Houston, Texas – September 28, 2005 —Making sound pricing decisions through price management is crucial. Price management can maximize profits and create a competitive advantage.

Today, five critical factors directly affect a chemical company’s profitability. Products that had been specialties have become commoditized, resulting in increased competition and lower prices. Margins, which generally are based on a percentage of the selling price, tighten when prices are the highest because raw material and energy costs also tend to be highest then. Long lead times in building new plant capacity create supply swings. Dynamic raw material and energy costs make it difficult to consistently meet profit goals. Overseas competitors with lower costs are penetrating the domestic chemical market.

However, companies can minimize the deleterious effects and even improve profitability if they manage these factors properly. The key is making sound pricing decisions through price management. The necessary data to use this approach already exist in ERP [enterprise resource planning] systems.

Before discussing these factors, let’s examine what is meant by price management. It consists of: pricing analytics, deal management, price execution, forecasting and optimization (Figure 1). Companies are best served by focusing on pricing analytics, deal management and price execution first, preferably in tandem, and forecasting and optimization later.  Price management builds upon sound business and pricing fundamentals already in place.  Without them, price management will just allow poor processes to work faster and you will reach the same undesired outcome, just more efficiently.

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