Pricing & Profitability Management in the Chemicals Industry
From commodity to value
A large diversified chemical company, facing increasing commoditization of its products and under increasing competitive pressure, wanted to improve margins by pricing products based on customer-specific costs to serve. To do this, the company needed to understand its customers’ buying behavior better and know more about how its business units priced products.
The company decided to buy a software application to help pricing professionals perform advanced analytics and optimization as well as basic price management tasks such as price-setting and deal management. This software would allow the company to systematically analyze historical transaction and cost-to-serve data to determine the theoretical profit-maximizing, or “optimal,” price for its products. But to take full advantage of the software, management knew that it also needed to change the company’s pricing processes and organization.
The company launched several concurrent projects to make the needed technology, process and organizational changes in tandem. With Deloitte’s assistance, the company:
As a result of these efforts, the company stands to realize as much as $15 million in short- and medium-term profit, representing a net present value of $40 million and a greater than 300 percent projected return on investment. The new analytical insights also have allowed management to modify pricing policies, including policies around price guardrails (minimum and maximum prices) and price exceptions, to encourage salespeople to adopt a value-based approach.
As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.