Gary BrooksMost executives understand the power of pricing and huge impact it can have on the bottom line. They ensure their companies use sophisticated technologies to price everything from airline tickets to athletic socks, all to harvest very attractive profit improvements. While the executive suite is familiar with the positive impact price optimization can have on product-based businesses, most durable goods manufacturers are missing out on big profit opportunities hidden in the service parts they sell after the initial sale of finished goods such as cranes, planes, forklifts, motorcycles and high-tech electronics.
Unfortunately, these businesses are leaving money on the table. Many today’s service parts pricing teams rely on spreadsheets and simple cost-plus methods. It’s time to say goodbye to spreadsheets and hello to sophisticated price optimization technology that will allow you to price your service parts more efficiently and effectively.
Think you’re ready to undergo a service parts pricing project? Here are four questions you should ask before diving in.
Can you perform all your daily pricing parts pricing functions in one system?
Before you begin a service parts pricing project, make sure you have the capacity to perform all pricing functions in a single system. From service parts inventory management to making real-time pricing decisions, “the cloud” is probably the easiest way to keep all organizational processes as streamlined — and painless — as possible. In fact, cloud computing for the supply chain will be worth $4.4 billion by 2019. A cloud-based pricing solution that integrates into a company’s ERP allows you to leverage many data sources, helps standardize pricing processes and enables easy identification of potential areas for revenue uplift.
Do you use an analytical solution that supports consistent pricing analytics reports and processes?
When undertaking new projects designed to optimize the prices of service parts, it’s important to remember that pricing is a process, and the purpose is to maximize price differentiation for maximum profitability, while maintaining customer price satisfaction. Using an analytical solution will make it easier to understand reports and processes relating to pricing and will ultimately help grow the bottom line. For example, just by embracing a strategic and more analytics-based approach to pricing, we see companies increase service parts revenue by as much as five percent while driving gross profit improvements by more than seven percent. The benefits of such an approach for manufacturers are truly tangible!
Do you simplify things because you can’t manage the complexities of a multi-faceted pricing structure?
It can be overwhelming to take control of complicated parts pricing structures. Company leaders are often focused on several initiatives at once causing them to revert to what they know or what has worked in the past. The thinking goes like this: If old-school methods like gap analyses and roadmaps have been sufficient in demonstrating ROI before, then why fix something that isn’t broken? This line of thinking, however, leads to additional questions. Is just “getting by” the best way to run a business? Or is constantly looking for ways to improve operations the best way to increase bottom line, build upon success and increase market share? In most cases it’s the latter.
Do you have a linked price structure across geographies and multiple currencies so that items are priced in their local currency?
Pricing plays a critical role in influencing revenue while also delivering a reliable customer experience. If you’re looking to price in multiple locations, you’re going to need to keep in mind the different currencies in other countries. Implementing a linked pricing structure is a huge opportunity to have a positive influence on your company’s bottom line.
Conclusion
So if you’re considering a service parts pricing project, ask yourself these questions beforehand to make sure it’s the right move for both you and your company, and to prevent any headaches down the road. When undertaking a new parts pricing project, remember that pricing is a process, and the purpose is to maximize price differentiation for maximum profitability, while maintaining customer price satisfaction. With these goals at the forefront, you’re sure to make an impact on your company’s bottom line — and your career.
Gary Brooks is CMO of Syncron.