Innovative pricing strategies in the spare parts business in machine manufacturing keep profitability, sales and customer satisfaction in balance.
Research indicates that the spare parts segment serves as the backbone of the service business in machine manufacturing, accounting for approximately 50-60 percent of revenue and delivering average profit margins of 25 percent.1) Particularly during times of economic stagnation, it offers enormous potential to increase profits in the short term. Industry experts estimate that two-thirds of the potential growth in service could be generated by optimized spare parts pricing.2) For example, the annual evaluations of MARKT-PILOT show an average increase in sales of 17 to 19 percent in Aftermarket if customers are using the MP technology.
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However, machine manufacturers are increasingly competing with "spare parts pirates" (replicas) and direct suppliers (online shops, offline dealers), who sometimes offer their parts 30 to 50 percent cheaper than the original. This affects the global competitiveness of manufacturers. With the growing relevance of the Internet, machinery users now have greater access to global e-commerce platforms and online shops, making it easier than ever to compare spare parts prices worldwide. For manufacturers, this means that they must put their pricing strategies for spare parts to the test to secure market share and maximize profits.
While factors such as new parts, sales channels, and customer acquisition are undoubtedly important, pricing plays a central role in whether a business is growing faster or slower than the competition. An innovative pricing strategy in the spare parts business is therefore a key factor for sustainable success in machine manufacturing: it operationalizes the corporate strategy, monetizes the value of the parts and considers the competitive environment. In doing so, it operates in a triangle of tension between sales, customer satisfaction and profitability to create a stable balance.
A successful pricing strategy must therefore combine three central goals:
Making decisions driven by data is crucial. Companies need to consider factors such as market prices, customer price sensitivity, lead times and internal cost structures for spare parts pricing.
This means:
Measurable ROI of Modern Pricing StrategiesTo implement an effective pricing strategy in the spare parts business, it is not only necessary to strike a good balance between profitability, sales and customer satisfaction, but also to monitor success in a measurable way. The return on investment (ROI) plays a decisive role here, as it makes the effectiveness of the implemented pricing strategies quantifiable. So how can the success of modern pricing approaches in the spare parts business be measured in clear, tangible terms?
For many spare parts groups, every dollar of price increase is directly reflected in the earnings contribution. A significant advantage lies in the so-called 'lock-in effect', especially for manufacturer-specific parts. Here, the potential alternatives for customers are few, which gives machine manufacturers considerable pricing power. Price adjustments for these parts usually do not lead to a decline in sales, as the substitution risks are manageable. Consequently, every euro of price increase flows directly back into the EBIT margin. This makes spare parts pricing an extremely effective lever for profitability.
Traditionally, machine manufacturers have concentrated their main efforts on the machines themselves, prioritizing new sales as the core of their business. Spare parts pricing was or is too often neglected or operated with very simple heuristics and methods ("surcharge of X percent" on all parts).
This is a mistake, because the high degree of specialization in machine manufacturing and the resulting variety of spare parts and part types make a blanket pricing model such as Cost-Plus ineffective. Instead, businesses can unlock significant potential by implementing customized pricing strategies tailored to specific part segments. Even small improvements in the pricing strategy can lead to disproportionate increases.
In fact, spare parts pricing is one of the easiest disciplines to measure the success of a strategy. To illustrate: You increase the price of a spare part by one dollar, and if you sell it at this new price, the effect, ceteris paribus, becomes clear. That's the immediate benefit. If you transfer this to thousands of parts, the company gets a measurable, daily effect from its pricing strategy.
The ROI in the pricing area is typically 2-3 times the investment in the first year. The situation is different with ERP implementation. If you ask machine manufacturers about the return on investment of their project, very few can give a clear answer. It's different from the spare parts pricing.
The most successful pricing projects are those in which the top management is involved from the very beginning. Increasing profitability is undoubtedly a key argument for convincing C-level decision-makers of the need for stringent spare parts pricing. But especially when it comes to software solutions, efficiency and ease of work are also becoming more important. The focus is on automating and accelerating processes and simplifying administrative activities. It's about becoming not only more profitable, but also more agile and precise.
Many machine manufacturing companies are therefore establishing so-called Centers of Excellence (CoE) for pricing. The background: Historically, pricing in companies is often located in sales, margin controlling in the finance department, and the IT department is responsible for the pricing software. This division is not optimal. It would be better to bundle responsibilities in a Center of Excellence, as it can better control the individual areas. If the support of the management is then also given, the probability of success increases considerably.
A well-prepared implementation with the right partners can be surprisingly smooth. It even creates capacities in day-to-day business that were previously tied up in inefficient processes. This also makes it possible to devote oneself to more intensive projects such as the introduction of an ERP system. Software-supported, market-based spare parts pricing can, if implemented correctly, even refinance the costs of other IT projects. It is therefore important to make the immense benefits of pricing clear to all stakeholders.
An effective and flexible pricing strategy is just one piece of the puzzle. Equally important is the ability to implement this strategy with a high level of automation, especially when managing a portfolio that often includes tens of thousands of parts. For many machine manufacturers, the pricing of tens of thousands of parts with their individual characteristics is a major challenge.
Modern pricing software navigates effortlessly through this "complexity jungle", with just a few clicks the entire spare parts portfolio can be priced, with the underlying factors being highly customizable. With a one-time setup, preferably guided by an expert, the process can be effortlessly repeated with the click of a button for each pricing round. Software specialists such as MARKT-PILOT accompany the customer through the entire process of pricing up to price implementation, whereby a detailed analysis of the individual part level is also possible if required.
But one should not expect software to instantly compensate for 15 years of stagnation in spare parts pricing. Achieving meaningful progress requires starting with a well-conceived plan and a clear, strategic approach. The software is the tool to bring this strategy to life and automate key pricing processes. Without this foundation, no software in the world will be able to solve pricing problems.
The fact is: Digitization and AI are fundamentally changing the rules of the game in the spare parts business. While many companies still rely on Excel spreadsheets, modern, AI-supported software solutions impressively show how efficiency and profitability can be increased.
Excel has long been the standard tool for pricing. But in an increasingly dynamic market environment, it is reaching its limits for several reasons.
Modern pricing software offers clear advantages. It automates processes, analyzes data in real time and enables dynamic price adjustments. In this context, machine manufacturers report a reduction in pricing errors of up to 30 percent compared to manual calculation.3)
Particularly advantageous are features such as:
The next generation of spare parts pricing will be even more characterized by artificial intelligence (AI) than before. AI-based systems can not only analyze historical data but also predict future trends and control prices autonomously. This creates competitive advantages and enables companies to react even better to market fluctuations.
In short, modern technologies are not an end in themselves, but a necessity for machine manufacturers who want to remain competitive in the spare parts business. But without a clear strategy, even the best technology will be ineffective. The first step is therefore a conceptual plan – the tools for its implementation are available in any case.
Joint author's article by MARKT-PILOT and Horváth & Partners
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Discover sales potential in the spare parts business with MARKT-PILOT and make the pricing iceberg visible. More turnover and customer satisfaction.
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