best practices in parts pricing

Best Practices in Parts PricingISLA North American Service & Parts Focus Day

July 15, 2014

COPYRIGHT © SYNCRON INTERNATIONAL AB 2014

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.


Pricing Maturity CurveB

usin

ess V

alu

e

High

Low

SophisticationLow High

Cost plus• Raw material• Supply driven

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

Price Differentiation• By Channel• By Geography• By Time

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 Context: Know What

Customers Compare

Understand the Power and Limitations

of Data– Competitive Price Data

– Customer Price Feedback

– Sales, Operations, and Product Data

Develop a Strategic Price

Segmentation and Price Strategies

Execute with Systematic, Repeatable

Processes supported by Technology4

3

2

1


Understanding the Comparison Context

• 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

1

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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

2


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

2


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

2


Sales V

alue

Using Sales, Ops, and Product Data

Price Logic

• Identify value drivers

– Product related

– Operations related

• View value drivers against historical sales information

Price

Value Driver(Customer Perception)

Price

Cost

Sales

Low High

2



Price Logic


– Product related



Price

Price

Cost

Price Curve

• Statistically define price curve

Sales

Sales V

alue

Low HighValue Driver(Customer Perception)

2



Price Logic


– Product related



Price

Price

Cost

Price Curve

New Price Level

New Price Level

Sales

Sales V

alue


• Identify new price level Relation to product value

− Upper bound of curve

− StandDev, Percent, Etc.

Relation to market or specific competitor

Relation to target marginLow HighValue Driver

(Customer Perception)

2



Price Logic


– Product related



Price

Price

Cost

Price Curve

New Price Level

Sales

Sales V

alue







Relation to target margin

• Reset price curve to new level

2



Price Logic


– Product related



Price

Price

Cost

Price Curve

New Price Level

Sales

Sales V

alue







Relation to target margin

• Reset price curve to new level

• Adjust prices stepwise

2


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…

3


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

3


Systematic Repeatable Processes Supported By Syncron Technology

4


About Syncron

• We deliver solutions to manage complex global supply chain – Easily

• We are Experts in spares and aftermarket

• Our customers are multinational companies in manufacturing and distribution.

• We have active users in more than 100 countries around the world

• R&D intensive, investing >20% of revenue

• Our customers are supported on every time zone by offices located in:

– America Atlanta (US HQ), Chicago

– Europe Birmingham, Düsseldorf,

Malmö, Stockholm (HQ)

& Warsaw

– Asia Tokyo


Please Contact Us for Questions

Martin Nowakowski, Director Business Development

[email protected]

630-396-0735

Tim Mohnke, Director of Solutions Americas

[email protected]

248-321-0369

mailto:[email protected]

mailto:[email protected]

best practices in parts pricing

Documents

item price

vacuum price

product data price logic

strategic price segmentation

new price level relation

intersection of value

competitive data

new level