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May 31st, 2022 | 6 min. read

Garth Hoff
Principal Pricing Solution Engineer at Pricefx

Top 4 Components of a Chemical Industry Strategic Pricing Plan

Over the past few years, the chemical industry has been hit by a seemingly never-ending barrage of challenges and changes that have forced companies to adapt and pivot to survive. No sooner had plants reopened after pandemic-enforced shutdowns and restrictions on movement been lifted, than demand was spiking amidst raw material shortages, supply-chain bottlenecks, and shipping delays. Not to mention the eye-watering cost increases across the board, with raw material prices increasing 44% across commodity classes, mostly in chemicals. 

As companies in the chemical industry start price planning for the year ahead, they’ll be looking for ways of aligning their pricing strategies with their overall business objectives while also meeting the emerging and ever-changing needs of their customers and the market. They know that a proactive, agile, and granular approach is what is required to successfully navigate the challenges of today’s market and they’re looking for ways of coding these three key elements into their pricing strategy. 

For a decade now, we at Pricefx have been helping our clients in the chemical industry do just that. Through our chemical sales and pricing data analysis, we help them become more flexible, adaptable to change, and focused in their approach to increasing revenue and profit.  

In this article, we’ll look at the top 4 ways you can get and stay on top of your pricing game during this tumultuous and uncertain time and explore the top  data-driven chemical industry pricing plan must-haves for the year ahead.  

4 Essential Components of Your Chemical Industry Pricing Strategy

Key to your pricing strategy for the year ahead will be protecting margins, optimizing prices, staying informed, remaining nimble, and underpinning your strategy with the right technology. 

1. Protect Margins with Dynamic Repricing

Building-block chemicals that underpin the industry are often volatile in price due to underlying oil and logistics prices and rapid changes in supply and demand. If you’re not able to adjust end-product prices quickly enough to pass raw-material increases on to customers, then you’re swallowing these costs in your margin. 

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Protecting your margins will require that you can reprice quickly and efficiently in response to fluctuating costs. Dynamic pricing with platforms like Pricefx will enable automated repricing of your portfolio based on real-time raw-material index inputs so that you’re never inadvertently sacrificing margin. Being the first to reduce prices in line with indices also puts you in good stead with your customers. 

Getting granular with pricing and being able to adjust quickly to the constant shifts in market conditions will help you protect your margins with every transaction. 

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Learn More About Dynamic Pricing Here:

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2. Capture Profit with Differential Willingness to Pay

Your products are sold into numerous end-use industries and applications where the value that each creates differs depending on the customer that buys it and what they will use it for. Differential value, and therefore willingness to pay, can therefore vary significantly among your customer base.  

Especially powerful in the specialty area, value-based pricing is about capturing profit opportunities from customers with higher willingness to pay, while also capturing deals with those willing to pay less, moving beyond pricing based on purchasing volumes and manufacturing costs. 

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Pricing software helps you identify the value each of your products brings to your various customers and to adjust the price of your offering at the customer-product-transaction-level across your entire range, from highly differentiated specialty chemicals to more commoditized products. 

Specialty and commodity chemical makers that leverage dynamic pricing have seen a rapid and significant boost to revenue. 

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Learn More About Value-Based Pricing Here:

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3. Keep Your Finger on the Pulse

Pricing is not a set-it-and-forget-it activity. The last few years have taught us that nothing is certain and that our pricing plans must be flexible and adaptable. An innovative data-driven pricing strategy need to be under constant monitoring, analysis, and optimization.  

Given the chemical industry’s sensitivity to movements in the prices of oil and gas and disruptions to the supply chain, it is essential that you’re working with combination of up-to-the-minute market intelligence and sophisticated forecasts of what demand looks like downstream and supply upstream. You need to be able to clearly see what price movements can be expected, when, and for which products. 

Ensure you’ve got a steady stream of real-time data from the market, your customer, your competitors, and other essential inputs. Review pricing and margin performance frequently and be prepared to course correct in order to stay on target for margin and earnings goals.  

4. Less Guesswork; More Science 

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Typically, the advanced data analytics of chemical businesses exist in silos, resulting in higher costs, slower processes and unclear benefits. But those serious about leveraging pricing to achieve greater profitability and growth are learning that digital maturity through the right technology and approach to pricing is essential.  

You need the tools that bring all your inputs and pricing data into one place for greater visibility and understanding. You’ll need them to support your sales teams with accurate pricing targets and guardrails and to empower them with the workflows and data that help them negotiate winning deals. Your technology should enable real-time automatic repricing based on fluctuating costs so that you can instantly pass any changes on to customers, as well as adjustments based on customer-specific willingness to pay so that you’re never leaving money on the table (or losing customers under it).  

In a market that is in constant (and occasionally erratic) flux, you need the tools that bring a clear view of what to expect through advanced analytics and sophisticated what-if scenario predictions. Your pricing technology should help you proactively discover new opportunities, mitigate any risks, and achieve the agility you need to quickly adapt to the new status quo, while ensuring you’re on course toward profitability and growth. 

Achieving Growth In The Volatile Chemical Sector

Pricing remains the highest lever available to support earnings goals. But in the current climate, it is essential that you’re equipped and ready to embrace change mid-stream and at short notice and to be more focused, flexible, and agile in your pricing reactions. However, strategizing for another year of changes and upheavals can feel like grocery shopping when you don’t know what’s for dinner. How do you plan for the unexpected?  

You enhance your digital maturity to boost your business agility to be able to adapt to whatever the world throws at you next. You take a more sophisticated approach to pricing that enables more granularity and flexibility than you’ve ever achieved before. You invest in the tools that bring deep insights, advanced analytics, and accurate forecasts. You move toward dynamic and value-based pricing to protect margins and leverage differential willingness to pay. And you optimize your pricing processes and strategies to achieve greater flexibility, agility, and granularity. 

Being proactive in the chemical industry is now of the essence. It’s time to prepare yourself to be at the helm, rather than at the mercy, of the market. 

If you’d like to learn more about how you can become more targeted and optimize your prices, check out the article below;

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