The power of product pricing and the huge impact it can have on the bottom line is well understood by businesses. Sophisticated technologies are deployed to price everything from airline tickets to athletic socks, in order to harvest profit improvements. While product-based businesses are familiar with the positive impact price optimisation can have, most durable goods manufacturers are missing out on big profit opportunities hidden in the service parts they offer after the initial sale of finished goods such as cranes, planes, forklifts, motorcycles and high-tech electronics.
Unfortunately, these businesses are leaving money on the table. Many of today’s service parts pricing teams rely on spreadsheets and simple cost-plus methods but it’s time to say goodbye to those outdated systems and hello to sophisticated price optimisation technology that will facilitate more efficient and effective service parts pricing.
Here are four questions that should be asked before diving into a service parts pricing project to prevent any headaches down the road.
Can you perform all your daily pricing parts pricing functions in one system?
Before beginning a service parts pricing project, make sure you have the capacity to perform all pricing functions in a single system. From service parts inventory management to making real-time pricing decisions, “the cloud” is probably the easiest way to keep all organisational processes as streamlined – and painless – as possible. In fact, cloud computing for the supply chain will be worth $4.4 billion by 2019. A cloud-based pricing solution that integrates into a company’s ERP allows you to leverage many data sources, helps standardise pricing processes and enables easy identification of potential areas for revenue uplift.
Do you use an analytical solution that supports consistent pricing analytics reports and processes?
When undertaking new projects designed to optimise the prices of service parts, it’s important to remember that pricing is a process. Using an analytical solution will make it easier to understand reports and processes relating to pricing and will ultimately help grow the bottom line. For example, just by embracing a strategic and more analytics-based approach to pricing, we see companies increase service parts revenue by as much as five percent while driving gross profit improvements by more than seven per cent. The benefits of such an approach for manufacturers are truly tangible!
Do you simplify things because you can’t manage the complexities of a multi-faceted pricing structure?
It can be overwhelming to take control of complicated parts pricing structures. Company leaders are often focused on several initiatives at once causing them to revert to what they know or what has worked in the past. The thinking goes like this: If old-school methods like gap analyses and roadmaps have been sufficient in demonstrating ROI before, then why fix something that isn’t broken? This line of thinking, however, leads to additional questions. Is just “getting by” the best way to run a business? Or is constantly looking for ways to improve operations the best way to increase bottom line, build upon success and increase market share? In most cases, it’s the latter.
Do you have a linked price structure across geographies and multiple currencies so that items are priced in their local currency?
Pricing plays a critical role in influencing revenue while also delivering a reliable customer experience. If you’re looking to price in multiple locations, you’re going to need to keep in mind the different currencies in other countries. Implementing a linked pricing structure is a huge opportunity to have a positive influence on your company’s bottom line.
Finally, it’s important to remember that the purpose of a service parts pricing project is to maximise price differentiation for maximum profitability, while maintaining customer price satisfaction. It sounds like a fine art, but it’s a science and, with the right technology, accessible to any business.
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