

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

new product capabilities to all of our customers. We need to put a team behind this
and get these additional capabilities developed and brought to market right away.
[Product Development Engineer]
I was out on my boat this weekend with my neighbor. While talking we came up
with this new product idea that I am absolutely positive will be a sure-fire hit. We
need to put a crack product development team on this immediately, before anyone
else thinks of it. [President of the Company]
This Vice President of Product Development went on to comment that no product
development organization, even one as large as ours, has enough resources to pursue
all of these initiatives. Further, many of the ideas are in conflict with one another. For
example, we are being told to cut costs by one person and increase features by another
person in the same market segment. It ends up being an internal power struggle in
terms of priorities. The person with the most clout and loudest shouts wins, at least
until the next uprising and then the priorities are all resorted again.
This executive also voiced the view that his firm didnt have a product development
strategy. He felt that his department was involved in a list of random initiatives with
constantly shifting priorities. From his perspective, the outcome wasnt surprising. He
commented that It is a wonder that any of them ever emerge from the lab and reach
the market. And sadly many of those that actually reach the market are not embraced
and are never market successes.
The challenge that emerged from this discussion What I desperately need is a means
to sort though all of this and come up with a strategy that we can all stick to and that will
be a winner for us in the marketplace is one that many organizations face.

2007 Blue Canyon Partners, Inc

3.

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

The Traditional Approach to Product Development Strategy

In contemplating the challenge of developing a coherent product development strategy,
it occurs to us that their situation is almost the opposite of that which the head of
operations faces1. Blue Canyon finds that often operations strategies are developed
with too little external input, while product development strategies are often whipsawed
by too much external input.
A review of the external inputs included in the quotes at the start of this paper suggests
that they fall into five traditional categories:
o Last Call Certainty Ideas advanced that react to the most recent customer visit
(often to be superseded by, added to, or in conflict with, the discoveries from the
next customer visit).
o Nearsighted Incrementalism Ideas focused on small-step improvements to the
current product (often with no attention paid to what will be required for future
success).
o Technology Enamored Ideas surfaced by experts enamored with technology
they have seen elsewhere, heard about, or personally developed.
o Copy-Cat Imitators Ideas advanced because a competitor has gone in this
direction (implicitly with the presumption that they must be right and therefore we
should and must follow that direction as well).
o Brainstorms Ideas advanced as a result of an inspiration (often by an individual
with substantial formal organizational power who becomes convinced that a
particular product idea that they have thought up themselves will be a hit).
It is not our intention to suggest that these traditional sources of product development
ideas are flawed. In fact, we have seen dramatic examples of success that have been
the result of companies carefully listening to messages from their customers, from
benchmarking competitors and other best practice companies, and from studying
emerging technologies. And many of the success stories we have heard about product
development have involved some brilliant brainstorm, one that was a stroke of genius.
Unfortunately, the problem is not these sources of ideas. Rather, it is the fact that these
sources can be so bountiful, with the real challenge being that of identifying the gems
among the rough.

Jon T. Gabrielsen, Market-Driven Operations Strategy: Achieving Alignment between Operations and
Markets, Blue Canyon Partners, Inc., Skokie, IL. 2007

2007 Blue Canyon Partners, Inc.

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

The Market-Driven Approach to Product Development Strategy

The product development pipeline is the future lifeblood of any company. Bringing the
right new product developments to market can lead to tremendous rewards for
shareholders. Unfortunately, unlike in the movie Field of Dreams2, just because you
build it does not necessarily mean that they will come. The log of developed, launched,
and then failed new products is filled with products that never should have been
developed. Such initiatives not only waste funds and human resources, but, far worse,
often leave a void in the companys offering that result in a loss of momentum and share
from which they are sometimes never able to recover.
In our experience, the companies that are repeatedly the most successful in the
marketplace with their new product developments are those that proactively adhere to a
three-step market-driven filtering process that asks the following questions:
x What are the key unmet needs of the market segments and customers that our
company is targeting? Can we validate that the need exists and that it is unmet?
x If the need were met, would the target market segments be willing to reward us in
the form of a higher price or more market share? Do the fundamental economics
of the concept make sense?
x Can our firm achieve a differentiated position through this initiative? Will we be
able to distance our offerings from those of current and future competitors?
The needs assessment begins with the identification of the critical pathways to the
ultimate end customer and discovery of the most critical customer stage or stages in the
chain between the supplier and the ultimate end customer. Knowing which customer
chain participants are the true drivers of the purchase decision is almost always a
prerequisite to success. One of the most frequent product development missteps is to
react only to the voices of the direct customer, only to discover later that the dogs wont
eat the dog food. Just because the direct customer is closest and shouts the loudest
doesnt always mean that their interests are aligned with those of the end customers.
Following the definition of the customer chain and the roles of the participants along it,
the needs assessment must involve intensive interactions and research focused on the
critical purchase decision makers to determine what product characteristics drive their
purchase decisions. Such insights enable the development of a prospective product
development strategy to address the needs of those most critical purchase decision
makers.
We find that this process typically involves important questions about market
economics. What economic factors drive the key identified needs of the critical
purchase decision makers in our target market segments? Does the economic case
make sense in the context of the customers business model? At the price that the
target markets are willing to pay for the product, with or without the scale advantages
2

W.P. Kinsella (book), Phil Alden Robinson (screenplay/director), Field of Dreams, Gordon Company, April 21,
1989

2007 Blue Canyon Partners, Inc.

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

that might accrue though share gain, would the new product concept be rewarding to
shareholders? Is the market for the product large enough to earn a favorable return on
investment, including the cost of product development?
The third set of questions involves the competitive dynamics associated with the
product concept. What are the current and future competitive dynamics in our target
markets? Who are the current and likely future competitors offering this product? How
will our offering compare to those of these current and future competitors? Does the
economic environment enable us to sell into growth or does it require that we displace
sales currently taking place through competitors?
In our experience, those companies who are most successful at consistently developing
market-winning products are those who have a very disciplined, proactive, marketdriven strategy for their product development activities. They stick to this process
despite all of the daily noise that they hear from the myriad of well-meaning
stakeholders, such as those reflected in the anecdotal quotes at the beginning of this
paper. This is not to suggest that those inputs should be completely ignored to the
potential detriment of the firm. It is simply to say that such inputs should be combined
with all other market-driven intelligence. And, unless it is clear that the current course is
no longer valid, the product development organization should stay the course and
harvest the future successes from its market-driven product development strategy.
In summary, we believe that the best approaches to product development involve a
well-defined and clearly communicated product development strategy, not just a set of
unrelated and often conflicting tactical initiatives. This product development strategy
must be market-driven, reflecting the market structure and the customer chains through
which sales will be made, consistent with logical economic decisions and sound
business cases, and robust in terms of prospective competitive responses. To
implement such a process, a comprehensive and rational framework is needed to filter
market intelligence from all sources into a single cohesive product development
roadmap.

2007 Blue Canyon Partners, Inc.

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

A Framework for Business-to-Business Strategy

Blue Canyon has developed a framework to uncover the critical insights that are needed
in order to develop winning strategies for business-to-business suppliers3. This
framework not only addresses the basic questions about how to achieve profitable
growth, but also incorporates market-based insights into decisions about the firms
product development strategy. As a result, product development strategy decisions are
not only in alignment with the overall growth strategy, but, even better, can become one
of the advantages that enable the firm to achieve its growth goals.
The business-to-business customer chain provides the foundation for the framework. It
allows these contributions to be realized and reflects those characteristics of the
business-to-business environment that are at the root of developing an effective
strategy. In all business-to-business markets, the supplier serves multiple customers,
as suggested by Figure 1:

Supplier

Direct
Customer

End
Customers

Figure 1: Business-to-Business Customer Chains

There are many types of business-to-business customer chains. Parts and components
manufacturers, packaging manufacturers, chemical and feedstock suppliers, and other
firms may sell to other manufacturers (their direct customers), who subsequently sell to
end customers. Other suppliers like building products manufacturers, office equipment
manufacturers, and tool and equipment companies may sell their products to sales
channel partners (their direct customers), who in turn sell to the end customers, often in
conjunction with other products and services.
There are typically many competing customer chains in a marketplace. Some extend
for many stages, while others involve many different pathways. One automotive parts
manufacturer with whom we worked could identify over 700 distinct customer chain
segments (i.e., pathways into the market) across its global markets.
A
telecommunications service provider found that its customer chains rarely overlapped
those of its most significant competitor, accounting for nearly all of the differences in
market share across industry segments. An agricultural industry supplier faced six

See Atlee Valentine Pope and George F. Brown, Jr., A Blueprint for Success with Major Customers, Blue Canyon
Partners, Inc., 1999.

2007 Blue Canyon Partners, Inc.

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

sequential customer chain stages (e.g., participants along the customer chain) before its
product reached the eventual end customer.
To move towards market-driven product development plans, it is necessary to carefully
understand the factors that drive the purchase decisions of each participant in the
customer chain. The suppliers direct customers should be evaluated on what drives
their decisions. Do they make purchase decisions strictly on the basis of price, or are
they willing to pay higher prices in order to obtain particular product features and
enhancements or particular services? Similarly, the end customers served through the
customer chain can be evaluated on their purchasing criteria along a spectrum
ranging from decisions driven by price to ones where product and service
considerations dominate.

Direct Customer Purchase Decisions

Based on Non-Price Factors Based Mostly on Price

Each customer chain segment, or individual pathway to the end customer in the market,
can be mapped along these two dimensions. Figure 2 shows a simplified conceptual
summary of the customer chain map:

Emphasize
Cost-Justifiable
Product Enhancements
and Surrounding
Services

Emphasize Long-Term
Relationships involving
Product Enhancements,
Surrounding Services
and Business Systems
Interface and Services

Emphasize
Cost
Reduction

Emphasize
Business Systems
Interface and Services
to the Direct Customer

End Customer Purchase Decisions

Based on Non-Price Factors

Based Mostly on Price

Figure 2: Four Distinct Business Environments

In this example, each circle or bubble represents a customer chain segment. The sizes
of the circles reflect the volume of business within that segment. The location of the
circles reflects the relative importance of price and non-price considerations to the direct

2007 Blue Canyon Partners, Inc.

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

customer (on the vertical axis) and the end customer (on the horizontal axis). The
vertical axis on Figure 2 reflects the suppliers relationship to its direct customer. At the
lower end of the vertical scale are customer chain segments where the purchase
decisions of the direct customer are largely driven by factors other than price. At the
upper end of the vertical scale are customer chain segments where price is the major
determinant of the direct customers purchase decision. The horizontal axis on Figure 2
reflects the direct customers relationship to the end customer. At the left end of the
horizontal scale are customer chain segments where factors other than price are most
important to the end customer. At the right end of the horizontal scale are customer
chain segments where price is the dominant factor in terms of end customer valuation.
A supplier can obtain clear insight about the needs and priorities of the direct customer
and of the end customer from this systematic assessment of the messages that emerge
from the customer chain. The methodology that leads to the summary assessment
portrayed in Figure 2 begins with the identification of the customer chains that exist
within the specific business-to-business market under study. It then progresses through
stages involving various dimensions of economic research, market research, and
profitability modeling. Each unique customer chain segment must be analyzed along
various dimensions: the size and growth of the segment, the factors determining
valuation and that drive purchase decisions by each buyer included within that segment,
the economics of the transactions that occur along the customer chain, the suppliers
share of the direct customers product, the elasticity of demand, etc. Research and
quantitative analysis of these factors can drive the relative rankings and assessments
across these customer chain segments. Our research across many business-tobusiness industries has shown a multitude of customer chain maps scattered across the
four quadrants of Figure 2, each with unique customer chain segments, sizes, and
positions.
Direct customers and end customers have varying needs across customer chain
segments, even within a market defined along traditional dimensions such as industry,
size, or geography. Our research indicates that distinct business strategies apply
across four common business-to-business environments, each with profoundly different
implications for product development, as suggested by the overlays to the diagram in
Figure 2. In the upper right quadrant, suppliers are advised to focus on achieving a lowcost position. In the lower right quadrant, the supplier can typically gain a share
premium by combining market-based pricing with effective business systems integration
with their direct customer (or sales channel partner). In the upper left quadrant, the
supplier can often achieve a share premium (and occasionally even a price premium) by
appealing to the product and service needs of the end customers. And, in the lower left
quadrant, exceptional potential exists to create value on a consistent basis throughout
the customer chain. It is within this environment that suppliers have the best
opportunity to realize premium prices and long-term relationships. The foundations that
emerge from this market assessment and its translation into the elements of strategy
also provides a basis for developing a market-driven product development strategy.

2007 Blue Canyon Partners, Inc.

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

Extensive Blue Canyon research has shown that there is a strong relationship between
the location of a market segment across these four quadrants and the appropriate
product development strategy. The overall strategic guidelines that apply in each of the
four quadrants, as shown earlier in Figure 2, provide the foundation for decisions about
product development. It is only after one knows where each of the market segments
falls that one knows who to listen to most closely between the direct customer and the
end customer. Listening to the right messages from the right customer chain
participants, when setting product development strategy for a given market segment,
can yield a home run. Listening instead to the wrong messages from the wrong
messengers for a given segment can be a strike out. The classic example of this
involves suppliers who listen only to their direct customer and thus completely miss the
product development opportunities that they could only learn from the customers further
along the customer chain.
We note that many situations occur in which product development concepts are
associated with multiple quadrants. This is by definition a significant challenge, in that
the defining difference among the quadrants involves the factors that drive purchase
decision making. In fact, quite a few of the examples we have observed of failed
product development strategies have involved situations where decisions were made on
the basis of insights about the needs of one set of customers, with the adverse
reactions involving another set of customers with different views. We therefore
advocate that product development strategy first be considered on a segment by
segment basis, with subsequent synthesis focusing on both the themes that are
common across segments and on those that are unique to each market segment.
Common themes can allow the firm to define a foundation that allows economies of
scale and defines the technological foundation of the firms product lines. Distinct
themes allow the creation of a product portfolio that includes appropriate offerings for
each distinct segment. The following discussion of each of the four quadrants in Figure
2 translates the overall strategy guidelines that emerge from Blue Canyons
methodology into ones relevant to product development strategy.

2007 Blue Canyon Partners, Inc.

10

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

The Lower Left Quadrant: Customer Chains Driven by Factors other

than Price
To examine this business environment, consider a case study involving a specialty
vehicle OEM in the municipal maintenance market. This firm sought to develop new
products for the portion of its business that provided maintenance equipment to
contractors who in turn provided maintenance services on the municipal infrastructure.
Blue Canyon teamed with the supplier and performed comprehensive marketplace
interviews and analyses, both within the suppliers organization and across the full
breadth of its customer base.

Contractors

OEM

Municipalities

Figure 3: Commercial Vehicle Customer Chain

A careful assessment of the customer chain structure and interviews with a number of
the participants from each stage of the customer chain, as shown in Figure 3,
uncovered a number of product development opportunities that could create a real win
for this OEM in the marketplace.
The contractors were faced with two major challenges. They needed highly reliable
equipment in terms of uptime and minimal maintenance to enable them to operate as
much as 24 hours a day, 365 days a year. Along with responding to the needs of their
municipal customers, they wanted to maximize their utilization of this relatively
expensive capital equipment. They also needed extremely user friendly operator
interfaces because, as they were fond of saying, If our drivers had engineering
degrees, they wouldnt be driving our vehicles for a living. Also, the long hours and
weekend work created very high turnover, so operator interfaces that were simple and
intuitive, requiring the least training, were highly desirable. The cost to increase the
reliability of the equipment as well as to improve the user friendliness of the operator
interface was relatively negligible in relation to the total cost of the vehicle and the
contractors were more than willing to pay the slight premium for the substantial benefit
they would receive.
At the same time, the municipal end customers had very high standards that they held
the contractors to, both in terms of the quality of the work performed and with respect to
strict adherence to the predetermined schedules at which maintenance was to be
performed, often down to the half hour time window. Failure to adhere to these

2007 Blue Canyon Partners, Inc.

11

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

contractual standards constituted breach of contract and possible termination of a

contractor if such problems were frequent. Conversely, these municipalities were willing
to pay a premium to the contractors that were able to meet their high standards.
This business environment represents a classic example of the lower left quadrant. The
product characteristics that meet the contractors needs of increased reliability and
uptime and more intuitive and user friendly operator interfaces are the same ones that
enable the satisfaction of the needs of the municipality end customers. Blue Canyon
worked closely with a team of the suppliers product development organization, armed
with feedback from contractor and municipal customers, to identify those product
enhancements that would enable the needed increases in reliability and operator user
interface friendliness. Substantial discipline was maintained to insure that only those
changes that would create a substantial benefit for all concerned remained on the list
when the final product plan was completed. Throughout the process, the development
team emphasized the messages as to what the market viewed as important. The
research done with contractors and municipal customers also uncovered equally clear
messages about what they didnt want and about what features were viewed as
unnecessary or of low economic value. As a result, numerous concepts that had no
relationship to either reliability or user friendliness were left on the drawing board, as
they didnt connect to the messages from the customers as to what was important. The
messages about what to leave out are often as compelling as those about what to
include in the next generation product.
It was absolutely fascinating to observe how different the final list of product
enhancements was from the list that this supplier had compiled at a recent trade show.
It became clear that the competitors were all in a features race, even though the
market was seeking robust reliability and user simplification.
As the product
development team progressed through its analysis, it reached the happy conclusion that
it could deliver the targeted improvements and still go to market at a price point just
below that of its major competitors, with a product that was expected to better respond
to the markets messages about what it wanted (and what it didnt want).
By incorporating market-based insights about the critical success factors for the
customer chains that it was serving, this supplier was able to align its product
development strategy with the market, placing it into a position to succeed with
municipal contractor customers and transform them into a solid source of profitable
growth. The firms ability to align its product development strategy with the needs of its
customers was a major factor in its ability to achieve the growth available in the
municipal infrastructure maintenance market.

2007 Blue Canyon Partners, Inc.

12

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

The Upper Right Quadrant: Customer Chains Focused on Price

A case study involving a supplier of tools who already held a strong position in the lower
left quadrant in the professional end customer market provides insights into the
business environment of the upper right quadrant. This tool manufacturer was
comfortable with its growth prospects with professional customers in the market
segment that was in the lower left quadrant, and wondered if it might be possible to
grow with the same product types in the Do-It-Yourself consumer market. The tools for
the Do-It-Yourself market are predominately sold though Big Box retailers and other
department stores, as shown in Figure 4.

Tool
Supplier

Big Box and

Department
Stores

Do-it-Yourself
End
Customers

Figure 4: Do-It-Yourself Consumer Tool Customer Chain

Working closely with the suppliers internal team, Blue Canyon interviewed key
stakeholders in the marketplace, including key constituencies at each of the stages of
the customer chain for each of the target segments. It was clear from the interviews
that the purchase decisions of the Big Box and department store customers and the DoIt-Yourself end customers were heavily driven by price. The vast majority of the
products bought by customers in these segments were considered commodities, with
numerous suppliers able to provide some or all of their offerings, and buying decisions
were heavily dominated by price. Many of the retail outlets carried products from
multiple tool suppliers, frequently substituting from among these suppliers in order to fill
out their offering and take advantage of situations in which they could cut prices.
But, while purchase decisions were driven by price, a comprehensive analysis of the
Do-It-Yourself market economics for the suppliers types of tools showed that the
volume of sales could be substantial. As a result of this scale potential, the analysis
suggested that a decontented product offering one that could be sold profitably at the
price points necessary for success in this market segment could generate significant
rewards to shareholders. This profit potential was materially enhanced by the
opportunity to leverage manufacturing processes and expertise. The competitor
assessment showed that although there were numerous competitors in these market
segments, there was sufficient room for the supplier to enter.
As a result of these very favorable market-driven findings, the supplier undertook a
focused product development strategy to create a separate decontented tool product

2007 Blue Canyon Partners, Inc.

13

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

offering. This strategy focus was to develop the appropriate products to offer a
sufficiently lower price point for success in the upper right quadrant Do-It-Yourself
segment without causing defections from the current professional customers in the
lower left quadrant. Extreme care was taken at every step of the strategy to avoid the
mistake of just lowering prices on a product too similar or identical to that sold in the
professional market segments, because to do so would simply cannibalize its already
strong business. The Do-It-Yourself segment did not require the robustness of tools
required by the professional segment and had less demanding requirements along
other dimensions, nor were they willing to pay for such robustness or advanced
features. The key to this strategy was to insure that the products were clearly not
comparable, but very applicable to their individual uses.
As is frequently the case in upper right hand quadrant business environments, because
decisions in that environment are driven by the customers concerns about the price of
the products, all of the product development emphasis fell directly upon cost reduction
initiatives. These initiatives did not make price pressures disappear. Instead, they
ensured that the supplier was positioned correctly in terms of not only its product prices,
but also on the other factors viewed as important by its customers. The outcome for
this supplier was a positive one, in that it was able to enter this new segment to gain
share, establishing a preferred supplier position with many of its new customers, and as
a result, has been able to translate wins in a highly-competitive market into victories for
its own shareholders.

Upper Left Quadrant: Opportunities for Positioning with End

Customers
In this business environment, the suppliers direct customer makes decisions primarily
on the basis of price, but the end customer considers other factors in the decision
making process. A case study relevant to this complex business environment involved
a dominant commercial vehicle systems supplier to the OEM market. This supplier was
facing increased pressure in the market from OEM in-house captive systems. The OEM
direct customers in the market were looking to replace a significant share of the
suppliers systems with their own in-house captive offerings. This was potentially a
significant change to the long-standing industry practice of allowing end customers to
choose from a number of supplier branded systems to be incorporated into their
vehicles. More importantly, it was a threat to this supplier involving competition from its
direct customer. The supplier sought to stem this incursion into their market space,
sustain its relationships with key end customers, and retain its leadership position in this
highly-attractive branded premium systems business.

2007 Blue Canyon Partners, Inc.

14

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

Blue Canyon teamed with the supplier and completed an in-depth assessment of this
complex market environment. The relevant customer chain structures are reflected in
Figure 5.

Supplier

OEMs

Fleets and
Operators

Figure 5: Commercial Vehicle Customer Chain

Interviews in the marketplace at all stages of the customer chain depicted in Figure 5
uncovered significant needs on the part of end customers that were unrelated to price,
despite the price focus of the OEMs who were this firms direct customers. These end
customer needs were not being met very well by the OEMs captive in-house offering,
suggesting competitive opportunities for the supplier.
The major end customers involved in this market were large fleet operators who would
do almost anything to keep their equipment running reliably. There was a huge cost to
them in terms of downtime, both in their ability to satisfy their freight customers and in
terms of the costs associated with equipment and operators sitting idle. Thus they were
keenly interested in any product capability in the suppliers systems that would raise
reliability and avoid downtime altogether. A significant segment of these major fleet end
customers maintained data collection and analysis systems that gave them tremendous
insight into their total lifecycle cost of ownership. They were quite willing to pay a higher
initial price for premium branded systems when it could be substantiated that they led to
higher reliability, lower downtime, and lower total cost of ownership.
The OEMs, however, tended to be largely focused on price in their negotiations with
suppliers, and put tremendous competitive pressures on the manufacturers. This was
partly in the belief that it would improve their own margins and partly because their own
profits were heavily based on aftermarket repair parts and systems rather than the
markups on new vehicles. Thus they sought to place pressure on supplier prices in
order to keep vehicle prices low and to bolster their margins on new vehicles. As a
result, while the major fleet end customers in this environment focused heavily on
factors other than price, the direct OEM customers were far more focused on price and
tended to discard other considerations, often rejecting supplier arguments as to the
value of new technologies that they could include in their systems. The distinction
between the focus on price of direct customers and the focus on non-price factors of
end customers is the key characteristic of the upper left quadrant business environment.

2007 Blue Canyon Partners, Inc.

15

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

Blue Canyon worked closely with the suppliers product development organization and a
number of major fleet end customers to identify very specific systems enhancements
that would contribute the most to higher reliability, lower downtime, and lower total cost
of ownership. Substantial attention was paid to ensure that only those initiatives that
would yield the best combined return for both the end customer and the supplier were
pursued. Not surprisingly many nice to have features had been included on the roster
of possible development strategies. And, more importantly, as the teams involved
focused on reliability and downtime avoidance, there were some ideas for product
enhancements that surfaced that had not been contemplated by anyone previously.
Once the true needs had been identified and the proposed product development
strategy had been formulated, it was still critical to ascertain that the market economics
would yield a favorable return for shareholders and that the supplier would be able to
garner the necessary competitive share to be successful. A rigorous assessment of the
commercial vehicle market volume forecasts was linked to the market messages
collected by a broad swath of interviews with fleet end customers. This allowed Blue
Canyon to determine that the segment of end customers who would be willing to pay a
premium for the suppliers systems was more than adequate in terms of scale, as long
as the next generation of products performed in the manner that the product
development strategy projected.

Lower Right Quadrant: Opportunities for Contributions to Direct

Customers
The lower right quadrant involves situations in which direct customers are open to
contributions along dimensions other than price, even though their own customers
further along the customer chain are much more focused on price. A case study in this
environment involves a supplier of decorative plumbing fixtures to contractors who
perform the installation for the end customers. This firm was initially under continual
price pressure from their end customers. They sought a strategy that would allow them
to overcome these hurdles. The customer chains involved in this business environment
included the supplier, the contractors involved in installation of the product, and end
customers in the markets for which these products were designed.
Blue Canyon interviews at all stages of the customer chain, as depicted in Figure 6,
uncovered a set of important needs and opportunities at each stage, particularly with
contractors.

2007 Blue Canyon Partners, Inc.

16

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

Decorative
Plumbing
Fixture
Supplier

Contractor
Installers

Builders

Figure 6: Premium branded Plumbing Fixture Customer Chain

These contractors found that installation of the suppliers (and their competitors)
plumbing fixtures required a significant amount of time. They expressed a belief that
there must be relatively simple changes that could be made to product designs to
dramatically shorten the installation time. They were willing to pay a premium for
premium branded plumbing fixtures that would reduce installation time because, as they
expressed, the total installed cost to the end customer would still be lower than it was
currently as the increased price of the fixtures would be more than offset by the
reduction in labor cost. Equally important to the contractors and builders was the time
saved by their scarce subcontractor installers on each job that could be spent on the
next job. Further, they indicated that they would preferentially select the suppliers
products over the competitors products if the suppliers products were easier, faster,
and cheaper to install.
Blue Canyon worked closely with the suppliers product development team and a select
group of insightful contractor installers to identify product development solutions to
simplify and reduce the time consumed in installing the premium branded plumbing
fixtures. Competitors offerings were also benchmarked for best-in-class examples that
enhanced installation simplicity and time. Extreme care was taken in the process of
benchmarking not to get caught up in any features of the competitors products that
were technologically enticing, but did not simplify installation.
The changes that emerged from the contractor installer input and competitor
benchmarking ranged from ideas as simple as making whole lines of the offering
possible to install with just two tools, reengineering several particularly cumbersome
fasteners, and strengthening some key portions of certain products that were
particularly prone to damage or breakage during the installation process.
The market economic opportunities for the supplier in these market segments were
closely analyzed and determined to be more than sufficient to justify the product
development investment required for this strategy. The competitive environment in this
market segments was closely evaluated. The supplier was perceived as more
prestigious than the other competitors in these segments, while offering competitive
prices and recognized quality. Thus it became clear that with the added benefit of the
simplest and quickest installation, they would be very formidable indeed.

2007 Blue Canyon Partners, Inc.

17

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

Examples of No-Go Cases

In the preceding pages, we have very deliberately laid out one successful case for each
quadrant for the purposes of demonstrating the framework. However, it is every bit as
important to know when not to embark on a set of product development strategic
initiatives as when to do so. Over the years, we have encountered many examples of
product development failures that resulted from inattention to the signals that were
available from the marketplace, either in terms of economic considerations or in terms
of messages about the factors that were critical to success.
Our belief is that a systematic approach to product development decisions that
incorporates market economics and addresses the key messages with respect to the
determinants of purchase decisions can often yield value by allowing such mistakes to
be avoided. The following examples involve firms that undertook the right form of
systematic analysis, but found that the initial promise of success was unwarranted.
While these examples dont illustrate product development success stories per se,
they do illustrate the value that can accrue to shareholders from a systematic approach
to product development decisions.
The first such example involves specialty lighting for Tuner cars. A very senior
executive at a supplier of automotive components and systems saw The Fast and the
Furious4 movie along with his teenaged kids. He became enamored with the flash and
excitement of the segment and became convinced it would make a good market for
many of his companys technology and products, including recent product
developments in their lighting product line. Blue Canyon worked closely with the
supplier and key players in the marketplace to uncover the data and messages to
answer the questions in the three step market-driven filtering process.
First, in looking at the key needs of the participants in this market, we learned that
wants would surely be a better word in this instance than needs. Nonetheless, there
was clearly a strong interest among this market segment for the type of lighting product
the supplier could develop and offer.
Unfortunately, despite the extremely highly visibly profile of this segment both on the
streets and in the movies and other media, it was discovered that this is actually a very
small market, and, due to the relative youth of the purchase decision makers, it was
highly price sensitive. The market economics investigation was very discouraging along
both dimensions.
The assessment of the competitive environment further discouraged thoughts of
success. Although it took substantial digging and triangulation, it was discovered that
there were a number of competitors already serving this segment, many of which were
4

Gary Scott Thompson (screen story), The Fast and the Furious, Mediastream Film GmbH & Co. Productions KG,
2001

2007 Blue Canyon Partners, Inc.

18

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

manufacturing abroad with very low labor costs and almost no overhead. These firms
were nonetheless able to quickly copy new technology and could sometimes bring a
technology to market as fast as could its developer. Issues like Department of
Transportation certification and attention to the quality processes that were required for
success in the new vehicle environment were largely dismissed in the aftermarket
environment of the Tuner car.
A second example involved a situation in which a group of sales people and engineers
in the supplier organization became aware that a number of customers were installing
the suppliers wood-cutting products on small utility vehicles and creating a mobile
vehicle that they were using in site clearing operations. These products were not Rube
Goldberg devices, but were well designed by contractors who cleared heavily-wooded
sites for commercial and industrial facility construction. The awareness of this new
application of one of the companys core products generated a significant interest
internally in the suppliers organization, as they contemplated developing their own
offering of such mobile tools.
Blue Canyon conducted interviews across a broad cross section of prospective
contractors and end customers, determining that there are a number of advantages to
the use of this mobile cutting technology for site clearing. We also learned that the
customers were willing to pay a premium for a product that worked, since contractors
earnings were determined by the speed at which they could clear a site and the end
customers costs were essentially measured by the number of days from the start to the
completion of a facilities construction project.
An extensive set of market economic models were developed, revealing that the market
was quite small. A variety of factors limited the number of markets in which the
technology would make sense, and it was in these markets that the contractors had
already put together then own version of the device. Furthermore, even the contractors
that had developed the product were only using the equipment about 20% of the time,
with it sitting idle most of the time. If a rental market were to emerge, the number of
units that would be required would probably be cut by about one third. We concluded
that the annual unit sales that would likely take place was on the order of about one
tenth of what which would be necessary for the supplier to get a return on its
investment, should they develop and offer this product.

2007 Blue Canyon Partners, Inc.

19

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

Summary
Within the context of the four case studies associated with the four distinct business
environments that characterize business-to-business markets, we have reviewed the
product development strategy elements appropriate to each specific market situation.
While it might be tempting to extract from these cases some general conclusions, we
emphasize that each situation is unique and must be examined based upon the specific
characteristics of the business environment under study. There are, however, several
themes that remain consistent across business environments in each quadrant.
In the lower left quadrant, the recurring theme involves emphasizing product
enhancements that relate to the specific factors that drive purchase decisions.
Minimization of unit cost is not the primary focus or the objective in this environment. In
fact, it is frequently the case that efforts focused on cost reduction will run afoul of other
factors considered to be of much greater priority to customers. The key here is to
separate the few critical product characteristics and features that are truly valued by
different participants in the market under consideration from the much longer list of nice
to have characteristics and features that the market does not want and will not reward.
In the upper left quadrant, every product development decision should be focused on
the cost justifiable product enhancements that a supplier can provide that the end
customers recognize and value, even though the direct customer may not or does not
recognize or reward. In this environment, the ability of the supplier to gain the
attention of the end customer is of critical importance. If the suppliers ingredient is
invisible to the end customers, it is likely that the price pressures imposed by the direct
customer will in the end dominate. Thus, in this environment, the supplier must work to
achieve pull-through demand, via messages from end customers that communicate the
importance of these product enhancements to their direct customer.
The upper right quadrant concentrates its attention primarily on low-cost products,
typically ones that meet customer specifications without additional features or
enhancements. The supplier must manage the costs borne by its customers, and must
make product development decisions that ensure it can sustain a competitive cost
position. However, even here a supplier must not seek such a low cost that it fails to
serve the market at its minimum required specifications, and thus finds itself edged out
by competitors also able to deliver low prices without compromise along these other
dimensions.
In the lower right quadrant, the key to success often involves product development
improvements that can assist the direct customer in improving its bottom line without
compromising their ability to deal with the fact that their end customer is highly price
sensitive. The best strategy in this regard often involves initiatives to reduce total
lifecycle costs that enable the direct customer to lower their total cost of supporting the
end customer.

2007 Blue Canyon Partners, Inc.

20

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

Direct Customer Purchase Decisions

Based on Non-Price Factors Based Mostly on Price

The discussion can be summarized in Figure 7 below, which captures some of the
differences in product development strategies that originate from an understanding of
the pathways to market.

Seek
Cost-Justifiable
Product Enhancements
Sought by End Customers,
Thereby Creating PullThrough Demand

Identify and Develop the

Product Enhancements
that Are Most Highly
Valued

Emphasize
Cost
Reduction

Enable the Direct Customer

to Effectively Compete for
End Customer Business by
Discovering Ways to Lower
the End Customer's Total
Cost

End Customer Purchase Decisions

Based on Non-Price Factors

Based Mostly on Price

Figure 7: Four Distinct Product Development Implications

The analytic framework described in this paper for developing market-driven product
development strategies thus yields tremendous payoffs by enabling achievement of
superior alignment between markets and product development management. Our
experience clearly illustrates that when each of the dimensions of major product
development strategy are addressed in accordance with the factors that are critical to
success in the corresponding business environment, superior growth and profitability
will result. The process is not easy however, and it requires that internal functional
areas shift their thinking from reacting to all of the mixed signals like those at the
beginning of this paper and shifting to a market-driven product development strategy
framework. Once that shift in perspective is made, it can enable decisions that
contribute to profitable growth and that create an ongoing rapport between the parts of
the organization that are focused on product development and those that are focused
on customers.

2007 Blue Canyon Partners, Inc

21.

Market Driven Product Development Strategy

Bruce Karr & Jon T. Gabrielsen

Bruce B. Karr
Bruce Karr is a Senor Consultant at Blue Canyon who brings extensive experience in industrial
marketing, product development and strategy development to his assignments. He draws on
his extensive experience leading business-to-business marketing in $500+ million divisions of
major Fortune 500 Companies as well as successful small privately-held firms.
Bruce has helped companies with growth initiatives focused on new products for current and
new markets. Implementation strategies included both internal product development as well as
acquisitions.
Other assignments involved understanding the intersection of customer
preferences and competitive positioning in order to properly assess the threat presented by
competitive actions. He also co-authored Market Driven Product Development: Achieving
Alignment between Product Development and Markets.
Prior to joining Blue Canyon, Bruces career spanned marketing leadership roles in the small
engine, material handling, and controls industries. As Director of Marketing for Tecumseh
Products Companys Engine and Transmission Group, Bruce led the marketing group in a $750
million division that placed new engines on products at The Home Depot through Murray and
Toro. Much of this work was the direct result of analyzing customer chains and competitive
position. At Menasha Corporation and Schaefer System International, both privately held $1+
billion companies in the material handling industry, his teams introduced a new innovative
straight-walled container systems to Toyota that ultimately became the standard, and which is
still employed today in the North American automotive industry.
Earlier in his career, Bruce held marketing and planning roles at Rockwell Automation and
General Electric. At Rockwell Automation, he pioneered industry marketing within the
programmable controller division and had product marketing responsibility for the PLC-5
controller. His action resulted in opening new process-oriented markets with products that
spoke to new customer requirements. In global marketing roles, he supported Rockwell
Automations shift to global product management away from a U.S. focus on the North
American automotive OEMs. As a key member of business development teams, he has
evaluated joint venture partnerships with Nippon Denso in Japan and performed non-financial
due diligence assignments in North America, India, and Russia. At GE, Bruce had significant
business development and technology acquisition responsibility within the robot and vision
system operation. The business development team acquired 3 major technologies within 12
months from VW, Hitachi, and DEA.
Graduating from the Wharton School with an MBA in international business and strategic
management, Bruce went to work for Braxton Associates in Boston. Performing typical
competitive and forecast analysis, he supported significant strategy audits for DuPont, General
Electrics house wares and audio business divisions, and Chicago Pneumatic. He led pricing
studies for the GE capacitor products departments introduction of aluminum electrolytic
capacitors.
Bruce has an AB magna cum laude from Washington University in St. Louis with a
concentration in history and mathematics. He holds a masters degree in Soviet Area Studies
from Harvard and has traveled widely in Europe and Asia for business and education.

2007 Blue Canyon Partners, Inc.

22

Market-Driven Product Development Strategy

Bruce Karr and Jon T. Gabrielsen

Jon T. Gabrielsen
Jon Gabrielsen draws upon a distinguished career within manufacturing firms and as a
consultant in helping Blue Canyons clients address challenges with respect to business
strategy, product development, and manufacturing operations. His responsibilities have
included significant project management assignments and process development assignments.
Since joining Blue Canyon Partners, Jon has worked on a variety of growth strategy projects.
He has contributed to the development of strategies for a number of major Tier 1 suppliers and
several of the OEMs in the automotive, commercial, and agricultural vehicle industries in both
the original equipment and aftermarket channels, developed customer-driven strategies for
manufacturing operations, and helped to design a long-term approach to growth in the industrial
controls market. His involvement in these projects has included project management as well as
contributions as a senior member of the Blue Canyon team. He has also authored MarketDriven Operations Strategy: Achieving Alignment between Operations and Markets and coauthored Strategically Driven Acquisitions: Target Identification and Assessment, Market-Driven
Product Development: Achieving Alignment between Product Development and Markets and
Win the Day: Managing Price Pressures in the Automotive Industry.
Prior to joining Blue Canyon, Jons career within the automotive industry included senior
positions with Simpson Industries (now part of Asahi Tec / Metaldyne companies) and FederalMogul Corporation. While at Simpson Industries, he established and institutionalized their
business strategy planning function, reporting to the companys President and COO. Jon and
his team were challenged to evaluate markets, products, processes, and systems and to
evaluate competitors and suppliers in search for alliances, partnerships, and acquisitions.
While at Federal-Mogul, Jon served as manager of corporate development, with responsibilities
for evaluating the strategic mix of businesses within the companys portfolio and as manager of
financial planning and analysis, with responsibility for financial planning and forecasting for the
$1.8 billion global corporation. Earlier, Jon held a variety of positions, including metallurgical
and manufacturing engineering positions, financial planning positions, and operations
management responsibility for the start-up of a new manufacturing facility.
As a senior consultant with Questone Decision Sciences (a Safeguard Scientifics Partner
Company), Jon served as program director with responsibilities for consulting and software
development focused on product life-cycle management, process improvement, and logistics.
His clients included leading firms within the automotive, pharmaceutical, and high technology
industries, including General Motors, Johnson & Johnson, and Ivax. His assignments included
software applications development and testing as well as leadership of project teams.
Earlier, Jon served as Director of the Automotive Practice at Baker & Company, with
responsibilities for that firms strategy development projects, business-to-business customer
satisfaction survey assessments, and organizational change projects for clients within the
automotive industry. In that position, Jon worked with major OEMs and Tier 1 suppliers on a
variety of project assignments.
Jon Gabrielsen has a B.S. in Manufacturing Industrial Technology from Eastern Michigan
University and an M.B.A. from The University of Michigan.

2007 Blue Canyon Partners, Inc.

23

Market Driven Product Development Strategy

Bruce Karr & Jon T. Gabrielsen

About Blue Canyon Partners

Founded in 1998, Blue Canyon Partners, Inc. (www.bluecanyonpartners.com) is a
business-to-business growth strategy consulting firm. Our engagements center on
customer-driven strategies that foster profitable growth, nurture leadership, and leapfrog
the competition. Our approach to business-to-business strategy drives actionable
answers to critical decisions about products, services, pricing, channels, global markets,
brands, business systems, and innovation.
Our clients are industry-leading Fortune 1000 business-to-business corporations that
are faced with a variety of growth challenges. Our senior level professionals bring
unique qualifications, extensive experience, and an extraordinary commitment to each
growth engagement. Collectively, we offer many years of practical know-how that
enables us to deliver creative, innovative insights as well as an actionable game plan.
Using solid concepts and facts, we distill the key strategic issues to build consensus
and alignment across the various relevant organizational units in order to position your
company for sustained profitable growth.
Regardless of which challenge is brought to Blue Canyon Partners, Inc., our focus is to
define the right strategy, translate it into action, and reward shareholders with growth.

2007 Blue Canyon Partners, Inc.

24

www.bluecanyonpartners.com

#HICAGO
/LD/RCHARD2OAD3UITE
3KOKIE)LLINOIS
0H  &AX  

WWWBLUECANYONPARTNERSCOM