Recognize commercialization
Companies known for their innovative, differentiated products and responsive customer service may be understandably reluctant to acknowledge that the market has changed. There are risks. If the trend of commercialization has changed, they will find themselves isolated and their more focused competitors are grabbing their customers.
Every special chemical manufacturer should be alert to the invasion of commercialization and systematically look for early warning signals. Here are some questions that executives should ask themselves: does capacity significantly exceed demand? Despite the government's attempts to raise prices, have prices been steadily falling? Have prices been squeezed to maintain market share? Have new competitors from countries with lower production costs entered the market? Do they offer products similar to those of existing manufacturers but at lower prices? In the past few years In the past five years, have we created any innovative products? Are we no longer dealing with the customer's product development department, but only with the purchasing department? Have customers stopped asking for and paying for additional services? The center of the analysis should be a clear understanding of the market pricing mechanism. If the price of a product is close to the marginal producer's cost, then it is a commodity, or will soon become a commodity.
By analyzing these indicators in its product portfolio, a company can understand how it should shape its own operation: as a professional participant, as a chemical manufacturer, or as a mixed mode of professional production at the same time as a core commodity product.
Design the right operation mode
Once they have identified which products will become commodities, chemical manufacturers can start to design an operation mode that enables them to produce and sell these products and make profits from them. There is no universal method, but there are some requirements that must be met. The right mix of these changes will depend on the company's portfolio, the nature of the products involved, and the needs of its commodity customers and markets. For some organizations, the scope of this business model will extend to the whole company; for others, it will include specific business units or lines of business within these units.
Regardless of the scope, there are some guidelines that will greatly increase the opportunity for organizations to design and implement successful business models. First, it should start from scratch and put cost minimization first. It is difficult to achieve the impact necessary to compete in the commodity market by merely tinkering with the methods that are more suitable for special products – or to create an organization that is flexible enough to cope with the periodicity of commodity business. Second, change should cover the entire organization, including sales, manufacturing, supply chain, management and support functions. Third, design should be from the perspective of customers, bearing in mind that the needs and expectations of buyers of goods are different from those of buyers of special products.
Understanding customer needs
Commodity customers want simplicity and standardization. They usually don't need technical support and are satisfied with the standard delivery scale and schedule, while professional customers usually want extensive sales and technical support as well as different batches. A good commodity business model is specially designed to meet these needs. This usually means a reduction in the number of products offered. It always requires standardized sales, marketing and services – tailored to a limited customer base – and measures to minimize the cost of serving these customers. This should be supported by appropriate low-cost sales and distribution channels.
Such conversion must be carried out with care and clear and consistent communication with customers. Chemical manufacturers have to admit that not all existing customers are willing to accept this change. Losing a certain proportion of customers with high cost and low profit is inevitable, planned and part of the transformation to commodity mode.
For many chemical manufacturers, digitization is a powerful way to reduce service costs. Switching customers to self-service mode using online platform can reduce the cost of sales, support and order management, especially when most businesses need to reorder. If done well, it can also bring a more satisfying customer experience.
