While many chemical companies focus on reducing costs or selling greater volumes, few give serious thought to pricing. David Burns, a partner in the Chemicals practice, discusses the pricing opportunities in the chemical industry and how some companies are taking advantage.
Read the transcript below.
DAVID BURNS: We find that pricing is a very underdeveloped opportunity in the chemical space. A lot of companies spend lots of time and resource on taking out cost, driving up utilization, inventing better products, but they under-resource pricing. Some executives feel like they're in a commodity space and they have to take what the market gives them. Others feel like with third parties and their sales force, they really can't control price leakage anyway, and so they underinvest in it. But we find companies who do this exceptionally well can add 200 to 300 basis points to their margin.
Really, the secret here isn't anything complicated. It's about setting price and getting price. On the setting side, there's really three things you have to do well to be a leader here. You need to understand your own costs, where you make money after things like complexity and selling costs are incorporated. They understand what their competitors are doing, what their landed cost is, where they differentiate, who's winning the services game. And they understand the customer's value in use. In chemicals, that can widely vary from application geography and end market, and so getting this right is critically important.
In terms of getting the price, this is about the difference between the price you think you get and the price that actually lands on your invoice. People who do that really, really well get the right roles and responsibilities in place, so who's actually pricing versus who's selling the product. They're actually able to put the right process in place to actually go from point A to point B. And they have the right tools to manage price over time. They know where they're succeeding, where they need to intervene and change behaviors. And they know how to find opportunities on a continuous basis.
Read the Bain Brief: How to Capture the Pricing Opportunity in Chemicals