what manufacturers can do for effective parts pricing · parts pricing optimization approach...

What Manufacturers Can do for Effective Parts Pricing

Webinar – October 16th, 2013

2 Copyright © 2013 Accenture. All rights reserved.

Accenture and APLO: Accenture helps manufacturers work through priority business issues like parts pricing and optimization. The Accenture Product Lifecycle Optimization Business Service reflects deep skills, experience as well as assets, including our Parts Analysis Labs where we can help with improvements across the entire parts value chain. With our experience and assets in mind, we develop Points of Views and webinars like this to help share our insights.

Introduction

Speakers: •  Don Bogojevich: Managing Director, Accenture Product Lifecycle Optimization

•  Kurt Ranka: Senior Manager, Accenture Product Lifecycle Optimization

•  Doug Derrick: Managing Director, Management Consulting


Parts Pricing – Why is There an Opportunity? Service parts typically comprise a small share of revenue, but can greatly influence overall company profitability and customer loyalty.

What We See

•  OEMs have an over-priced reputation

•  Parts represent a significant share of companies’ profit

•  Resources overloaded with tens of thousands of SKUs, coupled with lack of supporting data

•  Limited throughput or capacity due to turnover and on-shore reliance

•  Limited ability to track results

•  More rational market prices and improved OEM brand image and end-customer satisfaction

•  Less effort – less time and greatly leveraged solution

•  Increased revenues for OEMs and Distributors/Dealers

What is needed


Questions

1 Who has ever made efforts to try to improve their pricing for service parts?

•  Done and complete •  Ongoing and to be completed within the

next year •  Plan to do it within coming 6 months •  No plan for this year nor the year to come

2 What are the typical challenges you have faced?

•  Lack of resources (manpower, data..) •  Lack of methodology/clear approach •  Lack of sponsorship •  Other


Industry Average improvement

on scope Average parts

in scope Automotive +16% >13,000

Truck +13% >7,000

Material Handling +19% >5,000

Industrial Machinery +19% >10,000

Construction & Agricultural Machinery +19% >3,000

Household Appliances +18% >20,000

Our results for OEMs to-date have led us to believe there are significant opportunities for improvement in parts pricing

Key Success Factors

Captive parts engagements have delivered +15% gains on average in various industry sectors Value

Supported by industrialized process, experts and tools, 1000’s of parts prices can be optimized each month Speed

Benefits are sustained through time thanks to long term successful relationships (2-3+ years) anchored in the companies agenda Sustainability

Proven experience and references facilitate change management and successful implementation Expertise


How Customers Estimate Price How Manufacturers Set Price

Parts Pricing – What Causes the Disconnect? While customers have neither the ability nor motivation to think about price like a manufacturer, manufacturers can start thinking like customers.

•  Too high, making their product failure an even more negative experience for the brand •  Too low, unnecessarily eroding margins

Rather than view prices as logical, this disconnect causes customers to feel prices are…

X •  Brand and model range

•  Part size and complexity

•  Previous purchases of other parts

•  Previous purchases of the same type of part for other models

•  Purchase location

•  Cost to manufacture

•  Category margin goals


Parts Category

Captive or Semi-Captive

•  With limited alternatives, must pay manufacturer’s price

•  To maintain margin, prices vary

•  With limited alternatives, must pay dealer’s price

•  Change price to maintain margin, but remain competitive

•  Use what dealers provide, limited ability to suggest alternatives

•  Charges dealers set price for installing parts

Competitive •  Alternative parts round out assortment

•  Provide market-relevant prices

•  Switch to different parts if prices too high

•  Provide market-relevant prices

•  Set price and cheaper alternative recommendations for dealers

Looking Across the Value Chain

Dealer Technician Retailer

Automotive Example

A manufacturer’s price changes for parts do not always easily flow through the value chain to reach the end consumer.


Parts Pricing Optimization approach differs according to competitiveness level of the part family

Captive Parts

Competitive

Low Contributors

Parts with no competitor

Wholesalers, OES, IAMs selling equivalent parts

Low volume captive or competitive families

Value based •  Move from costs to

technical and marketing criteria pricing

Margin & TO % gains vs. costs based, less systematic pricing methods

Market based •  Leverage analytics to

position price within market •  Implement discounts,

promotions and menu pricing programs

TO and Market share gains

Low contributors based •  Smart alignment along fast

movers

Margin & TO % gains vs. costs based, less systematic pricing methods

Common to all parts

•  Enrich parts master data for detailed segmentation and value based criteria pricing •  Leverage parts pricing specific tools to industrialize part-by-part pricing

Definition Objective Pricing Strategy Parts Pricing


Parts Pricing Optimization Overall Process

Pricing definition

Segmentation of parts

Performance monitoring Sustainability

Physical analysis of parts

Scope selection


Communication schemes Working with the Value Chain

Objectives

Key Actions

Communicate program benefits

Captive Parts

+

+

Communicate on market alignment

Competitive Parts

Communication adapted to your customer is key to promoting your pricing actions

Minimize queries and complaints

Increase volumes and market share

Provide examples and factual data on program

Launch promotional campaigns and dealer incentive programs

Setup monitoring and response team to support the network

Setup monitoring and response team to monitor market reactions

+

+


Testing and Measurement Choosing the Right Approach

Before vs. After Forecast vs. Actual

Depending on the prices managed, and the abilities to vary price, we can measure benefits through three different methods.

Test vs. Control

Test Control


What does a typical Pricing journey look like?

Key Activities

•  Optimize spare parts prices

•  Customer communications

•  Sales and profit performance monitoring

•  Define sustainability processes

•  Optimize future spare parts prices

•  Maintain prices for existing parts

•  Sales and profit performance monitoring

•  Optimize spare parts prices

•  Client validation workshop

•  Define deployment plan and business case

Diagnostics Implementation Sustainability 1 2 3


Q&A

Please ask your questions


THANK YOU

For more information on how Accenture can help your company achieve high performance in parts pricing, please refer to our Accenture Product Lifecycle Optimization Business Service and contact: Contact [email protected] www.Accenture.com/APLO

what manufacturers can do for effective parts pricing · parts pricing optimization approach...

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