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8 Tips For Getting Your Prices Right - Pricing Automation In The Aftermarket

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June 01 2016

The past several years have brought many businesses through cost reduction programs. In the aftermarket1 - as well as in several other industries - that means that 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.

Pricing spare parts can be tricky. Pricing automation can help.

Image: http://bit.ly/1qaJfDc

Here are eight tips for getting the price right.

1. 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. For high-value parts - parts with high complexity or high customer benefit – secure the most optimal Willingness To Pay (WTP2). This is especially true if your own procurement price is high and if the parts have little competition.

3. 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 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.3

5. 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. 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. Prices for parts with low profit should be handled with as little effort as possible.

8. In today’s international market, prices should be easily convertible into regional currencies.

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.

Businesses avoid re-pricing because of data complexity

Image: http://bit.ly/1TBI33a

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.

Advance Auto Case Study

 

[1]  “Secondary market for goods and services complementary or related to its primary market goods (original equipment). Aftermarket goods mainly include products and services for replacement parts, upgrade, maintenance and enhancement of the use of its original equipment” Wikipedia
[2] “The maximum amount an individual is willing to sacrifice to procure a good” Wikipedia
[3] www.aviationweek.com/mro/airbus-eyes-major-role-a350-aftermarket-support-first-customer-imminent


Karl Meier brings more than 20 years of experience in enterprise software implementation projects and Master Data Management. In his present role at Stibo Systems, Karl is project manager and solution consultant and is implementing projects for product and customer Master Data Management in the retail and distribution sector. Follow Karl on:
Karl Meier verfügt über mehr als zwanzig Jahre Erfahrung in den Bereichen Stammdatenverwaltung und Implementierung von Unternehmenssoftware. In seiner derzeitigen Rolle bei Stibo Systems ist er als Projektleiter und in der Lösungsberatung tätig und auf die Implementierung von Produkt- und Stammdatenlösungen für Handel und Distribution spezialisiert. Folgen Sie Karl Meier:



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