The chemical industry in Europe is working hard on the improvement of their profitability base. But while innovation and complexity management are heavily discussed by the industry’s top managers, the most powerful lever to increase profitability is being ignored by many – value pricing. In this article we look into the possible benefits of value pricing, the effective BASF approach and the problems posed by a customer management focusing on the perceived strategic importance of customers rather than their contribution margins.
While the economy struggles, managers are pressured to continue growing their businesses, and some will be tempted to use price competition to spur growth. More thoughtful managers may well recognize that it is advisable to initiate price competition only in very specific circumstances. They too, however, may be forced to manage price competition initiated by others. The key to succeeding in this increasingly common scenario is deciding when and how to respond to those competitors.
As supplies of everything from key components to temporary services grow scarcer, an unusually large number of companies are trying to manage excess demand. In the past, there was a simple solution to such problems: raise the price. Today, managers claim, "Our customers would never stand for that!" But through these shortsighted failures to manage pricing strategically, many suppliers have given customers the power to set prices.
No weapon in a marketer’s arsenal can boost sales more quickly than price, so it's easy to become seduced by discounting and fail to recognize the long-term consequences. Here, we look at the experience of a large building products manufacturer, which had been profitable as a market share leader, even with a small price premium. Yet it had long been losing market share due to aggressive price competition, and new management was determined to reverse this trend.
We’re all still watching our wallets. The economy, if no longer in free fall, remains weak, and consumers and corporate buyers alike are closely evaluating every purchase they make. Competition comes from everywhere now, and in the race-to-the-bottom-line era of Wal-Mart, your rivals are more aggressively courting the same business you want (and used to own). Indeed, competitors you never used to see are scrambling for orders—regardless of profitability—to avoid closing plants and laying off employees.
From financial services to manufacturing to consumer goods, executives report that growing profits in today’s competitive markets has become an ever more difficult task. For many, the challenge stems from globalization of markets that has unleashed new competitors with lower costs and innovative business models. For others, the change stems from the increased knowledge and sophistication of customers that have become expert at extracting price concessions.