WHITEPAPER

The Ultimate Guide to Market-Based Parts Pricing

Learn how you can sustainably increase your revenue with market-based spare parts pricing. Conventional pricing methods, such as cost-plus pricing, are no longer keeping pace with B2B marketplaces.

Keep your finger on the pulse of the market and make informed pricing decisions based on reliable market data.

In this guide, you will learn the benefits of market-based pricing, and easy steps to implement a competitive pricing strategy.

Whitepaper The Ultimate Guide to Market-Based Parts Pricing
AT A GLANCE

Why Market-Based Pricing?

By evaluating prices of competitors or distributors, you will unveil the true market value of your product catalog and can adopt a competitive, market-based pricing strategy

When monitoring competitive market prices, you are able to identify exclusive, overpriced, or underpriced products. Then adapt your pricing strategy with data-driven recommendations to reflect the product's market value.

As a result, you'll increase revenue, create higher margins, and increase customer engagement. 

Market-oriented Spare Parts Pricing example
THE ULTIMATE GUIDE

01  What is Market-Based Pricing?

Market-based pricing is a pricing strategy that relies on activating real-time market analytics to make informed pricing decisions.

A market-based pricing of parts is informed by market data and insights. Deploying a market-based pricing strategy thus requires access to real-time market intelligence regarding a part’s price, availability, and lead time, delivering competitive and intelligent insights that grow revenue and profit.

Aftermarket sales and parts represent a significant revenue stream for original equipment manufacturers (OEMs). The data driving a market-based parts pricing strategy can help OEMs establish a price in line, above or below prevailing prices to maximize profit or other strategic objectives.

Without a detailed understanding of the marketplace, many OEMs continue to defer to cost-plus pricing, where the supplier’s cost and the application of a standard markup dictate the price of a part, putting them at a disadvantage without a fully informed pricing decision.

COST-PLUS PRICING

Cost-plus pricing is the most common approach to parts pricing due to its simplicity and wide applicability. In an increasingly demanding and data-driven marketplace, it has several shortcomings, including wildly fluctuating prices, and prices cannot be competitive. Due to their ability to buy parts in bulk and secure heavy volume discounts, when OEMs apply standard markup on parts they bought at heavily discounted prices, they unknowingly pass on the discounts to their customers. As a result, OEMs are often cheaper than their competitors without knowing it.

MARKET-BASED PRICING

A Market-based pricing of parts delivers competitive and intelligent pricing increases that grow revenue and profit. It also allows OEMs to increase their customer share, become a trusted supplier for all parts, and increase win rates. Just as important, it fosters improvements in customer satisfaction as it delivers pricing and lead times in line with the market. Deploying market-based pricing requires access to real-time market intelligence regarding a part’s pricing, availability, and lead time. And OEMs need this intelligence for their entire portfolio.

Die Top 5 Preisstrategien für Ersatzteile
PARTS PRICING STRATEGIES OVERVIEW

The Top 5 Pricing Strategies for Spare Parts at a Glance

THE ULTIMATE GUIDE

02  Why Implement a Market-Based Parts Pricing Strategy?

Traditional pricing methods are outdated in Today's Digital Environment and do not make use of valuable revenue potential.

Many OEMs lack visibility of their competitive pricing position, meaning they do not know their competitors’ pricing, availability, or lead times for the parts they want to sell. However, to ensure a strong competitive footing, these manufacturers need to get the pricing right for every single part, which requires monitoring of market rates for thousands of spare parts. To further complicate matters, the frequency of price changes continues to grow continually increases as competitors seek to pass along rises in raw material costs and account for inflation, while simultaneously also attempting to maintain or expand their market share.

VDMA-2

"For machine and equipment manufacturers, spare parts contribute 10% to revenue, 25% to EBIT and grow at 4% annually."

Verband Deutscher Maschinen- und Anlagenbau (VDMA)

Market Insights Mean Increasing Opportunities for Comparison

It has never been easier for customers to compare prices and delivery times online - even for spare parts. Customers' purchasing decisions are based on current and real information from the market. Information against which it seems almost impossible to align and keep all prices up to date.

Automated market price research provides machine manufacturing companies with all information on prices and delivery times of their spare parts in one overview, enabling them to act accordingly and establish market-based pricing. With spare parts prices that are based on current and well-founded data and are fairly aligned with the market, companies gain the trust of (new) customers and counteract the price sensitivity of buyers.

Marktdaten optimieren die Preisstrategie

Market Data Optimizes Pricing Strategy

A market-based pricing strategy enables mechanical engineering companies to sell spare parts at a competitive price that is supported by data. The alignment of the entire pricing strategy can be derived from the data basis: Knowing the competitive price in the market, each company is free to price its spare parts below the market level to increase its market share or to price above the market level. In either case, market data is the driving force behind strategic pricing decisions.

Market-Based Pricing Increases Spare Parts Sales Revenue

Market-Based Pricing Increases Spare Parts Sales Revenue

Market-driven pricing improves a company's revenue by identifying below-market prices, leveraging visibility into each spare part's availability and delivery time, and leveraging these insights profitably. The company's after-sales team is equally positively impacted by market-oriented pricing: a pricing strategy that is driven by real-time data and facts provides a strong foundation as well as a stable basis for negotiation that is communicated to customers. Instead of relying on an outdated and standardized mark-up, the team can rely on validated market data and steadfast analysis. 

Read about the importance of market-based pricing.

Die Erwartungen der Kunden übertreffen

Exceeding Customer Expectations

For older spare parts for which there is low but consistent demand, market-based pricing can lead to sustained revenue streams. Similarly, for spare parts numbers with low turnover, market-based pricing can also ensure that they remain in stock. In both cases, market-oriented pricing of older and rarer parts leads to long-term customer loyalty: Market orientation makes the spare part more economical for both customer and seller. An analysis of the market can also be helpful when deciding to produce new spare parts or equipment or to enter a new market: Financial forecasts and projections form the foundation for decisions about the future profitability of a part or the expansion of entire product lines.

Market-Based Pricing Increases Customer Satisfaction

Machine manufacturers can strengthen their position in the market as well as their customer satisfaction through market-oriented pricing: frequently updating prices to align with the current market level highlights a sense of attentiveness and modernity. It also proves to customers that prices do not arise arbitrarily, but are justified by a data basis.

Therefore, it is equally important to openly communicate price adjustments to customers. Transparency is a quality that should not be underestimated, which above all, convinces customers and potential new customers and influences their purchase decision in favor of the engineering company.

WHITEPAPER

Market-Based Spare Parts Pricing:
The Ultimate Guide

Keep your finger on the pulse of the market and make informed pricing decisions based on current and reliable market data. In this guide, you'll learn how and why.

Whitepaper Ultimate Guide for Market-Based Pricing
THE ULTIMATE GUIDE

03  Which Organizations Can Profit from Market-Based Parts Pricing?

Market-based pricing has the greatest effect on industries with distributed sales, i.e., industries in which hundreds of dealers often compete for market share.

Market-based spare parts pricing has the most success and impact in the following industries. Machinery: packaging, agriculture, metal fabrication, mining, presses, and cutting and chipping equipment. Equipment: construction, welding or machine equipment, crane or material handling.

SITUATION

To define the prices of the spare parts, the classic cost-plus approach and a markup factor were used. Additional research to check the price positioning could only be carried out for two to three larger components and involved a great deal of effort.

SOLUTION

MARKT-PILOT's initial market price research convinced Christian Läpple right away: Price increase potentials could be realized directly and the Proof-Of-Value could be amortized by price adjustments on only three parts alone.

RESULT

With PRICE-RADAR, HOLMER is able to pursue both goals of customer satisfaction and fair pricing, and also increase sales and profits for its aftermarket parts distribution business. "The MARKT-PILOT approach is different. No theory, but practical implementation and strong results that convince," Christian Läpple summarizes.

THE ULTIMATE GUIDE

04  What Are the Requirements for a Market-Based Parts Pricing Strategy?

  • 360° DATA OVERVIEW

  • DIGITAL DATA COLLECTION

  • INTELLIGENT MARKET SOLUTIONS

The global marketplace is too large and dynamic for a team of analysts to maintain real-time, exhaustive pricing intelligence. Manual research with a focused approach on a few key parts can work, but it cannot scale or deliver full market coverage. The labor-intensive work can utilize too many resources to be profitable, leading to the prominence of cost-based pricing.

Efforts to collate and analyze up-to-date market intelligence will inevitably struggle due to the market’s complexity.

Generic web crawlers allow an OEM to automate and scale its approach to gathering pricing intelligence, yet due to technical limitations, they cannot limit their focus to specific industries, do not offer online and offline market coverage and only supply raw data that requires analysis and interpretation. Thus, making fact-checking for data accuracy essential, which is a very tedious and time-consuming process.

However, utilizing an intelligent and automated software like PRICE-RADAR that delivers full insight and transparency on pricing, lead times and detailed data collections. With an automated solution, you not only reduce cost, but also manual errors.

Intelligent automation provided via dedicated solutions can deliver a comprehensive and fully automated approach to gathering market intelligence.

Using such an approach, OEMs can focus on specific sectors and quickly gather online and offline market data to inform their pricing decisions. Global coverage and the continuous nature of the analysis mean that an OEM’s pricing knowledge remains current, complete, and accurate. By limiting manual efforts, intelligent solutions free resources to then dedicate to acting on the new market intelligence. It also provides a scalable approach. Embracing a data-driven approach to pricing decisions allows OEMs to adapt quickly to changes in the marketplace, maximizing internal resources and their return on investment.

PRICERADAR Automated Market Price Research for Spare Parts
PRICE-RADAR

Our Solution for You

Easy implementation: Get started in less than 30 minutes. You don't need any integration or training to use PRICE-RADAR.

Fast, reliable & effective: PRICE-RADAR does the market price research for your spare parts & you can focus on growing your spare parts business.

> 4,000 searched suppliers: PRICE-RADAR searches more than 4,000 suppliers and compares prices and delivery times of all spare parts.

PRICING STRATEGIES FOR SPARE PARTS

Do you know your potential?

To what extent does a market-oriented pricing strategy based on MARKT-PILOT's comprehensive price and delivery time data contribute to increasing sales and improving customer satisfaction?  

Price potential of your spare parts in the machine manufacturing industry
THE ULTIMATE GUIDE

05  How-To: Moving Toward a Market-Based Pricing Strategy

DEVELOP ACTIONABLE MARKET INSIGHTS 

From our experience helping OEMs integrate real-time market intelligence in their parts pricing, OEMs uncover approximately 22% of parts that are underpriced, around 52% of parts that are exclusive and candidates for premium pricing, and over 22% that are overpriced –  

On average, just 4.1% of parts are priced competitively. 

Competitive parts intelligence can also generate pricing data for new parts that the OEM has yet to sell on the open market, avoiding mispricing throughout the part’s lifecycle. 

KEEP PULSE OF MARKET DYNAMICS 

As the competitive landscape changes, the pricing framework generated via this analysis allows OEMs to monitor and react to market changes quickly. Just as important, it provides a sustainable digital foundation to migrate the OEM from manual spare parts pricing to an automated approach that is cost-effective and far more responsive to changes in market conditions. 

While some may view the shift to market-based pricing as a one-time event, monitoring competitors on an ongoing basis is critical to helping OEMs generate significant increases in revenue and profit. Due to inflation and cost surges, third-party vendors change their prices constantly. 

To react quickly, avoid leaving money on the table, and stay competitive, OEMs need up-to-date information, not just a one-time analysis. 

Market-oriented pricing vs. cost-plus pricing

INVEST IN CUSTOMER SATISFACTION

While such analysis focuses on the financial benefits of competitive pricing, it also drives improvements in business reputation and customer satisfaction. A data-driven approach to pricing is simple to explain to customers. 

Moreover, customers can verify the accuracy and integrity of an OEM’s pricing by conducting independent research.

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