Houston (ICIS) – chemical companies face five challenges this year that affect their growth, sales and profits, Simon kucher & partners, a consulting firm, said in a report on Tuesday.
The German based international consultancy said the challenges came from volatility, innovation, online portals, customer relations and M & A.
Volatility and pricing
The consultants said fluctuations in raw material costs, exchange rates and tariffs continued to create “a dynamic environment.”.
Flexibility in contract and price management in particular will be a key success factor in 2019, they said.
Andrea Maessen, one of the authors of the report, said: “companies that are not flexible enough in contract negotiation or not quick enough in price adjustment will face enormous pressure in terms of profit margins.”
“Digital pricing and data analysis will be important tools to significantly speed up the pricing process,” she said
Innovation is the core of the competitiveness of the chemical industry, and enterprises make major investment and product development. However, according to Simon kucher, 72% of new products fail to achieve the profit target, mainly because enterprises are too late to consider the monetization of new products in the process of innovation.
Maessen said that in order to monetize innovation successfully, companies must consider customers’ perspectives and willingness to pay at an early stage. They must evaluate new pricing models and indicators, and combine behavioral pricing strategies.
“Big data and intelligent algorithms, as well as the tools that use them, such as BASF’s supercomputer curiosity, further strengthen the innovation power of the industry,” she said
“Being able to gain value through smart profit strategies will become more important in the future,” she said
In addition, the consultants pointed out that the portal is gradually becoming an important channel to sell chemical products.
While chemical companies have traditionally maintained direct relationships with customers, online portals will change those relationships, they say.
They said the point of contact with customers would be replaced by new, and in some cases, non industry market players, such as Alibaba and Amazon business.
According to the consulting company, digitalization will also achieve “high-quality interaction” throughout the “customer journey” and provide enterprises with competitive advantages.
“The chemical industry has long focused on digitalization, but so far companies have failed to make any significant breakthroughs in managing customer relationships,” Simon Kutcher experts said in the report
They pointed out that a study they conducted found that 70% of chemical enterprises were not satisfied with their customer relationship management system (CRM) due to the limitation of basic functions.
However, they said that without a fully functional and comprehensive customer relationship management system, it would be difficult to identify and utilize the untapped potential.
Finally, the industry is facing significant structural changes, with competitors from China and the Arabian Gulf coming to Europe to put pressure on industrial chemical companies, the consultancy said.
In this context, M & A will be another factor affecting the chemical industry in 2019, they said.
“Over the past few years, we’ve seen the trade multiplier soar to new heights,” Mason said.
“Expectations of future sales growth are the main driver of this phenomenon. That’s why it’s more important than ever to have a reliable assessment of the market in these transactions, “she added.
A media official at Simon kucher & Partners didn’t immediately comment further.