Optimizing spare parts pricing will be pivotal as OEMs manage the COVID-19 crisis.
By Gary Brooks, CMO, Syncron
Manufacturers around the world have been faced with unprecedented disruption as a result of the COVID-19 pandemic and economic crisis. Consumers alike are delaying the purchase of new equipment, instead prolonging the life cycles of existing products. This has a direct impact on OEMs’ after-sales service operations.
After-sales service, which includes maintenance, repairs, spare parts and other services after the initial sale of a product, offers manufacturers a unique opportunity to differentiate from the competition, enhance the customer experience and increase financial performance. According to a Deloitte report, the average operating margin from after-sales service is about 2.5 times the operating margin for new equipment sales. And as manufacturers face declining new product sales and less demand, the service supply chain should be optimized to provide stability and create value in otherwise uncertain times.
Spare parts pricing, in particular, ensures the end customer has a consistent experience, while the manufacturer or supplier simultaneously maximizes revenue and margins. With that in mind, below are a few things to keep in mind as the manufacturing space continues to work through the COVID-19 crisis.
Parts Volume Challenges
With the number of various products OEMs typically have out on the market, the number of parts they have in stock is truly mind boggling. Therefore, pricing is one of the most challenging tasks that OEMs have to undertake regardless of how good their pricing teams are.
Also, because of the high volume of parts, many OEMs also run into segmenting challenges due to limited resources or little to no technology capabilities. Granted, many OEMs have access to the data that is required to price across many different systems, yet, many do not have the tools in place to quickly act on this data so it is typically underutilized or never touched at all. This can prohibit pricing teams from making price optimizations that would make products as appealing as possible.
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.
This is why it is so important for OEMs to take a step back and understand how mature it is in terms of its operations. For example, at my company, 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 not only helps OEMs understand where they are at the current moment in time but what steps they should take to get where they want to be and to offer the best pricing of parts to existing and prospective customers. In addition, this type of “ground level” assessment can help OEMs uncover key learnings and problem areas across their organizations that they may not have found otherwise and could have potentially exacerbated unintentionally.
Understanding Each Segment
Once OEMs can segment products and better understand the maturity of their pricing operations, many OEMs are then able to better tailor their approaches to how they price various segments. Instead of a scattershot approach, OEMs can set specific goals for various segments, assess demand and more, meaning they can better meet the needs of customers if market conditions shift. Moreover, by having a greater understanding of each segment and what the goals for each should be, OEMs can better recognize how segments relate to one another and how strategic decisions pertaining to one can impact others.
Pricing has always been a thorn in the side of OEMs. But with the current economic crisis taking hold, it has become even more important for OEMs to understand how their pricing positions them in customers’ eyes and how they can tweak things to improve their standing in this regard. While this unexpected disruption in the market can be damaging to businesses, it’s also an opportunity to evaluate and optimize key operations within the service supply chain. The manufacturers that successfully navigate this time will emerge more resilient and productive than ever.