Blog, Pricing

The Aftermarket Tonic to Relieve all Economic Downturn Ailments

By Robert Irwin
April 16, 2020

As COVID-19 continues to impact our daily lives, we have quickly come to realise the far-reaching consequences. The initial disruptive events have impacted global supply chains, limited the access to investment capital and restricted options for social mobility. All of this leads us towards a ‘new normal’ in how we conduct our lives, go about our business and continue to manage global growth. Following this will come a time of profound transformation and those ready to adapt faster will be presented with significant opportunities to benefit from competitive differentiation.

The Aftermarket Tonic

To see you through the early phases of disruption and through the new normal, commercial excellence leaders should look to the Aftermarket as a soothing tonic. Clear evidence from the last downturn shows that while investment in capital equipment will be delayed, your Aftermarket business presents a great opportunity to replace lost sales and maintain key customer relationships that will enable you to remain relevant and supportive of your customers and most importantly in business. But where do you begin?

Aftermarket Best Practices

Turning your focus to the Aftermarket should follow a standard set of best practices that build a digital infrastructure to support price setting capabilities that are relevant in any market condition, including:

  • Gain control over pricing through oversight, coordination and increasing the authority of the pricing team.
  • Establish a central view through harmonised data and pricing processes. Avoid redundant steps in policy setting.
  • Optimise margin by re-evaluating segmentation methods, identify pricing levers.
  • Secure C-suite support in headquarters to raise organisational confidence when making price-setting decisions.
  • Establish central leadership and build a centre for commercial excellence.

 

Read the case study: Fortune 500 Manufacturer Gears Up for More Profitable Tire Sales with Smarter Pricing

 

Aftermarket in the Current Environment

The disruption we now face requires special consideration. But there are steps you can take today that will have a significant impact on tomorrow. 

Restriction in mobility

  • Consider the impact not only on your supply chain, but your services offerings as well.
  • Identify which services and offerings can be moved online or partially online. Find options to bundle service kits with remote delivery support, either through online training or video-based support. For example: ship a camera with the service kit, have the customer plug it in onsite and run diagnostics and service maintenance remotely.
  • Customers will of course not pay full fee for this, so you need to adjust the model, but this offers an alternative to not doing business at all.

Note: don’t forget to train your staff on virtual meeting best practices and etiquette. 

Limited access to investment capital

With a lot of manufacturing lines down right now, this may just be the time that your customers did not have before to think about an upgrade or refurbishment. They won’t necessarily get capital to buy a new line, but there might be enough for the upgrade that they were previously putting off until a quieter period. This is a great time to promote services, upgrades and refurbishments through targeted marketing: just remember to consider all aspects discussed here.

  • Look at alternative business models.
    • My absolute favourite: move to Outcome Based Pricing models. For the buyer, this takes all the risk out of any investment decision.

(Read: Outcome Based Pricing: A Practical Guide)

  • Build a plan to avoid (critical) cancellations.
    • Start with knowing where it would be acceptable for you to take the cancellation (this may be a decision incorporating your own operational status and potential supply chain challenges. Using data to classify customers into Revenue and Margin quintiles is fairly standard. Be prepared to let your poor performing customers go. That’s ok.
    • Sacrifice volume for margin. Accept cancellations from low margin customers but fight like crazy to keep your key customers. (see below)
  • Build a plan to manage requests for additional discounts.
    • If customers are asking for a discount in order to keep the business going, ensure that you process that decision quickly, in alignment with your strategy and expectations.
    • Help your sales team recommend a down-sell option. The focus is normally on up-sell and cross-sell but in this environment, reducing value (and the price) may be a good way to make the offer affordable and keep your business with the customer ticking over.
  • Down-sell recommendations may include:
  • (Temporary) de-bundling. Offer key items only, accept the use of 3rd party or repair parts for commodity products in your offer. Focus on keeping the high value products.
  • Offer lower value items as an alternative. Have this structured and prepared to save your sales team time.
  • As above, consider offering service kits with online support.
  • Track performance and customer behaviour.
    • Use data analysis through a Margin Bridge Analyzer or Profit, Volume, Mix analysis to understand what is working and what needs adjusting.

 

 

Whatever You Do, Stay Close to Key Customers

If it’s been said once, it’s been said a thousand times. Keeping customers is less costly than going after new ones. Here are some tried and true retention ideas that apply even today.

  • Focus on high value customers.
  • Double down and fight for bookings from high margin, high value customers. Look for alternatives.
  • Put a plan in place to protect future revenue.
  • If you can, give key customers access to products and services now that guarantee a future revenue stream. Look at alternative financial and business models.
  • Work in partnership with these customers to come to a solution.

The sooner you get to grips with this disruption the better. Recognising and acting on the opportunity presented in your Aftermarket business is a good step in that direction.

To learn more about the aftermarket industry and how to strategize and stabilize in the face of uncertainty, watch Innovative Pricing Tactics from the Aftermarket Industry. For additional assistance and a general organizational health check with aftermarket recommendations, contact your Vendavo account manager.  

 

  • aftermarket , B2B Pricing , commercial excellence , COVID-19 , outcome-based pricing

    Robert Irwin

    Robert has worked in Pricing for over 20 years and has spent the last decade at Vendavo helping customers implement and automate their pricing processes, strategies, and margin optimization. Before joining Vendavo, Robert was the Global Director of Pricing at a High Tech manufacturer where he developed, built and led the Pricing Organization. He is experienced in leading sales and operations teams in the international business environment and has a proven track record of successfully leading organizations through structural and process change. Robert has an MBA from Wake Forest University and a BA (Hons) in International Business from Sheffield City Polytechnic.