The EY model provides sales excellence guidance and addresses eight fundamental elements of sales, divided into strategic or operational elements and company- or employee-driven elements. In applying this model as an analytical and optimization tool to various chemical industry segments, successful organizations were found to be significantly stronger in all eight sales elements.
Out of this framework, strategy and voice of customer heavily influence pricing strategy, which is key to achieving sustainable organic growth by capturing maximum value from each customer.
A review of the top 20 chemical players1 that stated the impact of price on revenues in their business presentations found they were able to pass on to the customer only about one-quarter of any cost of goods increase. Numerous challenges drive this phenomenon, including increasing competition among chemical players, a volatile oil price environment, increasing environmental regulations and the continued commoditization of core products.
In addition, differentiated supply chain models for distinguished product groups are a baseline for proper allocation of production and fulfilment cost. This provides another pricing advantage in a commodity and specialty environment, since it provides real cost per product group and not just averages.
Chemical companies have rarely considered pricing as a top management priority, which explains why the industry has lagged in managing price effectively. In this era of digital transformation, where the customer has increasing access to pricing information and competitors are rapidly advancing their digital capabilities, companies that are slow to act may find it difficult to maintain margins as raw material and freight costs fluctuate.