Good bye chemicals, hello customer solutions – The chemicals industry is on the move; how about you?
Making the molecule or even improving the process just does not cut it anymore! In a flat world where money, ideas, people and goods move freely, science and technology has become increasingly a commodity. Products, technologies and capacity are ubiquitous while solution providers are in short supply. This is why companies who continue to define themselves as simple chemicals manufacturers will struggle to justify a price premium. The price premium is a matter of survival for companies who are confronted with high labour and regulatory costs. This is why organizations must tilt their centre of gravity towards markets in order to differentiate their offering, justify the premium price and survive the globalisation tsunami. This is the main message of the recent European Conference on Chemical Marketing & Sales Effectiveness in Amsterdam (1). So if are still selling chemicals then read on: you should be selling solutions!
The Customer Bond column is now three years old and Fleming’s recent meeting in Amsterdam on European Marketing & Sales Effectiveness has emphatically confirmed the view of this column that chemical companies need to embrace change and become marketing savvy.
The very first contributed article to this column showed that in a flat world the chemical company interface with its customer base has become just as important as its R&D, manufacturing or regulatory expertise (2). This does not mean that the good old scientific and technical innovation, manufacturing or even regulatory capability has lost its importance. It simply means that the centre of balance in resource allocation needs to shift within the chemical enterprise towards a more sophisticated marketing and sales organization.
In fact B2B chemical manufacturers in high-cost countries are well advised to learn from business to consumer companies how to deal best with the increasing commoditization of the chemical and engineering knowhow. Best in class companies such as DSM, Solvay, Kyara, DOW or Syngenta are already doing it, while the best consultancies in the industries such as Delloite, Team Stefanssen, Acceval or MarketChemica are well equipped to support this transformation.
And yet the small and medium size enterprise sector of seems to struggle with acknowledging the market driven reality of the twenty first century. The SMEs were conspicuously absent from the Amsterdam meeting. This is why we decided to highlight some of the broad conclusions of the Amsterdam meeting in order to help chemical SME adopt some of the best practices espoused by the leading companies in the world.
Global megatrends, market size, market segmentation, competitive intelligence, value proposition, branding and commercial excellence programs are probably not part of the day to day vocabulary of the vast majority of the readership of this magazine.
In fact, a study conducted recently by MarketChemica clearly showed that chemical SMEs around the world do not even know the market size, their market segments and market share for their largest product (3). In fact they often confuse strategic planning with operational planning, and indeed they do not brand, advertise or track competitive moves through a disciplined business process.
Clearly these companies see themselves mainly as suppliers of top quality chemical products. They fail to define innovation in their interactions with their customers. The meeting in Amsterdam showed beyond doubt that such a mentality belongs to a bygone era and plays in favour of low cost producers.
Little surprise that “lowest price” competitors continued to gain global market share from the manufacturers operating in higher cost environment, as companies cannot compete based only on their R&D capability or manufacturing efforts.
By contrast, the leading chemical companies have a strategic path firmly anchored in the twenty first century mega challenges such as demographics, climate change and water scarcity to name but a few. The market savvy companies pick market segments that will continue to grow.
For example, Mr. Mauricio Adade, Chief Marketing Officer DSM, sees his company being actively involved in solving the big problems facing the humanity in the next decades by developing the life and material sciences sectors. DSM does this by focusing on high growth economies, innovation or acquisitions & partnerships. . The company must provide sustainable solutions to health, climate, energy and other global challenges (Figure 1).
In fact DSM is branding its offering in order to justify a premium price. DSM vitamins are a critical component in many beverages, food supplements and other wellness products in a similar manner with the well-known “Intel Inside” microprocessor,. DSM Quali® line of vitamin products provides the sellers of the end consumer product with an excellent opportunity to differentiate their own offering. Quali® vitamins might be the same molecular entity however the brand also implies safety, reliability and traceability. Clearly, DSM vitamins are ideal for co-branding various OTC products marketed to the health aware consumer.
In a similar manner, Mr. Hans Gooessens of Yara, sees opportunity in a world that will continue to struggle from resource scarcity. For example, there is a shortage of arable land and water while population is continually increasing. Yara is therefore focusing in providing integrated solutions such as precision farming and “fertigation” (Figure 2). Focus on efficient use of water and nutrients will move irrigation to a whole new level.
Yara also uses a combination of in-house resources and strategic acquisitions. One example is the recent addition of ZIM’s irrigation sensors in order to offer a high technology total solution. The yield increase varies between 5 to 15% while the water use is reduced by 20%. Just like DSM, Yara is actually branding its products while educating farmers on how to extract maximum value from the systems proposed by Yara. By extracting maximum value from the integrated solution provided by Yara, the farmers have a good justification for paying a premium.
Pricing has cropped up as a recurring theme throughout the Amsterdam meeting. Mr. Peter Stevens from BlueStar Silicones sees value pricing as an extremely valuable tool in increasing the profitability of the company. Nevertheless, value pricing is not always easy to achieve as it requires differentiation of the offering (real or perceived) or otherwise the customer will not pay the premium.
The implementation of a value based pricing policy implies a deep knowledge of the market segment. By way of example, Figure 3 shows that the price setting mechanism refers to what is called a “next best available” alternative. On top of this price one needs to take into account the revenue gain, opportunities for cost reduction as well as other soft, emotional benefits.
Value based pricing is absolutely relevant to intermediates and complex advanced intermediates. One good alternative to calculating the value added price (which is often unavailable) is by taking advantage of global competitive intelligence available from a number of sources as shown in Figure 4.
For example, MarketChemica is a leader in providing competitive intelligence in high value added chemicals such as pharmaceutical intermediates. The information provided can range from local to global and the nature of the information provided by MarketChemica varies from simple identification of the transacting parties to shipments, volumes and prices.
All these initiatives such as collection and interpretation of competitive intelligence, branding and long-term strategic thinking will ultimately need to be integrated and implemented in a commercial excellence program.
At the end of the day, it is all about people. Mr. Georges Houtappel, Global Head Commercial Excellence Program, pin pointed that providing the training to the sales force gives them the tools to work with the various concepts used in the Commercial Excellence program at Solvay. The Commercial Excellence Program is structured around several topics and delivered at three levels: basic, intermediate and advanced.
The simplest program is “Commercial Essentials” and is an e-learning module to raise awareness on best practices. The “Commercial Immersion” program is done on site for 2-3 days to discuss and work on a business case. The most complex level is “Commercial in Action” that is coordinated during several months to guide and achieve bottom line improvements across the organization.
Making the molecule or even improving the process just does not cut it anymore! In a flat world where money, ideas, people and goods move freely, science and technology has become increasingly a commodity. Products, technologies and capacity are ubiquitous while solution providers are in short supply. This is why companies who continue to define themselves as simple chemicals manufacturers will struggle to justify a price premium. The price premium is a matter of survival for companies who are confronted with high labour and regulatory costs. This is why organizations must tilt their centre of gravity towards markets in order to differentiate their offering, justify the premium price and survive the globalisation tsunami. This is the main message of the recent European Conference on Chemical Marketing & Sales Effectiveness in Amsterdam (1). So stop selling chemical products and start providing solutions to customer needs.
Figure 1. DSM strategy is driven by important global challenges
Figure 2: Yara strategy is driven by water scarcity, lack of arable land and demographics
Figure 3: Value base costing elements
Figure 4: Marketchemica is positioned to fill out the competitive intelligence vacuum in chemical intermediates.
REFERENCES AND NOTES
- The event was organized by Fleming and Chimica Oggi / Chemistry Today journal was a media partner at the event
- Niraj Dawar, Chemistry Today journal, 29(1), 6-7 (2011); the same theory has just been fully developed and published in Harvard Business Review Press (November 5, 2013), “Tilt”
- B. Comanita, Chemistry Today journal, 29(6), 5-8 (2011)