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Spare Parts business is changing. At the 8th Annual Spare Parts Business Platform, we’ll ask important questions about the today and tomorrow of spare parts.
How does the service transformation affect spare parts businesses? What opportunities can new technologies like AI and additive manufacturing bring to spare parts management? On a more operational level, how can manufacturers develop their parts & service network? And what impact is the growing trend of e-commerce having on relationships between OEMs and distributors/resellers?
To investigate these topics beforehand, we interviewed Daryan Parab, Aftermarket Pricing Manager Doosan Bobcat and one of the speakers at Spare Parts Business Platform. Daryan shared his insights on how to set value-based prices for spare parts and the importance of communicating the pricing changes internally and the importance of collaborating with the sales team . Enjoy.
As the Aftermarket Pricing Manager at Doosan Bobcat, can you explain what your role entails? What is your number one priority with this role?
As the Aftermarket Pricing Manager, I’m responsible for the EMEA region. We have about 130,000 parts in total and out which we sell about 50,000 regularly.
What we do is that we maintain several price points for all the 130,000 parts. This is due to having prices in multiple currencies and having separate prices for key accounts with whom we have dedicated contracts.
And maintaining prices involves, looking at margins, the competition and the overview. I would say, my number one priority is to maintain the margin.
What are the challenges you face in your role?
We are facing increasing competition from third party suppliers. There is a growing trend in Europe; more such players are coming up, sometimes getting parts directly from the manufacturer and sometimes just making copies. This is a major threat that we have to face at this time.
Pricing is a very popular topic with value-based pricing being at the centre of the topic. Can you explain how pricing has changed with digitalization and servitization? What does value-based pricing mean for spare parts/aftermarket and why is it so important?
Definitely. This is something we hear almost everywhere. The role of the pricing manager along with the pricing team is becoming more prominent in the manufacturing industry compared to ten years ago.
Defining value-based pricing in B2B is difficult because when we hear about value-based pricing or product value, we traditionally think about B2C. It is easier to explain the value of a product when it is an iPhone or a car or even a bottle of shampoo. When you consider instead of 20 parts a hundred thousand plus parts, the meaning of value is completely different.
So, in the spare parts business, it’s a simpler definition. You try to link the value of a part with the value drivers. To do that, you try to have a technical understanding of what the part is and assign a monetary value to it.
For example, if we are pricing batteries, probably battery capacity would be the main criteria in pricing. If you’re pricing something as simple as screws maybe just the weight and length is enough. If you’re pricing something a little bit more technical, say, a turbocharger, you may have to consider different elements. So, it depends on the product.
A lot of companies know that they need to switch to adopt value-based pricing but don’t know how to set prices. In your presentation, you will cover optimising pricing with limited market information. Since this is exactly why people want to know, can you elaborate on this issue?
Certainly. I’m dealing with 130,000 parts so it’s not possible to do in-depth research on the value of each product. Therefore, the data that is going to be limited.
What really helps is to make segments and prioritize. So you group your products and prioritize the ones that are the revenue drivers and collect data on them. And then it’s a game of extrapolation. There is a bit of risk involved but if done correctly, the result is worth it.
Often, a change in pricing leads to changes within the organization, business practices and how sales team operate. What are the necessary actions that need to be taken during the transition process to allow for a smooth transition?
This is a very important question because I’ve seen cases in my career where this has been handled very well as well as not so good. When we talk about any pricing change or transformation, the human and organizational aspect of it is very important.
First of all, you need upper management’s support. The more conservative or traditional a company is, fewer people actually understand the importance of pricing as a field. The management has to explain the benefits of the transformation to the stakeholders. I would say such projects need to be sold internally before being launched externally.
Another crucial thing is the mindset of collaboration with sales. As a pricing manager, I always say that my customers are sales. For me, my job means nothing if I don’t manage to help them get better. Unfortunately, this mindset of working together with sales is sometimes missing in some organizations. I think pricing managers in pricing need to be close to sales managers and they need to have a common objective.
Are there any technologies or systems that allow this shift towards value-based pricing?
There are, absolutely. And I would say; any company that wants to switch to value-based pricing needs to invest in some sort of technology and tool. The selection depends upon the volume of parts and the needs of that particular company. I haven’t come across any company who is managing a mature pricing strategy for thousands of SKUs and doing it by using excel.
I would suggest using a pricing tool to tackle this issue and deciding on which tool/technology to use should be based on what exactly you want to do as a company.
Communicating the new prices to customers, or how to do it in a way that will show the value of your service to customers is also a common concern for spare parts businesses. What are the steps that need to be taken when communicating these new prices?
As I mentioned before, the transformation needs to be communicated internally and then externally. What I mean by that is; when the pricing department set new prices, they are not the ones who inform the customers. It’s the sales team, the field teams and sometimes customer service that communicate this to the customers. Therefore, they must be on board first. Because when the sales team is convinced, they will be able to convince the customers.
What tactics help in this regard? When you are increasing prices of some parts, the fair thing to do is also to decrease some prices. The driver should be consistency or the right pricing rather than increasing prices. When this is the objective, it is easy to explain to the customers with examples.
What I have done in the past and still do today is to always provide customers with examples. If you have one part with an increased price and another with a decreased one to have consistency, show the customer that what they are getting is consistency. It’s a B2B environment, the customers tend to be partners and they know the parts and the business. If you do the communication correctly, it does work out.
What are your expectations from Spare Parts 2020?
It is always interesting to see what’s happening in relevant industries. Sometimes, industries you didn’t think as relevant have things in common or bring something new to be the table.
I would like to learn best practices, challenges and solutions related to pricing, operations, planning as they are all indirectly related to pricing. It’s always nice to hear the presentations focused on specific topics that you can learn a lot.
It is also nice to simply talk with people. Learning what they are doing in their companies, which tools they are using. Sometimes people use the same tools but in completely different manners, which I find really interesting.
Any message you want to share the participants of Spare Parts 2020?
I’m looking forward to meeting and having fruitful conversations with everyone.