Chemical Industry Faces Challenges to Growth, Sales, Profit in 2019

Business Wire |

Simon-Kucher & Partners chemical industry experts examine volatility, innovation, online portals, customer relationships, mergers and acquisitions.

BOSTON--(BUSINESS WIRE)-- Despite its high operational efficiency, the chemical industry will face a number of obstacles in 2019 that will impact growth, sales and profit. Senior Partner and Global Head of Chemicals at Simon-Kucher & Partners, Dr. Andrea Maessen, and Partner, Jan Haemer, present their insights on volatility, innovation, online portals, customer relationships, and mergers and acquisitions.

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.

2. Innovation

Innovation is at the core of the chemical industry’s competitiveness. However, a Simon-Kucher study reveals that, despite major investments and significant product developments, 72 percent of all new products miss their profit targets primarily because companies consider the monetization aspects of new products far too late in the innovation process. Maessen recommends nine proven steps to successfully monetizing 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 behavioral pricing strategies. “Big data and intelligent algorithms, and the tools to utilize them, like BASF's super computer Quriosity, further strengthen the industry’s innovation power. Being able to capture the value through smart monetizing strategies will become even more important in future,” says Maessen.

3. Online portals

With customers already looking online for suitable products and suppliers, online portals are becoming an increasingly relevant channel for selling chemical products. Chemical companies have traditionally maintained direct relationships with their customers. Online portals will change these relationships. 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 specific product categories, and who will have access to important customer information,” Haemer says. Other questions to address include: which customers should be served via specific sales channels? Which product offerings are best sold online? What is the most cost-effective way to reach new customer groups? 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,” adds Haemer.

4. Customer relationships

Digitalization also enables high-quality interactions along the entire customer journey, providing companies with a competitive advantage. “The chemical industry has had digitalization on its radar for a long time, but so far companies haven’t been able to achieve any significant breakthroughs in managing customer relationships,” explain the Simon-Kucher experts. A Simon-Kucher study determined that 70 percent of chemical companies are dissatisfied with their customer relationship management systems (CRM) because of basic functionality limitations. "Without a fully functioning and comprehensive CRM, it’s difficult to identify and harness untapped potential in the customer journey,” adds Haemer. This technology is the key to unlocking new sales opportunities, but only if it works correctly. “When properly implemented, a digitalization strategy can be used to significantly improve customer relationships. 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,” says Haemer.

5. Mergers and acquisitions

The industry is also facing significant structural changes. Competitors from China and the Persian Gulf are coming to Europe and exerting pressure on industrial chemical companies. In addition, capital markets focused on specific applications, as was the case with the DowDuPont merger. Against this backdrop, merger and acquisition activities will be another factor influencing 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 phenomena. This is why it’s more important than ever to solidly assess the markets in these transactions,” says Maessen. As a result, many companies are conducting extensive commercial or market due diligence to gain additional market insight. In the case of mergers, there will also be greater focus on the commercial side to avoid placing business continuity with customers at risk, and to 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.

Douglas Jensen (Public Relations)
Tel.: 617-231-4556
Email: douglas.jensen@simon-kucher.com
www.simon-kucher.com

Source: Simon-Kucher & Partners

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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