competitive pricing for spare parts

Competitive Pricing for Spare PartsJohan Östlin

Pricing Consultancy Manager at Syncron

COPYRIGHT © SYNCRON 2014

Syncron is the global leader in aftermarket service optimization

• Price Management and

Aftermarket Specialist

– Price Management

– Inventory Management

– Master Data Management

• Customers are multinational

companies

– Active users in more than 100

countries

– R&D intensive, investing >20% of

revenue

Meet the Presenter:

Johan ÖstlinPricing Consultancy Manager at Syncron

• 7+ years providing pricing consulting services to companies

• Ph.D. Aftermarket Solutions, Institute of Technology at Linköping University


Drive margin and sales volume with strategic competitive spare parts pricing

With a systematic analysis of competitive data, you can successfully implement prices, that:

• Quickly achieve ROI goals• Better communicate value to your customers• Grow sales and margin

Establish a efficient process to manage competitive information and feedback

How and where to gather competitive data

Use competitive information to set the optimal price


Unstructured, manual price adjustments creates risk and inefficiency

• Can’t closely align prices to broader brand and market positions

• Forced to treats most competitors equally to fit in to a pricing process

• Increases likelihood that price will be adjusted

based on the wrong information

Establish a process

• Can’t quantify how volume will shift when

the price is adjusted

• Can’t easily adjust price for thousands of

parts across customer segments and

regions


Structured approach to spare parts pricing takes into costs, competitive offers and applies analytics

• Leverage price to achieve category goals and grow market share

• Align prices to broader brand and market positions

• Rank competitors for pricing purposes

• Prioritize information that impacts price

• Quantify how volume will shift when the

price is adjusted

• Can easily adjust price for thousands of

parts across customer segments and regions

With knowledge about competitors you can:

Gather competitive

data


Gather competitive

data

• Publically available prices

– Public list prices. E.g. SKF European reference price

• Excel, PDF, Word, etc

• Web Shops, Internet pages

• Company websites

• Industry specific databases

– Formalized databases (Automotive – Eucon/Eurotax)

• Internal feedback data

– Information reported from customers/dealers

• Market research data

– Mistry shopping data / External bought information

How and where can you find competitive data?


Traditional Product Oriented Pricing Approach

FiltersCommercial Unique Items

Air Filters Filter paper A+

Oil Filters

Water Filters

Filter paper A

Filter paper B

Product Segmentation Structure

Volume

ValueDriver

Volume

Volume

Filter paper A+

Filter paper B

Price

Volume

Captive ItemsImpeller Product Range A

Product Range B

Material A

Material B

Material C

Diameter

PC Boards Process Control

Flow Control

Cost+

Cost+

Generation 6

Generation 5

Cost+

List Price

List Price

FiltersCommercial Items

Diameter

Diameter

Set the optimal price


Sales V

alue

Competitive Pricing

Price

Cost

Price

Cost

Sales

Commercial Pricing

• Currently a cost+ approach is used with a markup target

• Some prices are adapted to market conditions with a manual process

Markup target

Market Adaptions



Sales V

alue

Position Against one Competitor

Price

Cost

Price

Cost

Sales

Commercial Pricing

• Collect competitor information and visualize in a graph

• Frequent over and under pricing against competitors

Markup target

Competitor A



Sales V

alue


Price

Cost

Price

Cost

Sales

Commercial Pricing

• Sort by competitor prices

Markup target

Competitor A

Competitor A price



Sales V

alue


Price

Competitor A price

Price

Cost

Sales

Commercial Pricing

• Sort by competitor prices

• Possition against competitors

• 10% premium for lower price items – 5 % premium for expensive parts

Competitive positioning

Competitor A



Sales V

alue


Price

Competitor A price

Price

Cost

Sales

Commercial Pricing

• Adapt to competitor pricing

• Take a stepwise approach for sensitive items


Competitor A



Sales V

alue

Manage Missing Competitor Prices

Price

Competitor A price

Price

Cost

Sales

Commercial Pricing

• What if we don’t have competitor item information available?


Competitor A?

Markup target



Sales V

alue


Price

Competitor A price

Price

Cost

Sales

Commercial Pricing

• Option 1 - Use an alternative price rule, as value based price logic

• Build a price structure based on the volume of the filter


Competitor A

?

Markup target1.1 Liters

1.4 Liters

1.25 Liters

0.9 Liters

1.7 Liters



Sales V

alue


Price

Competitor A price

Price

Cost

Sales

Commercial Pricing

• Option 2 – Link the item to another similar item where we have a competitor info

• We use a ”Similarity Factor” for reusing market information on several items


Competitor A?

Markup target

15%20%

25%



Sales V

alue


Price

Competitor A price

Price

Cost

Sales

Commercial Pricing

• Option 3 - Use an alternative price rule, as for example a markup target

• Will generate an ”market adapted margin” based on cost

• Can be useful when there is low transparency of competitor prices in the market.


Competitor A?

Markup target



Sales V

alue

Position Against Multiple Competitors

Price

Competitor A price

Price

Cost

Sales

Commercial Pricing

• Positioning against several competitors

• Display competitors for easy visualization of positioning

• Different calculations methods can be managed


Competitor A

Competitor B

Competitor C

Calculation methods

• Average of all competitors• Max or min competitor price• First available price by

competitor priority order • Median or percentiles



Calculate competitor price with

• Average of all competitors

• For segments of parts with a tight competitive situation

• Max or min competitor price

• For positioning based on the price leader or the lowest price option

• First available price by competitor priority order

• For positioning according to clearly identified main competitor/competitors

• Median or percentiles

• For sorting away outliners



Sales V

alue


Price

Competitor A price

Price

Cost

Sales

Commercial Pricing

• When calculating based on average of competitors prices we need to consider how to position to each competitor

• Competitor C has a higher list price level (e.g. they always give the customer a higher discount) – we want to adjust these items down by 20 % to make them comparable to the other competitors


Competitor A

Competitor B

Competitor C

Calculation methods





Sales V

alue


Price

Competitor A price

Price

Cost

Sales

Commercial Pricing

• Calculate the average and position accordingly

• Suitable for situations where you have a high degree of competition

• For a situation with a high price difference among competitors, other calculation methods might be better


Competitor A

Competitor B

Competitor C

Calculation methods

Competitor Average





Sales V

alue

Manage a Mix of Competitor List and Net Prices

Price

Price

Cost

Sales

Commercial Pricing

• What if we have a mix of list prices and net prices?


Competitor A List Price?

Competitor A Net Price

Average Net Sales

Calculation methods

• Mix of net and list prices

Competitor A price



Sales V

alue

Manage a Mix of Competitor List and Net Prices

Price

Price

Cost

Sales

Commercial Pricing

• What if we have a mix of list prices and net prices?

• Use our typical discounts to position according to competitor net price. • I.e. Our basic discount is 15% then we position list prices at 20% to put net prices

5 % above competitors


Competitor A List Price

Competitor A Net Price

Average Net Sales

Competitor A price

Calculation methods

• Mix of net and list prices• 5 % higher than list prices• 20 % higher than net prices



Sales V

alue

Manage Market Specific Competitive Pricing

Price

Competitor A price UK

Price

Cost

Sales

Commercial Pricing

• What if we have different market prices in different regions?


Competitor A - UK

Competitor A - Germany

Competitor A - Switzerland

Calculation methods

• Local pricing based on local data

• Global pricing with market adaptions



Sales V

alue


Price


Price

Cost

Sales

Commercial Pricing


• Option 1 – Position market prices according to market specific prices and sales volume

• Germany prices


Competitor A - UK



Calculation methods



Competitor A - Average



Sales V

alue


Price


German List Price

Cost

Sales

Commercial Pricing


• Option 1 – Position market prices according to market specific prices and sales volume

• Good price structure according to local competitors, big spread in-between markets


Competitor A - UK



Calculation methods





Sales V

alue


Price


German List Price

Cost

Sales

Commercial Pricing


• Option 2 – Position market prices according to average market prices, with local adaption

• Use a global price list reference calculated as 5 % higher than global competitor average


Competitor A - UK



Calculation methods

• Local pricing based on local data• Global pricing with market

adaptions

Competitor A – Global Average

Global List Price



Sales V

alue


Price


German List Price

Cost

Sales

Commercial Pricing



• Review current global list price in relation to current local market conditions


Competitor A - UK



Calculation methods


adaptions


Global List Price



Sales V

alue


Price


German List Price

Cost

Sales

Commercial Pricing



• Adapt to local conditions by a market factor. E.g. 92% for Germany


Competitor A - UK



Calculation methods


adaptions


Global List Price



Sales V

alue


Price


German List Price

Cost

Sales

Commercial Pricing



• More harmonized prices in-between markets, but local differences may exist

• Effective when local competitive data are missing, reduces gray markets


Competitor A - UK



Calculation methods


adaptions


Global List Price



Tools available from Syncron allow you to position your price

• Against a single competitor

• When competitor item information isn’t available

• Against multiple competitors

• Manage a mix of competitor list and net prices

• Manage market specific competitive pricing


Questions

With a systematic analysis of competitive data, you can achieve ROI, communicate value and grow sales and margin

Establish a efficient process to manage competitive information and feedback

How and where to gather competitive data

Use competitive information to set the optimal price

competitive pricing for spare parts

Software

copyright syncron

leverage price

price structure

whenthe price

priceset theoptimal

litersset theoptimal

competitor pricing

alternative price rule