Parts Pricing

In: Business and Management

Submitted By Razzzat
Words 4039
Pages 17
How to Price Spare Parts More Profitably: panies take full advantage of the opportunity spare part pricing offers. In fact, they deal with the complexity of pricing thousands of parts by resorting to standardized and undifferentiated “rule of thumb” customer complaints. This article was written by Richard Zinoecker, who is a Director at Simon-Kucher & Partners. He can be reached by e-mail at richard.zinoecker@simon-kucher.com.

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he importance of after-sales business has increased steadily over the last few years. Market leaders such as Caterpillar have built a crucial competitive advantage for their business with new machinery. Additionally, they have demonstrated that it is possible to create a successful business model in the after-sales business. While the German premium carmakers Mercedes and BMW have faced harsh competition selling cars and are no longer immune to granting substantial discounts and incentives in their primary business, they have so far managed to cling to their competitive advantage in the after-sales business, an area that is much harder for new challengers to emulate. Spare parts make up the backbone of the after-sales business. Roughly two-thirds of the after-sales revenues of European engineering companies is generated with spare parts. In comparison to labor-intensive parts of the service portfolio, such as service contracts, training or refitting, spare parts have lower fixed costs because the workload is stable. Spare parts have the potential to generate considerably higher margins than the rest of the service portfolio. Therefore, the significance of the spare parts business in the bottom line of machinery and engineering companies is typically even higher than implied by its percentage in revenues. Although the parts business typically provides a significant lever to increase overall profitability, many companies do not optimize their spare…...

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