After-sales managers usually spend most of their energy on pricing in the spare parts business. Far less effort is often spent on enforcing prices on the market. As a result, the spare parts margin can quickly slip into negative territory.
The best list price is of little help if your sales team ultimately has to market a part at a large discount. The reasons for this can be very different. For example, discount campaigns for large customers on the entire After-Sales-range have this effect. As a rule, these are granted in order to prevent migration to competitors. Competitors entering the market with predatory pricing can also exacerbate the problem.
To prevent this, price enforcement must also be approached correctly. Three dimensions in particular should be taken into account here:
- Regional adjustments
- Discount strategies
- Distribution costs
Conversion of list prices into specific country prices
Price lists must be adapted to regional market conditions in order to be able to enforce a reasonable price level on the market. Due to macroeconomic conditions, different countries have different willingness to pay, different competitive situations and different costs of doing business in the spare parts sector.
However, it should be borne in mind that excessive regional price differences always lead to supra-regional gray markets. This means that retailers in a cheaper country buy and import your products in order to sell them locally. This is of course problematic if they can then even offer cheaper prices.
Regional price differences should therefore be carefully defined and should not be significantly greater than the costs of logistics, customs and handling. This will prevent the emergence of a gray market.
Country price lists should therefore be developed with defined mark-up and mark-down factors compared to the central list price. Various factors need to be taken into account for this:
- Provision costs (logistics and admin)
- Customs regulations
- Competition
- Currency risks
- Price level
- Price sensitivity
If individual market organizations wish to deviate from these prices, these deviations should always have to be approved by the central pricing team in order to prevent cross-border grey market activities.
In addition, supra-regional customers should also be looked after from the head office via key account management in order to ensure that individual country organizations are not played off against each other.
Discount strategies for price enforcement on the spare parts market
Discount strategies open up opportunities to enforce good prices on the market and maintain or even expand your market share. However, if poorly implemented, they can also end up as a tangible disaster because they are too complicated to implement and nobody can maintain prices sustainably.
Discounts can be granted according to customer groups and sub-segments and also on individual parts in special promotions. Examples of discount structures could look like this:
- Basic discount = A specific customer receives a flat-rate percentage on all products in the range.
- Volume discounts = A defined percentage discount on list prices is granted from a specific minimum turnover.
- Seasonal discounts = Discounts granted during a special period.
- Special discounts = Special discounts are granted as part of promotions.
If you work well here, you can achieve great success with discount campaigns and also support and protect different sales channels. (For example, by granting certified dealers better conditions than independent partners)
However, you should not get bogged down here and make your own strategy too complicated. 30 sub-segments and 10 customer types already result in 400 fields that need to be stored in the discount matrix. If you then think about 20 national companies, you already have 8000 different discounts. That is no longer manageable.
Discounts are above all a successful management tool. So use them in a targeted manner. Discount strategies, which are typically defined in the national companies without coordination with the central pricing team, should also be coordinated centrally in order to achieve the optimum for the entire company. Even if, in some cases, this means that a national company has to offer a price that is less advantageous from its point of view.
Distribution costs should be taken into account
When setting prices, care should be taken to ensure that the sale of spare parts is also associated with costs. If these are not priced in and calculated accurately, the margin quickly slips into negative territory.
Examples of costs here are
- Sales commissions = both for own employees and for dealers
- Kick-Backs = Customers who have purchased a certain volume of products receive a special credit note at the end of the year to encourage them to make further purchases in the following year.
- Gifts = Employees often give away products when they think the customer is no longer well disposed towards them. Consumables packages are given away particularly frequently. However, free shipping is also not uncommon.
If you don't take such costs into account, your service department could be left high and dry.
The three factors mentioned will help you to achieve a good price level on the market. In the end, however, it must still be possible to manage the system effectively. That's why less is often more. Also bear in mind that your pricing manager may leave the company and his successor must still be able to understand the system.
