The document discusses pricing strategies for the chemical industry. It notes that pricing is an important lever for profitability as gross margins in the chemical sector have declined in recent decades. The document outlines different pricing approaches that can be used depending on a company's position in the value chain. For commodity chemicals, options include cost leadership, value-added services, and predictive pricing to account for volatility. For specialty chemicals, the most effective approach is often value-based pricing to capture the maximum value perceived by customers. Overall, the document advocates that chemical companies implement sophisticated pricing strategies tailored to their specific businesses and markets.
1) A study of over 250 companies found that those with value-based pricing strategies and strong pricing execution capabilities achieved the highest operating profits compared to their industry peers.
2) Companies with non-value based strategies (e.g. cost or market share-driven) and strong execution earned the lowest profits.
3) Adopting a non-value based pricing strategy was correlated with 8% lower operating profits on average compared to industry peers across various industries. The findings provide support for pursuing a value-based pricing approach.
The main objective of this study was to establish the effect of Mergers and Acquisition (M&A) on a firm’s competitive advantage in the IT industry. A descriptive research approach was adopted with a target population comprising of all employees atHewlett Packard Company (HP) in Nairobi, Kenya.Horizontal mergers were found to be the most common types of mergers. These mergers weremainly driven by external economies of scale, market power, combined complimentary resources and customer service quality. The findings also established that the major elements of competitive advantage were volume of transactions and markets share. External economies of scale, market power and combined complimentary resources contributed positively to competitive advantage while surplus funds and idle resources did not drive competitive advantage. Based on the study,researchers recommended that decisions on M&A should be based on first understanding which facets of the business will be driven by the M&A in order to derive a competitive advantage. In addition, there is need for companies to do progress evaluation of the M&A specifically to review its impact on competitive advantage.
The Golden Triangle of Value Creation - Paul LimPaul Lim
iForce Consulting developed a framework called the "Golden Triangle of Value Generation" which identifies three universal areas of corporate value generation: 1) Customer Management, 2) Cost Management, and 3) Cashflow Management. The paper argues that successful companies must link their market strategies to their cost base and cashflow in order to ensure long-term growth and competitive advantage. It provides examples of how different companies can manage strategies related to customers, costs, and cashflow depending on whether their business involves products or services and whether cashflow is stable or unstable. The framework is intended to help companies identify key performance indicators and initiatives to focus on the primary drivers of value.
Margin Performance Report - Exploring how companies can beat market expectationsCaroline Burns
In an environment characterized by uncertainty and global competition, margins are threatened like never before and cost optimization is running out of steam. How does margin relate to performance and how can margin be managed strategically?
Dr. Patrick Reinmoeller
Professor of Strategic Management
Cranfield School of Management
Cranfield University
Strategic cost management will be important for organizations over the next 5-10 years as revenues will be difficult to earn and margins challenged. Organizations that excel at managing costs will be best positioned to improve performance and gain competitive advantages. Some organizations focus on short-term cost cutting without sustainable strategies, while others use downturns to identify efficiencies. However, many costs cut during recessions return quickly. Effective cost management requires proactive, strategic approaches rather than reactive tactics.
Business transformation has become necessary for most large corporations due to several converging factors that are driving changes in customer demand and the business environment. A survey by KPMG found that 93% of large US multinational companies are currently engaged in transforming their business models. The top triggers for transformation included changes in customer focus and preferences, domestic competition, and shifts in technology. Most companies defined transformation as an ongoing and strategic process of aligning their business model with their strategy, rather than a one-time event. Successful transformations require the right strategic vision and the ability to anticipate and adapt to customer needs in a rapidly changing environment.
Reviews the major alternatives open to business executives during mergers, and the associated post-merger returns for companies adopting each of the three main alternatives.
The research suggests that the choice of corporate brand strategy is value relevant, and may play an important role in facilitating a smooth process of post-merger integration.
Porter's generic strategies framework outlines three types of competitive advantage - cost leadership, differentiation, and focus. Firms can pursue one of these advantages across a broad or narrow scope. Competitive advantage is created through value chain activities that are difficult for competitors to imitate. It is sustained through durable sources of advantage, multiple distinct sources, and continuous upgrading. Alternatively, the core competence framework emphasizes developing dynamic capabilities rather than positioning within an industry. Core competencies allow firms to enter new markets and are sustained through continuous investment. Both frameworks provide guidance for analyzing competitive advantage but must be tailored to a specific company's challenges.
1) A study of over 250 companies found that those with value-based pricing strategies and strong pricing execution capabilities achieved the highest operating profits compared to their industry peers.
2) Companies with non-value based strategies (e.g. cost or market share-driven) and strong execution earned the lowest profits.
3) Adopting a non-value based pricing strategy was correlated with 8% lower operating profits on average compared to industry peers across various industries. The findings provide support for pursuing a value-based pricing approach.
The main objective of this study was to establish the effect of Mergers and Acquisition (M&A) on a firm’s competitive advantage in the IT industry. A descriptive research approach was adopted with a target population comprising of all employees atHewlett Packard Company (HP) in Nairobi, Kenya.Horizontal mergers were found to be the most common types of mergers. These mergers weremainly driven by external economies of scale, market power, combined complimentary resources and customer service quality. The findings also established that the major elements of competitive advantage were volume of transactions and markets share. External economies of scale, market power and combined complimentary resources contributed positively to competitive advantage while surplus funds and idle resources did not drive competitive advantage. Based on the study,researchers recommended that decisions on M&A should be based on first understanding which facets of the business will be driven by the M&A in order to derive a competitive advantage. In addition, there is need for companies to do progress evaluation of the M&A specifically to review its impact on competitive advantage.
The Golden Triangle of Value Creation - Paul LimPaul Lim
iForce Consulting developed a framework called the "Golden Triangle of Value Generation" which identifies three universal areas of corporate value generation: 1) Customer Management, 2) Cost Management, and 3) Cashflow Management. The paper argues that successful companies must link their market strategies to their cost base and cashflow in order to ensure long-term growth and competitive advantage. It provides examples of how different companies can manage strategies related to customers, costs, and cashflow depending on whether their business involves products or services and whether cashflow is stable or unstable. The framework is intended to help companies identify key performance indicators and initiatives to focus on the primary drivers of value.
Margin Performance Report - Exploring how companies can beat market expectationsCaroline Burns
In an environment characterized by uncertainty and global competition, margins are threatened like never before and cost optimization is running out of steam. How does margin relate to performance and how can margin be managed strategically?
Dr. Patrick Reinmoeller
Professor of Strategic Management
Cranfield School of Management
Cranfield University
Strategic cost management will be important for organizations over the next 5-10 years as revenues will be difficult to earn and margins challenged. Organizations that excel at managing costs will be best positioned to improve performance and gain competitive advantages. Some organizations focus on short-term cost cutting without sustainable strategies, while others use downturns to identify efficiencies. However, many costs cut during recessions return quickly. Effective cost management requires proactive, strategic approaches rather than reactive tactics.
Business transformation has become necessary for most large corporations due to several converging factors that are driving changes in customer demand and the business environment. A survey by KPMG found that 93% of large US multinational companies are currently engaged in transforming their business models. The top triggers for transformation included changes in customer focus and preferences, domestic competition, and shifts in technology. Most companies defined transformation as an ongoing and strategic process of aligning their business model with their strategy, rather than a one-time event. Successful transformations require the right strategic vision and the ability to anticipate and adapt to customer needs in a rapidly changing environment.
Reviews the major alternatives open to business executives during mergers, and the associated post-merger returns for companies adopting each of the three main alternatives.
The research suggests that the choice of corporate brand strategy is value relevant, and may play an important role in facilitating a smooth process of post-merger integration.
Porter's generic strategies framework outlines three types of competitive advantage - cost leadership, differentiation, and focus. Firms can pursue one of these advantages across a broad or narrow scope. Competitive advantage is created through value chain activities that are difficult for competitors to imitate. It is sustained through durable sources of advantage, multiple distinct sources, and continuous upgrading. Alternatively, the core competence framework emphasizes developing dynamic capabilities rather than positioning within an industry. Core competencies allow firms to enter new markets and are sustained through continuous investment. Both frameworks provide guidance for analyzing competitive advantage but must be tailored to a specific company's challenges.
The sustainability and compliance agenda is constantly moving forward. Companies are finding new innovative ways of addressing sustainability challenges. New compliance issues emerge. Stakeholders voice a wide range of demands and requirements. In this volume of Sustainability & Compliance Trends, we highlight five trends that focus on creating value either through new innovative approaches or through understanding how
to navigate in an increasingly complex compliance agenda.
Enjoy!
Comparison of the results of the 2013 brand value league tables published by Interbrand, Brand Finance, Millward Brown and the European Brand Institute.
The presentation provides a summary of the methodologies used, and the valuations of the top 30 brands from each league table.
It compares the values attributed to the 28 brands that appear on all 4 lists, and the assessment of whether they are increasing or decreasing in value.
The document discusses various topics relating to cooperative strategy. It introduces strategic alliances as a type of cooperative strategy where firms combine resources to create value. There are four main types of strategic alliances: joint ventures, equity alliances, non-equity alliances, and strategic cooperative networks. A strategic network differs from a single alliance in that it involves multiple partnerships between firms. The document also discusses reasons for forming alliances based on market type and risks associated with cooperative strategies.
What price reputation? 2019 Global ReportNikola Tzokev
Corporate reputations account for 35.3% of the market capitalization of the world's 15 leading equity market indices, equivalent to $16.77 trillion of value for shareholders. Reputation value varies widely by country and industry sector. The most valuable elements of a company's reputation are perceptions of its global competitiveness, long-term investment value, capacity for innovation, product/service quality, and quality of management. Improvements in perceptions of long-term investment value and quality will deliver the largest increases in reputation value.
This document discusses conducting an external audit to analyze external factors affecting an organization. It covers 10 major external forces including economic, social, technological and competitive factors. The key steps in an external audit are to gather information on these forces from sources like the internet, evaluate the factors, identify important opportunities and threats, and communicate the findings. Tools like the EFE matrix and competitive profile matrix are used to analyze external industry factors and competitors. Monitoring external trends and developing competitive intelligence are important parts of the external audit process.
The document discusses five principal environmental factors that affect corporate strategy: competitors, creditors, customers, labor market, and suppliers. It explains how each factor influences business and strategy. Additionally, it discusses two key aspects - cost leadership and differentiation - that contribute to the overall environmental factors of a strategy. The document analyzes how external economic, political, social, and technological forces shape opportunities and threats for businesses.
THE EXTERNAL ASSESSMENT-Strategic Management chpter 3zikrullah bahrun
The document provides details of a group presentation on performing an external audit. It includes the group members' names and student IDs. It then discusses the purpose and process of an external audit, including gathering information on key external factors such as economic, social, cultural, political, and technological forces. It also explains tools for external analysis such as Porter's Five Forces model and how to develop an EFE matrix to evaluate external factors that present opportunities and threats.
This document discusses internal analysis and competitive advantage. It defines competitive advantage as having a higher profit rate than competitors in an industry. Competitive advantage can come from low costs or differentiation. The building blocks of competitive advantage are discussed as efficiency, quality, customer responsiveness, and innovation. These allow companies to create value for customers. Resources, capabilities, and core competencies are also examined in generating competitive advantage. Factors like barriers to imitation, industry dynamics, and a company's strategic commitments influence how long an advantage will last. Reasons for company failure include inertia, prior strategic missteps, and the Icarus paradox. Maintaining advantage requires continuous improvement, benchmarking, and overcoming inertia.
A detail analysis on the relationship between group’s diversificationAlexander Decker
This document analyzes the relationship between a group's diversification into the financial services industry and its impact on financial performance. Specifically, it uses 12 years of data from Nishat Group, which diversified by establishing MCB Bank, to test performance before and after diversification. The results show diversification into financial services proved profitable for the group, though it increased overall risk. Dependent variables like return on equity and assets had a strong relationship with independent variables measuring profitability, efficiency, and growth, rejecting the hypothesis that diversification had no positive impact. However, unrelated diversification increased total risk more than related diversification.
This study examines changes over 4 years in inter-firm cooperation and social networks in Chile's salmon farming cluster. It finds that while access to skilled labor and joint product development intensified, most dimensions of cooperation did not significantly change or decreased over time. Contrary to expectations, firms acted more individualistically in areas impacting competitive advantage. Overall cooperation trends less rather than more, despite literature highlighting benefits. Lessons include the need for trade associations to facilitate informal social interactions to potentially foster further cooperation.
The contemporary business environment has been highly complex and dynamic with organizations facing unprecedented amount of competition due to globalization and technological innovations. Merger and acquisition is one of the most popular organization strategy that organizations apply when faced with this kind of operating environment acquiring resources, skills, and competencies beyond their organization control. Many studies have been done to support implementation of M&As within organizations but they have indicated conflicting outcomes with some showing that it negatively affect organization performance and others indicating they positively affect performance. However, none of the studies done has concentrated on the effect within the privately traded organizations and very few but conflicting studies have been done on this relationship in Kenya. This study therefore sought to assess the effects of merger and acquisition on the performance of privately trading organizations in Kenya. The study was grounded upon the efficiency theory, the market power theory, and economic production theory. Reviewed literature revealed existing gaps related to the literature. The study adopted descriptive research design on short run data collected at UAP Insurance within the pre-merger (2012-2014) and post-merger (2015-2017) periods for various performance statistics, where descriptive analysis was applied to assess the differences and independent sample t-test. The study found that M&A affects the net profit margin, Return on Assets, Return on Equity, and earnings per share with all these performance indicators showing that the post-merger period had poorer performance than the pre-merger period. The study further observed that the M&A implementation caused serious disruptions in the operating environment and organization culture of the organization, which was bound to have negative implications on organization performance, employees and shareholders. The study recommends that organizations should avoid M&A strategy unless their current assets are able to fund their current liabilities beyond the short run period, as the declined performance was linked to the disruptions experienced from M&A implementations. The study also recommends that M&A intended changes should occur sequentially to cushion the organization internal operations from the disruptions due to the changes. Study suggests further studies assessing the long term impact of M&A on organization performance.
It is now generally accepted in the M&A domain that most mergers fail. And yet despite the dangers and horror sagas associated with M&A transactions, these types of business combinations are here for good because they are now the principal route to rapid business growth for many firms.The burning question therefore is: how can firms that aspire to grow through mergers and acquisitions increase their chances of success?The point of departure for M&A should be development of an M&A strategy that is anchored on the firm‟s overall business strategy. The firm should adopt a structured approach that covers the whole M&A process; set metrics for evaluating M&A targets; and actively engage in searching for potential targets. The criteria used to spot the right target could include business strategy, potential synergies, market availability, scale of activities, geographical location, technology, market growth potential and, business and culture fit. The type of merger should be another consideration, in which case bottom-trawlers, bolt-ons, line extension equivalents and consolidation mature, all with over 50% success rate, should be prioritized.The firm should then carry out comprehensive due diligence and objectively/accurately evaluate synergies. With respect to synergies, the acquirer should establish beforehand what synergies exist, where those synergies exist and how they will be extracted. Once a deal is closed, it is necessary to establish its success or failure, post-merger.M&A success should be considered from the shareholders of the acquirer‟s perspective, and an M&A should be judged successful if Net RealisableSynergies exceed Acquisition Purchase Premium. M&A critical success factors include merger segmentation considerations, the type of acquisition, timing, APP, effective integration, economic certainty and accurate target valuation.
The document discusses sources of value creation through mergers and acquisitions. It defines value and value creation, and outlines four models for creating value through M&A: Ansoff's product market matrix model, BCG matrix model, grand matrix model, and industry/product life cycle. The models identify strategies like market penetration, product development, backward integration, and diversification that can be applied at different stages to generate synergies, economies of scale, access to new markets and technology, and limit competition. A case study is presented of two companies merging to access new regions, diversify products, and realize cost savings, ultimately increasing shareholder wealth.
Thinking Beyond Compliance Medical Device WhitepaperJenna Dudevoir
This white paper is based on a research study with leading medical device companies - from startups to multibillion dollar enterprises - to explore how they are balancing new product development with compliance requirements.
This document provides a project synopsis on the valuation of mergers and acquisitions. It discusses the increasing use of M&A as a growth strategy in both developed and developing economies. The objectives are to value the acquirer firm pre-and post-merger using discounted cash flow models. Research methodology will use income approach and comparable methods since necessary information is available. Limitations include using secondary data sources and assumptions based on economic conditions at the time of the deal. Benefits of M&A valuation include determining appropriate purchase prices and swap ratios to maximize value creation for both parties.
The document discusses cooperative strategies, which involve firms working together to achieve shared objectives. It defines strategic alliances and describes three types: joint ventures, partnerships, and strategic alliances. The document outlines reasons for alliances and types of alliances, including complementary, diversification, synergistic, franchising, competition reduction, and uncertainty reduction alliances. It also discusses approaches to managing risks in cooperative strategies.
Executing a Total Solutions Strategy - And Other Complex Selling and Pricing ...CIT Group
This document discusses how companies are moving from traditional product-focused strategies to "Total Solutions" strategies in order to better meet customer needs and combat commoditization. It outlines the evolution from standalone products to more customized bundled offerings and total solutions. A total solutions strategy involves complex product structures incorporating multiple components from both in-house and third-party suppliers. It also requires sophisticated billing, invoicing, and accounts receivable/payable systems to handle the complex pricing structures and ensure accurate allocation of payments. While challenging to implement, a total solutions approach can provide a sustainable competitive advantage through highly customized offerings that are difficult for competitors to replicate.
This document discusses how the global chemical industry can expand its focus on end markets to drive future growth. It analyzes 16 end markets and finds that those with the highest consumer intimacy were most profitable. Rapid changes in end markets from trends like sustainability create opportunities for collaboration across industries. Taking a broader view of end markets and using a value network approach can help chemical companies better understand customer needs and identify new growth opportunities.
This document provides an overview of business models, strategies, and IT systems in digital organizations. It discusses four types of business models: market, operational, financial, and competitive. It also covers various competitive strategies such as cost leadership, differentiation, and developing competitive advantages. Additionally, it summarizes key concepts around IT systems including functional business systems, enterprise systems, and the role of IT in creating competitive advantages through activities like business process reengineering.
The sustainability and compliance agenda is constantly moving forward. Companies are finding new innovative ways of addressing sustainability challenges. New compliance issues emerge. Stakeholders voice a wide range of demands and requirements. In this volume of Sustainability & Compliance Trends, we highlight five trends that focus on creating value either through new innovative approaches or through understanding how
to navigate in an increasingly complex compliance agenda.
Enjoy!
Comparison of the results of the 2013 brand value league tables published by Interbrand, Brand Finance, Millward Brown and the European Brand Institute.
The presentation provides a summary of the methodologies used, and the valuations of the top 30 brands from each league table.
It compares the values attributed to the 28 brands that appear on all 4 lists, and the assessment of whether they are increasing or decreasing in value.
The document discusses various topics relating to cooperative strategy. It introduces strategic alliances as a type of cooperative strategy where firms combine resources to create value. There are four main types of strategic alliances: joint ventures, equity alliances, non-equity alliances, and strategic cooperative networks. A strategic network differs from a single alliance in that it involves multiple partnerships between firms. The document also discusses reasons for forming alliances based on market type and risks associated with cooperative strategies.
What price reputation? 2019 Global ReportNikola Tzokev
Corporate reputations account for 35.3% of the market capitalization of the world's 15 leading equity market indices, equivalent to $16.77 trillion of value for shareholders. Reputation value varies widely by country and industry sector. The most valuable elements of a company's reputation are perceptions of its global competitiveness, long-term investment value, capacity for innovation, product/service quality, and quality of management. Improvements in perceptions of long-term investment value and quality will deliver the largest increases in reputation value.
This document discusses conducting an external audit to analyze external factors affecting an organization. It covers 10 major external forces including economic, social, technological and competitive factors. The key steps in an external audit are to gather information on these forces from sources like the internet, evaluate the factors, identify important opportunities and threats, and communicate the findings. Tools like the EFE matrix and competitive profile matrix are used to analyze external industry factors and competitors. Monitoring external trends and developing competitive intelligence are important parts of the external audit process.
The document discusses five principal environmental factors that affect corporate strategy: competitors, creditors, customers, labor market, and suppliers. It explains how each factor influences business and strategy. Additionally, it discusses two key aspects - cost leadership and differentiation - that contribute to the overall environmental factors of a strategy. The document analyzes how external economic, political, social, and technological forces shape opportunities and threats for businesses.
THE EXTERNAL ASSESSMENT-Strategic Management chpter 3zikrullah bahrun
The document provides details of a group presentation on performing an external audit. It includes the group members' names and student IDs. It then discusses the purpose and process of an external audit, including gathering information on key external factors such as economic, social, cultural, political, and technological forces. It also explains tools for external analysis such as Porter's Five Forces model and how to develop an EFE matrix to evaluate external factors that present opportunities and threats.
This document discusses internal analysis and competitive advantage. It defines competitive advantage as having a higher profit rate than competitors in an industry. Competitive advantage can come from low costs or differentiation. The building blocks of competitive advantage are discussed as efficiency, quality, customer responsiveness, and innovation. These allow companies to create value for customers. Resources, capabilities, and core competencies are also examined in generating competitive advantage. Factors like barriers to imitation, industry dynamics, and a company's strategic commitments influence how long an advantage will last. Reasons for company failure include inertia, prior strategic missteps, and the Icarus paradox. Maintaining advantage requires continuous improvement, benchmarking, and overcoming inertia.
A detail analysis on the relationship between group’s diversificationAlexander Decker
This document analyzes the relationship between a group's diversification into the financial services industry and its impact on financial performance. Specifically, it uses 12 years of data from Nishat Group, which diversified by establishing MCB Bank, to test performance before and after diversification. The results show diversification into financial services proved profitable for the group, though it increased overall risk. Dependent variables like return on equity and assets had a strong relationship with independent variables measuring profitability, efficiency, and growth, rejecting the hypothesis that diversification had no positive impact. However, unrelated diversification increased total risk more than related diversification.
This study examines changes over 4 years in inter-firm cooperation and social networks in Chile's salmon farming cluster. It finds that while access to skilled labor and joint product development intensified, most dimensions of cooperation did not significantly change or decreased over time. Contrary to expectations, firms acted more individualistically in areas impacting competitive advantage. Overall cooperation trends less rather than more, despite literature highlighting benefits. Lessons include the need for trade associations to facilitate informal social interactions to potentially foster further cooperation.
The contemporary business environment has been highly complex and dynamic with organizations facing unprecedented amount of competition due to globalization and technological innovations. Merger and acquisition is one of the most popular organization strategy that organizations apply when faced with this kind of operating environment acquiring resources, skills, and competencies beyond their organization control. Many studies have been done to support implementation of M&As within organizations but they have indicated conflicting outcomes with some showing that it negatively affect organization performance and others indicating they positively affect performance. However, none of the studies done has concentrated on the effect within the privately traded organizations and very few but conflicting studies have been done on this relationship in Kenya. This study therefore sought to assess the effects of merger and acquisition on the performance of privately trading organizations in Kenya. The study was grounded upon the efficiency theory, the market power theory, and economic production theory. Reviewed literature revealed existing gaps related to the literature. The study adopted descriptive research design on short run data collected at UAP Insurance within the pre-merger (2012-2014) and post-merger (2015-2017) periods for various performance statistics, where descriptive analysis was applied to assess the differences and independent sample t-test. The study found that M&A affects the net profit margin, Return on Assets, Return on Equity, and earnings per share with all these performance indicators showing that the post-merger period had poorer performance than the pre-merger period. The study further observed that the M&A implementation caused serious disruptions in the operating environment and organization culture of the organization, which was bound to have negative implications on organization performance, employees and shareholders. The study recommends that organizations should avoid M&A strategy unless their current assets are able to fund their current liabilities beyond the short run period, as the declined performance was linked to the disruptions experienced from M&A implementations. The study also recommends that M&A intended changes should occur sequentially to cushion the organization internal operations from the disruptions due to the changes. Study suggests further studies assessing the long term impact of M&A on organization performance.
It is now generally accepted in the M&A domain that most mergers fail. And yet despite the dangers and horror sagas associated with M&A transactions, these types of business combinations are here for good because they are now the principal route to rapid business growth for many firms.The burning question therefore is: how can firms that aspire to grow through mergers and acquisitions increase their chances of success?The point of departure for M&A should be development of an M&A strategy that is anchored on the firm‟s overall business strategy. The firm should adopt a structured approach that covers the whole M&A process; set metrics for evaluating M&A targets; and actively engage in searching for potential targets. The criteria used to spot the right target could include business strategy, potential synergies, market availability, scale of activities, geographical location, technology, market growth potential and, business and culture fit. The type of merger should be another consideration, in which case bottom-trawlers, bolt-ons, line extension equivalents and consolidation mature, all with over 50% success rate, should be prioritized.The firm should then carry out comprehensive due diligence and objectively/accurately evaluate synergies. With respect to synergies, the acquirer should establish beforehand what synergies exist, where those synergies exist and how they will be extracted. Once a deal is closed, it is necessary to establish its success or failure, post-merger.M&A success should be considered from the shareholders of the acquirer‟s perspective, and an M&A should be judged successful if Net RealisableSynergies exceed Acquisition Purchase Premium. M&A critical success factors include merger segmentation considerations, the type of acquisition, timing, APP, effective integration, economic certainty and accurate target valuation.
The document discusses sources of value creation through mergers and acquisitions. It defines value and value creation, and outlines four models for creating value through M&A: Ansoff's product market matrix model, BCG matrix model, grand matrix model, and industry/product life cycle. The models identify strategies like market penetration, product development, backward integration, and diversification that can be applied at different stages to generate synergies, economies of scale, access to new markets and technology, and limit competition. A case study is presented of two companies merging to access new regions, diversify products, and realize cost savings, ultimately increasing shareholder wealth.
Thinking Beyond Compliance Medical Device WhitepaperJenna Dudevoir
This white paper is based on a research study with leading medical device companies - from startups to multibillion dollar enterprises - to explore how they are balancing new product development with compliance requirements.
This document provides a project synopsis on the valuation of mergers and acquisitions. It discusses the increasing use of M&A as a growth strategy in both developed and developing economies. The objectives are to value the acquirer firm pre-and post-merger using discounted cash flow models. Research methodology will use income approach and comparable methods since necessary information is available. Limitations include using secondary data sources and assumptions based on economic conditions at the time of the deal. Benefits of M&A valuation include determining appropriate purchase prices and swap ratios to maximize value creation for both parties.
The document discusses cooperative strategies, which involve firms working together to achieve shared objectives. It defines strategic alliances and describes three types: joint ventures, partnerships, and strategic alliances. The document outlines reasons for alliances and types of alliances, including complementary, diversification, synergistic, franchising, competition reduction, and uncertainty reduction alliances. It also discusses approaches to managing risks in cooperative strategies.
Executing a Total Solutions Strategy - And Other Complex Selling and Pricing ...CIT Group
This document discusses how companies are moving from traditional product-focused strategies to "Total Solutions" strategies in order to better meet customer needs and combat commoditization. It outlines the evolution from standalone products to more customized bundled offerings and total solutions. A total solutions strategy involves complex product structures incorporating multiple components from both in-house and third-party suppliers. It also requires sophisticated billing, invoicing, and accounts receivable/payable systems to handle the complex pricing structures and ensure accurate allocation of payments. While challenging to implement, a total solutions approach can provide a sustainable competitive advantage through highly customized offerings that are difficult for competitors to replicate.
This document discusses how the global chemical industry can expand its focus on end markets to drive future growth. It analyzes 16 end markets and finds that those with the highest consumer intimacy were most profitable. Rapid changes in end markets from trends like sustainability create opportunities for collaboration across industries. Taking a broader view of end markets and using a value network approach can help chemical companies better understand customer needs and identify new growth opportunities.
This document provides an overview of business models, strategies, and IT systems in digital organizations. It discusses four types of business models: market, operational, financial, and competitive. It also covers various competitive strategies such as cost leadership, differentiation, and developing competitive advantages. Additionally, it summarizes key concepts around IT systems including functional business systems, enterprise systems, and the role of IT in creating competitive advantages through activities like business process reengineering.
March 2015 Infinity Gaming Magazine - Is Commoditization a ThreatJohn Edmunds
Commoditization occurs when products become indistinguishable based on features and consumers purchase based solely on price. This document discusses strategies for companies facing commoditization threats. It recommends that companies pursue multiple response strategies, including innovation, value-added differentiation, and proactively managing commoditization as part of product roadmaps. Commoditization presents opportunities to use commoditized products as inputs for innovation and new platforms to move up the value chain. With careful strategic responses, companies can compete in commoditized markets and see commoditization as a growth opportunity rather than a threat.
An analysis of the external environment is undertaken in order to discover the opportunities and threats that are evolving and that need to be addressed by the organization. A study by Diffenbach (1983) identified a number of positive consequences that stem from carrying out an organized environmental analysis. An analysis of the external environment can be broken down into three key steps, each becoming more specific to the organization. The first step is an analysis of the macro-environmental influences that the organization faces. This is followed by an examination of the competitive (micro) environment the organization operates within. Finally a specific competitive analysis is undertaken.
DuroAir is updating its sales strategy to target higher value customers by positioning itself as offering "flexible end to end air quality solutions that maximizes productivity". The sales strategy outlines communicating the value proposition to potential, current and referral customers. It involves segmenting the market and focusing on segments with high barriers to entry like wind energy and engineering consulting. Tactics include building intelligence on these industries, attending conferences, and engaging contacts on LinkedIn to set up meetings and grow account lists. The goal is to improve DuroAir's sales process by having distinct marketing, sales, and customer support teams that work together to move leads through the pipeline.
The document discusses product proliferation, which is when organizations market many variations of the same products through different colors, sizes, and uses. While this diversity can help firms capture market share, it can also waste economic resources and confuse consumers. The document also discusses cost leadership strategies, product bundling, and economies of scope. Product bundling involves offering multiple products together as one combined product, while economies of scope are cost advantages from providing a variety of products rather than specializing in one. Finally, the document outlines the value chain concept and primary and support activities in value chain analysis.
The document discusses product proliferation and strategic leadership. It provides examples of companies that offer many variations of products through different sizes, colors, and uses. This allows companies to target different market segments but can also confuse consumers. The document then discusses 11 characteristics of strategic leaders, including having a clear long-term vision, articulating their business model, commitment, being well-informed, willingness to delegate, astute use of power, emotional intelligence, balancing present and future needs, influencing rather than dominating, managing in both good and bad times, and anticipating and managing chaos.
Solvay is a Belgian chemical company that produces products serving diversified markets worldwide. The company's vision is to lead the global chemical industry by developing sustainable chemistry solutions. Solvay uses social media like Twitter, Facebook, LinkedIn and YouTube to communicate with customers and improve its brand reputation. The company is also implementing new technologies like the internet of things and augmented reality in its manufacturing processes. While Solvay was previously active in e-marketplaces, it is now reevaluating its e-commerce strategy and tools.
This document discusses strategic management accounting and cost driver analysis. It defines strategic management accounting as focusing on both financial and non-financial external factors as well as monitoring company strategies and those of competitors. It emphasizes identifying key cost drivers for each business activity in order to understand cost behavior and develop strategies to lower relative costs through controlling drivers or reconfiguring activities. Common cost drivers are identified as unit-level, batch-level, product/process-level, and organizational/facility-level factors.
The document discusses key marketing concepts from Chapter 2 of Marketing Management by Philip Kotler including:
1. Tactical marketing plans specify marketing tactics at an operational level while strategic plans define long-term objectives and strategies.
2. Corporate culture refers to the shared experiences, beliefs and norms of an organization.
3. Customer experience considers all customer interactions with a company.
4. Platform innovation uses common components to create derivative products and services.
5. Environmental threats are external factors that could negatively impact demand like new competitors or technology changes.
The document discusses various tools for developing adaptive scenarios, including PESTEL analysis and value chain analysis. PESTEL analysis examines political, economic, social, technological, environmental, and legal factors that may impact a business. Value chain analysis breaks down a business into primary and support activities to identify areas for competitive advantage through cost leadership or differentiation. The document also discusses Porter's generic strategies of cost leadership, differentiation, and focus, which involve targeting the entire market with low prices, unique attributes, or specific segments respectively.
The document discusses key aspects of business-to-business marketing and customer service. It introduces the distinctive characteristics of business markets and how organizations make buying decisions. It emphasizes that building close relationships with business customers requires attention to details, keeping promises, and responding swiftly to new requirements. The purpose is to identify the requirements for successful marketing strategy. It also provides examples of leading companies that demonstrate best practices, like Cisco, Dell, FedEx, and others.
The document discusses the value chain concept. A value chain is a string of companies working together to satisfy market demand for a product. It analyzes the primary and support activities within a company that add value to products. The primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities include firm infrastructure, human resource management, technology development, and procurement. Benefits of value chain analysis include streamlining supply chains and improving business performance. Limitations are that it assesses value theoretically rather than practically.
Value chain innovation - Breaking the chainsJurjen Helmus
Innovation in the value chain enables companies to change their business radicall. Particularly businesses that are currently in not-beneficial value systems could be able to innovate out of their position. Breaking the Chains is a presentation about innovating in the value system.
The presentation consists of three parts
1 Value chain thinking
2 Value systems with issues
3 Breaking the chains of value eco systems
This bulletin from Lansdowne Consulting provides insights on strategy-driven spend optimization and trends in the private equity market. It contains two articles. The first discusses how strategy-driven spend optimization approaches can leverage greater savings than traditional category sourcing by addressing a broader set of technical and process levers. It outlines critical success factors and Lansdowne's six-module approach. The second article notes that increasing liquidity and competition in the private equity market are requiring more rigorous commercial due diligence to support riskier deals. It describes Lansdowne's tailored approach that identifies both downside risks and upside opportunities through in-depth analysis and industry expertise. Recent news highlights some of Lansdowne's due diligence
This document reviews best practice in pricing processes to provide a reference against which current practices and proposals can be tested. Our objectives have been: to research the attributes of world-class pricing through publications and academic sources; to investigate how these attributes are applied in practice to products and services; to assess pricing processes in successful businesses.
In recent years a new attitude toward pricing has emerged. Deregulation and international free trade agreements have increased competition. Price promotion has eroded the power of brand loyalty. Pricing has assumed greater importance to most businesses.
As markets increasingly assume a global dimension, customers can more easily compare prices between one region or country and another, using the internet or a fax machine. They can often locate the same product, or an
acceptable substitute, from another source. Customers are more demanding and fickle, and their expectations increasingly difficult to fulfil.
Price inflation in western economies is now at its lowest for decades. Price increases are no longer accepted without protest from customers, if at all.
The Chairman of General Electric has predicted the onset of the ‘Value Decade’. Global price competition will strengthen because of: reduced product differentiation; global over-capacity for production; significantly diminished trade barriers; efficient information and distribution systems; providing customers with easy access to the prices of suppliers; a growing lack of customers’ loyalty to individual suppliers. Choice will be increasingly driven by price.
This is a challenging scenario that reinforces the need for an integrated strategy and concerted managerial action on pricing.
Pricing processes have lagged behind developments in the market place. They are often characterised by internal conflict between accountants wishing to maximise profit per unit and marketing specialists who seek to maximise
throughput. They are also affected by the potential for strained relations with good customers.
Some companies have downsized their operations to a level where diminishing returns cause them to question the benefits of continuing to focus upon reducing costs. As they switch their attention from cost cutting to adding
value, pricing naturally assumes increased weight in the marketing mix.
We have found many companies reluctant to discuss their own processes.
Some may wish to avoid betraying a lack of sophistication.
Need and Advantages of White Label AgreementITIO Innovex
In conclusion, the need for White Label Agreements is evident in the ever-evolving business landscape, especially if you want to start your own payment gateway business. Visit us at: https://itio.in/
Business level strategies—Porter’s framework of competitive strategies, Conditions, risks and benefits of Cost leadership, Differentiation and Focus strategies,
Strategic Analysis and choice—Corporate level analysis (BCG, GE Ninecell, Hofer’s product market evolution and Shell Directional policy Matrix)
Industry level analysis; Porter’s five forces model, Qualitative factors in strategic choice.
1. Pricing in the Chemical Industry
Boost your pricing power
Acknowledgements
This piece of Monitor Deloitte Thought Leadership was written in an European effort to condense knowledge from many different pricing
projects to analyze and understand the future development of pricing in chemicals. Marc Abels and Kristof Boodts as authors would like
to thank Shay Eliaz, Wolfgang Falter, Jim Guill, Thierry Laugerette, Alex Maaghul, Stefan Van Thienen and Yann Cohen for their valuable
contributions.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guaran-
tee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are
legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services
to clients. Please see www.deloitte.com/de/UeberUns for a more detailed description of DTTL and its member
firms.
Deloitte provides audit, risk advisory, tax, financial advisory and consulting services to public and private clients
spanning multiple industries; legal advisory services in Germany are provided by Deloitte Legal. With a globally
connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and
high-quality service to clients, delivering the insights they need to address their most complex business chal-
lenges. Deloitte’s more than 244,000 professionals are committed to making an impact that matters.
This communication contains general information only not suitable for addressing the particular circumstan-
ces of any individual case and is not intended to be used as a basis for commercial decisions or decisions of
any other kind. None of Deloitte GmbH Wirtschaftsprüfungsgesellschaft or Deloitte Touche Tohmatsu Limited,
its member firms, or their related entities (collectively, the “Deloitte network”) is, by means of this communica-
tion, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any
loss whatsoever sustained by any person who relies on this communication.
Issued 11/2016
Your Contacts
Dr. Wolfgang Falter
Global Lead Chemicals
Tel: +49 211 8772 4912
Mobile: +49 151 5800 1111
wfalter@deloitte.de
Thierry Laugerette
EMEA Chemical Commercial
Excellence Lead
Tel: +49 89 2903 68 367
Mobile: +49 151 580 011 85
tlaugerette@deloitte.de
Stefan Van Thienen
Belgium Chemical Lead
Tel: +32 2 749 57 31
Mobile: + 32 476 22 01 03
svanthienen@deloitte.com
Dr. Willem Vaessen
Netherland Chemical Lead
Tel: +31 88 288 3496
Mobile: +31 6 1312 1120
wilvaessen@deloitte.nl
2. The Power of Pricing 2
Escaping the Commodity Trap: Value-added services 4
Profiting from volatility: Predictive pricing 6
Price the value for your customer 9
Price execution makes all the difference 11
Summary 12
Content
3. 2
Pricing in the Chemical Industry | Boost your pricing power
The evolution of profitability and gross
margin performance of the roughly
250 existing chemical and materials
companies globally over the past one
and a half decade (Fig. 1) reveals a rather
negative perspective and investment
potential. The chemical sector responded
to this evolution by cutting SG&A and
R&D expenses (Fig. 2). Regardless of the
decoupling of oil and gas prices in the US
(marked by the crisis of the sub primes
in 2008), the chemical sector was already
losing a part of its attractiveness, even
before regions such as Europe and Asia
were confronted with the disadvantage at
the level of feedstock’s and energy cost.1
1
Data Monitor, The Fine Chemicals Industry by
Peter Pollak, SRI Consulting, Capital IQ and
Deloitte Primary Research of 231 Global Chemical
Companies with public data.
As a consequence, many chemical
companies are looking for opportunities
to differentiate and grow organically. To
support this, Deloitte has developed
an approach called Advanced Materials
Systems (AMS)2
which reignites growth
and addresses unmet market needs.
Global megatrends and their industry
responses, have opened up significant
opportunities to capture value in new
markets through functional solutions,
leveraging innovative combinations of
materials, processing technologies, new
business models, and partnerships.
DTTL’s Global Manufacturing Industry
Group’s research has shown that solution
providers create more economic value
overall than material suppliers. AMS helps
companies capture the value they create
in the market. Introducing smart ways of
pricing is indispensable to bring these
innovative solutions successful to the
markets.
2
Driving innovation: "Advanced Material Systems”
(Deloitte University Press).
The Power of Pricing
Source: Data Monitor, The Fine Chemicals Industry by
Peter Pollak, SRI Consulting, Capital IQ and Deloitte
Primary Research of 231 Global Chemical Companies
with public data
Fig. 1 – Eroding Gross Margins 1998–2012
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1998 2000 2002 2004 2006 2008 2010 2012
Commodity Integrated Specialty
Source: Driving innovation: Advanced Material Systems
(Deloitte University Press)
Fig. 2 – R&D Expense % Revenue
1998–2012
0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1998 2000 2002 2004 2006 2008 2010 2012
Commodity Integrated Specialty
4. Pricing in the Chemical Industry | Boost your pricing power
3
The typical chemical company comprises
a portfolio of businesses, with activities
across the value chain. Disaggregating
each of the individual business units into
its product line/customer combinations,
enables a segmented approach to pricing
and profitability management. Different
pricing strategies can be applied across
the value chain to maximise value, from
base chemicals to the finished products
(Fig. 3). The table emphasises that the
further downstream your business
strategy focuses, the stronger the
potential for solid returns to be captured
by a renewed pricing strategy.
“60% of the chemical
companies indicated
that a dedicated price
optimisation strategy is
a ‘must have’ business
initiative. And today
companies are still
suffering to determine the
right pricing method for
their solutions.”
Pricing Maturity Survey, EPP 2013
Products Pricing strategy
Down Stream End Markets Consumer product Retail pricing
Producer C Finished Material Value-based pricing
Producer B
Intermediates-
Specialty
Value-based pricing
Predictive pricing
Up Stream Producer A Base Value-added services
Fig. 3 – Differentiating Pricing Power
5. Pricing in the Chemical Industry | Boost your pricing power
4
Base chemicals, such as petrochemicals
and basic inorganics, are characterised
by high volumes, limited differentiation
and a price-driven customer purchasing
process. The most obvious and winning
strategy for competing in this market
would be Cost Leadership, but this
is only sustainable for a few players.
These companies, driven by operational
excellence and exploiting their scale of
production, can offer competitive pricing
to customers willing to buy in bulk. In
addition, companies can focus on service
compression to further contain (overhead)
costs, such as sales and service. Already in
2002, Dow Corning launched Xiameter3
, a
new business model comprising an online-
managed, low-cost, no-frills sales channel
for its commodity silicones that does not
require technical service and support.4
3
Xiameter, Industry Value Chain Strategies, August
2009, AMR research
4
Roland Berger – April 2014
Escaping the Commodity Trap:
Value-added services
* Roland Berger – April 2014
Fig. 4 – The Commodity Trap*
Competitors
New market players (also from
developing countries) lead to more
substitutes and excess capacity
Technology
Technological progress leads
to standardized, easy-to-manufacture
products or components
Client
Price-based
buying decision
Commodity
Trap
Results in significant
price and margin pressure
A slide into the commodity trap can
start at any of the 3 elements.
These elements reinforce each other.
6. Pricing in the Chemical Industry | Boost your pricing power
5
An alternative strategy for escaping the
Commodity Trap (Fig. 4) is to introduce
value-added services and turn the base
chemical into a more differentiated
product. Identifying and adding features
to these products allows a company to
charge its customers premium prices in a
traditionally cost-oriented segment.
A typical value-added service is to venture
further downstream in the value chain.
For example, a large chemical company
took over the quality management of its
customer. The customer immediately
gained from a reduced lead time and
increased quality. The chemical company,
in turn, could charge for these benefits,
increasing its margins and profitability.
In another example, the commodity firm
was focusing on just-in-time delivery.
Customers no longer had to store the
products in their own warehouses but
could order the quantities just before they
were needed and reduce inventory costs.
These reductions are worth a premium to
both the customer and the producer. By
focusing on a superior and differentiated
product, companies can omit one or more
steps of the value chain and sell their
products to the end-market without any
intermediary.
A successful escape from the Commodity
Trap comprises three steps: identify
the trap you face; escape the trap by
differentiating the product; and develop
distinctive and hard-to-copy value
propositions to turn the trap to your own
advantage.
1. Identify the trap – The approach starts
with understanding what kind of com-
modity trap is developing in the industry
and then identifying and resolving the
dilemmas and challenges that are posed
by the trap. In this case, chemical com-
panies are unable to charge more for
what they are offering.
2. Escape the trap – Develop an attractive
value proposition for existing custo-
mers or more downstream trading
partners, based on differentiated value
creation and willingness-to-pay insights
(eg. improved processing, alternative
business model) (Fig. 5). Add services
to the product that allows for premium
pricing. These benefits can be iden-
tified by close collaboration with the
customer.
3. Turn the trap to your own advantage –
By adding new features, products
escape from commoditisation and
allows to charge a premium and boost
your margins without losing market
share. The amount to charge for these
value-added services can be deter-
mined by value-based pricing, which is
discussed further on.
Fig. 5 – How to escape a situation with eroding margins?
Escaping the commodity trap
Price
Cost-to-Serve
Value
axis
Innovations
successfully
brought to the
market
High end
and solution
providing
channel
Standardized
offering
Severe
margin
pressure
(eroding
margins)
Service compression
strategy
Focusstrategy
7. Pricing in the Chemical Industry | Boost your pricing power
6
Profiting from volatility:
Predictive pricing
Margins for base chemicals
are relatively low compared
to specialty chemicals, and
approximately 60% (base)
and 35% (specialty) of the
cost structure is linked to raw
materials and energy costs
(Fig. 6). In this segment, industry
cycles trigger fluctuating product
margins, and margin pressure for
the assets on the less favourable
side of the cost curve (Fig. 7).
This volatility can be hedged by
introducing predictive pricing
schemes.
Fig. 6 – Margin for base and specialty chemicals
Typical Cost/Margin Structure in the Business of Chemistry
by Segment
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Commodity
Chemicals
Specialty
Chemicals
Profits
Taxes
Other SG&A
Advertising
EH&S
R&D
Maintenance
Depreciation
Labor
Other Raw Materials
Feedstock and Energy
Note: The proportion of various costs in the chart are approximations
Fig. 7 – Industry Cost Curves
Costperton
Cumulative capacity (tons)
Market demand Overcapacity
Market price band
Supplier
Marginalrequiredcapacity
21 3 4 5 6 7
8. Pricing in the Chemical Industry | Boost your pricing power
7
A successful implementation of predictive
pricing requires three steps: determine
price drivers, proactively manage capacity
and develop an integrated model.
1. Determine price drivers – First, the key
drivers of the market price need to be
determined. Examples are competi-
tors’ decisions, feedstock availability,
energy cost, consumer market demand,
emerging substitutes and environmen-
tal restrictions. Subsequently the main
information sources for forecasting
analysis need to be identified.
2. Manage capacity – External as well as
internal dynamics create the need for
constant monitoring and adjustment of
capacity levels and policies. Today’s vola-
tility in the key drivers means capacity
management becomes indispensable
within every element of the supply
chain. Planning tools allow managers to
plan rather than react and to respond
more rapidly. These tools create trans-
parency in the cost structure, which
leads to a greater understanding of the
price level and the potential impact on
profitability.
3. Develop an integrated model – These
insights have to be gathered into one
integrated model that allows more
transparency of the market price. By
incorporating all the relevant market
information, price setting shifts from
a price set by the market to a manage-
able price within the constraints of the
market. Based on analytics, companies
can set optimal pricing strategies and
benefit from deep insights into spreads.
A company identifying that a plant will
be down earlier than its competitors
has a significant advantage, as it usually
takes two to three quarters to effecti-
vely raise prices. A company that does
not have insights into the relationship
between costs and pricing is probably
out of phase, losing money by not
charging enough or losing market share
by overcharging.
With an integrated model based on the
right drivers and accurate forecasts,
commercial leadership can use predictive
pricing as a key differentiator instead of a
threat that should be hedged.
9. Pricing in the Chemical Industry | Boost your pricing power
8
Case Study – Predictive pricing
Deloitte Consulting recently worked with a chemical
company to evaluate and size the risks of the second
order pricing effect of its deals. Second Order Pricing
Effects (SOPE) are the long-term impacts on market price
levels influenced by competitors, internal channels, other
resellers, and customers. Without understanding the
factors that influence SOPE, short-term pricing decisions
may erode overall business profitability in the long run.
For this project three type of reactions were considered:
the competitive reaction, the buyers’ reaction and network
effects. The different factors for each of these three
types were identified and assessed in depth through
several simulations to evaluate the impact on volume and
profitability. Based on these insights, a decision support
tool was put in place to make optimal and sustainable
pricing decisions and even to reject certain deals if they
would have a negative impact overall.
Key takeaways
1. Work cross-BU – When analysing and implementing
this pricing approach, it is key to execute and align across
BU’s that sell the same or similar products, as a conflict of
interest might exist when assessing both short and long
term impact of accepting/rejecting specific deals.
2. Keep it simple – By adding different parameters, the
complexity of the model will rapidly increase. It is vital to
define parameters that are easy and understandable for
the whole organisation. In addition, the implementation
of a professional analytical tool will cover the
interdependencies and introduce flexibility in the model.
Determine Price Drivers
Market price drivers
• Cost
• Market demand
• Regulations
...
Main information sources
Manage your capacity
Run regressions
Compare pricing projections
versus current market levels
and business intuition
Develop integrated model
Run Monte Carlo analysis
Set pricing strategies and
evaluate margin impact
Fig. 8 – Implementation of predictive pricing
Adjust and smooth data
10. Pricing in the Chemical Industry | Boost your pricing power
9
Compared to base chemicals, specialty
chemicals are low-volume and high value-
added products. Additionally, the demand
side is quite diverse; customers differ in
what they want, when they want it, why
they want it, and how they want it. This is
where value-based pricing, an innovative
way of pricing in order to capture more of
the value, becomes relevant.
Although value-based pricing is the most
powerful lever to profitability, many
companies have difficulties in assessing the
maximum value of a product as perceived
by their customers. Achieving this price
optimisation can be difficult because
it requires time, effort and relatively
sophisticated analytics.
Value-based pricing starts with a deep
understanding of customer value drivers
and value attributes. Next, these attributes
should be quantified and the added
value offered should be compared with
the next best alternative. Focus on those
value drivers that allow for differentiation
from competition and communicate this
incremental value to the customer.
Deep insights into both customers’
needs and the value proposition of the
competition in the market are key to
price setting . By using price/value maps
(Fig. 9) the value components of products
will become more comprehensible,
which allows for segmentation of the
customer base, necessary to fully exploit
differentiation potential. Once the
segmentation is in place, specific pricing
goals per segment can be defined (ideally
also per product line, customer, etc. where
possible).
Price the value
for your customer
Fig. 9 – Effective value mapping
Market Shares Shift Based on Value Position
Value
Advantage
Value
Disadvantage
C
D
E
A
B
High-End
Market Segment
Share Gainer
Share
Loser
Low-End
Market Segment
Market
Share
Market
Share
Company Value
Position
Market Share
Trend
Perceived Price
CustomerPerceivedBenefit
11. Pricing in the Chemical Industry | Boost your pricing power
10
The customer-perceived value of a
product can reflect need and use.
1. Need – To price by need, the producer
must discover what a customer consi-
ders important (such as pre and post-
sale support or a product’s specific
performance); create an offering that
addresses the need; and then price the
product according to the customer’s
value assessment metrics. The greater
the need, the more the customer is
generally willing to pay.
2. Use – To price by use, the producer
begins with an understanding of the
customer’s desired preferences. The
more urgent or complex the purchase,
the more the customer should be willing
to pay. For example, when a product
is used in a hazardous environment,
quality expectations are usually higher
and a higher price can be charged than
when it is used in a regular environment.
In practice, this simple concept is often
complicated by issues of price trans-
parency and market channels that may
make such price discrimination difficult.
In those cases, a good solution might
“tier” product performance to minimize
spillover effects; classic examples
include certifications or quality/purity
levels.
Understanding how to capture what
customers perceive as valuable
provides great opportunities for better
performance. Without value-based
pricing, the risk is high that a chemical
company will over-serve or underserve
a customer. The penalty is the same for
either mistake: a loss of margin.
12. Pricing in the Chemical Industry | Boost your pricing power
11
It is not sufficient to introduce the right
pricing methods. The biggest challenge
lies in the implementation and execution
of the proposed strategy. A successful
pricing implementation relies on four
rules.
1. Engage your management – The com-
mitment of top management to invest
in powerful pricing programmes is
crucial to the successful execution of
the pricing strategy. That is only possible
when management is convinced that
these investments will result in a suffi-
ciently large improvement.
2. Provide the right tools and incentives
for the sales force – Automated pricing
tools help the sales force identify and
put a price on customer perceived value.
Additionally, the incentives for marke-
ting and sales need to be aligned with
the pricing objectives. Finally, train and
coach your sales force in these guide-
lines and tools.
3. Never walk alone – The lack of full
integration in commercial processes
and alignment with marketing, sales and
finance presents a serious challenge.
To leverage the full potential of pricing
power, companies need to make signi-
ficant changes to the way in which their
organisations operate. Besides changing
the way that pricing decisions are made,
it also requires a review of how your
target customers are selected, how your
value is communicated etc.
4. Monitor continuously – The task of
optimising prices is a continuous effort.
All kinds of pressures – from shifts in an
individual customer’s strategy to trends
in the global or environmental market-
place – require the continual refinement
of pricing strategy.
Price execution makes all the difference
13. Pricing in the Chemical Industry | Boost your pricing power
12
Summary
In times of volatile raw material costs, chemical companies need to better
understand their customers’ buying behaviour and how their business units
price products. Escaping the commodity trap or introducing value-based
pricing requires a closer connection with your customer and more insights
into the end markets in which your customer is operating, allowing you to
capture the maximum value through price setting and execution.
Insights into the different steps and players in the value chain of your
products reveals which pricing strategies can be useful. Moreover, these
insights are instrumental to integrate forward in the value chain, and embed
your product in offerings that are relevant further downstream in the value
chain and capture even more value.
In order to be successful in your pricing journey, the most effective projects
are those that focus on a redefinition of the pricing and sales process
in a company-wide manner rather than merely for a product portfolio
sub-segment in isolation. These projects include strategy/vision to improve
your go-to-market, analytics to build a fact base, process redesign and
supporting tools. But above all, changing behaviour and mind-set is crucial
for a successful implementation of this exciting pricing journey.
14. Pricing in the Chemical Industry
Boost your pricing power
Acknowledgements
This piece of Monitor Deloitte Thought Leadership was written in an European effort to condense knowledge from many different pricing
projects to analyze and understand the future development of pricing in chemicals. Marc Abels and Kristof Boodts as authors would like
to thank Shay Eliaz, Wolfgang Falter, Jim Guill, Thierry Laugerette, Alex Maaghul, Stefan Van Thienen and Yann Cohen for their valuable
contributions.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guaran-
tee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are
legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services
to clients. Please see www.deloitte.com/de/UeberUns for a more detailed description of DTTL and its member
firms.
Deloitte provides audit, risk advisory, tax, financial advisory and consulting services to public and private clients
spanning multiple industries; legal advisory services in Germany are provided by Deloitte Legal. With a globally
connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and
high-quality service to clients, delivering the insights they need to address their most complex business chal-
lenges. Deloitte’s more than 244,000 professionals are committed to making an impact that matters.
This communication contains general information only not suitable for addressing the particular circumstan-
ces of any individual case and is not intended to be used as a basis for commercial decisions or decisions of
any other kind. None of Deloitte GmbH Wirtschaftsprüfungsgesellschaft or Deloitte Touche Tohmatsu Limited,
its member firms, or their related entities (collectively, the “Deloitte network”) is, by means of this communica-
tion, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any
loss whatsoever sustained by any person who relies on this communication.
Issued 11/2016
Your Contacts
Dr. Wolfgang Falter
Global Lead Chemicals
Tel: +49 211 8772 4912
Mobile: +49 151 5800 1111
wfalter@deloitte.de
Thierry Laugerette
EMEA Chemical Commercial
Excellence Lead
Tel: +49 89 2903 68 367
Mobile: +49 151 580 011 85
tlaugerette@deloitte.de
Stefan Van Thienen
Belgium Chemical Lead
Tel: +32 2 749 57 31
Mobile: + 32 476 22 01 03
svanthienen@deloitte.com
Dr. Willem Vaessen
Netherland Chemical Lead
Tel: +31 88 288 3496
Mobile: +31 6 1312 1120
wilvaessen@deloitte.nl