Many chemical companies leave behind a valuable opportunity in pricing because they believe it is something they cannot control. Jason McLinn, a partner in Bain's Chemicals practice, outlines how chemicals companies can greatly improve their pricing capabilities within 12 to 18 months.
Read the transcript below.
JASON MCLINN: Chemicals companies devote significant resources to finding ways to take cost out of their business or to search for new avenues for growth. But oftentimes, they don't think very much about pricing. This is unfortunate and really a lost opportunity for them. In many cases, they might view themselves as players in a commodity segment, or simply a price-taker, and can't do anything about the prices that they achieve.
But we've found that chemicals companies within 12 to 18 months can greatly improve the capabilities they have in pricing. It's particularly important now because procurement organizations are getting more and more sophisticated. You have to go in with great data and great information to win in the negotiation battles.
We think of pricing in two aspects: setting the price and getting the price. When setting the price, the most important area to understand is what's the value-in-use to your customer. Does it generate less scrap in their production? Does it accelerate the pace at which they can run their equipment? Does it allow them to get in new markets that they otherwise couldn't play in? If so, you've created value for that company.
In getting the price, it's important to align your sales team, your product management, and your pricing team, and create the right tools and capabilities so that you can track results and see if the objectives you intended to achieve are actually the ones that you end up realizing, and if the money flows down to the bottom line.
But perhaps most of all, what we've found is chemical companies need to think about the senior management alignment around pricing. They need to set a clear vision, create the right behaviors and hold people accountable to results.
Read the Bain Brief: Understanding Value—How to Capture the Pricing Opportunity in Chemicals