Three factors will ultimately determine how prepared the chemicals sector will be for the post-COVID-19 era: how well the companies understand the current effects of the COVID-19 crisis, how the companies cope with uncertainty in the meantime, and how well they seize five key opportunities to gain a competitive advantage. Although specific to the chemicals sector, this multi-market article provides COVID recovery tactics that can be applied by pricers in multiple industries. Jan Haemer is a Partner (Frankfurt, Germany) and Kiran Pudi is a Senior Director (Singapore, Singapore) at Simon-Kucher & Partners. They can both be reached via www.simon-kucher.com.

The Pricing Advisor, November 2020

The COVID-19 crisis not only increases the urgency for chemicals companies to overcome long-known challenges in sales, but also provides a catalyst for the required changes.

What are the current effects of the crisis?

COVID-19 has obviously affected all industrial sectors to varying degrees. The chemicals industry has fared reasonably well, despite an outright decline in demand, because its go-to-market models have experienced less stress than other industries. Executives in the chemicals industry in Western Europe expect a year-on-year decline in revenue of between nine percent and 26 percent, according to a recent Simon-Kucher study. As of September 2020, monthly volume run rates have still not recovered to pre-crisis levels.

How are the consequences for the chemicals industry compared to other industries?

Figure 1: Expert estimate of impact of COVID-19 on industries

Travel and transport and hospitality, for example, experienced a major shock to both their go-to-market models and to their demand, primarily due to physical-distancing rules. Companies in those industries have suffered enormous losses since March 2020, and are using all means at their disposal to keep their heads above water.

In the chemicals industry, the actual impact depends heavily on the downstream industries that drive demand. Demand for upstream products and oil derivatives has built-in resilience. Fine and specialty chemicals are more exposed to demand fluctuations, depending on their applications. The automotive value chain faces regional slowdowns, but plastics have benefited from a tremendous increase in demand for food-safe packaging.

What the lingering uncertainty means for chemicals companies

The 2021 outlook remains uncertain. As companies cope with this uncertainty in their business planning, they need to pay careful attention to three commercial symptoms, even beyond the next year.

• Increased risk aversion: Specialty chemicals suppliers are delaying new product launches or market entries. At the same time, the accelerated push towards a circular economy is causing more reluctance to invest in upstream, e.g. petrochemicals.
• Rapidly changing demand profiles: The resurgent health crisis leads to sudden, massive demand changes, resulting either in excess capacity and growing inventories or supply shortages and supply chain disruptions.
• Increased volatility in oil prices: Sudden drops in Brent prices earlier in 2020 have led to lower downstream prices. While oil prices have partly recovered since then, the major ups and downs put producer margins at risk.

5 recommendations for the challenges ahead

Demand in the chemicals industry saw stronger impact from the crisis than the go-to-market model did. But a closer look reveals that “normal” field sales with customer visits has temporarily become impossible. It will continue to be very inefficient, even if travel restrictions loosen.

We estimate that 23 percent of a typical field sales representative’s time is spent traveling. While many sales teams have quickly re-organized to stay in touch with customers remotely and secure volume, the remaining inefficiencies are contributing to the “overweight” status of chemicals companies’ traditional go-to-market model (See Figure 1.) Companies now have to re-direct that time to far more productive use and invest in reducing barriers to purchase in a physically-distanced world.

Mastering the following five commercial levers will decide who will win and lose post COVID-19:

1. Increase sales efficiency

Low transparency into the sales funnel hinders early detection of buying patterns. According to the Simon-Kucher survey, some 78 percent of chemicals companies say they have initiated actions to secure and grow volume, i.e. identifying “winners and losers.” For instance, a minerals producer established a bi-weekly routine with its ten most attractive customers per region, in order to check jointly for sudden demand changes and to adapt planning in a timely manner.

2. Move towards digital sales

In the chemicals industry, there has been too much talk and too little impact from past digitalization efforts on customer interaction. The crisis has made this crystal clear to many industry executives. Consequently, digitalizing internal sales processes – such as “lead-to-quote-to-order” – is now a top topic that will make the companies more resilient. In this spirit, a fiber producer closely tracks its CRM usage to timely identify its biggest process bottlenecks.

3. Shorten the sales cycle

Testing and sampling activities account for up to 70 percent of the total time from initial customer request to closing. Clear prioritization rules are a quick win to reduce time-to-market for the most promising opportunities, while virtual assistants like BASF’s myPharma or Evonik’s COATINOTM show the future “art of the possible.”

“Customers have very precise ideas about the capabilities that a product should have. They can choose from over 200 properties and we can test 120 samples in 24 hours.”

Dr. Gaetano Blanda, SVP Coating Additives, Evonik

4. Use new ways for customer interaction

By now, it is clear that “digital” is indispensable in chemicals sales and distribution. Marketplaces like CheMondis in Europe, Alibaba in Asia, and Knowde in the US help to reduce transaction costs across customer segments. Increased visibility and reach help companies to capture new growth opportunities.

“On our platform, 2,100 buyers and sellers benefit from the fully digital purchase process. Efficiency in order processing increases and manual effort is reduced.”

Sebastian Brenner, Managing Director, CheMondis

5. Stay in control of pricing

The longer it takes for demand to recover, the more the pressure on pricing will increase to secure remaining volumes. Coupled with increased volatility in oil prices, this means that producers will need to become more agile in pricing and contracting. Actionable guidance and clear governance in pricing are important to protect prices during the COVID-19 crisis and to allow the company to seize opportunities during the upturn.

Companies that seize these opportunities will build a competitive advantage in sales through greater efficiency and better customer focus, and will more deals with more customers faster.