The past several years have brought many businesses through cost reduction programs. In the aftermarket - as well as in several other industries - that means that the price is a factor that is more important than ever.
However, the aftermarket is characterized by high complexity and parts are often kept available for many years to satisfy the demand of aging vehicles. Products must therefore continually be adjusted to changes – and inflation – in the market. The revenue potential should therefore be continuously re-evaluated. Here you get eight for getting the price right.
8 tips for getting the price right in the aftermarket:
1. Consider spare part turnover
Spare part turnover should be a major consideration factor. The fast-moving items - representing approximately 20 percent of these companies’ products - account for around 80 percent of the annual revenue. Therefore, these parts justify a higher price point and can also be a benefit to increase the use of resources.
2. Secure the optimal Willingness to Pay for high-value parts
For high-value parts - parts with high complexity or high customer benefit – secure the most optimal Willingness To Pay (WTP). This is especially true if your own procurement price is high and if the parts have little competition.
3. Consider whether to repair or buy
You must consider the tipping point of buying a new machine versus repairing the old one. There is a certain pricing threshold for any repair and exceeding this maximum makes a new product purchase the obvious choice.
4. Consider selling high-value parts as an hour-based services
Consider selling high-value parts on an hour-based service, where the price is established directly from the customer benefit. With this service you guarantee the availability of all primary line replaceable unit spare parts through an exclusive on-site stock and pool access service, as well as state-of-the-art repair service. These spare parts pools are becoming more popular in the aviation business, especially with the newest-generation aircraft. An example is the Airbus Flight Hour Services.
5. Standard parts prices should be based on costs, customer benefits and competition
Standard parts with high price transparency have to be sold at favourable prices due to the large amount of competition. If offered too expensive it will lead to a poor price reputation. Of course, the related costs cannot be ignored here. The optimal price should therefore be established through the combination of three factors: costs, customer benefits and competition.
6. Add a handling fee or minimum order
If the proportion of orders with low value is very high this leads to disproportionately high administrative costs. In these cases, you either charge a handling fee or you add a minimum order quantity per part.
7. Low profit parts should be handled with minimum effort
Prices for parts with low profit should be handled with as little effort as possible.
8. Convert prices into regional currencies
In today’s international market, prices should be easily convertible into regional currencies.
Price differentiation and automation is key
What these tips show is that you have to differentiate your prices. However, in order to ensure that your efforts don't become overwhelming, there is no room for individually pricing each spare part. Instead, you have to agree on a certain pricing model which is then applied to the entire product family. Here it is important to have a differentiated classification of spare parts with a parameterized clustering that is easy and optimally automated. The parameters should be configured individually and the inclusion of additional parameters must be possible. Analysable log data ensures transparency and traceability.
In calculating the costs it is important to distinguish between house parts and purchased parts. The costs of purchased parts are determined mainly by the purchase price, which are usually agreed upon annually with suppliers. Ideally, the vendor delivers the product data, including purchase prices, which can then be transferred directly into your system. It is important that all price components such as scales, minimum purchase quantities, delivery times, etc. is also supplied and entered into the system.
Businesses avoid re-pricing because of data complexity
However, the data needed to evaluate the prices in most companies' systems is often not available or must be collected with a lot of manual work from each department and/or supplier. The lack of a real data management system makes many companies shy away from re-pricing products because of the associated complexity.
The necessary re-pricing of spare parts requires an increase in the level of automation and efficiency. Without a solid data management basis for an automated pricing process, the cost of repricing is high.
You need a tool that automatically calculates the value without further manual effort. A master data management solution has integrated pricing management, making sure your organization’s prices are always optimal and geared for growth.
