Why the Cost+ approach often fails – another hot topic on the EPP Profit Leaders Summit

Pricing for Profit – Using Parts Pricing methods for Aftermarket Success Pricing

The European Pricing Platform is proud to welcome Syncron as one of the strategic partners on the EPP Profit Leaders Summit in Stockholm on December 14-15, 2016.

We asked Syncron to share some insights on the challenges going in the field of spare parts pricing. And why it does matter to join the EPP Profit Leaders Summit?

• The big & global challenges for the pricing directors in companies, worldwide: what are they?

We identified three main challenges:

1. The first we´d like to mention is profit loss through an oversimplified pricing approach. Many OEMs still apply only a Cost+ approach, simply adding a fixed percentage to the cost of manufacturing parts. The Cost+ approach works well to set prices for some parts but fails to recognise the value to the customer which is significant to set prices for other profit-driving parts. A simple Cost + approach does also not take available alternatives and prices for competitive products into account. When customers feel that they are not paying what they feel is a fair price, they look elsewhere which leads to profit loss and in some cases also to an image loss. By not identifying optimal prices for products, margins are often significantly lower than they could be and money is basically left on the table.
2. The second challenge we´d like to mention is complexity. There are several reasons why OEM´s still hold on to a (mainly) Cost+ plus approach. Manual pricing (e.g. done using spreadsheets) takes not seldom a lot of effort and applying several different pricing methods, segmentations and classifications to this approach just increases the complexity. An increasing availability of competitive prices over the internet as well as the necessity to considering sales potential data and value drivers when setting prices, pricing reached a level of complexity that cannot longer be sufficiently mastered manually ( Excel/ Access). Handling the necessary tasks to set profit-optimized prices requires not only adequate personnel resources but in most cases also a professional pricing tool to ensure continuous optimization without straining the workforce.
3. A third and last challenge are inconsistent pricing strategies. Pricing is often, due to missing processes and tools, not centrally managed. This makes it impossible to have a clear transparency over prices in all markets and to enforce a consistent pricing strategy. Different cross-border pricing leaves OEMs open to customers shopping around/ cherry picking for the best prices which leads to internal competition and again to profit loss. In many cases, customers will as well get frustrated if they are being charged more in their country than for example in their neighbour country.

• Can an event like the Profit Leaders Summit contribute to these challenges?

Yes it certainly can. At the summit you´ll meet other profit leaders in order to learn from each other and to exchange knowledge. You´ll also meet pricing profit experts who will share best practices and insights into successfully profit-increasing pricing projects.

• What should be the outcome of the summit, what’s in it for all participants?

Participants go home with an inspiration and ideas on how to boost profits within their organization through optimized spare parts pricing. Some might only tweak some small procedures, others might want to change the entire pricing process. The main objective is to learn from each other.

• What can you give away about your topic?

Our bootcamp will give the audience ideas on how to develop and enhance the price process in their business and provides participants the ability to critically evaluate target price models. We will dig into best practices and experience with pricing of spare parts shared by the participants. Based on this Johan Östlin is going to look at different pricing projects and share practical use cases and experience of other successful pricing projects.

As always feel free to contact me directly by phone (+32(0)51320372) or mail (els.landuyt@pricingplatform.eu) for all other practical matters that you would want to know (the EPP preferred hotel rates, group rates available, …).