Find Pricing Opportunities in Your Operational Metrics

A good pricing professional has developed price management skills overtime, but a great pricing professional knows that good data analysis can dramatically improve profits without impacting demand.

If you want to be great at pricing, it may be time to look at your operational metrics.  These metrics often reveal more about demand than other factors, especially in the aftermarket.  Discover what to look for when evaluating your data by focusing on three areas:

1. Stock outs and backorders

2. Substitutes

3. Critical parts (emergency shipments)

If you look closely at your list of stock outs and backorders, you are bound to find items that are consistently on the backorder list.  Consider raising the price on these items, which often justifies the added inventory carrying costs. By keeping the item in stock, you can often capture new revenue from customers that purchase from another source because you are out-of-stock

Aftermarket providers that offer more than one of the same part from different manufacturers – substitutes – can often find opportunities for price increases by reviewing special orders.  OEM parts that are highly valued for quality are often selected over substitutes.  In this case, the customer is willing to pay the shipping costs, and wait for the part.  Use this information to justify increased prices on OEM parts. Price management software can be leveraged to test price increases on these parts. Take a sample of OEM items that have substitutes – keep in them stock to determine if the increased price pushes the customer towards substitute.

How often are your customers willing to pay for expedited shipping? This is often an indication of critical parts.  In this case, there may not be any substitutes for the part. Doing analysis that includes how often a part is shipped overnight can reveal what parts customers need for equipment that is critical to their business. While you may not be able to pass on the entire cost of shipping, you can capitalize on a portion of the customer’s savings when they avoid expedited shipping.

At this point you are probably worried about how much analysis you will need to do and if it will improve your margins.  That’s pretty easy to calculate. Add up all of your stock outs, back orders and expedited shipping. Now, multiple the total sales by 2%. Would improving your revenue by this amount justify the added effort? I bet it does.  Or, make the analysis easier by selecting a price management solution, like Syncron’s, that can find, calculate and implement price increases for stock outs, substitutes and items shipped overnight.

Price increases can have a significant positive effect on your business.  If you focus on your data, you can find stock outs, substitutes, and critical parts that are ripe for price increase.