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