The Road to Revenue is Paved by Intelligent Pricing

Pricing is a crucial element in the spare parts industry. OEMs and OPMs are increasingly realizing that the traditional pricing models are inefficient and limit their revenue potential. The problem with those old methods is that they don’t reflect a competitive price for spare parts and companies are either losing revenue by underpricing them or losing sales volumes by being overpriced.  

Even though this problem has been a recurring issue in the aftersales industry, a lot of players are still struggling to find the right pricing for their parts portfolios. In this blog, we discuss the problems and obstacles faced by OEMs and OPMs in finding the optimal pricing and offer solutions that can allow them to leverage pricing as an instrumental revenue driver.  

Common Obstacles faced by OEMs & OPMs 

OEMs and OPMs face several significant challenges in setting the right pricing for their spare parts business. These obstacles include:

AI's capabilities are vast and varied, extending beyond simple automation to complex predictive analytics and proactive maintenance. This transition not only augments the capacity for innovation within firms but also significantly cuts down operational redundancies, leading to more streamlined processes. 

1. Complexity of Pricing Systems

Many OEMs the digital systems to manage the pricing of their extensive parts inventories (which can easily be in thousands of items). This often results in a manual pricing process that is time-consuming and limits the number of parts that can be priced or reviewed frequently. The result is that these companies rely on outdated prices losing potentially millions in revenue. 

2. Data Overload 

OEMs collect vast amounts of data from numerous sources, such as inventory, invoices, competitors’ pricing, and market conditions. However, manually processing this data to set prices is nearly impossible, making them unable to capitalize on many different opportunities presented by this data.

3. Competition from Aftermarket Suppliers

The spare parts market is highly competitive, with OEMs facing competition from aftermarket parts suppliers and resellers. This competition is becoming fiercer for parts that are available from multiple suppliers and tend to sell in higher volumes. 

4. Dynamic Market Conditions

Economic factors, both macro and micro, are constantly changing, making it difficult for OEMs to find and maintain their optimal pricing. Without having robust digital systems in place that can enable prompt reaction to market dynamics, it becomes very difficult to keep up with the ever-changing external conditions.

5. Limitations of the Cost-Plus Pricing Strategy

A common pricing strategy, cost-plus pricing, does not account for market demand, competitor pricing, or customer willingness to pay. This can lead to either overpriced or underpriced products, missing out on potential profits or losing competitiveness.

(Source: Symson - 4 Business Benefits of Dynamic Pricing)

How Market Intelligence Paves the Way for Driving Consistent Revenue 

Implementing AI in manufacturing workflows results in: 

Leverage Data Analytics

OEMs should collect and analyze detailed historical data on previous contracts, including pricing, costs, and profitability. This helps identify trends and patterns to inform future pricing strategies.

Implement Value-Based Pricing Models

Moving away from traditional cost-plus pricing, OEMs should adopt value-based pricing models that adjust according to demand, production costs, and competitive pressures. This approach focuses on the perceived value to the customer, allowing for more dynamic and responsive pricing strategies that can maximize margins and competitiveness.

Utilize Dynamic Pricing

Dynamic pricing allows OEMs to remain competitive by adjusting prices in real-time based on market conditions. This strategy helps balance revenue maximization with competitiveness, and can significantly enhance brand integrity and business growth.

Leverage Market Intelligence for Optimal Pricing

OEMs and OPMs should leverage market intelligence platforms specifically designed to compare parts prices from the market and then adjust pricing based on the market. Choosing the right solution can open doors for OEMs and OPMs to find the optimal pricing that can maximize their revenue. Solutions like PRICERADAR by Markt-Pilot can assess your entire parts portfolio, compare it against the market prices and give recommendations to price each item in your portfolio optimally. 

Example of Successful Intelligent Pricing Strategies in OEMs 

• LTW: Utilizing PRICERADAR, LTW has significantly improved their pricing strategies and operational efficiency. 
• Körber Tissue: Adjusting prices based on the market has resulted in fair, lucrative and stable pricing that causes an immediate increase in sales volumes for specific parts for Körber Tissue. Read more here. 
  

These examples highlight how an intelligent pricing strategy can unlock new avenues for growth and driving consistent revenue. 

Conclusion 

OEMs and OPMs are increasingly leveraging market research tools and automated market intelligence to optimize their pricing strategies. This allows them to continuously monitor competitor prices and adjust their own to maximize revenue and profit margins. The ability to quickly respond to market fluctuations with dynamic pricing that reflects the current market is essential for maintaining competitiveness and profitability, and digital tools are paving the way for this continued success and revenue.