Marketing Management Pricing in the Economic and Competitive Environment
Competitive Pricing for Spare Parts
description
Transcript of Competitive Pricing for Spare Parts
Competitive Pricing for Spare PartsJohan Östlin
Pricing Consultancy Manager at Syncron
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Syncron is the global leader in aftermarket service optimization
• Price Management and
Aftermarket Specialist
– Price Management
– Inventory Management
– Master Data Management
• Customers are multinational
companies
– Active users in more than 100
countries
– R&D intensive, investing >20% of
revenue
Meet the Presenter:
Johan ÖstlinPricing Consultancy Manager at Syncron
• 7+ years providing pricing consulting services to companies
• Ph.D. Aftermarket Solutions, Institute of Technology at Linköping University
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Drive margin and sales volume with strategic competitive spare parts pricing
With a systematic analysis of competitive data, you can successfully implement prices, that:
• Quickly achieve ROI goals• Better communicate value to your customers• Grow sales and margin
Establish a efficient process to manage competitive information and feedback
How and where to gather competitive data
Use competitive information to set the optimal price
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Unstructured, manual price adjustments creates risk and inefficiency
• Can’t closely align prices to broader brand and market positions
• Forced to treats most competitors equally to fit in to a pricing process
• Increases likelihood that price will be adjusted
based on the wrong information
Establish a process
• Can’t quantify how volume will shift when
the price is adjusted
• Can’t easily adjust price for thousands of
parts across customer segments and
regions
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Structured approach to spare parts pricing takes into costs, competitive offers and applies analytics
• Leverage price to achieve category goals and grow market share
• Align prices to broader brand and market positions
• Rank competitors for pricing purposes
• Prioritize information that impacts price
• Quantify how volume will shift when the
price is adjusted
• Can easily adjust price for thousands of
parts across customer segments and regions
With knowledge about competitors you can:
Gather competitive
data
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Gather competitive
data
• Publically available prices
– Public list prices. E.g. SKF European reference price
• Excel, PDF, Word, etc
• Web Shops, Internet pages
• Company websites
• Industry specific databases
– Formalized databases (Automotive – Eucon/Eurotax)
• Internal feedback data
– Information reported from customers/dealers
• Market research data
– Mistry shopping data / External bought information
How and where can you find competitive data?
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Traditional Product Oriented Pricing Approach
FiltersCommercial Unique Items
Air Filters Filter paper A+
Oil Filters
Water Filters
Filter paper A
Filter paper B
Product Segmentation Structure
Volume
ValueDriver
Volume
Volume
Filter paper A+
Filter paper B
Price
Volume
Captive ItemsImpeller Product Range A
Product Range B
Material A
Material B
Material C
Diameter
PC Boards Process Control
Flow Control
Cost+
Cost+
Generation 6
Generation 5
Cost+
List Price
List Price
FiltersCommercial Items
Diameter
Diameter
Set the optimal price
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Competitive Pricing
Price
Cost
Price
Cost
Sales
Commercial Pricing
• Currently a cost+ approach is used with a markup target
• Some prices are adapted to market conditions with a manual process
Markup target
Market Adaptions
Set the optimal price
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Position Against one Competitor
Price
Cost
Price
Cost
Sales
Commercial Pricing
• Collect competitor information and visualize in a graph
• Frequent over and under pricing against competitors
Markup target
Competitor A
Set the optimal price
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Position Against one Competitor
Price
Cost
Price
Cost
Sales
Commercial Pricing
• Sort by competitor prices
Markup target
Competitor A
Competitor A price
Set the optimal price
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Position Against one Competitor
Price
Competitor A price
Price
Cost
Sales
Commercial Pricing
• Sort by competitor prices
• Possition against competitors
• 10% premium for lower price items – 5 % premium for expensive parts
Competitive positioning
Competitor A
Set the optimal price
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Position Against one Competitor
Price
Competitor A price
Price
Cost
Sales
Commercial Pricing
• Adapt to competitor pricing
• Take a stepwise approach for sensitive items
Competitive positioning
Competitor A
Set the optimal price
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alue
Manage Missing Competitor Prices
Price
Competitor A price
Price
Cost
Sales
Commercial Pricing
• What if we don’t have competitor item information available?
Competitive positioning
Competitor A?
Markup target
Set the optimal price
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Manage Missing Competitor Prices
Price
Competitor A price
Price
Cost
Sales
Commercial Pricing
• Option 1 - Use an alternative price rule, as value based price logic
• Build a price structure based on the volume of the filter
Competitive positioning
Competitor A
?
Markup target1.1 Liters
1.4 Liters
1.25 Liters
0.9 Liters
1.7 Liters
Set the optimal price
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Manage Missing Competitor Prices
Price
Competitor A price
Price
Cost
Sales
Commercial Pricing
• Option 2 – Link the item to another similar item where we have a competitor info
• We use a ”Similarity Factor” for reusing market information on several items
Competitive positioning
Competitor A?
Markup target
15%20%
25%
Set the optimal price
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Manage Missing Competitor Prices
Price
Competitor A price
Price
Cost
Sales
Commercial Pricing
• Option 3 - Use an alternative price rule, as for example a markup target
• Will generate an ”market adapted margin” based on cost
• Can be useful when there is low transparency of competitor prices in the market.
Competitive positioning
Competitor A?
Markup target
Set the optimal price
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alue
Position Against Multiple Competitors
Price
Competitor A price
Price
Cost
Sales
Commercial Pricing
• Positioning against several competitors
• Display competitors for easy visualization of positioning
• Different calculations methods can be managed
Competitive positioning
Competitor A
Competitor B
Competitor C
Calculation methods
• Average of all competitors• Max or min competitor price• First available price by
competitor priority order • Median or percentiles
Set the optimal price
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Calculate competitor price with
• Average of all competitors
• For segments of parts with a tight competitive situation
• Max or min competitor price
• For positioning based on the price leader or the lowest price option
• First available price by competitor priority order
• For positioning according to clearly identified main competitor/competitors
• Median or percentiles
• For sorting away outliners
Set the optimal price
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Position Against Multiple Competitors
Price
Competitor A price
Price
Cost
Sales
Commercial Pricing
• When calculating based on average of competitors prices we need to consider how to position to each competitor
• Competitor C has a higher list price level (e.g. they always give the customer a higher discount) – we want to adjust these items down by 20 % to make them comparable to the other competitors
Competitive positioning
Competitor A
Competitor B
Competitor C
Calculation methods
• Average of all competitors• Max or min competitor price• First available price by
competitor priority order • Median or percentiles
Set the optimal price
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Sales V
alue
Position Against Multiple Competitors
Price
Competitor A price
Price
Cost
Sales
Commercial Pricing
• Calculate the average and position accordingly
• Suitable for situations where you have a high degree of competition
• For a situation with a high price difference among competitors, other calculation methods might be better
Competitive positioning
Competitor A
Competitor B
Competitor C
Calculation methods
Competitor Average
• Average of all competitors• Max or min competitor price• First available price by
competitor priority order • Median or percentiles
Set the optimal price
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Manage a Mix of Competitor List and Net Prices
Price
Price
Cost
Sales
Commercial Pricing
• What if we have a mix of list prices and net prices?
Competitive positioning
Competitor A List Price?
Competitor A Net Price
Average Net Sales
Calculation methods
• Mix of net and list prices
Competitor A price
Set the optimal price
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Manage a Mix of Competitor List and Net Prices
Price
Price
Cost
Sales
Commercial Pricing
• What if we have a mix of list prices and net prices?
• Use our typical discounts to position according to competitor net price. • I.e. Our basic discount is 15% then we position list prices at 20% to put net prices
5 % above competitors
Competitive positioning
Competitor A List Price
Competitor A Net Price
Average Net Sales
Competitor A price
Calculation methods
• Mix of net and list prices• 5 % higher than list prices• 20 % higher than net prices
Set the optimal price
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Manage Market Specific Competitive Pricing
Price
Competitor A price UK
Price
Cost
Sales
Commercial Pricing
• What if we have different market prices in different regions?
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data
• Global pricing with market adaptions
Set the optimal price
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Sales V
alue
Manage Market Specific Competitive Pricing
Price
Competitor A price UK
Price
Cost
Sales
Commercial Pricing
• What if we have different market prices in different regions?
• Option 1 – Position market prices according to market specific prices and sales volume
• Germany prices
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data
• Global pricing with market adaptions
Competitor A - Average
Set the optimal price
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Sales V
alue
Manage Market Specific Competitive Pricing
Price
Competitor A price UK
German List Price
Cost
Sales
Commercial Pricing
• What if we have different market prices in different regions?
• Option 1 – Position market prices according to market specific prices and sales volume
• Good price structure according to local competitors, big spread in-between markets
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data
• Global pricing with market adaptions
Set the optimal price
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Sales V
alue
Manage Market Specific Competitive Pricing
Price
Competitor A price UK
German List Price
Cost
Sales
Commercial Pricing
• What if we have different market prices in different regions?
• Option 2 – Position market prices according to average market prices, with local adaption
• Use a global price list reference calculated as 5 % higher than global competitor average
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data• Global pricing with market
adaptions
Competitor A – Global Average
Global List Price
Set the optimal price
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Sales V
alue
Manage Market Specific Competitive Pricing
Price
Competitor A price UK
German List Price
Cost
Sales
Commercial Pricing
• What if we have different market prices in different regions?
• Option 2 – Position market prices according to average market prices, with local adaption
• Review current global list price in relation to current local market conditions
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data• Global pricing with market
adaptions
Competitor A – Global Average
Global List Price
Set the optimal price
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Sales V
alue
Manage Market Specific Competitive Pricing
Price
Competitor A price UK
German List Price
Cost
Sales
Commercial Pricing
• What if we have different market prices in different regions?
• Option 2 – Position market prices according to average market prices, with local adaption
• Adapt to local conditions by a market factor. E.g. 92% for Germany
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data• Global pricing with market
adaptions
Competitor A – Global Average
Global List Price
Set the optimal price
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Sales V
alue
Manage Market Specific Competitive Pricing
Price
Competitor A price UK
German List Price
Cost
Sales
Commercial Pricing
• What if we have different market prices in different regions?
• Option 2 – Position market prices according to average market prices, with local adaption
• More harmonized prices in-between markets, but local differences may exist
• Effective when local competitive data are missing, reduces gray markets
Competitive positioning
Competitor A - UK
Competitor A - Germany
Competitor A - Switzerland
Calculation methods
• Local pricing based on local data• Global pricing with market
adaptions
Competitor A – Global Average
Global List Price
Set the optimal price
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Tools available from Syncron allow you to position your price
• Against a single competitor
• When competitor item information isn’t available
• Against multiple competitors
• Manage a mix of competitor list and net prices
• Manage market specific competitive pricing
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Questions
With a systematic analysis of competitive data, you can achieve ROI, communicate value and grow sales and margin
Establish a efficient process to manage competitive information and feedback
How and where to gather competitive data
Use competitive information to set the optimal price