It’s safe to say that this is an interesting if not exciting time to be a pricing manager—and one of the most challenging. Prices are soaring across nearly every major index as demand surges, and supply runs short. As many countries headlong toward economic recovery, companies need to adapt pricing processes so they can react quickly to capitalize on rapidly shifting market conditions.
Two competing trends will shape OEM pricing strategies in the post-COVID world:
- Greater price sensitivity by consumers
- Lower price sensitivity for mission-critical parts needed for revenue-generating assets.
Let’s take a closer look at both sides of the coin.
Most consumers don’t think about the cost of raw materials. That is, until it forces manufacturers, and subsequently retailers, to raise the price of everyday goods and services. Corn, lumber, copper, crude oil and soybeans are all hitting record highs, which makes the goods they’re used to produce more expensive, too. And when all these costs make it to the gas pump, consumers really start to take notice.
Mostly by necessity, many people cut back on spending during the pandemic. And even with economic stimulus, the households most impacted financially won’t be eager to open up their wallets as wide as they did before. So not only are consumers willing to spend less, due to the surge in commodity costs they’ll also be confronted by a jump in prices at the store. This double whammy will inevitably make people more price-sensitive.
Manufacturers should be responsive to this even in the midst of greater optimism based on widespread vaccine availability. As with inventory management, the key to success here is increasing pricing agility. This enables optimized pricing that syncs closely with market conditions, leading to greater value capture.
Manufacturers with dealer networks also need to invest in the customer experience to keep margins high and reduce churn. By collaborating closely with their dealers, OEMs can help ensure that inventory availability is high, and pricing is responsive. If customers are happy, they won’t shop around for the lowest price—they’ll come back to your dealers again and again.
Back to business
On the B2B side, businesses that rely on revenue-generating assets that have been sitting idle for a year will be eager to keep them running with as high an uptime as possible. They know that the cost of downtime is much higher than any markup on parts they might face. Of course, this doesn’t open the door for price gouging, but it does mean that businesses are much less price sensitive than before the pandemic. After missing out on revenue due to lower demand over the past year, they won’t let anything slow them down now.
So how should pricing managers for B2B-focused OEMs and suppliers respond to make the most of this opportunity? The starting point is data. By leveraging a spare parts-focused pricing solution, manufacturers can gain insights into which value drivers are important to customers in specific regions. And by understanding the complete price waterfall, companies can see exactly where to adjust to achieve a desired sales volume while maintaining high profitability.
With these seemingly contradictory market forces, it’s harder than ever to get pricing right. That’s why leading OEMs invest in sophisticated solutions that take all the important variables into account to provide pricing managers with straightforward recommendations. There’s more money on the table than ever before. Make sure you don’t leave any of it behind.
Ready to get started? Take the first step toward higher spare parts profits by scheduling a complimentary profit discovery session with our team of pricing experts.