New digital analysis and advanced analysis capabilities make it possible to make rapid, customized price adjustments that can bring significant revenue improvements to chemical companies.
The chemical industry is a fertile land for dynamic pricing. Dynamic pricing is a method of deploying digital and advanced analysis tools to customize prices at the customer product transaction level with granularity and precision previously impossible. These tools add new potential and effectiveness to value pricing methods.
Dynamic pricing is applicable to the entire product range of the chemical industry, from highly differentiated specialty chemicals to more commercialized products. It helps business organizations identify and charge for the value created by the products, and adjusts pricing according to the changing market conditions. In all cases, dynamic pricing is based on more and more real-time data. New digital and advanced analytical capabilities take pricing performance to a whole new level, enabling chemical companies to go beyond pricing based solely on assessing purchasing volumes and manufacturing costs.
Some characteristics of the chemical industry make it very suitable for dynamic pricing. Due to potential changes in oil prices and the balance between supply and demand, the prices of chemicals, which are the basic components of the industry, tend to be volatile, resulting in the frequent need to adjust final product prices to pass on raw material prices (Table 1). At the same time, the products of the chemical industry are sold to numerous end use industries and applications. In these industries, the value created by a product and the corresponding willingness to pay of customers may vary greatly. In such a world, the capabilities represented by dynamic pricing are particularly useful for chemical enterprises to improve their profit margins.
In the more commoditized product sector, this volatility is greater because a large number of downstream chemical production is based on basic intermediate chemicals produced by relatively limited producers. The shutdown of these manufacturers will have a broad chain reaction on the balance of supply and demand, because consumers will seek alternative supply, and consumers will try to turn to alternative products, which will have a further chain reaction. The dynamic pricing method can determine the price according to the real-time monitoring of market dynamics, which is helpful for chemical manufacturers to set the price at an appropriate level.
On the other hand, from the perspective of value pricing, most of the products provided by the industry are actually different from those of competitors, and create special value for customers. But many chemical companies do not fully grasp the value potential in this area, because it is impossible to calculate the value of tens of thousands of product customer portfolios and hundreds of thousands of transactions. In these cases, dynamic pricing solutions can help expand the value based pricing of the largest customer product portfolio. At the same time, advanced analytical methods can help determine willingness to pay and estimate price based on the value of thousands of small and medium-sized product customer portfolios.