Growth, Revenue, Profit: Commercial Challenges in the Chemical Industry for 2019

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Volatility, innovation, online portals, customer relationships, and mergers and acquisitions (M&A): Senior Partner and Global Head of Chemicals at Simon-Kucher & Partners, Dr. Andrea Maessen, Partners, Jan Haemer and Dr. Peter Colman analyse five trends and issues that chemicals companies must address to increase growth, sales, and profit in 2019.

London – Despite high operational efficiency, the chemical industry will face a number of obstacles in 2019.

  1. Volatility

The volatility of raw material costs, exchange rates, and tariffs continues to create a dynamic environment. “Those who aren’t flexible enough in negotiating contracts or fast enough in adjusting prices will face massive pressure on margins. Digital pricing and data analytics will be important tools to significantly accelerate pricing processes,” explains Maessen. Agility in contract and price management will be a key success factor in 2019.

  1. Innovation

The chemical industry is highly innovative, innovation is an important pillar of its competitiveness. However, despite major investments and good developments, 72 percent of all new products miss their profit targets, a Simon-Kucher study revealed. Not only are companies considering commercial aspects far too late in their innovation process, according to another study, they aren’t going far enough. Maessen recommends nine proven steps to successfully monetising innovation, which include factoring in the customer’s perspective and willingness to pay early on, evaluating new pricing models and metrics especially for new digital solutions and incorporating behavioural pricing strategies. “Big data and intelligent algorithms, like BASF's super computer Quriosity, further strengthen the innovation power of the industry. Being able to capture the value through smart monetising strategies will become even more important in future,” Maessen added.

  1. Online portals

Online portals are becoming a relevant channel for selling chemical products, too. Although chemical companies have traditionally maintained direct relationships with their customers, now customers are looking online for suitable products and suppliers. The point of contact with the customer will be taken over by new and, in some cases, non-industry market players, like Alibaba and Amazon Business. “Companies need to ask themselves who the direct contact for customers should be for which products and who will have access to important customer information,” Haemer says. Which customers should be served via specific sales channels? Which product offerings make sense online? Which new customer groups can be tapped in a cost-effective way? How can prices be differentiated by channel? And how can companies deal with procurement platforms? “These are just some of the central questions companies need to answer,” says Haemer.

  1. Customer relationships

Digitalisation also enables high-quality interactions along the entire customer journey, providing companies with a competitive advantage. “The chemical industry has long had digitalisation on its radar, but so far, companies haven’t been able to achieve any breakthroughs in their customer relationships,” explains Colman. A Simon-Kucher study found out that 70 percent of chemical companies are dissatisfied with their customer relationship management systems (CRM) because of their limitations in providing certain basic functionalities. "Without a fully functioning and comprehensive CRM, it’s difficult to identify and harness untapped potential in the customer journey,” says Colman. This technology would be the key to unlocking new sales opportunities, but only if it works properly. “Digitalisation takes customer relationships to a whole new level. Companies that aren’t in close contact with their customers are losing out on important information and, in the long term, may lose these customers,” Colman added.

  1. Mergers and acquisitions

The industry is facing structural changes. Competitors from China and the Persian Gulf are coming to Europe and putting pressure on industrial chemical companies. In addition, capital market pressures are leading to conglomerates splitting into smaller, focused entities specialising in specific applications, as was the case with DowDuPont. Against this backdrop, M&A activities will be another factor to influence the chemical industry in 2019. “Over the past few years, we’ve seen transactional multipliers surge to new heights. Expectations of future sales growth are a major driver for this. This is why it’s more important than ever to solidly assess the markets in these transactions,” says Maessen. Many companies are therefore conducting extensive commercial or market due diligence to gain additional market insight. In the case of mergers, there will also be much more focus on the commercial side to avoid putting business continuity with customers at risk and fully unlock growth potential as quickly as possible, explains Maessen.

Simon-Kucher & Partners, strategy & marketing consultants: Our focus is on TopLine Power®. Founded in 1985, Simon-Kucher & Partners has more than 30 years of experience providing strategy and marketing consulting and is regarded as the world’s leading pricing advisor. The firm has over 1,300 employees in 38 offices worldwide.