Five Steps to Improved Profitability

Optimize pricing to maximize returns

It’s no secret that service parts pricing is complex. The amount of items and price points to is always changing and there’s not a one-size fits all solution for managing prices at the individual part level.  So how can you consistently optimize pricing across the board while boosting profitability and staying competitive?  The answer is a rigorous and systematic approach that can be scaled globally.  Here are five steps that, if implemented correctly, have been proven to boost profits from eight to 12 percent.

#1  Product Segmentation

Pricing can get very confusing when you’ve got hundreds of thousands of service parts across multiple product ranges.  So the first step to increased profits is to put your house in order.  Systematically, group your parts into segments based on characteristics that drives value to your customers. Naturally where you find these values you also find your pricing potential. Top scoring metrics for building your  product segmentation includes captivity level of the parts, Lifecycle position, competitive pressure, and sales volumes.  This will be the foundation from which your pricing teams will work to set optimized prices based on a product perspective. 

#2  Strategy

Once you’ve segmented your parts, the next step is to develop a pricing strategy and policies for each segment.  A pricing strategy is an overarching framework that proactively defines what a company is and who it aims to serve.  It takes into account the value you are bring to the respective customers for each segment and their ability to pay, market conditions, competitor actions, trade margins and input costs, and more1.  Each function that contributes to your service parts business, including finance, sales, supply chain, purchasing and marketing, should be involved.  By working together, you can be sure that everyone is striving for the same goals and is focused on the same metrics. 

This is also an opportunity to include insight from the point-of-sale and create a fully-encompassing process.  By leveraging the entire value chain you will ensure a coordinated pricing strategy at each level of the price waterfall from the central organization right down to the end customer.  

#3  Analysis

If you have a strong strategy with clearly defined goals in place, you’ll be able to quickly and easily understand which service parts and point-of-sale prices are underperforming.  Review available reports to gain visibility and valuable insight into pricing data at each level.  Uncover opportunities that align with the pricing strategy.  Carefully inspect all discounts, rebates, promotions and incentives that are being offered to make sure they are effectively driving revenue. Also look at sales trends, why are some customers buying from us and why are some not? And look for areas where value-based pricing could help increase overall profitability.  

#4  Communication

A thorough analysis of the data as it relates to your pricing strategy will undoubtedly reveal opportunities for improvement.  You’ll need to set and communicate price and policy changes quickly and accurately across the entire supply chain to ensure that the optimized price is realized on each and every transaction.  This can be a daunting task, as you are dealing with thousands of managed items and millions of price points, but software is available that can help automate and systemize this process.  

#5  Automation

The final step to profitability is to automate the pricing process so it becomes as efficient as possible.  The less time your team spends on information gathering, price decision making, price communication, and price evaluation and adjustment the more time they can spend focusing on the strategic aspects of service parts management and sales. 

A solid price management system will optimize parts pricing through improved segmentation, enforcing pricing rules, and consistently deploying the best pricing strategy for every service part in each market.  This will improve consistency in the pricing practice and in realized prices.  If your system is not fully automated, it’s time to start investigating new options.

 

If you would like to find out how Syncron can help you implement these five steps to maximize returns, please contact me at johan.ostlin@syncron.com.

1 http://economictimes.indiatimes.com/definition/pricing-strategies