Pricing and Marketing Strategy
NG Group's "Map and Act" Solution Enables your Organization to:
 Become proactive in pricing & marketing according to part life-cycle
Manage by exception: Deal only with parts that require attention, at the right time
Focus, Direct & Support your spare-part sales people with an intelligent collaborative system
The "Map and Act" methodology to part management applies mass retail principles such as price sensitivity, part segmentation and value to the customer to part management.
Thereby allowing businesses to dynamically map part behavior against expected sensitivity, pricing strategy and marketing programs.
Why Pricing?
When growth in vehicle sales is a distant memory companies are beginning to realize that the answer to achieving better bottom line results and increasing revenue is right in front of their eyes.
After-Sales business and Spare-Parts pricing is where CEOs are starting to look towards in order to increase profitability. In this article we will discuss why that is, what are the challenges automotive organizations face when pricing Spare-Parts and the drawbacks of the traditional way of pricing Spare-parts.
The Unique Challenges of Spare - Parts Pricing
Without question, determining a price on Spare - Parts is more difficult than pricing cars.
The challenges of pricing After-Sales can be narrowed down to five main issues:
1. Identifying the end customer - The end Customer demand curve is very tricky to understand and is one of the key factors in pricing.
Distributor's habit to address their network dealers as their customers instead of looking at the real end customers who generate the demand for products and services, leads to a murky understanding of the customer demand curve.
2. Gathering market data - The lack of structured market data in a very complex market makes it challenging to define a pricing standard. To start with there is the question of defining the key players to compare against - OEM? Parallel importers? Competing brands? Following that there is a need to determine how to focus on collecting market data only for the right parts without wasting valuable resources? And finally, deciding how to create a systematic data collection methodology?
3. Dealing with competition and customer loyalty - Ad-Hoc competitors come and go and almost any entrepreneur can contact a substitute parts manufacturer and order a container of parts to sell in their local market.
4. Choosing how to manage the product - There are thousands of active parts with different customer types, price sensitivity, market potential and competition. This variance in products makes 'One by One' management impossible.
5. Relying on a 'middleman' – Distributors and manufacturers have no direct link to their customer. This makes marketing and conveying the right messages to customers extremely difficult. Dealerships, even those owned by the distributor are very difficult to educate and marketing is usually not one of their strong points.
Adding to the challenges detailed above is the fact that the benefits of Spare Parts are less tangible and their advantage to the customer are harder to understand, thus measuring your product offering against customer expectations can be extremely difficult..
Considering the effort and resources needed to overcome all the challenges we discussed ask yourself this: How much time, effort and resources (marketing data, IT tools) is my company putting into pricing cars and how much is it putting into pricing Spare- Parts?
Common Pitfalls in Pricing Spare- Parts
Understanding the challenges is the first step to understanding the complexity of Spare- Parts
Pricing, the next step is being aware of common mistakes.
1. Standard markup - Many companies settle on a standard "cost-plus" markup system in pricing Spare- Parts. This is often the case because data on price elasticity and customer demand is hard to come by – this causes loss of potential revenue when the demand curve is flexible and loss of customers when demand is more rigid.
2. Competition based pricing – Some companies attempt to adjust the cost based pricing against the competition, but base their adjustments on little more than intuition – this causes an unjustified reduction of the company's profit margin with no real effect on volume or customer retention.
3. Quick boost - Other companies raise prices to achieve a quick boost in earnings without understanding the competitive implications on the market and then watch as profits fall.
4. Lack of 'big picture' planning – Often times companies introduce new offerings but fail to tailor the service-delivery model. This causes costs escalate and profit margins shrink. For example, a distributor that launches a winter campaign with special discounts on parts and publishes it on national media without analyzing the penetration and success percentage and without bringing the network in on the effort.
Part of the problem is that the After-Sales business is more often than not regarded as an afterthought of the vehicle sales industry, and so Spare- Parts managers aren’t given the resources to develop the right systems, tools, and incentives to maximize returns.
Breakthrew Strategies
Lost opportunities and money that lie on the floor in the after-sales is starting to cause a shift in the mindset of businesses. These businesses are finding it more and more difficult to locate growth potential in vehicle sales, especially now, in times of economic downturn, and are turning to After-Sales pricing as a future source of growth.
Little by little, the companies that best realized After- Sales pricing profit potential are finding out that to perform as well as they want, using best-practice pricing methods is not enough. In addition these companies find the need to shift the After-Sales business focus from parts availability, order handling and cost management, to marketing.
A handful of companies are managing to capture tremendous value from their After- Sales businesses by taking a more careful, fact-based approach to pricing Spare- Parts and by making the task a priority of senior management.
For these companies the results have been impressive: some boosted their After-Sales profit margin by three to five percentage points, (typically within a year). More importantly, due to a well built pricing policy, these companies are also able to efficiently compete with changing market conditions and gain market-share in times of declining market-share all-around.
Summary
Pricing is with no doubt one of the core issues in the After-Sales business and now that the two key elements for change are in place:
1. Car sales is becoming less and less a source of growth and the huge potential that lies in after-sales is starting to be appreciated
2. New breakaway strategies and tools that gives the organization best practice methodologies are appearing in this market
Now is the time to realize this potential and turn your organization into a market leader by:
1. Change management processes, shifting the after-sales focus to the right direction
2. Acquiring the knowledge and tools that enable the business to realize this potential
3. Taking a deep breath and jumping in!
Examples for Part Pricing and Marketing Strategy BI Tool
Make Informed Decisions on the Right Parts at the Right Time
For the - APM MAP & ACT - After Sales Part Management Pricing Strategy and Consumption Control with Rapid ROI, Data Sheet - PDF
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