Have you also been to that meeting?
The meeting where the local team talks about why they need to own the aftermarket pricing? That they know the market better. How they adapt to the very special situation of their market. How your central pricing is all theory and not reality.
Well… I have been there. Many times. And according to me, the local teams are wrong believing that they are best served setting spare part prices themselves.
Six years ago I was helping out at a large manufacturing B2C company in Europe. They had a massive portfolio of hundreds of thousands of spare parts, containing products ranging from simple screws to complex engines. Some of the parts were captive, others were non-captive. They had many cases of huge cost differences for similar parts, due to whether the product was used in mass production or not.
This company had problems with declining sales as well as ridiculous price differences between markets. All pricing was done locally. Independently. Some markets had one person spending 10% on pricing, other markets had one person spending almost full time on pricing. All doing “their own thing”.
Now ask yourself this question – is it reasonable to think that each market can do a very good job setting high–quality prices for such a portfolio? How on earth could they? The automatic price methodology was creating prices that were too high and too low, and then these small local teams were fighting for their lives to manually adjust the errors. Creating huge differences between the markets.
What would central pricing bring to the table? What did we do?
Our first action was to create a new reference price list. The central team created a high–quality reference price list, where price differences between similar parts could be explained. Where overpricing and underpricing could be avoided. Where cost was not the only parameter going into the equation.
Next, we created adjustment factors to adjust to each market. In the end, Poland is not Switzerland. We adjusted the prices to the appropriate level of each market, creating controlled price differences while keeping the price range logic between similar parts intact.
The impact was pretty amazing. The local teams could stop their constant ad-hoc price administration and instead focus on sales. The cross-border business could be reduced. Revenue could be increased over 6 percent due to better pricing. Profit was up even more.
So for the central team – remind your company how the aftermarket is a different animal than the finished goods business, and why due to the complexity of the portfolio, spare parts pricing is best done centrally.