Marketplaces In The Chemical Industry, Just Hype Or The New Battlefield?
Consumer digital marketplaces are very appealing; we can find anything we want there, with no limitations by brand, competition, or portfolio. Previous buyers’ reviews, personalization, and targeted advertising attract us, showing us ads for products we’ve looked at on other sites or our mobile devices. The goods might not be the cheapest, but price isn’t the main reason we use digital marketplaces; the convenience and simplicity of buying things we might need, just one click away, are the main attractions.
Why should this be any different when sourcing products for our business? For 40 years, we’ve run our businesses using fax, email, phone, and maybe a webshop, and now technology is leading to changes in lightning speed. Companies are investing tremendous amounts of money on digitalization, but often the result is just “more of the same,” with a little bit of lipstick on it. By fencing our processes in convenience and failing to consider new ways of doing business, we’re limiting our ability to unleash the power of a marketplace
In Europe alone, there are nearly 23,000 chemical companies. Many of them are small to midsize, often family-owned. These companies generally do business as they’ve always known it; they buy and sell and maybe offer their own services. Relationships are built for eternity; personality and handshakes matter.
You might think that such businesses are immune to new technologies and trends, but the opposite is the case. Trends are not rolling by them without effect. They are forced by their suppliers, or often by their customers, to adapt to new standards. The younger generation is playing a major role here, as they don’t accept the utterly complicated way companies have been making business happen. Many people are frustrated that discussions about innovations are limited to front-end processes, rather than looking at the overall (broken) processes that make life difficult for customers and employees.
Looking closely at a typical category buyer in the chemical industry, many are buying 50 products from more than 200 suppliers worldwide. Each supplier has own processes or tools, far from being harmonized or following any standards. Procurement is a complex and time-consuming task. Limited willingness to really understand a customer, even when the business relationship is long and mature, leads to frustrated customers. Without a rock-solid customer satisfaction process, how can a company know whether it has loyal customers?
Although automating processes is a leading trend in the industry, there is still a long way to go. With automation, companies certainly reduce efforts and increase efficiencies. But is this really the single key performance indicator (KPI) that counts? With all the challenges and opportunities the industry is facing, I am convinced there must be more.
A helping hand in the circular economy
We see the clear evidence of polluted oceans and fields, and plastics and other chemicals in our livestock, water, and crops; nature is suffering. This is a challenge many of us have underestimated for a long time. Products and services must be redesigned to improve the eco-footprint, not only in response to increased regulation but also because customers demand it.
Today’s waste might be tomorrow’s new fuel, raw material, or intermediate. Companies are tackling the challenge, moving from a “take-make-waste” to a sustainability-based approach. This is the core of the circular economy; it’s not easy to change, though. For a long time, it’s been a unique selling point to offer products that perform because they are blended with additives and mixtures. Producing them in mass makes them cheap commodities. But this approach makes it very difficult to recycle those products, as they were never designed to be reused. Changing the formula may have a significant impact on the product’s performance and, more important, eliminate the unique selling point. The biggest challenge, though, is to accept that this is nothing a company can solve on its own. Competitors become friends, new players become essential. With all of these changes, businesses clearly need new value propositions.
“The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.” – Peter Drucker
The full power of an open marketplace for chemicals
An open marketplace is different from a closed marketplace or ecosystem, and knowing the differences is crucial to have all parties talking about the same things and to manage expectations and communication with customers, distributors, and value chains.
While a closed marketplace is typically owned by the producer, an open marketplace is operated independently from a producer. On the open marketplace, your competitors might be right next to you, offering the very same products at different prices. In a closed marketplace, you decide who or what is next to you, but you also struggle with getting complementary products on your platform because your competition might not want to introduce their customers to you and risk losing them to you. So, while you could do “business as usual” on the closed marketplace, you still would have to manage increased customer expectations. Even so, most companies prefer closed marketplaces, as it gives them a feeling of having things under control.
Another model is the ecosystem, which offers services to help customers get the maximum out of a product by offering additional third-party services such as tolling, finance, supply chain services, and so on. It can be either owned or just used, but it’s different from an open marketplace, as you would not find your competition here. Instead, customers get a product plus a host of services around it. In contrast to a closed marketplace, the ecosystem could manage the level of engagement on its own, independent from the product itself.
Let’s focus on open marketplaces in chemicals for a moment.
An open marketplace is the place where your company could not only buy or sell materials and services but also understand market trends and demands at a glance. It’s also a place where you can ask independent consultants for support to bridge challenges in digitalization due to limited, internal capabilities. Imagine that buying and selling would be combined into trading.
Separating expert services from the overall product price and offering them to customers as consulting is easier for companies: you pay for what you get. Why should customers pay for your sales or technical service every time they buy your product, even though they only need your advice and service at the initial purchase?
A letter of credit could become obsolete, and with it, the frustrating and time-consuming process on all sides, as finance services would jump in only when needed. Transportation and logistics would become transparent, capacities could be used more effectively, and the customer’s voice would finally be heard by those who should listen carefully.
Half of today’s B2B buyers are between 24 and 39 years old, and Walker.com estimates that in 2020, customer experience will overtake product and price in B2B sales. It is just a matter of time until the first wave reaches the chemical industry. It is time to rethink business as we know it, work on omnichannel strategies, and put customers’ comfort at the forefront.
Like any change, no matter how necessary or good, this entails risks. For example, you’ll need to generate new revenue streams as you most likely will lose a bit in margin. Transparency is key; you can’t hide prices and availability. What sounds unscalable could become the next generation of your business. Services cost money, and if you can offer these kinds of services, why not take a decent cut of them? I remember a company that sold books without ever owning them. This story is possible in chemicals as well.
The chemicals business is complex; it is not like selling shirts or candles. It is highly regulated and driven by contracts, politics, and the like. Nonetheless, customers deserve a more personal, easy, and comfortable way of doing business. The time is over when you could solve challenges alone, and the voice of the customer could be turned up or down to serve you best.
If you consider placing your products on a marketplace, make sure to have a clear understanding of the underlying business model. They can help you but can also ruin your reputation and market price. Also, do not expect that the world has been waiting for you to finally sell your products on a new channel. You’ll need marketing and communication to spread the word. Finally, offering your product on a new channel with the same old processes and gaps is not what anyone would expect when buying your product on a marketplace.
Do not underestimate the challenge of being successful on a marketplace, as it is not the typical business model chemical companies are used to. Using a marketplace as just another sales channel is possible, but a marketplace strategy looks different. This is the main reason why such projects often fail. Running your business on a marketplace is the ultimate chance for you to establish a totally new, digital business model with new revenue opportunities, but this requires new ways of measurement, different approaches, new skills, and partnerships.
Blog originally posted on digitalistmag.com