Specialty Chemicals Manufacturers: Turn Inflation into a Pricing Opportunity

How price optimization and management solutions turn the inflation problem into an opportunity for global specialty chemicals manufacturers to differentiate themselves.

Inflation and its Impact

Cost volatility is nothing new for specialty chemicals manufacturers. Yet, even the most seasoned veterans in the field have not seen the level of input price inflation that has happened over the past two years. Natural gas and petroleum price inflation due to geopolitical tensions is just the latest factor in an across-the-board rise in raw material costs for the industry.

Specialty chemicals manufacturers are feeling more pain than their commodity chemicals peers, due to the nature of their respective pricing approaches. It is much easier to pass through a cost change by adjusting numbers in a formula. Specialty chemicals manufacturers don't generally have the luxury of formula-based pricing to fall back on. Kearney explains:

One explanation for why inflation is squeezing specialty chemicals harder than commodities chemicals comes down to the pricing structure. The costs of commodity chemicals are largely derived from pricing formulas, but prices for specialty chemicals are set through value-based pricing, where formula-based pricing plays little or no role.

"How inflation is reshaping margins for commodity and specialty chemicals" (Kearney)

There is a glass-half-full way of looking at this conundrum, however. Our new market reality has opened up a major pricing opportunity that specialty chemicals companies can use as a differentiator. It is possible to automate the cost pass-through and price update process, keeping price waterfalls freshly aligned while the competition plays catch-up. Further, by identifying the real value delivered to customers and using it to inform precise price increases based on elasticity measurement, manufacturers can capture greater margins while helping their sales reps defend unavoidable price increases.

To execute this, though, most will need to rapidly transform their pricing capabilities.

Where Manual Pricing Breaks Down

Even prior to these generational levels of inflation, the status quo methods of deriving and managing price in the chemicals industry was reaching its breaking point. The typical price change process might look like this:

Receive an input cost change Comb through agreements to identify affected customers Alert those customers that you are triggering the price change clause due to a commodity cost increase Factor in each component's cost change one-by-one for very specific product formulations, then aggregate and put into market

This inefficient and error-prone process is draining, all-hands-on-deck work for pricing teams. Even if done meticulously and without mistakes, the time lag between receiving a cost change and updating agreements is a recipe for margin leakage. The intensity of margin risk across manufacturers' entire portfolio has only accelerated during today's economic crisis.

For non-agreement customers, delays can be just as costly to the bottom line. The increasing buyer demand for self-service and dynamism has pushed many specialty chemicals manufacturers to sell goods online. But if eCommerce prices are not updated near-instantaneously to reflect new cost increases, online orders begin to sink margins. Unfortunately, speed is not synonymous with spreadsheets.

Get a Quick Start on the Price Transformation Journey

For a faster answer to inflation, global specialty chemicals manufacturers can get up and running with intelligent list price management in a matter of weeks. Zilliant's Quick Start for Global and Country Price Lists is built on the leading Zilliant Price Manager™ price management software with an out-of-the-box price waterfall. With this Quick Start package, users get access to pre-built templates to quickly:

Update global list prices as costs change using pre-defined cost pass-through strategies Perform currency conversions to calculate country list prices Make additional country factor adjustments to list prices Provide scoped user access to centralized and decentralized pricing teams within the same system of price management Add additional waterfall elements with out-of-the-box extensions

Now instead of scrambling with the rest of the herd to manually reconcile inflationary cost increases, specialty chemicals manufacturers can solve this challenge quicker, while establishing a foundation for wider price transformation.

Level Up with Next-Generation Price Optimization

As demand continues to exceed supply, and costs are rising for everything from raw materials to shipping to labor, prices must move up. That's the easy part to understand. But determining exactly how much to charge to whom, down to the product category level, can only be done with price optimization. Specifically, this moment calls for a solution that accounts for each factor that drives a price response in the market, measures each customer's price elasticity (be they distributors or direct customers), and gives sales reps the ability to defend price increases confidently in the field.

With Next-Generation Price IQ®, Zilliant has taken the leading price optimization application and leveled it up. The next-gen release of Price IQ® provides 10x faster optimization speeds and can be up and running in 90 days, drastically lowering time to value.

It is also the only price optimization solution on the market that provides crystal box optimization. An optimized price is only as valuable as its adoption by sales reps and customers. Yet most solutions on the optimization market are black boxes that inspire more questions than answers. As specialty chemicals manufacturing companies put higher prices into market, the winners will be those who can make them stick. Next-Generation Price IQ® empowers sales reps to defend their prices with a transparent and coherent view into why the price is what it is.

Bottom line: Not only can specialty chemicals manufacturers solve the global and country price list dilemma in as little as four weeks, they can also achieve the highest caliber of price optimization in just three months. The answer to inflation and ongoing market volatility is finally here.