Why your spare parts strategy may no longer be adding up

Expert point of view :

Sean Duclaux serves as PROS Service Parts Industry Marketing Manager. He is responsible for the development of the company’s go-to-market strategy, and positioning of its Service Parts pricing and revenue management product portfolio. Prior to joining PROS, Duclaux held leadership positions in enterprise software companies, including AspenTech, BMC Software and Empirix. Duclaux earned an M.B.A. from the University of Houston; an M.S. in computer science from the University of New Orleans and a B.S. from Spring Hill College.

Why your spare parts strategy may no longer be adding up

The task of increasing sales and profitability in the service parts industry can be quite challenging. While the industry remains an economic force, a series of trends, including pressure from customers to cut prices, higher costs for raw materials and increased competition from global providers have forced suppliers to find ways to become leaner and more efficient. In order to do this, they have focused primarily on efforts to rationalise capacity and production. The results, as reported by 2011 On the Road: U.S. Automotive Parts Industry Annual Assessment, have had little positive influence on margins. Recognising that price is the number one lever to improve margin, companies must look to improve their pricing strategies in light of these new economic realities.


The service parts industry (specifically, automotive, heavy equipment, aircraft and parts manufacturing and distribution) generates trillions of dollars in annual revenues. Given the fact that many of the industry’s manufacturers and distributors struggle with pricing, it is clear that these revenues, albeit impressive, do not come close to capturing market potential. Why are these companies selling themselves short? The answer to this question may be answered, in part, by considering service parts industry leaders’ miscalculations of their pricing performance.

PROS recently surveyed 100+ service parts industry executives to gauge their strategic pricing performance. The paper below explores the results of this survey, asks probing questions that emerge from these results, and suggests ways for service parts companies to take their pricing strategy to the next level.

Survey says : 

To quantify their performance, our survey respondents were asked to rate their company’s overall pricing performance (e.g., business problems, technology, and pricing strategy). Our survey results (see Fig. 1) indicated that most respondents rated themselves as slightly above average, with a mean score of 3.1 on a scale of 1-5, five being excellent. The responses of the two sectors surveyed were similar; midmarket executives rated themselves an average of 2.8, while enterprise executives scored themselves an average of 3.2.

But, is their pricing maturity really average? What constitutes average? And, as service part industry leaders, are you satisfied with being average?

Download the full whitepaper here.

The EPP Aftermarket Forum

Join us at the EPP Aftermarket Forum on 19+20 June in Frankfurt, organised in partnership with PROS, and with the support of Simon-Kucher & Partners, to discuss the questions that arise from the survey results and look at ways for service parts companies to take their pricing strategy to the next level.  Share your experiences and learn from each other - that's what our pricing and profit optimisation excellence forums are all about !

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

Call for Speakers EPP Aftermarket Forum

Call for Experienced Pricing Practitioners : we want you !

Have you spent years manoeuvring your way through the challenges of Aftermarket Sales and Services landscape?

Then our participants want to hear from you!

There are still a couple of speaking slots open for pricing practitioners who would be willing to help us inspire and motivate the European Aftermarket Pricing Community.

We are looking for people who are willing to come highlight current or recent pricing challenges – outlining the issues they faced and how they have overcome (or plan to overcome) them.


In keeping with tradition, this year’s edition of the EPP Aftermarket Forum (19+20 June, Frankfurt) will be a high-level conference where like-minded individuals from across Europe come to connect and share their pricing knowledge with each other.

Make your mark in the pricing community by sharing your experiences. We’re more than willing to help you prepare for your presentation if needed.

Topics that we are covering on the forum :

Keynote Topics:

• Aftermarket outlook: a broad sketch of the European situation, highlighting main challenges per industry that makes up Aftermarket
• The commodity trap : fact or fiction… and is there a way out of it? 
• How to turn big data into sales 
• Pricing across borders Centralised vs. decentralised pricing of spare parts in global organisations 
• The role of Total Value of Ownership in Life Cycle Pricing 

Breakout topics:

• How to translate your pricing strategy to your sales team 
• How to segment and price 100.000+ parts 
• How to monitor and drive pricing power in your organisation 
• Challenges to overcome before looking to Pricing Software as the answer 
• End of life does not mean end of profit : how to optimise the profitability of mature products 
• The aftermarket gets connected : transparency in a traditionally opaque market 
• Selling through price differentiation : how to give customers the feeling that they have more choices and how managing price dependencies across good-better-best categories 

Closing Keynote : A View on the Future - Aftermarket in the year 2023.

• How Direct Digital Manufacturing (3D-printing) can change the Aftermarket Manufacturing landscape of the future. 

Join us at the EPP Aftermarket Forum on 19+20 June in Frankfurt, organised in partnership with PROS, and with the support of Simon-Kucher & Partners

Looking forward to hearing from you.

Yours sincerely,
Nicolene Barnard
Content Manager EPP Aftermarket Forum 2013

Big Data should deliver Big Performance

Our prime structural partner, PROS, is hosting the Big Data Event for Sales & Pricing Outperform Europe 2013 on 22nd & 23rd May at the Sofitel Europe in Brussels. 
EPP Founder and President, Pol Vanaerde will share his passion and experience with us on 23 May, under the theme "The Art of Pricing : Price Perception"

EPP participants enjoy a further discount of 15% on the Early Bird registration fee of €349 if you register by 1 May. 

The Outperform 2013 summit is designed to help leaders in the Manufacturing, Distribution and Services industries beat the competition. You will be meeting sales, pricing and marketing executives, directors and managers.  The agenda contains industry-specific sessions, executive meetings and networking opportunities.

Agenda includes:

	The Path to Profitability Raymond L. Osgood, Vice President, APAC Region - FIAT INDUSTRIAL Negotiate with Confidence When You Have the Right Sales Analytics Trevor Pearson, Head of Pricing – 3663 Sales Optimisation – From Reactive to Proactive in Spare Parts Sales André J. Brogli, Head Global Customer Support Services - Sulzer Pumps Ltd Bridging Pricing and Sales for Success Frank Frohmann, DACH Chapter Board Member – European Pricing Platform
	Lessons Learned from Initiating a Global Pricing Project Lars Jansson, Chief Project Manager - The PriMa Project at Volvo Global Truck Sales & Marketing The Novozymes Pricing Journey Peter Faaborg-Andersen, Senior Manager, Strategy, Pricing & Market Insight - Novozymes A/S Making the Transition to Proactive Value-Based Pricing in Service Sales for Spare Parts and After Market Fabio Cicalini, Service Sales Pricing Specialis - Vestas Central Europe Are You the Only One Convinced of Pricing Technology? Craig Zawada, Senior Vice President, Pricing Excellence - PROS
	Top Trends with Big Data Brian Mitchell, Senior Consultant - Big Data Center of Expertise, Microsoft Using Big Data To Outperform The Market Mike Lawson, Director of Strategic Pricing, DePuy-Synthes Joint Reconstruction (a Johnson & Johnson Company) How Big Data Gives Your Team a Competitive Advantage Chris Jones, Chief Sales Officer - PROS

Who should attend?

Outperform Europe 2013 will help leaders in the Manufacturing, Distribution and Services industries get the strategic edge big data can provide. You will be meeting executives, directors, and managers from across Europe who are focused on outperforming in sales, pricing and marketing.

A glimpse at what can be expected based on last year's European B2B Pricing Summit in Munich :

See you there !

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 18^th June 2013 in Frankfurt and moderate the EPPAftermarket Forum on 19^th and 20^th 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 !

4 Key Themes in Managing Better Financial Outcomes for High Tech Industry

High-tech professionals highlight data accuracy, availability and reliability as key to optimising price and profit performance

Model N and European Pricing Platform survey reveals 30% of high-tech companies are still using manual pricing mechanisms

Chertsey, UK and Brussels, Belgium, 15 March 2013: Only 50% of European high tech companies are successfully integrating and using data in managing pricing and profitability, with 30% still using spread sheets, making it almost impossible to implement effective reporting as part of a process of continuous improvement.      

Yet the majority identified the importance of data accuracy, availability and reliability as the foundation of a sustainable corporate price and profit optimisation strategy. These were among the main findings of a survey of leading high-tech professionals from 14 countries across Europe and South America attending the recent High Tech Forum in Cologne, sponsored by Model N and the European Pricing Platform (EPP).

“Companies in the semi-conductor industry face a challenging year, with analyst IHS predicting a volume decline of 2.3% in 2013,” says Niels Skov, managing director, Europe, Model N. “This year’s Forum, which saw a 60% increase in attendance over last year, reflected how firms are currently addressing this, by taking a long, hard look at issues around operational effectiveness, technologies, skills and strategy in optimising price and profit performance.”

Board-level issue

The Forum identified four key themes in managing better financial outcomes:

• Pricing and the CEO: Effective pricing and profit management needs to be on the boardroom agenda. The CEO needs to engage directly in pricing strategies and how these will deliver broader business goals. Board-level sponsorship and support is essential to transform pricing from a series of isolated projects to a company-wide ‘price and profit’ culture and mind-set. The survey identified that a structured pricing organisation and business-wide sales and process disciplines were central to competent pricing and profit management;

• Data quality and reliability: Data is a core component in developing pricing and related processes. Ensuring quality data from all internal and external channels is also seen as critical in supporting strategic decision-making, detailed analytics and ensuring accurate rebates, for example. However, as the survey found, half of the firms surveyed believed they were not currently making the most of their data in achieving this goal; 

• Strategic customer alignment: Where manufacturers see individual customers as strategic partners, it is important that these customers see them in a similarly strategic light. Where the customer’s behaviour in areas such as price negotiations indicates a potential misalignment, this is likely to have cost implications for the vendor;

• Channel distribution: Attendees identified a widening gap between channel partners who add value that customers want and those who simply ship product. Almost three-quarters (73%) of those surveyed agreed that this evolution was happening, but already had plans in place to identify this change in each case, in order to make the right pricing decisions and retain effective control of the relationship.   

   

“These findings strongly echo our own experience in working with customers,” confirms Skov. “Pricing cannot be regarded as a single isolated activity, as it impacts directly on other connected processes, including the management of contracts, rebates, margins and their effect on market share and market capitalisation. 

“Pricing is one of the most influential elements of profitability. As a result, the monitoring of pricing and its execution is key, yet our survey highlighted that three-quarters of participants have yet to define the KPIs to help them identify revenue leakage from list price to invoice price and take steps to correct the situation. Improving data quality and end-to-end automation are the two main contributors to better revenue management performance.” 

   

EPP president Pol Veraerde adds: “It is very apparent that senior management in European high-tech companies are increasingly focused on further developing pricing and profit optimisation skills in their organisations, something we have seen at first hand at this event.

“As a priority, they are looking to get better-organised and move along the pricing and profit optimisation maturity journey from ‘good’ to ‘excellent’. To achieve this, they are looking for strong knowledge partners and the opportunity to see what their peers are doing, which is the very purpose of the EPP.”

For more information, contact: 

Alexandria Rumble
Model N
Tel.: +44 (0)1932 895090
Email: arumble@modeln.com

Britt Dejager
European Pricing platform
Tel.: +32/51.32.03.72
Email: britt.dejager@pricingplatform.eu

Are you an EPP participant yet?

EPP participation signifies that you’re serious about your price management career and your professional development. It highlights your dedication to employers, colleagues and stakeholders. It also provides you with access to valuable know-who, know-what and know-how that helps you improve and advance in your career. You can further help develop and share pricing knowledge in your community through chapter working or special interest group involvement.

Joining the EPP gives you access to the tools and support you need to make your mark on the pricing profession.  Read more here

Some examples :

• Achieve Pricing and Profit Optimisation excellence with our upcoming forums :

• Complete the EPP Pricing Maturity Indicator and find out where you are today in your pricing journey, which areas do you need to prioritise and improve, and how you are doing compared to other Industries.
  

So, now you have your pricing maturity score, you know which level you're on and where you should be heading...What's the next step ?

Have a look at our Open Learning and Certified offerings !

• An EPP Open Training is a two day programme during which you are offered the most up-to-date and ready-to-use pricing knowlegde available in Europe. Experienced pricing professionals share their knowlegde, tools and methods to boost your organisation's pricing policy. EPP Participants receive a 10% discount on all Open Training programmes

• Take your Pricing Maturity to the next level with the comprehensive Certified Pricing Manager Program
  

Join EPP today, and benefit form the best that the European Pricing community has to offer !

Read more here

5 tips when considering Pricing Software

Practitioner Point of view :

Merab Dekano’s professional experience until now has been focused on price optimisation, price execution and price analytics.  He has worked with multinational, national and regional companies alike (JCI, Bombardier, Caselex, Mobis Parts Europe, just to name a few). In his various positions, he has successfully led diverse pricing software implementation projects and it is in this context that he wants to share his experience with us at the EPP Aftermarket Forum this year. 

Please enjoy this guest post by Merab on 5 things to keep in mind when you are considering investing in Pricing Software :

No large company can truly have efficient control of their products without dedicated pricing software. The sad reality is that most companies operating in the Aftermarket sell an important portion of their products with very low margins and even below cost without actually realising it, until it’s too late.

However, let’s be realistic, pricing software is not the magical answer to all your pricing issues.  Pricing software is a tool, a very good tool, but it needs a very skilled ‘craftsman’ too. Pricing software can automate and sustain many pricing related processes (it will certainly reduce headcount needs), but it cannot take over the human job completely!  For it to work well, it is a human that needs to tell it what to do.

There are several challenges to overcome before you make the final decision to implement a pricing software:

• Company’s maturity level
• Data integration
• Decision making process
• Reporting needs
• Segmentation

1.  Company’s maturity levels:
Are you really making a full use of your current ERP system capabilities (which are sometimes very limited from pricing standpoint)? If you do, it means you know what your ERP system is capable of doing and you have probably discovered that you need more.  This is when you need to start thinking about acquiring a dedicated pricing software system.  Bear in mind that you will still need your ERP system to execute prices in the field, so they have to integrate perfectly.

2.  Data integration:
This is probably the most important challenge. The bigger the company, the more dispersed and scattered the data is across all different ERP systems, handcrafted applications, Excel files, etc. Pricing software implementation goes through data integration, which is a necessary but, at the same time, expensive and painstaking process. The more ‘homework’ companies do before starting a pricing software implementation, the more reasonable the costs will be, which will play in favor of ROI ratios. Bear in mind that so called ‘services’ that are related to distinct workshops and data integration and mapping tasks, can cost twice or three times as much as an annual license fee for the software usage. Pricing software companies are not interested in lengthening this phase of the project either. So, do your ‘homework’ before calling up pricing software companies. Your Management, and pricing software companies alike will appreciate it.  

3.  Decision making process:
Make sure and clear who makes pricing decisions in your company: Finance VP? Marketing VP? Sales VP? Product Management VP? All these options have pros and cons. It is, however, important to have a clear idea, as pricing software will support and sustain whatever culture you have within your organization. Change management may occur, but it usually does not happen overnight. Consider having a specific Pricing VP.

4.  Reporting needs: 
Do not start thinking about what reports you will need when you are already in the process of implementing pricing software. Save time and define your reports on beforehand. Do not have more than 10 reports configured. Otherwise, you will end up not using them.

5.  Segmentation: 
Clean your data well before you decide to implement pricing software. Pricing software will be of little use if your input data is not clean. “Crap in, crap out”, they say.  You will have to clean your data afterwards anyway, it is much more efficient to do it before the start of the project.

Last, but not least: Enjoy your new pricing software !
It will make your working environment much healthier and joyful. Do not underestimate emotional contribution that a reliable pricing software will provide to your employees.

Join us on 19+20 June in Frankfurt where Merab Dekano and several other top experts will share their experiences in an effort to Drive your Sales in 2013 and beyond ! 

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

EPP is proud to launch the Pricing Maturity Indicator !

Why should you fill in the EPP Pricing Maturity Indicator?

This 2013 edition of the Pricing Maturity Indicator, realised with the support of Foundation Partner, PROS, is aimed at identifying the current status of your organisation's pricing maturity, as well as the desired status.

At the EPP, we have gathered a treasure of best practices from the leaders in the field of pricing to come to our own practical pricing maturity model to support pricing practitioners in Europe. It is a hands-on, pragmatic instrument, to support your pricing maturity development, and it is our mission to share it with you. The emphasis of this study is to help you identify where you are today in your pricing journey, which areas you need to prioritize and improve to lead your company to the next level of pricing maturity (and profit optimization) – and perhaps most important: how to cross the ‘Pricing Chasm’.

Upon completion of the EPP Pricing Maturity Indicator, you will immediately receive :

1. your Pricing Maturity Score : current as well as desired.  
2. your own personalised Pricing Maturity Report which serves as a gap analysis framework with which you can align your priorities to further improve pricing in your organization.
3. an Industry Benchmark Report indicating where you scored in relation to your peers, once a significant number of respondents have filled in the survey.

The survey consists of 9 steps and a "get your report" module.  You will be guided through questions on Demographics, Pricing Strategy, Price Policy and Price Setting, Execution, Monitoring, Systems and Tools, Organisation and Governance, People (and Tender management if applicable).

Estimated time to complete: 10 to 13 minutes.

To take full advantage of your personalised pricing maturity report, be sure to read the recent white paper by Pol Vanaerde : Crossing the Pricing Chasm.

If you have any questions, doubts or have completed the survey and want to know what your next step should be, give us a call.

Best regards,
The EPP Team & PROS

Delivering High Performance through Strategic Spare Part Pricing

In the current competitive business environment, Original Equipment Manufacturers (OEMs) are searching for ways to unlock growth opportunities. If traditionally the focus was put on the finished goods, spare parts business has been put back to the spot light and with it the way spare parts prices are set and maintained.
Although spare parts traditionally represent only 10% of a company’s revenue, it generates more than 50% of its profit. Add to it the fact that your performance on spares and services significantly impacts customer satisfaction and brand loyalty, then you have all the arguments you need to join us on 18 June 2013 in Frankfurt for the 1st Strategic Spare Parts Pricing Master class.

**Note : this training takes place the day before the EPP Aftermarket Forum in Frankfurt.**
Special package deal available if you would like to attend the forum + training.

Target group: 
Operational pricing managers, pricing analysts, pricing specialists, business analysts, financial analysts, product managers with pricing responsibility, business intelligence professionals

Save the date in your calendar !
Tuesday, 18. June 2013, 08:00 - 17:00

Location:
Westin Grand Frankfurt Hotel
Konrad-Adenauer Strasse 7
60313 Frankfurt
Germany

Trainer:
Marc Toussaint, Accenture Product Lifecycle Optimisation

6 Key Take-Aways:

1. You understand the key performance indicators in spare parts pricing and how it relates to your company;
2. You understand the structure of a parts portfolio and the different pricing strategies which can apply, with their advantages and disadvantages;
3. You understand the pricing game and the different components of a successful pricing strategy;
4. You have insight in the different price setting techniques;
5. You can analyse your own pricing process and make recommendations for improvements;
6. You have an insight of parts price setting best practices in the various sectors.

Register today by mailing me : only 8 places left !

Best regards,
Nicolene Barnard

e-mail : nicolene.barnard(at)pricingplatform.eu
tel:  +32 51 32 03 72