Challenges in the chemical industry
The dynamics in the market have increased further. This affects both the demand and the supply side with regard to issues such as availability and delivery capability. Added to this are changes in the competitive environment due to consolidations, greater price transparency through online platforms and digital solutions, and the fundamental challenges of the industry already mentioned. Speed, adaptability and high process quality are becoming increasingly important in order to be successful on the market. All companies, from commodity producers to specialty manufacturers, are affected by the changes.
Market dynamics and competitive pressure
The dynamics in the chemical industry are steadily increasing. This applies both to the issue of consolidation and to the strong fluctuations on the supply and demand side. Many companies lack methods and tools for strategic portfolio work, so that they often fail to answer the question of which areas fit their own business model and which do not. In addition, many companies lack operational excellence and clear processes in pricing and sales, so that they are unable to achieve the best possible margins in the highly volatile markets.
Multichannel and digitization in distribution
The topics of multi-channel and digitization in sales are also increasingly becoming a major challenge in the chemical industry. In addition to direct business and sales via chemical distribution, own web stores and sales via online platforms are becoming increasingly important. Most companies in the chemical industry are not yet well prepared for this. The same applies to the digitization of sales processes in order to meet changing customer needs on the one hand and to improve their own “cost to serve” on the other.
Even though pricing has long been a major topic in the chemical industry, many companies have still not successfully implemented market- and value-oriented pricing models. Many companies continue to work with inflexible and purely cost-based approaches, so that they are neither able to adequately monetize the added value of their own products nor to react appropriately to short-term fluctuations in supply and demand.
In the best case, this leads to additional margin potential being given away and, in the worst case, to large parts of the business being conducted with negative margins. In addition, many companies fail to differentiate prices between different customers (segments) in a fair and performance-oriented manner. Another major challenge that almost all players in the chemical industry are struggling with is the pricing and charging of services.
Many companies in the chemical industry fail to achieve the growth targets they have set themselves. This is often due to a lack of methods and processes, as well as employee qualifications and suitable incentive systems for successful new customer acquisition. In addition, very few companies have established processes for cross-selling and up-selling that help to systematically expand business with existing customers.
Solutions for the chemical industry
To be successful in the chemical industry, it is crucial to strategically adapt to the challenges in pricing and sales and to consistently work on optimizing operational excellence.
Improve market understanding
For long-term success in the market, it is essential not only to understand the direct sales markets, but to establish a detailed understanding of the entire value chain. Only in this way is it possible to make value-creating portfolio decisions and to understand and quantify the added value of one's own products at the subsequent stages. This, in turn, is a decisive prerequisite for professional pricing and successful action in sales. In addition, the consequences of the Coronavirus pandemic must be evaluated. In particular, this raises the question of the extent to which supply chains will be set up more regionally again in the future and, conversely, what this means for the orientation of the company's own customer service.
Set up market and customer segmentation in line with the times
A clear understanding of customer needs and the customer journey is of the utmost importance to successfully hold one's own in the market. This is accompanied by the need to consistently align all market-side processes with customer requirements (customer centricity). In order to be able to respond to customer requirements in the best possible way, the implementation of customer segmentation including corresponding standard strategies for sales and pricing measures is very important. Modern customer segmentation should go beyond a pure volume view (such as ABC by revenue) and take account of the needs of customers. These are likely to become even more differentiated in the future (price versus innovation and sustainability).
The development of a multi-channel strategy is essential for successful adaptation to changing customer needs. In this context, a wide variety of questions must be answered. These include, among others:
What goals are to be achieved with the individual channels?
Which customers should be served with which channels?
Which product ranges are to be distributed via which channels?
How will the success of the individual channels be measured in the future?
In this context, it is important to clarify the role of the individual channels, considering the different phases of the customer journey.
Another important building block is the consistent digitization of sales. Here, it is important to systematically identify starting points for the digitization of processes along the entire sales process. This applies to all core areas of the sales process such as
Offer management and
The next step is to identify and implement suitable digital tools on the basis of structured requirements (Digitization Sales). Here, the spectrum ranges from lead tracking software to chat bots, CPQ solutions to CRM and BI tools.
Introduce dynamic value pricing
In the chemical industry, pricing is still about successfully exploiting the added value of the company's own products and establishing systematic and performance-oriented customer price differentiation. Target price systems, supplemented by dynamic pricing components, are ideal for this purpose. To this end, the relevant price drivers at product, market, customer and order level must be identified and mapped in a pricing calculator. As a supplement to this approach, peer pricing methods have proven their worth, helping to increase transparency and continuously improve price quality in the sense of internal benchmarking. Once a pricing model has been successfully developed and calibrated, it should be implemented sustainably using pricing or CPQ software.
In addition to pure product pricing, it is also very important to price all additional services. The first and decisive step here is a change in awareness. In order to price additional services, they must first be systematically identified. Only then is it possible to communicate the added value of one's own services to one's own customers in a comprehensible way. With regard to pricing for customers, a differentiated approach is recommended, taking into account the customer segment and service type.
Laying the foundations for growth with new and existing customers
To achieve ambitious growth targets, it is necessary to grow with both new and existing customers. Modern sales tools and clear processes (e.g., for generating and processing hunting lists) are necessary for this to succeed. In addition, the use of up-to-date analytics including artificial intelligence is necessary. Particularly in the area of cross-selling and up-selling, corresponding associative analyses can create great added value.
All measures must be supported by intelligent incentive systems for sales employees. These should map the multi-layered goals in sales as simply as possible and with a direct connection between performance and remuneration.
Consulting experiences and project examples
Prof. Roll & Pastuch – Management Consultants has extensive consulting experience in the chemical industry. In many projects R&P has been able to support companies in solving complex challenges. Our projects in the chemical industry focus on the following topics, among others:
- Periodic price adjustments
- Service pricing
- Customer Value Management
- Key Account Management
- Value Selling Tools
Learn more about your potentials of pricing and sales
We will be happy to answer your questions and provide you with further information.