Back to Basics: The Fundamentals of Price Optimization

Manufacturing executives around the world are facing a litany of business challenges brought on by the coronavirus pandemic. And as organizations shift to focus on customer retention opposed to strictly new product sales, optimized after-sales service operations are becoming more important than ever.

According to Deloitte, “changes in customer demands, increasing market maturity, cyclical fluctuations in new equipment sales and pressure on pricing are among the major factors driving many manufacturers to seek new aftermarket services revenue opportunities.” But for many executives today, identifying and executing the appropriate pricing strategy can be difficult, especially during unpredictable and unprecedented market conditions.

At Syncron, we believe a focus on the fundamentals of price optimization is the best place to start, regardless of how uncertain macro-economic conditions may be. In this new series, we will explore different areas of after-sales service optimization and how going back to the basics will lead to sustained success.

Check out a few service parts pricing tips below to get started: 

Common Challenges of Pricing Service Parts

One of the most common challenges we run into is the number of parts, since most original equipment manufacturers (OEMs) have hundreds of thousands of parts for different stages within a product’s lifecycle. It can be difficult to understand and determine the right price, regardless of how skilled a pricing department is.

Due to the high volume of parts, many OEMs also run into segmenting challenges due to limited resources or little to no technology capabilities. Many organizations have data that is required to price across many different systems, which typically leads to valuable resources spending time on data cleansing opposed to more strategic initiatives. This can prohibit pricing teams from making price optimizations that would add value to the bottom line. 

Overcoming Roadblocks

There are so many aspects to pricing including visibility, analytics, strategy, segmentation, price setting, quoting, rebates and more – all of which can be daunting and can prevent organizations from moving forward.

At Syncron, we developed a pricing maturity model that is grouped into three key phases: Building the foundation; expanding value and evolving pricing to be a competitive advantage. This approach helps root organizations in the necessary steps to evolve their pricing strategies and provide tactical and logical steps to move forward. We adhere to the ‘crawl, walk, run’ approach and believe the key to long-term success is to identify where an organization lies on the maturity curve and then lay out the necessary next steps for optimization and improvements. 

If you would like to learn where your organization falls on the pricing maturity model, please contact us today.

Moving from Basic to Intermediate

Once a team has identified areas of opportunity to change or improve pricing strategies, it’s time to implement basic steps that will move teams from basic to more intermediate pricing strategies. Those steps are:

  1. Understand baseline performance in order to set realistic and achievable goals. Teams can’t effectively optimize what they do not fully understand.
  2. Implement part segmentation to understand how to group parts together for pricing. Without segmentation, the pricing process can be daunting and cause organizations to default to the status quo.
  3. Determine and align the right price strategies to the appropriate part segments.

The most effective way to enable this transformation is to invest in a sophisticated service parts pricing solution like Syncron Price. Modern technology automates the steps listed above while also allowing for a more dynamic approach – essentially as the business evolves, customer buying patterns change and parts move through their lifecycles, Syncron Price will automatically trigger updates within segmentation and pricing.

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