Chemicals

Challenges in the industry

In the chemical industry capacity utilization and innovations were considered the major determinants for costs and volumes for a long time. Due to growing cost dynamics and increasing competitive intensity management starts focusing on the price as a device for the proactive steering the top and bottom line results. Pricing, which comprises price setting and price implementation in the market, is becoming a strategic and tactical management task where volume is to be protected and margins are to be increased at the same time. Pricing in the chemical industry is in various ways embedded in a contradictory context: Markets that are characterized by increasing commoditization and excessive product portfolios require the identification and the utilization of the slightest price differentiation potential. For specialty products and innovations it is rather a matter of extracting optimally the product value to customer through the pricing, where the price determination is still dissatisfying, as it remains too strongly focused on costs and the competitive situation. Market cycles are becoming shorter.

Consequently, market dynamics are growing and intensify the requirements for price adjustments. In times of rising raw material costs the preparation and implementation of price increases is the main challenge. In periods of falling raw material costs the efforts - especially of the leading suppliers in the market - are centered on meaningful price protection. Another conflicting area in pricing is the price organization, i.e. centralized versus decentralized price competencies and thus the roles and responsibilities of marketing and sales. Trends towards increasing purchasing power and employment of competitive bids especially by global accounts cause prices, volumes and margins to be subject to growing pressure. More and more companies, therefore, recognize the importance of managing price determination, price implementation and price organization in a process with clearly defined responsibilities.

Our Consulting Approaches

Our consulting approaches support companies in the chemical industry in optimizing their pricing. We assist our customers with the determination of prices for different customer groups, e.g. small or medium size direct customers, global key accounts, distributors, co-manufacturers or converters, with the price implementation in the market and with the monitoring. We develop systems and tools on price differentiation, price forecasts as well as value pricing. Our approaches are empirically supported by transaction data, market information and expert judgment. We ensure a smooth implementation through a continuous qualification of the associates throughout the process which comprises training sessions, the definition of roles and responsibilities in the price organization as well as the price communication in the market. We develop customer-specific pricing systems that are integrated into running business processes via pricing tools. Among these tools are, for instance, electronic price lists, automated calculation tools for bundle prices, or price indicator models for price forecasts. We deliver fully implemented pricing processes. Our project experience shows that the optimization of pricing processes helps to increase profits by two to five percentage points.

Our consulting approach in detail:

Price differentiation

Within a predefined system, prices are differentiated according to product value and customer value. The results are clear rules that determine which customer should get which product at what price.

Price communication

Price communication addresses internal and external groups. It informs about the price concept and involves and enhances the employees. It is ensured through personal talks, group discussions, workshops as well as presence in media, that objectives, content and conditions of the price concept are well communicated.

Price prognosis

Based on price indicator systems, prices are forecasted for the next quarter or month and used as pricing guidelines for the sales force. The system is based on expert judgements on prices and market trends, which are recorded locally by employees in the respective regions. Existent market knowledge is condensed systematically and the quality of price decisions is improved significantly.

Value pricing

Basis of value pricing is the identification and measurement of the value drivers of an offering. The value drivers can be either product or process or brand related. To measure and quantify the value, data is derived in the form of expert judgements and/or of customer surveys.

Transactional pricing

Customized calculation models are developed in order to determine and steer day-to-day, transactional prices. Core elements of these models are e.g. material costs, production costs, freight and customer-specific discounts and rebates. These models allow the steering of prices in real-time and systematically in highly dynamic markets.

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