Achieving high
performance with
strategic competitive
spare parts pricing
Achieving high performance with strategic
competitive spare parts pricing
In the current competitive business environment, many original equipment
manufacturers (OEMs) are searching for ways in which they can improve growth.
Spare parts have always represented an important profit area for OEMs. On average,
the spare parts business of manufacturers already makes up approximately ten percent
of total sales, up to 50 percent of net income, and significantly impacts customer
satisfaction and brand loyalty.
Despite the rich seam that companies have mined
to date from their spare parts businesses, many can
improve growth and profitability by taking a more
strategic, systematic approach to competitive spare
parts pricing.
Within manufacturers’ spare parts business units,
the competitive parts segment generally
constitutes more than 50 percent of parts sales
and is the main focus of parts pricing managers.
Many OEMs are failing to seize upon growth
opportunities and efficiencies that will enable
them to expand their competitive spare parts
business and make it more profitable. Much of this
is down to the significant challenges pricing teams
face, including lack of scope and manpower.
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Few resources to cover a wide range of parts:
While finished goods often have many times more
employees and budget to work on pricing for a
small number of products, spare parts often have
few employees and little budget to work out
pricing for many thousands of parts (see Figure 1).
Given the large numbers of parts, most spare parts
pricing organizations will only focus on the top ten
percent of parts because they do not have the time
to work on pricing the other 90 percent. This can
cause inconsistent pricing over the entire lifecycle
of the product, which can have a long-term impact
on profitability.
Limited benchmark information: Given the lean
teams and limited resources, manufacturers often
lack the manpower, processes, and tools to identify
and track competitor benchmarking information
across the full portfolio of spare parts consistently
and continually.
Fear of losing market share: Once the market
becomes competitive for a spare part, many
competitors will undercut OEM prices. Many
manufacturers fear that if they change the spare
part price once it moves from the captive phase to
the competitive phase, then they will lose market
share. However, customers, particularly repairers,
may not use price as the primary purchase
criterion.
Despite these hurdles, Accenture believes that
many companies can unlock value and improve
margins by taking a more strategic, systematic
approach to competitive spare parts pricing across
the entire portfolio of parts.
Figure 1: Imbalance between pricing for finished goods versus spare parts
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Focus of
typical OEM
Competitive pricing in the
spare parts life cycle
With the exception of highly competitive spare
parts (e.g. consumables and accessories), the item
price is not always the primary purchase criterion
for OEM customers, whether the end consumer or
repairer, who take other factors into account, such
as part availability, delivery time, reliability, and the
company’s reputation. In a strategic competitive
parts pricing approach, an OEM’s natural strengths,
such as client services, documentation, technical
support, logistics, and kitting can offer a
competitive advantage that should be factored
into the part’s optimal price.
To help companies reap the maximum profit
from their competitive parts business, Accenture
proposes an industrialized and agile methodology
to determine the part’s price based on its life cycle
stage, perceived value, and market intelligence.
In general, a competitive part passes through
two different pricing stages during its life cycle
(see Figure 2).
1. Captive pricing
according to the customer-perceived value of a
given part. In their Parts Analysis centre, Accenture
experts examine the parts to collect the
characteristics with an impact on customer price
perception. Leveraging a rules-based pricing tool,
they propose a pricing model that values functional
and technical characteristics of each part. This
approach looks at the product characteristics
including dimension, material, weight, technology
used, added value, specific functions,
manufacturing complexity, and finished value,
among others, to optimize price.
Price leader: As leader, the OEM sets the price
During this phase, most competitors will follow the
price set by the manufacturer. The low level of
competition enables the OEM to optimize prices
3
Phase out: Reaching product obsolescence, OEM
resumes dominant market position
During the Phase out stage, many competitors will
no longer stay in the market due to reduced sales
quantities as the finished good approaches
obsolescence. At this point, the OEM can resume its
captive pricing approach based on perceived value.
2. Competitive pricing
Competition phase: Be agile, adapt to the markets
During this phase of intense competition from major
players, manufacturers can see their market share
plummet. Many OEMs face difficulties in tracking
the competitor benchmarking information over the
entire range of parts. In this phase, it is important
for OEMs to focus on gathering market intelligence
and analysis through industrialized methodologies,
processes, and tools to maintain an agile position in
a constantly changing competitive market.
Accenture has developed a systematic approach to
analyzing market price per country per part
reference, which empowers our clients to master
price positioning effectively.
Aligning competitive prices with
market expectations
With market prices shifting continually, OEMs need
to stay abreast of the full range of key benchmark
data to ensure that their spare parts are best-placed
in the market. Accenture’s approach for the
competitive phase focuses on market intelligence
analysis and adaptability to help OEMs achieve high
performance. The systematic approach, using specific
methodologies, processes, IT, and a pool of Accenture
experts, concentrates on three key areas:
Figure 2: Competitive spare part life cycle
Price leader
Competition phase
Evolution of
OEM volumes
Evolution of
competitiveness
Evolution of
pricing rules
1
1
Captive pricing
2
Competitive pricing
Competitor segmentation
At the beginning of the evaluation, it is necessary to
look at the full range of competitors over a number
of dimensions: product family, geography, parts
coverage versus OEM product portfolio, price,
revenues, etc. The evaluating team assigns threat
levels to competitors to narrow down the key
benchmark group to a limited level of competitors,
looking at the most appropriate criteria in each
family.
For an example of a market intelligence pricing
analysis, see Figure 3.
Technical and market intelligence
per country, per part
Once the comparative data set of close competitors
is narrowed down, experts create and maintain an
4
Phase out
2
1
accurate brand value positioning framework at the
family level and update it regularly. OEM items are
also analyzed in Accenture Parts Analysis
laboratories. Accenture experts then create a clean
technical segmentation of competitive subfamilies
before beginning market price analysis.
Market price analysis
For each market, the team of experts simulates the
impact of OEM brand value positioning versus the
average market price of competitors selected per
family. Using Accenture proprietary assets, OEMs can
efficiently deploy a regional competitive pricing
strategy for each specific market. Accenture assets
then keep pricing teams informed of any market
price changes that could impact OEM profitability.
Figure 3: Competitive spare parts analysis example: timing belt
Width
(cm)
Added value
Engine
Life­­ cycle
Perceived
value
pub­lic price
OEM current
pub­lic price
Market public
price*
OEM price/
market price
Brand value
Recommended
price
116
2.5
1 tensioner
1.5 diesel
Competition
$133.65
$133.65
$120.51
+11%
+6%
$127.74
126
2.4
1 tensioner
1.9 diesel
Competition
$137.44
$113.10
$106.77
+6%
+6%
$113.10
125
2.6
1+1 tensioner 1.4 diesel
Competition
$162.29
$145.00
$157.09
–8%
+6%
$166.52
130
2.4
3+1 tensioner 1.9 diesel
Leader
$188.00
$150.00
-
-
Perceived
value
$188.00
108
2.2
2+1 tensioner 3.0 diesel
Phase Out
$193.14
$285.00
$285.00
+9%
Perceived
value
$193.14
ä
ä
ä
ä
Length
(cm)
ä
Part
* Market price: weighted average of OES competitor prices.
5
Accenture can help OEMs on their
journey to optimize prices by
providing long-term business services
and by integrating its innovative
approach with the company’s pricing
processes and legacy systems.
6
Achieving a robust and agile
competitive pricing framework
Accenture’s industrial spare parts pricing approach
can minimize manufacturers’ time and effort and is
strongly results-oriented. Accenture experience
suggests that clients achieve three percent to ten
percent incremental gains for the optimized scope.
Facilitated by a transparent communication
program, the competitive spare parts pricing
approach also:
• Develops a robust and agile competitive pricing
framework that can be easily adapted at scale to
tackle large volumes of parts across their life
cycles and many markets
• Establishes the market intelligence data set as a
permanent asset for the OEM to retain
• Creates a win-win situation between
manufacturers and their clients by delivering
greater price consistency and reliability
• Improves brand image and customer satisfaction,
leading to improved customer loyalty
With a dedicated pool of spare parts pricing
experts, proprietary technology, processes and
methodologies, Accenture is well-placed to help its
clients achieve high performance in competitive
spare parts pricing. With a robust and agile
competitive pricing framework, OEMs will be wellplaced to seize market share for key spare parts
while achieving the best margins across the scope
of their parts portfolios.
Interested in learning more?
For more information on how Accenture can help
your company achieve high performance
competitive spare parts pricing, please contact:
contactAPLMS@accenture.comł
www.accenture.com/APLMS
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About Accenture
Accenture is a global management consulting,
technology services and outsourcing company, with
approximately 275,000 people serving clients in more
than 120 countries. Combining unparalleled
experience, comprehensive capabilities across all
industries and business functions, and extensive
research on the world’s most successful companies,
Accenture collaborates with clients to help them
become high-performance businesses and
governments. The company generated net
revenues of US$28.6 billion for the fiscal year
ended Aug. 31, 2013.
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