- How do regulatory changes and uncertainties impact companies' ability to set chemical pricing?
It is strategically imperative to consider what markets you want to play in and which of those you successfully excel in. Although tempting, it is important that brands are able to identify those markets that they cannot realistically compete in.
“China is now a big white elephant in the room,” expressed Dr. Jochen Krauss, economist, pricing expert and Managing Partner of Simon-Kucher & Partners. “Some companies have moved into China to take advantage of luxury import taxes that do not apply to raw materials.”
Structural changes are often put in place to encourage companies to either react or, alternatively avoid transformation.
“China has set high tariffs, and while some organisations have the financial means to compete in this market and therefore will move operations, others will have to pass on this opportunity,” Krauss added.
Who does the market favour?
Overall, there is a divide between multinationals that can play in these markets and smaller brands who do not have the resources to make this happen. This will split leading markets such as China and Korea, Krauss envisaged. However, these tariffs are expected to make the nation more attractive for local cosmetics companies.
It is hard to understand whether the large organisation approach or niche indie brand methodology is better. Singapore, for example, is looking to reduce its VAT threshold, as a higher number of e-commerce buyers are ordering from abroad.
On the whole, regulations should consider what would happen to local players as a result of their proposed initiatives and what can be done to make this market more attractive.
Best practice
A significant number of companies will have to conduct an assessment to decide what they can achieve with target value positioning.
Based on this exploration, brands can then make a decision on whether they can “change the game” or alternatively, whether they should hold tight and explore innovation and growth through other avenues.
- What successful innovations relating to chemical pricing have taken place in 2017?
While innovations have been limited, discussions have surrounded two things: absolute price levels (what you charge) and price metrics (how you charge). Many times, how you charge trumps what you charge.
Although this is a different way of generating value, it is not considered a true innovation.
Many industries including cosmetics and chemicals are thinking about creating sustainable revenues through subscription models. Appealing and popular ways of achieving this include turning one-way payments into ongoing payments, for example via membership models or (paid-for) loyalty schemes.
The fourth part of our article series on value pricing in 2018 will be published on Wednesday 13th December 2017.