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Business

Breaking the Cycle of Commoditization

by Rick Mullin
April 19, 2004 | A version of this story appeared in Volume 82, Issue 16

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Credit: DUPONT PHOTO
Brand-master DuPont is breaking down barriers between business units to develop the next wave of custom materials.
Credit: DUPONT PHOTO
Brand-master DuPont is breaking down barriers between business units to develop the next wave of custom materials.

COVER STORY

Breaking The Cycle Of Commoditization

"The ultimate commodity is probably a head of lettuce," says Peter Dulcamara, R&D director for technology licensing and catalysts at Dow Chemical. "Before 1990, the sales of bagged lettuce were virtually nothing, but over the last decade lettuce has grown to be a $2 billion business. That's because people have taken commodity carrots, lettuce, and radishes; sliced them up; and put them in the same bag. The convenience of that formulation has created tremendous value. We are seeing a similar phenomenon in specialty chemicals."

Dulcamara, who until this year was R&D director for industrial chemicals at Dow, says that, while specialty chemicals have largely become "small-volume commodities," custom formulation has emerged as a means of developing differentiated products that command a price premium. While only a handful of fundamentally new molecules have entered the specialty arena over the past 20 years, "the power of chemistry is virtually untapped," given what can be done in the lab to solve problems with ingredients already at hand, Dulcamara says. The key is getting down to work with individual customers, developing a formulated chemical means of solving specific problems.

Across the spectrum in specialties, companies have stopped bemoaning the "commoditization" of their sector and have begun looking at the upside possibilities of customization. Sunil Kumar, chief executive officer of International Specialty Products, for example, uses an analogy similar to Dulcamara's: the upscale coffee shop. Think of the variety of choices scrawled across the blackboard at Starbucks as opposed to a tank of plain black coffee filling millions of "I Love New York" cups. The idea, which has also worked with hamburgers, is to create a brand by letting the customers have it their way.

The ultimate extension of this strategy, according to Kumar and others, is for a specialties firm to develop not its own brand, but a brand for its customer--to provide, say, the formulation system for a hair styling product that is the basis for a new product line.

Dulcamara says Dow increasingly views product development in specialties as a matter of customer brand enhancement. "Sometimes they want improvements that are invisible to their customer," he says, "and sometimes they want to be able to make advertising claims."

Dow is putting its high-throughput and combinatorial chemistry strengths to work on developing multiple iterations of customers' formulations in order to pinpoint possibilities for cost and efficiency improvements, Dulcamara says. "Our combinatorial capabilities were developed for polymer catalyst development," he says. "Dow has moved this technology into trying to understand the kinetics of making chemicals and the combination of functional ingredients."

DuPont, which has a long tradition of customer collaboration in developing specialties and materials, has stepped up its efforts lately by pooling the resources of its specialty and materials businesses, according to Denise Edmonds, product manager for ethylene copolymers. "Before, each DuPont business would work with customers within its own capabilities," she says. "Now we are bringing in the full breadth of offerings from across the organization."

The company has, for example, launched an effort called DuPont Packaging Solutions that recently developed Cool2Go, a thermal retention labeling system that keeps the contents of plastic or other containers cooler or hotter longer.

Like Dulcamara, Edmonds sees custom formulation as a bulwark against commoditization. "There are still opportunities in specialties," she says, "developing new technologies to better meet customer needs."

Dulcamara adds that there is always the possibility of fundamentally new specialty molecules emerging as large companies such as Dow and DuPont continue to evolve. "Dow started as an inorganic chemical company based on bromine," he says. "It branched into organic chemistry, polymer chemistry, and materials science. Next is an evolution into biotech, nanotechnology, and the cognitive sciences. That's where we're going to see new specialty materials come from."

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