Commercialization of Photochromic Dyes and Products
While most people, including this author, hold quite optimistic views of the photochromic industry, very little commercial success has been realized. In Professor Giacomo Ciamician’s famous paper on photochemistry of the future, he predicted that photochromic clothing would be popular. It turns out that he was right. His paper was written in 1912 and photochromic clothing was not commercially successful until the early 1990’s. These optimistic projections are commonplace. Unfortunately, the commercial successes have not been rapid or frequent.
This paper is intended to address some of the critical success factors in achieving photochromic related profitability. The major ingredients of commercial success are an attractive industry and mastery of the specific critical business elements that lead to profitability in that industry.
A well accepted industry model was developed by Professor Michael E. Porter of the Harvard Business School and is presented in his book Competitive Strategy as shown below. The general analysis of this model will be left to anyone who cares to read his excellent work. The specifics of this model as they apply to a dye producer in the photochromic industry will be described.
The most attractive industry would have large barriers to entry, low bargaining power of buyers, no threat of substitutes, low bargaining power of suppliers, and little rivalry among existing firms. Such an industry should lead to extremely high rates of return.
Industry competition between the existing dye suppliers would be classified as relatively polite for the following reasons.
1. few, diverse suppliers – little face-to-face competition
2. high industry growth – easier to expand markets than to steal market share
3. significant product differences – switching costs and product differences weaken direct product comparisons
The photochromic dye industry has significant barriers to entry.
1. basic technology – the learning curve necessary to master the relevant chemistry
2. switching costs – a purchaser of dyes will usually need to re-stabilize their products when changing dyes
3. proprietary technology – patent protection is common
There are no good substitutes for photochromic dyes because of their uniqueness. Substituting one photochromic dye for another is sometimes possible but usually requires re-stabilization in the chosen matrix.
Even though buyers consider the dyes to be an expensive raw material, they are in a weak position for the following reasons:
1. the dye is typically critical to final product performance
2. buyers usually face re-stabilization switching costs
3. there are few suppliers to choose from and they usually sell unique dyes
4. buyers pose little threat of backward integration
The suppliers have little power over dye producers...