Best Practices in Parts Pricing

Best Practices in Parts PricingSeptember 9, 2014

COPYRIGHT © SYNCRON INTERNATIONAL AB 2014

Syncron is the global leader in aftermarket service optimization

• Aftermarket Specialist– Inventory management

– Price Management

– Master Data Management

– Analytics

• Customers are

multinational companies – Active users in more than 100

countries

– R&D intensive, investing >20% of

revenue

Meet the Presenter:

• Price Management

Specialist

• 15+ years experience

driving business

development and price

management initiatives

Tim MohnkePricing Director, North America


What Does Your PRICE Represent?

• Price is an indicator of customers’

perceived value

• Price doesn’t occur in a vacuum

• Price is the intersection of value

from all departments within your

organization– Product Quality

– Logistics

– Service

– Brand

– Etc.


How Do Customers Compare Prices?

• List-Price Customers compare list

(published) prices between you and

your competitors

• Volume/Contract Customers compare

prices at a list-less-discount level

• Special-Price Customers typically

have buying power and negotiate

hard

• All Customers always qualitatively

compare:– Service Levels

– Quality: Specific Attributes

– Other utility factors

A B

http://www.clipartof.com/images/purchased/15522_SMJPG_20140228044429433.jpg


Pricing Maturity CurveB

usin

ess V

alu

e

High

Low

Pricing SophisticationLow High

Cost plus• Raw material• Supply driven

Competitor Pricing• Competitor Intelligence• Competitor Positioning• Feedback Process• Lost Sales Analysis

Price Differentiation• By Product• By Channel• By Geography

Customer Differentiation• Customer Marketing Segmentation (Tiers)• Discounts & Rebates Structures • Customer Over and Under Performers• Customer Margin Analysis

Optimized Strategic Pricing• Pricing-Specific Segmentation• Customer-Specific Research• Price Testing• Multiple Price Strategies

– Value-Based Pricing– Lifecycle Pricing– Supersessions – Step-pricing– Tiered Pricing– Etc.


The Road to Optimized Strategic Pricing

Understand the Power and

Limitations of Data

Develop a Strategic Price

Segmentation and Price Strategies

Execute with Systematic,

Repeatable Processes supported by

Technology

3

2

1


What About Competitive Price Data?

1. Knowing when NOT to use

competitive data is as important as

knowing when to use it. Other

available tools include:– Value-Based Pricing

– Lifecycle Pricing

– Product Tiered Pricing

– Etc.

2. Research Methodology: Preferred

method (best research quality) is

approach using parts interchanges

and surveys– Web-scraping companies can only provide

retail list price

– Self-reporting methodology has obvious

drawbacks

1


What About Competitive Price Data?

3. Third Party Data Collection should

be a part of a larger

comprehensive process that

includes:– Customer Price Challenges / Price

Feedback

– Pricing Feedback Analysis

4. Differentiate Competitive Data

Based on compatibility of

information provided:– Equivalent – exact replacement

– Similar – different quality

– Referential – not replacement

1


Price Feedback: A Powerful Tool

Price level health

• Manage ”complaints”

• Capture and analyze market intelligence

• Feedback case log and action management

• Pricing health analytics

• Direct communication of price corrections to market

Competitor a

nd

market intellig

ence

Price feedback

Global pricingSubsidiary/DistributorMissing price

for item 1001!

Competitors are selling at lower prices

Superseding item price is unjust

1


Using Sales, Ops, and Product Data

Developing Pricing Logic

Price

Price

Cost

Price Curve

New Price Level

Sales

Sales V

alue

Low HighValue Driver(Customer Perception)

1. Identify value drivers– Product related

– Operations related

2. Statistically define price curve

3. Identify new price level– Relation to product value

Upper bound of curve

StandDev, Percent, Etc.

– Relation to market or specific competitor

– Relation to target margin

4. Reset price curve to new level

5. Adjust prices using governors– Supersession rules

– Stepwise pricing

– Etc.

1


Develop a Strategic Price Segmentation

• Creates different

homogeneous groups of:– Parts with similar value

characteristics

– Customers that: • Self select based on part

preferences

• Are rewarded / punished based

on purchase behavior

• Allows for differentiated

pricing with price strategies

A Good Price Segmentation…

2


Integrated Price Strategy Development

• Segmentation process is integrated with Value Driver Analysis, Cost Quality

Assessment, and Data Collection Evaluation

• Price Strategies are evaluated in conjunction with data availability

• The resulting output is a categorization of profit realization potential,

enabling the best results at the lowest risk

Accumulated Sales Value

100%

Segmentation Analysis

Main SegmentsSales

Value %Item

NumbersAverage

Sale/Item Value Driver

DefinitionValue Driver

Access Cost

Quality PotentialInverters 5,2 600 8 667 Good Good Good ExcellentFeed Screws 4,6 450 10 222 Good Good Good ExcellentHydraulic Motors 4,3 100 43 000 List prices Good Poor ExcellentImpellers 3,8 800 4 750 Good Good Good ExcellentBearings 3,6 2 000 1 800 List Prices Good Good GoodFilters 3,4 1 500 2 267 Complex Poor Poor MediumShafts 3,2 1 000 3 200 Good Drawing Good GoodPC Boards 3,1 4 000 775 Complex Poor Good DifficultSealing 3 1 500 2 000 Good Description Poor Good

Segment

Example

2


Systematic Repeatable Processes Supported By Syncron Technology

3

Questions

Best Practices in Parts Pricing

Documents

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