Chemical companies need to change direction
Still using yesterday's model
To understand the status quo of marketing and sales, let's review it. Based on the high profit model more than 20 years ago, the starting point of many chemical companies is to customize the grade to attract customers and retain them. This is a logical business method that can be supported as long as the profit is sufficient - even if the quantity is not economical, and these special levels will complicate the inventory management of manufacturers. In connection with this, the company will provide free service support and generous business conditions, such as free transportation or urgent transportation, without additional charge. But many chemical companies no longer have enough profits to pay for this level of service. In the field of service support, the reality is that many users are familiar with the products they use and rarely need service support.
However, many chemical companies need to overcome some psychological barriers before changing their development direction. With a long tradition of innovation and technological maturity, many companies find it difficult to accept that their product lines are becoming commodities: we note that the use of the word is taboo in some places, and this state of denial makes it difficult for them to take appropriate action.
Secondly, the commercialization trend of most chemical enterprises is usually gradual. The commercialization process is slow and stable, although the seller can continue to hope to return to the good times, the commercialization trend is unremitting, even in the traditional professional fields, such as pigments. Small scale annual cost cuts and tinkering with the business structure are ineffective: keeping ahead requires a new way of thinking.
Rethinking business model to adapt to market reality
The new market reality needs a thorough reform of marketing and sales mode. Companies that can combine their business model with the market environment can get considerable returns. We have observed that the right business operation model can generate 2% to 8% of EBITDA, and reduce the complexity and cost of supply side of manufacturing, supply chain and procurement by combining business leverage and related factors.
Here are four business structures that we found to meet the requirements of most chemical companies: "traditional" approach, which can still create value when properly deployed, and three alternative structures.
Traditional supply
Where profit is still considerable and new application development with customer cooperation has obvious value creation potential, "high contact" business model will still be an advantage. If the customer thinks that the product has unique and high value characteristics, and understands that the manufacturer will continue to provide technical support and product development support according to the profits generated by these prices, then this method is very effective. However, the mistake of many companies is that they do not limit this business model to customers who pay a premium to support it. Instead, they can benefit from accepting one of the following three alternatives.
A low-cost backbone, with hierarchical coverage of services, according to customer segmentation
Obviously, the industry's portfolio has gone far beyond that, with products in the semi commodity category - in other words, they have some commodity characteristics. The most important signs of potential commercialization are a wide range of producers, especially those from low-cost countries; reducing the technical barriers to changing suppliers (such as relying on suppliers for technical support); and improving the transparency of pricing.
Under this structure, the company builds a business model with a low-cost backbone that provides basic services, and then adds service elements that can be provided to customer departments that pay higher prices. Customer segmentation depends on their value to suppliers. At least provide standardized services, as far as possible automation to reduce costs. Sales only in standard delivery time and payment terms, minimum order size, and no product customization. This type of service is then differentiated for higher value customers - for example, by providing on-demand personal technical support, product and batch customization, and key customer relationship management for chemical suppliers. Big data and advanced analysis will increasingly help to better understand the services customers really need and are willing to pay for.
