SMART PRICING = PROFIT BOOST - goetzpartners.com · 6 STEPS TO SUCCESS AT A GLANCE Source: ... -Value-based pricing plus-Other ... by continuously monitoring and adapting segmentation

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SMART PRICING = PROFIT BOOST goetzpartners Spare Parts Pricing Excellence Program

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Access the untapped potential of spare parts pricing to boost profitability and increase customer satisfaction

Increase margins

up to

10%

Reduce customer & dealer complaints to

ZERO

SPARE PARTS PRICING EXCELLENCE PROGRAM

AVOIDANCE OF Overpriced or underpriced spare parts Insufficient “traditional cost-plus”

pricing models IRRITATED customers and dealers

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We improve your spare parts pricing performance by creating customized and integrated solutions

goetzpartners Spare Parts Pricing Excellence Program providesyou with:

A HOLISTIC FRAMEWORK addressing all crucial success factors

A perfectly CUSTOMIZEDand efficient approach to exploit full potential

A fine-tuned mixture combining proven methodologies with powerful tools and big data analytics ensuring a high level of agility and EFFECTIVENESS

A sustainable spare parts pricing strategy with a clear vision and goals combined with a PRAGMATIC implemen-tation roadmap resulting in short-term profit achievements

1 DEVELOP DEDICATED SPARE PARTS STRATEGYDefine a future-proof global strategy which is in line with the overall company’s positioning and fits into the complex and fast-moving market environment.

4 IMPLEMENT SYSTEMATIC GO-TO-MARKET APPROACHEnsure an optimal price realization by setting clear policies and rules for the internal pricing team and external dealer structure along the price waterfall.

2 INCLUDE RELEVANT SEGMENTATION CRITERIA Segment the spare parts offering along a variety of different factors to define customized segments as a basis for an optimal and tailored pricing approach.

5 ESTABLISH EFFICIENT ORGANIZATIONAL SETUPBuild an efficient spare parts pricing team and governance-driving, cross-functional collaborationto continuously optimize and adapt the pricing.

3 USE VARIOUS PRICING MODELSDetermine the appropriate pricing model for each spare parts segment and set the pricing according to specific value drivers and local circumstances.

6 SET UP POWERFUL IT INFRASTRUCTUREFine-tune your IT landscape to the data and analysis requirements of the new pricing approach by implementing future-oriented and agile data tools.

6 STEPS TO SUCCESS AT A GLANCE

Source: goetzpartners

AUTHORS:Dr. Danilo Zatta, PartnerDr. Philipp Kinzler, PartnerMalte Zeiler, Consultant

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Source: goetzpartners

goetzpartners Spare Parts Excellence Program acts asmaster plan for a successful pricing model transformation.

DEVELOPMENT of a spare parts PRICING strategy as starting point for the overall approach.

Three-step procedure as core of the program consisting of:

Segmentation

Price Setting

Price Implementation

guarantees PROVEN METHODOLOGIES as well as a tailored and agile pricing approach.

Optimizing the organizational setup and IT infrastructure according to new spare parts pricing approach as basic factors for a successful transformation.

GOETZPARTNERS SPARE PARTS EXCELLENCE PROGRAM

A holistic framework successfully guides clients through the pricing model transformation journey

AT A GLANCE

STRATEGY

THREE-STEP CORE PROCEDURE

SETTING IMPLEMENTATION

SPARE PARTS STRATEGY DEFINITION with focus on positioning and target-setting

SEGMENTATION

Clustering of all spare parts into segments based on analysis of different industry-specific factors:- Financial performance- Technical criteria- Market and com-

petitor environment- Stage of spare

parts life cycle

Allocation of proper price models to each spare parts segment

Setting prices according to:- Differentiated

cost-plus pricing- Differentiated

competitive pricing- Value-based

pricing plus- Other factors

Introduction of a coordinated and rule-based go-to-market approach on a global and local level consisting of:- Discount levels- Bonus system- Coaching of

sales force- Dealer structure

BASICS ORGANIZATIONAL SETUP

Setting up spare part pricing teams and a well-defined governance with cross-functional orientation

ITINFRASTRUCTURE

Implementing agile methodologies and powerful tools gathering and analysing pricing data as basis for price adjustments

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TECHNICAL-DRIVEN

Product family/type Complexity and criticality

FINANCIAL-DRIVEN

Volume Profit

MARKET-DRIVEN

Competition (warranty, commodity, competitive and captive situation)

Demand and markets

LIFE CYCLE-DRIVEN

Phase of life cycle along certain trigger points

Time/age in years

Source: goetzpartners

CRITERIA FOR SPARE PARTS SEGMENTATION

Multidimensional segmentation of spare parts as basis for goetzpartners agile pricing approach

AT A GLANCE

goetzpartners’ unique spareparts segmentation methodology combines a variety of different criteria that ensure the most suitable segment clustering are found for our client.

The criteria selection depends on the part features, the INDIVIDUALclient SITUATION as well as on the data availability.

Criteria selection is not the only aspect that follows a TAILOREDapproach; the final segment determination (A, B, C, etc.)will be CUSTOMIZED as well.

The predefined segments serve as a basis for the pricing definition.

To keep the segmentation of all spare parts up to date, trigger points will be identified and integrated in an AGILE data tool.

ALL SPARE PARTS

A B C D

SEGMENTATION PROCESS ALONG

SELECTED INDUSTRY-SPECIFIC CRITERIA

E.g. SEGMENT A:“Profitable and critical brake disc spare parts in a highly competitive market”

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Source: goetzpartners

OVERVIEW OF PRICING MODELS

Reach full potential through smart allocation of pricing models to proper spare parts segments

AT A GLANCE

D C

DESCRIPTION of pricing model

PRICING MODEL ALLOCATION TO SPARE PARTS SEGMENTS BA

Although spare parts pricing topics are gaining more and more importance, many manufacturing companies still LACK an AGILEspare parts pricing APPROACH.

Following a simple cost-plus pricing or focusing only onone pricing model will not tap the FULL profit POTENTIAL.

Our program identifies the PERFECT MATCH between predefined segments and different pricing models.

Our “value-based pricing plus” pricing model smartly combines customers’ willingness to pay, big data analytics and psychological pricing to consequently identify all pricing OPPORTUNITIES and adjust prices accordingly.

CONSIDERING …

PRIC

ING

ELEM

ENTS

TRADITIONAL COST-PLUSPRICING

DIFFERENTIATED COST-PLUS PRICING

DIFFERENTIATEDCOMPETITIVE PRICING

VALUE-BASED PRICING PLUS

SIMPLE MARK-UP on top of the COSTS OF EACH PART

DIFFERENTIATED MARK-UPS by PRODUCT SEGMENT

Differentiated mark-ups by product segment with focus on COMPETITORS’ PRICES

Additional focus on WILLINGNESS TO PAY/price elasticity, BIG DATA ANALYTICS and PSYCHOLOGICAL PRICING

BIG DATA ANALYTICS

COSTS

PRICES OF COMPETITORS

PARTS SEGMENTS

WILLINGNESS TO PAY

PSYCHOLOGICAL PRICING

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Source: goetzpartners

WATERFALL – FROM LIST PRICE TO REALIZED PRICE

Building an intelligent discount and incentive system as final stage to unlock profit potential

AT A GLANCE

Special dealer

discount

End customer discount

Volume discount

Promotional discount

Target price

Payment terms

Bonus payment

Realized price

Standard dealer

discount

List price

A clear regulatory system –often underestimated and not sufficiently addressed –offers great opportunities to INCREASE REVENUES as well as customer/dealer SATISFACTIONand to facilitate the steering of workforce and dealers.

Our approach analyzes all relevant discount and bonus components affecting the path from list to realized price.

Our guiding principles ensure FULL TRANSPARENCY and agility to control national and international go-to-market activities in a highly effective way.

ON INVOICE DISCOUNTS OFF INVOICE DISCOUNTS

GUIDING PRINCIPLES FOR GO-TO-MARKET

Elaborating on discount and incentive structure for sales force and dealers supported by an intelligent system of rules and guidelines

Taking into account different factors for setting up discount and dealer structure, such as order volume, geographic location, and customer importance

RULE-BASED

DRIVER-ORIENTED

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9% EBIT improvement

Source: goetzpartners

9% EBIT increase with new spare parts approach at an international automotive supplier

SPARE PARTS OPTIMIZATION FOR AUTOMOTIVE SUPPLIERAT A GLANCE

INITIAL SITUATION International automotive

supplier with cost-plus approach

Dealers and customers complain about distorted prices (e.g., right back mirror more expensive than left one)

Lack of central price steering lead to grey imports

OBJECTIVE Have consistent parts pricing Reduce dealer/customer

complaints Increase profitability

METHODOLOGY Optimization of segmentation Introduction of price drivers

and thresholds per segment Transformation of pricing

model from simple cost-plusto value-based pricing plus approach

RESULTS

CLIENT EXAMPLE

Happy dealers and customers

New approach and analytical tools installed

PRICING MODEL TRANSFORMATION JOURNEY

Simple cost-plus pricing

Differentiated cost-plus pricing

Value-based pricing plus

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INITIAL SITUATION Global engineering company

affected by non-genuine competition

Lack of a systematic model to holistically price parts

Minimal resources to manage parts pricing

OBJECTIVE Introduce a professional

and agile parts pricing Enable the organization to

develop the parts pricing on its own in the future

METHODOLOGY Identification of improvement

areas through quick check Implementation of holistic

pricing excellence program Special focus on determination

of segments and development of processes and tools enabling the organization to implement

AT A GLANCE

€17 million EBIT impact from spare parts pricing in the aftermarket

SPARE PARTS OPTIMIZATION FOR ENGINEERING COMPANY

RESULTS

SPARE PARTS PRICINGQUICK CHECK

Initial assessment of status quo spare parts pricing performanceIdentification of improvement areas

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Source: goetzpartners

CLIENT EXAMPLE

€17 MILLIONEBIT INCREASE

SPARE PARTS PRICING EXCELLENCE PROGRAM

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Develop holistic and agile spare parts pricing approach along all success factorsEmpower organization to run spare parts pricing on its own

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Our structured and pragmatic spare parts pricing excellence program contains all success factors for implementing a sustainable and efficient pricing approach as well as gaining short-term achievements.

The agile and individual pricing approach based on smart spare parts segmentation helps in managing high numbers of SKUs and complex parts portfolios.

Our experienced pricing team focuses on proven methodologies and tools in combination with a comprehensive tailored solution orientation resulting in highly effective and efficient spare parts pricing.

Tailor-made pricing solutions

to suit individual needs and fully capture willingness to pay

by continuously monitoring and adapting segmentation and pricing

Agile approach ensures sustainable success

to holistically support the client along all relevant success factors

From strategy to price implementation

as a result of our pricing approach

Up to 10% EBIT improvement

to tap full potential of pricing approach and save resources

Use of Big data analytics

Our approach smartly combines proven methodologies with individual character

AT A GLANCE

Source: goetzpartners

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ADVISERS FOR STRATEGY, M&A AND TRANSFORMATIONgoetzpartners is an independent advisory firm for all key issues of entrepreneurial activity: strategy, M&A and transformation. This unique approach makes clients measurably more successful. The combination of corporate finance and management consulting creates sustainable added value when determining valid courses of action, reaching decisions and implementing them. Boasting a vast wealth of business experience, goetzpartners advises clients in all key industries world-wide: Business Services, Energy, Financial Institutions, Healthcare, Industrials & Automotive, Retail & FMCG and TMT.

CHALLENGERS WITH PERSONALITYFor the key business issues of strategy, M&A and transformation, standard solutions are rarely the right answer. On every project, goetzpartners ensures that there is always sufficient scope for proven methods to be combined with individual and client-specific approaches. Our consultants lay the foundations for excellent results by trusting their own opinions and experience and taking a strong stance on the entrepreneurial challenges to be resolved.

NETWORKERS AT THE HIGHEST LEVELOur far-reaching network of contacts, grown over decades, involves top decision makers in business and politics, and produces extraordinary advisory outcomes. Our close working relationship with prominent members of society opens up wide-ranging new perspectives. goetzpartners thinks beyond borders and connects the right people with the right ideas. That way, goetzpartners creates valuable synergies for all involved.

EXPERTS ON COURSE FOR SUCCESSFounded in 1991 by Dr Stephan Goetz and Stefan Sanktjohanser, goetzpartners today ranks among the 10 best-performing advisory firms in Germany (Lünendonk®). goetzpartners has received awards three years in a row as part of the “Best of Consulting” contest by the renowned German magazine “WirtschaftsWoche”, most recently in the in the “Project Excellence” category (2016). Internationally, the company operates in 11 countries out of 14 offices with more than 350 professionals.

About goetzpartners

September 2017This document is copyright-protected. Its reproduction, rental or any other form of distribution or publication – including in extract form – is subject to the consent of goetzpartners. The analyses and assumptions on which this publication is based were undertaken by the authors to the best of their knowledge and judgment. goetzpartners accept no liability whatsoever for the accurateness of these analyses or assumptions. Where information was taken from public sources its accuracy and completeness was assumed without any further checking. By its very nature, this publication does not take into account the specific circumstances of individual cases. This document can thereforenot replace individual expert advice or extensive research which should be undertaken by the third party.

CONTACTPUBLISHERDr. Alexander HenschelManaging Director

[email protected] T +49-89-290725-115

AUTHORDr. Danilo ZattaPartner

[email protected] +49-89-290725-115

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