Academic journal article Annals of Business Administrative Science

"Customer's Customer" Strategy: An Empirical Study of Product Development in Japanese Chemical Industry

Academic journal article Annals of Business Administrative Science

"Customer's Customer" Strategy: An Empirical Study of Product Development in Japanese Chemical Industry

Article excerpt

Abstract: The customers of industrial goods are not consumers but companies having expert knowledge. Therefore, a conventional idea appeals a stereotyped pattern that the product development process of industrial goods should conform to the expert customers' needs. However, our research on the Japanese chemical industry showed that this product development pattern is familiar to failed projects rather than to successful ones. In the successful projects, product developers directly contact the consumers-"customer's customer"-for latent needs. Based on their anticipation of these latent needs, the product developers propose new product concepts to their customers. In fact, cases of such successful projects exist. This paper generalizes the "customer's customer" strategy from this successful pattern.

Keywords: chemical industry, industrial goods, customer strategy

1. Introduction

Research in the fields of innovation management and technology management has long been dedicated to the question of "how to succeed in product development" (e.g., Myers & Marquis, 1969; Rothwell, Freeman, Horlsey, Jervis, Robertson, & Townsend, 1974). However, most of the researches have tended to focus on the assembly industry, such as the automotive industry and computer industry (e.g., Clark & Fujimoto, 1991; Eisenhardt & Tabrizi, 1995; Wi, 2008; Yasumoto & Shiu, 2007). Only a few studies have focused on the process industry (Barnett & Clark, 1998; Lager, 2002).1 Apart from a few exceptions, there has been virtually no research on the management of the product development process in the chemical industry, the field analyzed in this paper.

This has probably been underpinned by the stereotypical views that "competitiveness in the process industry is determined by technology and investment" and that "unlike the assembly industry, highly detailed product development management in the process industry is ineffective". Consequently, while there have been micro- and macro-level economic analyses such as investment-returns analyses (e.g., Achilladelis, Schwarzkopf, & Cines, 1990; Arora, 1997; Stobaugh, 1988; Utterback, 1994), mid-level research on the management of the product development process has been overlooked. By contrast, the present study focuses on the product development process in the process industry, and attempts to empirically clarify effective management.

A conventional idea insists that it is important for industrial goods manufacturers to cater perfectly to their customer needs. However, empirical research on the Japanese chemical industry showed that this product development pattern tended to fail. To elucidate why these results differed from the conventional views, the author conducted an in-depth case study on successful projects. The results showed that a hindrance to success was an inability of customer companies (mostly consumer goods manufacturers) to transform the needs of their customers (mostly consumer or end users) into industrial goods specifications, or the case in which essential information of the needs provided by consumers or end users was not adequately passed on to the industrial goods manufacturer. In these cases, industrial goods manufacturers directly contacted their customers' customers for latent needs, and based on their anticipation of these needs, they proposed new product concepts and specifications to their customers. We generalize this pattern as the "customer's customer" strategy.

2. A Commonly Accepted Theory

The following is a commonly accepted theory on the management of product development for consumer and industrial goods (Fujimoto & Yasumoto, 2000; Kotler, 1999). It is usually difficult for customers of consumer goods manufacturers (consumers or end users) to express their needs as clear product specifications. Even if they can express their needs clearly, consumer goods manufacturers are unable to achieve high market performance by introducing new products with those explicit needs. …

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