competitive pricing for spare parts
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Competitive Pricing for Spare PartsJohan Östlin
Pricing Consultancy Manager at Syncron
Page 2 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
Page 3 COPYRIGHT © SYNCRON 2014
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
Page 4 COPYRIGHT © SYNCRON 2014
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
Page 5 COPYRIGHT © SYNCRON 2014
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
Page 6 COPYRIGHT © SYNCRON 2014
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?
Page 7 COPYRIGHT © SYNCRON 2014
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
Page 8 COPYRIGHT © SYNCRON 2014
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
Set the optimal price
Page 9 COPYRIGHT © SYNCRON 2014
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
Set the optimal price
Page 10 COPYRIGHT © SYNCRON 2014
Sales V
alue
Position Against one Competitor
Price
Cost
Price
Cost
Sales
Commercial Pricing
• Sort by competitor prices
Markup target
Competitor A
Competitor A price
Set the optimal price
Page 11 COPYRIGHT © SYNCRON 2014
Sales V
alue
Position Against one Competitor
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
Set the optimal price
Page 12 COPYRIGHT © SYNCRON 2014
Sales V
alue
Position Against one Competitor
Price
Competitor A price
Price
Cost
Sales
Commercial Pricing
• Adapt to competitor pricing
• Take a stepwise approach for sensitive items
Competitive positioning
Competitor A
Set the optimal price
Page 13 COPYRIGHT © SYNCRON 2014
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?
Competitive positioning
Competitor A?
Markup target
Set the optimal price
Page 14 COPYRIGHT © SYNCRON 2014
Sales V
alue
Manage Missing Competitor Prices
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
Competitive positioning
Competitor A
?
Markup target1.1 Liters
1.4 Liters
1.25 Liters
0.9 Liters
1.7 Liters
Set the optimal price
Page 15 COPYRIGHT © SYNCRON 2014
Sales V
alue
Manage Missing Competitor Prices
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
Competitive positioning
Competitor A?
Markup target
15%20%
25%
Set the optimal price
Page 16 COPYRIGHT © SYNCRON 2014
Sales V
alue
Manage Missing Competitor Prices
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.
Competitive positioning
Competitor A?
Markup target
Set the optimal price
Page 17 COPYRIGHT © SYNCRON 2014
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
Competitive positioning
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
Set the optimal price
Page 18 COPYRIGHT © SYNCRON 2014
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
Set the optimal price
Page 19 COPYRIGHT © SYNCRON 2014
Sales V
alue
Position Against Multiple Competitors
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
Competitive positioning
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
Set the optimal price
Page 20 COPYRIGHT © SYNCRON 2014
Sales V
alue
Position Against Multiple Competitors
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
Competitive positioning
Competitor A
Competitor B
Competitor C
Calculation methods
Competitor Average
• Average of all competitors• Max or min competitor price• First available price by
competitor priority order • Median or percentiles
Set the optimal price
Page 21 COPYRIGHT © SYNCRON 2014
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?
Competitive positioning
Competitor A List Price?
Competitor A Net Price
Average Net Sales
Calculation methods
• Mix of net and list prices
Competitor A price
Set the optimal price
Page 22 COPYRIGHT © SYNCRON 2014
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
Competitive positioning
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
Set the optimal price
Page 23 COPYRIGHT © SYNCRON 2014
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?
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data
• Global pricing with market adaptions
Set the optimal price
Page 24 COPYRIGHT © SYNCRON 2014
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?
• Option 1 – Position market prices according to market specific prices and sales volume
• Germany prices
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data
• Global pricing with market adaptions
Competitor A - Average
Set the optimal price
Page 25 COPYRIGHT © SYNCRON 2014
Sales V
alue
Manage Market Specific Competitive Pricing
Price
Competitor A price UK
German List Price
Cost
Sales
Commercial Pricing
• What if we have different market prices in different regions?
• 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
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data
• Global pricing with market adaptions
Set the optimal price
Page 26 COPYRIGHT © SYNCRON 2014
Sales V
alue
Manage Market Specific Competitive Pricing
Price
Competitor A price UK
German List Price
Cost
Sales
Commercial Pricing
• What if we have different market prices in different regions?
• 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
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data• Global pricing with market
adaptions
Competitor A – Global Average
Global List Price
Set the optimal price
Page 27 COPYRIGHT © SYNCRON 2014
Sales V
alue
Manage Market Specific Competitive Pricing
Price
Competitor A price UK
German List Price
Cost
Sales
Commercial Pricing
• What if we have different market prices in different regions?
• Option 2 – Position market prices according to average market prices, with local adaption
• Review current global list price in relation to current local market conditions
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data• Global pricing with market
adaptions
Competitor A – Global Average
Global List Price
Set the optimal price
Page 28 COPYRIGHT © SYNCRON 2014
Sales V
alue
Manage Market Specific Competitive Pricing
Price
Competitor A price UK
German List Price
Cost
Sales
Commercial Pricing
• What if we have different market prices in different regions?
• Option 2 – Position market prices according to average market prices, with local adaption
• Adapt to local conditions by a market factor. E.g. 92% for Germany
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data• Global pricing with market
adaptions
Competitor A – Global Average
Global List Price
Set the optimal price
Page 29 COPYRIGHT © SYNCRON 2014
Sales V
alue
Manage Market Specific Competitive Pricing
Price
Competitor A price UK
German List Price
Cost
Sales
Commercial Pricing
• What if we have different market prices in different regions?
• Option 2 – Position market prices according to average market prices, with local adaption
• More harmonized prices in-between markets, but local differences may exist
• Effective when local competitive data are missing, reduces gray markets
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data• Global pricing with market
adaptions
Competitor A – Global Average
Global List Price
Set the optimal price
Page 30 COPYRIGHT © SYNCRON 2014
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
Page 31 COPYRIGHT © SYNCRON 2014
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
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