5 reasons OEMs often fail to leverage Spare Part Pricing

Expert Point of View :

Marc Toussaint has extensive experience in the Aftermarket in Automotive and Industrial Equipment, which he acquired both from the local field and from responsibilities he held at Headquarter level.  He joined Accenture in 2011 and is European Sales Director within Accenture Product Lifecycle Optimization, a Division of Accenture dedicated towards Aftermarket Services Value Creation.  Marc holds a Master in International Business from France and a Master of Business Administration from the UK. 

Marc will lead the Spare Parts Pricing Master Class on 18th June 2013 in Frankfurt and moderate the EPPAftermarket Forum on 19th and 20th June 2013.

As automotive and industrial companies continue to look for efficient growth opportunities in today's business environment, strategic parts pricing holds real potential for making a direct -and often significant- effect on operating profit, with comparatively little capital investment or organisational turmoil.  

So why do OEMs so often fail to seize these opportunities to improve their efficiency?  Marc shares his and his team's observations with us below :

1) Pricing teams lack manpower & resources

While finished goods – few in numbers -  are often managed by a large team and capture most of the company’s budget, we notice that the opposite is mostly true for spare parts.  The parts pricing team is lean to manage thousands of parts references. Consequently, most spare parts pricing organisations tend to focus on the top 10% to 20% of their parts portfolio, for lack of time and tools to manage large data.  This, more often than not, leads to inconsistent pricing over the entire lifecycle of the product. With immediate effect on profitability and brand image.  

2) Limited and sometimes inaccurate benchmark information

We mentioned that, for most manufacturers, the parts pricing team consists of a handful of people busy setting and maintaining parts prices. In this context, it is difficult for the same team to track competitor benchmark information across their parts portfolio in a consistent and organised manner.  They rely on sporadic feedback from their sales team, which can be subjectively tainted. Some industries may be more structured and benchmark data can be accessible more or less easily. Still, data needs cleansing and analysing before it can support any decision making. Large data handling requires time, effective tools and a consistent approach. What the teams often miss.

3)  Company's core infrastructure to inform and set parts prices is weak

Parts data (technical, commercial, installed base…) sits all over the organisation in spread-sheets or in various applications. The parts pricing team struggles to access it, like anyone in the organization. The parts portfolio is not always segmented or enriched in order to support parts pricing optimization activities. It starts with data. And in aftermarket, we talk large data.

4) Fear of losing market share, due to lack of understanding of value drivers per segment

For some manufacturers, part price is seen as THE purchase criterion for a customer. While, in reality, customers (particularly when in need of repair) do not take price as the primary purchase criterion.  Response time, part availability, repair turnaround time or overall service quality, play a significant role in the decision to buy. This mind-set often prevents manufacturers from challenging their parts pricing strategy from mere “cost plus” to a more rational and value-driven approach. This often leads to a stand-still.

5) Price execution and Sales operations are often loosely controlled

We all want to keep our customers happy. As a result, sales people may be tempted to treat each deal uniquely and often succumb to significant "give-aways" (rebates, terms of payment, delivery etc.) and exceptions, which directly impact the P&L. This is often permitted by lack of governance and control process to monitor deviations from list price. We notice that the lack of coordination between the Parts Pricing team (“back office”) and the Sales team (“client office”), and the lack of monitoring tools to track and show results do not allow manufacturers to fully execute their pricing strategy. And this affects the bottom-line.

Join us at the EPP Aftermarket Forum to discuss solutions to these and other typical issues.  Share your experiences and learn from each other.  

Early bird special of € 1.100 for 2 full forum days ends on 18 April -- contact nicolene.barnard@pricingplatform.eu to register !

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