THE CHEMICAL ECONOMY WALTER FEDOR, Senior Editor
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The new iVfosiei 401 meter i s the first instrument cfeslgned specially for use with Orton% growing series of specific ion electrodes. Using special all solid state circuitry, the 401 operates on two 800 radio bat teries for 6-12 months. It is portable, splash-proof &ηύ chemically resistant — ideaf for the most demanding labo ratory or field use. With Orion's Divalent Cation Elec trode, it is a complete system for di rect measurement of water hardness levels in parts per million. With Orion's new Fluoride Electrode, it permits di rect monitoring of fluoride levels in water supplies. Repeatability is ±0,001 pH and ± 0.15 mv on ex panded scale. Get the Orion 401 in a convenient carrying case from your laboratory supply dealer for $330.
ORION Sπ Orion Research Incorporated
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11 Blackstone Street, Dept. A ^ Cambridge, Massachusetts 02139 JJ Phone: (617) UN 4-5400 Ο X Send 401 bulletin. Name
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CÏÏy State
32 C&EN NOV. 21, 1966
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Chemical industry pricing practices have under gone considerable change in the past decade. No longer do chemical producers tend to respect each other's vested interests by avoiding price cutting or aggressive selling tactics. Primarily, the change lies in the sharp rise in demand for many chemical products that drew more producers from both within and without the industry. High profit margins relative to existing operations attracted the newcomers. But the real cause was poor pricing practices. For all of the indus try's technical and business knowledge, one area seemingly neglected was price forecasting and subsequent pricing strategy. One must believe that companies fully knew what they were doing. However, public explanations of pricing actions, as for example to the press, were usually classic cliches such as "response to competitive action" to explain a decrease or "rising costs" to explain an increase. Neither was an intel ligent explanation. Until late 1964, price increases among chemical products were in the minority. Since then, demand has improved steadily to the point where shortages have brought higher prices for many chemical commodities. Producers, caught up in the swirl of the moment, seem reluctant to concede that prices could ever decline again. Companies are quite will ing to accept projected increases in demand but they hardly acknowl edge that a 50% or a 100% increase in demand in a short period could plant the seeds for further price reductions. In a recent issue (C&EN, Sept. 12, page 89), I published projections for 25 major chemical commodities. These were not predictions but rather projections based on historical information, where reliance is placed upon past behavior's being a good indicator of future action. These projections clearly state direction, which is fundamentally estab lished by price-volume relationships, where demand should only reach a given volume at any given price. Such relationships show that price attrition will continue in the industry or, at worse, marketing conditions today will be unchanged in the next few years. Many chemical products are sold under oligopoly competition—mar kets dominated by a few sellers whose products are highly similar. Each maker knows full well that a price cut by one producer will be met promptly by others. Also, price reductions are not easily reversi ble, as the industry found out earlier, until demand exceeds supply, as is the case often today. Actually, sellers should have sufficient market intelligence to know a rival's costs, demand situations, and traits. From past experience they should have a very good idea of probable reaction of major rivals to price or other market action. Thus, during a business decline, when de mand is drying up, a competitor's excess capacity and low marginal costs typically cause informal price concessions that undermine the offi cial price. Under these circumstances, a price rise will not be fol lowed, but a price decline will be followed immediately. However, when demand booms and prices of substitute products rise, price re ductions are less likely to be followed than advances. This is today's situation, and it obviously has a profound influence on tomorrow's thinking. Too, the tight supplies today are being aggra vated further by the reluctance of companies to expand in areas where they feel return on investment is sufficient, until prices go still higher. The fallacy here is that the industry's price changes are due to techni cal as well as economic factors. One important technical breakthrough in a product area by a competitor can radically change a seller's esti mates of future conditions for which he is pricing. Today, the chemical industry seems satisfied that prices will continue up, when in reality there is a stronger possibility that they will continue to tend down—not this year, but in a year or so. Rather than ignore this possibility, the industry should be spending more time on price strategy, planning, and forecasting, so that when prices tend down again no one need be surprised and forced into hasty, emotional decisions that will ultimately disrupt price and profits.
