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The Importance of OEM Parts Pricing: Competitive Pricing Report

In the spare parts market, overpriced and underpriced parts translate into lost sales—and lost opportunities.

REINVENTING COMPETITIVE PARTS PRICING

Losing ground to parts suppliers and wholesalers in an increasingly crowded marketplace, savvy Original Equipment Manufacturers (OEMs) know that things must change in competitive parts pricing.

Those that initiate more rational, market-based pricing can realize impressive outcomes. It is about understanding the real competitors, identifying customers’ price sensitivities, determining the right market positioning for each parts category, and improving dealer and customer communications and incentives. While it can often be difficult to resurrect parts market share, there are examples where it can be possible with targeted pricing actions across specific parts categories.

Spare parts make up approximately ten percent of total sales, up to half of net income. Of this, the competitive parts segment generally makes up more than 50 percent of parts sales—and is the main focus of parts pricing managers.

As manufacturers focus on increasing shareholder value in this environment, there are three levers that can directly improve a company’s profitability and stock price: revenue enhancement, asset productivity and cost containment. In such a high-stakes environment, the price of inaction is simply too great. Reinventing competitive spare parts pricing is a must for OEMs to build market share for key spare parts while achieving strong margins across their competitive parts portfolios.

Click here to download the full article. Paying the Price of Inaction? Why Original Equipment Manufacturers Must Reinvent Competitive Parts Pricing. This opens a new window.Read the full report. [PDF, 2.1 MB]

GETTING COMPETITIVE PARTS PRICING RIGHT

Over the past two decades, most industries have progressed away from traditional, cost-plus pricing. Facing hyper-competitive environments and consumers who actively seek out other options when the price is not right—savvy first movers have recognized the need for change and other industry players quickly followed their lead.

OEM pricing teams have generally not moved with this agility. Because of the sheer number of parts per pricing resource—and the inherent complexities of spare parts pricing—OEM pricing teams often cannot keep pace with costs in the market, much less make proactive strategic adjustments.

As such, automotive and industrial equipment parts tend to fall into the early, competitive-driven stages of the pricing maturity curve.

This means that OEMs are reactively following the prices that others set—assuming they can gain visibility into competitor pricing. While other industries have progressed significantly further, OEMs can learn from these successes—such as the use of image items in retail—adapting them to the unique environment of service parts pricing.

Moving from basic pricing approaches with no defined price strategy to more profitable, integrated and customer oriented pricing means that manufacturers must consider market intelligence, analysis and adaptability in a systematic approach. This is not a costly and time-consuming process that spins cycles on pinpointing an absolute price. Rather, it is about using resources and time wisely in a quick, data-driven approach to determine a rational market price. This piece explores the fundamentals of getting the best results from this approach to competitive parts pricing.

EXTENDING THE IMPACT OF COMPETITIVE PARTS PRICING

In competitive parts, the manufacturer is dependent on distributors, dealers and technicians to positively influence end consumers’ parts choices and purchasing behaviors. The inherent give-and-take among these value chain relationships means that reinventing pricing approaches is not just about setting the right prices for end consumers. It must also be about developing incentives and promotional tactics—and communicating appropriately with distributors, dealers and technicians.

It is essential that OEMs communicate price changes with dealers, providing them with opportunities to capture consumers’ attention with lower priced image items that can ultimately help them upsell to higher margin parts and products. In addition, OEMs need to develop strong dealer incentive programs in the form of bonus programs, discounts, rebates and the like to drive sales through this channel.

As cars age, owners are less and less likely to follow suggested maintenance schedules. The Automotive Aftermarket Industry Association reports that while scheduled owner’s manual maintenance averaged 43.4 percent for all autos in 2012, it fell to 22.9 percent for vehicles 12 years and older. To lure owners back, dealers are creating inviting service experiences—such as comfortable, wired waiting areas and loyalty programs—to retain and regain this consumer segment.

Not only are promotions key to driving consumer interest and strengthening brand perception, they result in important consumer data—such as preference and related parts purchasing—that can be funneled back to manufacturers’ parts marketing teams.

Competitive Spare Parts Pricing—Infographic

If Original Equipment Manufacturers move to more strategic competitive spare parts pricing, what would it mean for parts pricing managers? Download this infographic to find out more.

Gain the Most Value From Competitive Parts Pricing

How to Gain the Most Value From Competitive Parts Pricing — Video

Learn how OEMs can bridge the gap and make better pricing decisions and build market share for key spare parts.