Dow Corning’s platinum index pricing strategy 'meets with success'

Dow Corning Corporation, a provider of silicone technology for the global pressure sensitive industry, took a ‘bold new tack’ in the battle against rising platinum prices last July when it implemented ‘an innovative and transparent index-based pricing system’ for its global pressure sensitive product line, according to a statement.

Six months later, Dow Corning says the strategy has successfully allowed the company and its customers to better manage swings in commodity platinum metal pricing, which has more than tripled since 1999.

‘At first, we attempted to absorb the increased costs by aggressively implementing productivity improvement programs and introducing innovative low-platinum systems,’ said Norm Kanar, Americas marketing manager for Dow Corning’s pressure sensitive industry. ‘Unfortunately, those advances did not offset the continued and significant escalation of platinum metal prices over the last four to five years – which is why we took this new route to cost management.’

Dow Corning’s model, based on a quarterly average platinum metal cost index, establishes a base product price and then separates out the commodity portion as a discrete line item. Index-based pricing is common to many industries that are sensitive to commodity costs. In fact, all industries involved with precious metals use this standard pricing mechanism.

‘Index-based pricing provides transactional transparency – customers clearly see that Dow Corning is not using the price of platinum for financial gain,’ explained Kanar. ‘If the cost of platinum goes up, it’s reflected in the price. But when the cost goes down, we pass those savings along as well.’ Kanar added that, as a case in point, Dow Corning plans to reduce the platinum component of its product pricing in Q1 2007 to reflect recent declines in the cost of the metal.

Because platinum pricing can sometimes fluctuate widely over a short time (see graph), Dow Corning’s quarterly index model also provides a degree of price stability to its customers. ‘In a business climate that is difficult for all of us, indexing demonstrates that we remain an ally of our customers by offering a way to mitigate the impact of these price spikes,’ Kanar said.