Paints and Coatings Industry Fights Back Against Commoditization

The chemicals industry is one of the oldest business sectors, and game-changing scientific breakthroughs, such as rubber and polyethylene, are rare. In today’s dynamic and global economy, chemical products are quickly becoming commodities as their lifecycles are shortening.

Commoditization is forcing companies to look for alternative means to inspire innovation and differentiate in the eyes of customers.

According to a recent study by SAP, differentiation is driving digital transformation programs in 58 percent of the chemical companies.

The paints and coatings segment of the chemical industry is leading in digital technology implementation and predictive analytics that create and sustain competitive advantages.

Color variety and durability are considered table stakes in the market nowadays, so leading paint companies like Asian Paints and Nippon Paint China have turned to SAP to shift their focus towards creating new customer experiences. They are using a three-step digital transformation process: reimagining business models, reinventing business processes, and empowering digital employees.

1. In an industry challenged by commoditization, reimagining business models needs digital technology.

The business landscape in paints and coatings is shifting to an outcome-based economy in which services and pricing are the remaining avenues for differentiation.

Business models based on value-added services, bundled with products is the optimum approach to escaping price and margin pressure. While this transformation can pose a significant challenge, it can open new, profitable revenue streams.

India-based Asian Paints has implemented a digital core that provides analytic insights for business decisions and delivers individualized, targeted products and promotions to each customer. The result is a win-win: customers receive recommendations and expertise that help them make informed purchasing decisions, and Asian Paints gains better insight into sales patterns and customer behavior to adjust business decisions in real-time.

A focus on outcome-based business models establishes a foundation for creating market differentiation and driving brand value. Successful players like Asian Paints have recognized that targeted product recommendations are only the starting point to drive brand loyalty and customer retention.

2. True value also lies in creating business processes that provide a greater customer journey along the way.

Market leaders seamlessly integrate all aspects of the painting business chain into an end-to-end service designed for the end customer. They create the customer experience with advice and resources based on their customers’ needs and preferences.

Nippon Paint, an industry giant in China and one of the oldest paint manufacturers in the world, has invested in transforming its distribution process to enable an optimized end-to-end customer experience, rather than remaining a mere paint supplier. Nippon Paint operates hundreds of its service centers across China and uses advanced data analytics and real-time analysis to provide customers with top-of-the-line paint solutions and design schemes.

In 2011, Nippon Paint launched iColor, its multipurpose platform that allows designers to publish their customized color schemes and aesthetic styles for other users to browse for inspiration. As an added feature, iColor provides referral services that build upon Nippon Paint’s unique customer experience that goes beyond simple point-of-sale interactions.

3. An organization’s work process must empower engaged employees at the decision-maker and back-office levels.

A digitally optimized business process needs digitally-fluent personnel to transform insights into action. Digital optimization creates leaner workforces and improves the way individuals are doing their daily work. For example, data insights provide managers with sales patterns, faster invoicing and quicker inventory turnover. Dealer performance reports assist decision making to optimize channel performance.

Along with empowering people to make better decisions, digitization at the core transactional level in the back-office processes can have a substantial effect on a company’s bottom line. Access to real-time analytics has simplified repetitive and cumbersome steps in procurement, human resources, inventory management and invoicing with collaborative transactions that support role-based decision-making.

Employees empowered with digital support systems in place are key assets to facilitating digital transformation in the chemical industry. Their roles are evolving to adapt to technological change and their importance to each partner in the network will only continue to grow.

It is important to keep employees digitally engaged through seamless and mobile-enabled work experiences. Predictive models and simulations deliver actionable insight, without forcing people to jump between applications or to deal with antiquated approval processes.

At the heart of a digitally fluent business is the ability to adjust course at any time and leverage data analytics is crucial to this process. Commoditization in the paints and coatings industry rewards market players who take a holistic approach from new business models, innovative business processes and a digitally engaged workforce.

Moving forward, we will continue to see targeted investments in data-harvesting technology that better adapts businesses to operate using service-oriented business models. Businesses will continue shifting toward service-offerings and traditional supply-chain boundary lines will blur. Today’s paints and coatings companies may not be paints and coatings companies tomorrow; businesses will integrate toward a servicing brand image and away from simply being paint suppliers. Companies which will fail to develop and implement such disruptive business models and processes run a high risk of being disrupted by their competitors and the market.

Peter Maier is general manager of Energy and Natural Resources Industries at SAP.

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