AFTERMARKET PRICING EXCELLENCE
Pricing is the most powerful lever to sustainably boost profitability. To gain higher pricing power, the pricing strategy should reflect the value perceived by the customer while it is also aligned with the market position you pursue strategically.
With more than 50 years of combined experience in the implementation of value-based and market-driven pricing for industrial companies, the LucidPrice team knows how to find the optimal price, and helps your business set the right prices to capture the desired value. Our methodology covers all aspects of list pricing, net pricing, and revenue management when it comes to product, spare parts, and service pricing.
Get the fundamentals right
While technology tools enable the sales process of selling spare parts and services for industrial companies, it is still crucial to get the fundamentals of pricing right. Anomalies and bad pricing are even easier to detect with higher transparency in today's markets.
Low-quality pricing opens the door to never-ending negotiations, over-discounting, lost margins, and lost trust.
Aftermarket
Pricing
Aftermarket pricing excellence refers to the practice of optimizing and strategizing the pricing of products and services offered after the initial sale of a product. This process involves setting competitive and customer-focused prices for spare parts, maintenance, accessories, and other post-sales offerings.
Journey starts with setting refrence prices
Global Reference Price
Market/ Channel Price
Customer List Price
Net Price
Moving away from pure cost-based pricing starts with setting value-based and attribute-based price logic defining a global reference price.
Such price logic creates the base to enable the whole organization to explain and defend prices towards the end customers.
Market and channel price harmonization
Market or channel pricing is about adjusting the reference price logic to the right level that fits the market or channel conditions.
Applying the same logic with the right level will result in global price harmonization across product assortments and markets/ channels resulting in similar price communication towards the market as well as controlled cross-boarder trading risk.
Net pricing and incentives
Having high-quality prices with the right level in place is the backbone of effective sales guidance. While salespeople can effectively explain and defend the pricing, they can take further steps in an effective negotiation process providing the right incentives based on desired and actual customer purchasing trends.
Off-invoice Incentives
On-invoice Incentives
Customer List Price
Net Price
Starting Price
Target Price
Floor Price
5% to 20%
Improved Gross Profit
is a typical outcome of aftermarket pricing excellence initiatives
Aftermarket pricing excellence initiatives are one of the most lucrative initiatives that a manufacturing company can take on.
The outcome of such initiatives is actual prices for markets which immediately provide tangible results by improving margins and volumes.
Frequently Asked Questions
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What is high-quality pricing?High-quality pricing is pricing that is easy to explain and defend to the customer. Such pricing is in proper alignment with the brand positioning within the market and in comparison, with other competitors. Customers can easily relate to the prices and there is a willingness to pay for the prices.
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What is the main pricing methodology that LucidPrice can support our organization with?We support the operational transformation to Value-based and market-driven pricing as the main methodology that can properly reflect customers’ perception of value to make sure no business is lost due to over-and underpricing. Over-and underpricing is the common result of cost-based pricing or blind following of competitors.
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Why should we focus on price improvement rather than cost reduction?Pricing is the strongest lever in business to improve profitability. Within the manufacturing industry, 1% price improvement can result in 3 to 7 times margin improvement in compare with improvement in other levers such as Cost, Volume, etc.
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What is pricing power?In simple terms, it is your ability to increase prices without losing a considerable number of customers. If you are scared that many customers will leave you due to your price increase, your pricing power is probably low.
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Why pricing power is important?“Pricing power is the most important factor in evaluating businesses…” Waren Buffet
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How can we improve our pricing power?By improving your pricing quality. High-quality pricing is easy to defend and explain. You don’t need to give away in discounts to persuade the customer to pay the price. In other words, your price should be in harmony with customers’ value perception in the market.
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How LucidPrice's way of working can support the transformation toward high-quality pricing?While we have a look at market conditions, competitors, and cost as guidance metrics, we try to measure and grasp customers’ value perception and willingness to pay with the help of various quantitative and qualitative studies and analyses. The aim is to put the pricing into the context of different products and offerings of the business and draw a harmonized pricing logic across each category of offerings to create a consensus across the organization about the value that is offered and the value to be captured.
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Is value-based pricing about increasing the prices?No, the goal is to make sure all prices are in harmonization with customer perception of value. In this process, some prices will be increased, and some will be decreased. Therefore, businesses can expect improvement both in margin and volume for the whole business
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What is the typical gain out of pricing excellence initiatives?We have seen companies can easily achieve 5% to 20% gross margin improvement as a result of pricing excellence initiatives for products and spare parts. The ultimate gain depends on the readiness and the effort deployed by the business in realizing the profitability impact.
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What are the steps in value-based pricing for spare parts?We start with creating a pricing-focused product structure where we can put together similar spare parts into groups. Then we defined value drivers together with your product specialists and marketing teams. In the next step, the data values of these value drivers are gathered. In the final, step a pricing logic is defined based on the value drivers and with the look at market conditions, any available competitor data, and of course margins. This logic creates a central reference price. This reference price is then transformed into suggested market prices by applying the market price level adjustment factor. When prices are ready, feedback will be gathered from marketing, product management, and sales teams to assure the acceptance of the new prices before market implementation.
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We have bad data quality; can we still apply value-based pricing for our aftermarket business?You are not alone. We have seen such challenges over and over and we have different solutions to still navigate through such challenges. Contact us to discuss a detailed proposal for your business.
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How can we increase the success rate of our pricing excellence initiative?It is important to share the information about the initiative from the beginning and involve all relevant stakeholders within the project to assure the high-quality results and acceptance of the new prices. In this process receiving proper feedback and involving the sales teams are crucial.
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Can LucidPrice support the change management process and go to market activities?Yes, we have the training and a structured sales enablement methodology to support the release of new prices to the market and how sales teams should respond to tough questions from customers.
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We need to improve and align pricing knowledge across our organization, can LucidPrice support that?Yes, we have detailed and operational pricing training for products, spare parts, and service pricing. Please contact us to review the syllabus and design the most appropriate educational program for your team.