An industrial chemical company faced strong competitive price pressure. Their main competitor had a chemically identical product, a lower production cost and new capacity. The competition was driving down the price and our client needed to find an new way to compete in order to survive.
The team began by understanding the fundamentals and examining the challenge from different angles. We studied the market and the customers but also the capabilities: those of both our client company and the competition.
Scenarios helped frame the market for these products, how they would develop and where the future opportunities would lie. We found that there was significant opportunity, but also that the competition had a structural cost benefit – so competing on price was not a possibility.
The client realized, however, that they did have an opportunity to change the game. Customers were concerned about more than just the chemical composition of the product. They valued supply reliability and product consistency very highly and were willing to pay for these. Even more importantly they were most likely to value these product aspects more highly in the future.
Our client had strong advantages in these areas, so we built on those; restructuring the product to include logistics services. This not only increased profitability in the present but also created a strong competitive position for the future.
We helped the client to redefine their product and generate a sustainable price premium in a competitive market. This included:
- Taking advantage of existing logistics capabilities to enhance the product – transforming it from just a chemical product to a service oriented solution.
- Using value in use selling and helping customers manage their operations better through the use of our clients enhanced product.
- Installing storage silos that tied in to the customers processes to allow for just in time delivery.
- A program of working closely with customers to continuously innovate and enhance the product offering in order to stay ahead of trends in the market.
As a result of this work our client was able to charge at least a 25% price premium, reversing the trend towards price competition. They created stronger relationships with customers and through these relationships discovered new product approaches that were value adding to the customer and profit enhancing for our client.