Demystifying digital marketing and sales in
the chemical industry
Digital can give chemical
companies the power to unlock more than $200 billion of new value by reducing
cost to serve, improving pricing, and for fast movers, capturing growth from
competitors.
Over the past decade, the
chemical industry has enjoyed remarkable success, delivering more shareholder
value than its upstream suppliers, downstream customers—and, indeed, the global
equity market as a whole.
But experience shows there is no room for complacency.
Almost 50 percent of chemical companies in the top quintile from 2000 to 2004
no longer were from 2010 to 2014. Today’s chemical companies can’t expect to keep
delivering above-market returns by continuing on the same path. That’s because
that path has been forged, to a large extent, by advances in productivity. Many
traditional productivity levers, however, have now been exhausted. Where can
companies look for their next step change in financial performance?
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We believe that digital can give them the power to tap
into new value pools and capture growth from competitors. Applying readily
available digital approaches to marketing and sales to reduce costs to serve
and improve pricing could be worth as much as $105 billion to $205 billion
annually in additional earnings before interest, taxes, depreciation, and
amortization (EBITDA) to the $3.8-trillion-a-year chemical industry. In
addition, fast-mover companies that act aggressively to deploy digital tools
could also capture $45 billion to $65 billion of additional earnings by taking
customers and revenues away from less nimble peers.
We estimate that the additional EBITDA chemical
companies would generate could also increase returns on sales performance.
Again, fast-mover companies are expected to make substantial gains.
Other B2B industries are showing the way—introducing
digital tools, technologies, and approaches that are equally applicable in the
context of chemicals. And leading chemical companies are already looking to
digital solutions to help them tackle challenges and explore new business
opportunities.
What
will digital mean for chemicals?
Let’s be clear: the chemical industry isn’t about to
have its whole business model turned upside down by new digital players. With
heavy assets requiring huge investments, no private production capacity to tap,
and comprehensive regulations that govern manufacturing and distribution, the
barriers to entry are just too high to allow wholesale displacement by digital
attackers. Yet there is money to be made, and companies that neglect the
digital opportunity risk being outmaneuvered by more agile competitors.
Introducing and expanding digital sales channels, applying advanced analytics
and machine-learning tools, increasing automation, and digitizing end-to-end
processes in commercial operations will help chemical companies tap all aspects
of digital to increase growth and profitability.
To do so, however, companies must understand what a
digital transformation involves. Technology is critical in building a digital
commercial backbone, but a digital transformation is a business priority, not
an IT project, and has to be managed as one. Such a transformation involves
adopting new skills, mind-sets, tools, and processes and learning how to apply
them in every part of the business. Leaders must also move quickly. As Klaus Schwab,
executive chairman of the World Economic Forum, put it: “In the new world, it
is not the big fish which eats the small fish, it’s the fast fish which eats
the slow fish.”
So what are the sources of digital commercial value in
chemicals? We see four distinct areas:
New
growth
New organic growth begins when companies consider how
digitization could affect every part of the value chain, from raw materials to
end consumers. To understand the potential, the best companies set up
cross-functional teams with members from marketing and sales, R&D, and
product development, as well as downstream-market experts. This cross-section
of talent is needed to identify promising opportunities across the business, to
work out how to capture them, and to translate the findings into either new
products or services or new value propositions for existing ones.
Capturing any opportunity, however, requires an intimate
understanding of the needs of end users, so the best teams interview and
observe them to understand what they do with a product or technology and what
refinements and innovations they would like to see. For instance, new
opportunities created by digital advances, such as 3-D printing, have prompted
materials companies to introduce innovative products. Examples include new
classes of polymers with the structural stability to replace metal plates and
prosthetics in bone surgery, on the one hand, and colored polylactic acid to
meet customers’ aesthetic demands, on the other.
Disrupting an existing offer often brings a risk of
cannibalization, so leaders must assess shifts in value pools carefully before
making their moves.
Better
access to customers
Multichannel businesses consistently outperform their single-channel peers. Yet so far,
few chemical companies have embraced online sales channels; most still serve customers mainly through their direct sales forces and
distribution partners. Our latest research
on B2B customer decision journeys shows that customers of chemicals, energy, and other materials industries continue to see
personal interaction as critical for some purposes, such as identifying
suppliers or researching new products. Eighty percent of the buyers find it
helpful to speak to someone in person when they get a completely new product or
service. However, the number drastically changes on other occasions; only 15
percent of buyers find this helpful when they order exactly the same product or
service they got the last time. As the market’s digital maturity increases,
digital approaches are increasingly needed to complement personal interaction.
A case in point is BASF, which wanted to expand its
footprint in China by addressing its attractive small and medium-size
enterprises (SMEs), which account for 99 percent of the country’s companies and
60 percent of GDP. This segment is challenging to serve profitably because of
the customers’ relatively small scale and diverse needs. So in 2015, BASF
decided to open an e-store on Alibaba and secured access to the large number of
Chinese SMEs that already use the Alibaba platform; this also helped it to
serve customers with minimum complexity, to keep its selling costs low, and to
manage its portfolio easily.
Chemical companies can also learn from industries that
have reached a similar level of digital maturity. In steel, for instance, the
Chinese manufacturer Baosteel launched an e-commerce channel for its basic
products as early as 2000. Over time, it complemented this offering by adding
services such as logistics and financing to its digital portfolio. After
overhauling its online business model in 2013, Baosteel relaunched its online
store two years later and merged it with other online platforms. Baosteel now
hosts the trading of its competitors’ steel offerings as well as its own.
This step clearly met a market need: the channel grew
more than threefold between 2013 and 2015, with 60 percent of sales coming from
other companies’ products. In addition, Baosteel generated valuable pricing and
market insights from the data it collected and processed through its enormous
data-analytics engine. The company is now generating revenues of approximately
$800 million a year from its online activities.
Data-driven
decision making
Even in an age of big data, too many decisions are still
made by senior leaders relying on gut feeling. Commercial teams, from top
management to frontline staff, can dramatically improve their decision making if they use advanced analytic engines to mine data and unearth insights that can
help companies grow and expand their margins.
Seeking to improve the productivity of the sales force,
one leading chemical distributor used a machine-learning application to
identify how collaborating with product experts affected sales. By gathering
and mining gigabytes of metadata from phone records, calendar entries, email
traffic, and the like, it discovered that its top-quartile product experts
increased sales by 6 percent, whereas its bottom-quartile experts had zero
impact. Digging deeper, the company found that its high-impact product experts
had networks of salespeople three or four times bigger than those of their
other product experts and took part in four times as many monthly calls and 12
times as many meetings. Armed with this information, it developed precisely
targeted initiatives to improve connectivity and expand sales growth.
One specialty-chemical company abandoned its annual
inflation-based across-the-board price increases and instead applied dynamic
peer-based pricing to every possible combination of products and customers to
improve margins. It adjusted up to 150,000 product and customer price points in
each country, taking into account as many as eight different price drivers for
all customers, as well as their distinct risk profiles. The results were
dramatic: realized price increases rose from 1 percent to 3 to 5 percent. The
biggest challenge was not calculating the new price points; state-of-the-art
advanced analytic engines took care of that in a few days. What took time was
ensuring that everybody, from top management to frontline salespeople, bought
into the new approach, understood what to do, trusted the findings, and acted
on them.
A
superior customer experience
Consumer companies like Amazon are leading the way in
the customer-experience field with their constant efforts to make interactions
more convenient and delightful. The same approach can give chemical companies a
real competitive edge, particularly by standing out from their low-cost rivals.
Digital presents companies with the means to delight
customers by smoothing and simplifying their customer journeys at every step,
from providing instant quotes via dynamic deal scoring at the
supplier-selection stage to monitoring equipment remotely and offering
preventive-maintenance recommendations at the service stage.4By
using digital technology, chemical companies can move from optimizing customer
touchpoints to redesigning entire customer journeys to reduce churn, increase
win rates, and cut the cost to serve.
One of the world’s largest logistics companies
researched sales and service issues with its customers to identify the top 20
pain points, which included poor sales-response times, limited real-time
tracking data, and insufficient access to customer service. It then redesigned
and automated error-prone manual processes to address 16 of the 20, while also
bringing together critical information in an easy-to-use digital interface that
helped customer-facing personnel to enable seamless customer journeys. Customer
satisfaction soared. Selling, general, and administrative costs are expected to
fall by 20 to 30 percent initially and by as much as 60 percent once
digitization is complete.
How to prioritize
To choose where to focus digital efforts, companies can
look at the scale of each opportunity and consider how it applies to their
business:
·
Cost to serve can fall by 15 to 50 percent
through e-commerce, the digitization of processes, and the use of big data to
allocate salespeople. By capturing this immediate benefit, a typical company
could save enough money to finance the rest of its digital transformation—and
create enough buy-in and excitement to keep up the momentum. This opportunity
is largest in specialty and crop-protection chemicals but still attractive in
basic chemicals, petrochemicals, and distribution.
·
Companies can, on average, raise their
margins by two to three percentage points of return on sales by shifting from
traditional pricing and margin management to digitally enhanced methods. Most
of the value comes from introducing a dynamic-pricing engine that factors in
data from plant utilization, storage levels, real-time customer demand, and so
on.
·
Fast-mover companies that want to position
themselves to use digital tools and capabilities to capture business from their
less nimble rivals can raise the growth of their revenues by up to twice the
market average. The most important initiatives are likely to include creating a
best-in-class online sales channel; using advanced analytics to reduce customer
churn, identify new customer leads, and support upselling; and developing
customer journeys that attract new business, foster loyalty, and boost share of
wallet. Using digital to make sales processes more efficient and the experience
of customers more engaging can enhance their satisfaction by as much as 20 to
30 percent.
Taking
the first steps in the digital marketing and sales journey
We see four steps business and commercial leaders should
take to start extracting value from digital:
·
Discover. Begin by identifying and quantifying tangible
commercial opportunities for your company. Prioritize the top three to five by
the value they offer, the market’s digital maturity (or expected receptiveness),
and the digital savvy of your business. Start your transformation by
galvanizing the team around these—and only these—priorities. Set clear monetary
targets and follow up on implementation and capturing value.
·
Design. Successful transformations have dedicated leaders
from the business side who work closely with IT experts on multiple rounds of
rapid prototyping. Great teams include facilitators who help the company
address its culture and ways of working by supporting the organization as it
shifts to a dynamic work environment where people are comfortable with constant
experimentation, fast adaptation, and learning from failure as much as from
success.
At
the same time, companies need an agile, fast technology platform. Ensure that
both your traditional IT projects and your digital marketing and sales
transformation get proper IT support. Success in such transformations depends
on agility, rapid adaptation, and piloting—not hallmarks of IT departments
geared to routine B2B commercial operations. Companies can build an agile
digital IT support cell on top of the existing IT infrastructure to help meet
both legacy and new requirements without disrupting the business.
·
Deliver. If solutions require large investments or long
development times, outsource noncore activities and partner up with the pros.
This is even more important in digital, where things move fast. Ask who is the
natural owner of the technology you need and how you can secure access by
partnering up. A successful partnership brings advantages to both partners and
ensures the rapid delivery of projects. When implementing a program, first run
a test on a small part of your customer and product portfolio before going full
scale. Start with the minimum viable product and then expand its functionality.
Work with customers from the kickoff to adapt products and services to their
needs and build the market’s digital maturity.
·
De-risk. Maintain the highest standards in data
hygiene—your digital platform is now part of your competitive advantage. Limit
implementation risk by following a step-by-step digitization road map, one
opportunity at a time. Avoid the temptation to jump into a “big bang”
transformation on day one.
Digital is already changing the way chemical companies
operate. How much value individual businesses will extract from digitizing
marketing and sales—and how quickly—will depend largely on what their leaders
do next.
By Søren Jakobsen,
Kedar Naik, Nikolaus Raberger, and Georg Winkler
http://www.mckinsey.com/industries/chemicals/our-insights/demystifying-digital-marketing-and-sales-in-the-chemical-industry?cid=other-eml-alt-mip-mck-oth-1702
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