“Why OEMs Must Re-invent Competitive Parts Pricing”: Paying Price of In-action ?| Accenture

” In the spare-parts market, overpriced and under-priced parts translate into lost sales & lost opportunities”…

Losing ground to parts-suppliers and wholesalers in an increasingly crowded marketplace, savvy OEM’s (Original Equipment Manufacturers) know that things must change in competitive parts pricing.

OEM’s (Original Equipment Manufacturers) know that things must change :

It is about understanding the real competitors, identifying customers’ price sensitivities, determining the right market positioning for each parts category, and improving dealer and customer communications and incentives.

While it can often be difficult to eek back parts market share, there are examples where it can be possible with targeted pricing actions across specific parts categories.

A strong case for change – Spare parts make up approximately ten percent of total sales, up to half of net income. Of this, the competitive parts segment generally makes up more than 50 % of parts sales—and is the main focus of parts pricing managers.

Yet are branded OEMs doomed to be uncompetitive in the world of spare parts pricing and sales? Reversing the trend of OEMs failing to make the most of competitive parts pricing demands a strategic, systematic approach across the whole portfolio of parts.

Different than traditional cost-plus pricing, this approach puts the customer first, incorporating not only the value they place on various features and offering components, but also their reasons for selecting a brand, and their buying contexts. Doing so helps companies derive maximum profitability with a comprehensive pricing strategy for competitive parts rooted in competitor, customer, category, channel and cost inputs.

The result can be a marked increase in revenues—typically 10 to 20% — and enhanced customer loyalty and brand differentiation.

Pricing and the spare-parts Life-cycle: 

At the most fundamental level, a spare part’s price should reflect its life-cycle stage. Timelines vary among parts—some stay price leaders for several years, while some may become competitive within a few months, but all parts include these stages:

1. Initial stage – In the initial stage, captive pricing is in order for parts.

This is a relatively straightforward approach in which the OEM is the price leader, and sets the price that most competitors will follow. The low level of competition allows the OEM to optimize price according to the customer-perceived value of a given part.

2. Competitive stage – During this intensely competitive phase,manufacturers can see their market share plummet.

They need to gather intelligence and analysis through industrialized processes and tools to maintain an agile position in a constantly changing market.

3. End-of-life stage – When a part nears product obsolescence, the OEM typically resumes dominant market position.

During the phase-out stage, many competitors will no longer stay in the market due to reduced demand. At this point, the OEM can resume its captive pricing approach based on perceived value, in addition to second and third owner considerations.

Unlocking performance and profitability : 

“Economic uncertainty, Cost conscious customers, High earnings expectations More competitors”. These are just some of the forces shaping the spare parts market—one in which OEMs are losing market share.

As manufacturers focus on increasing shareholder value in this environment, there are three levers that can directly improve a company’s profitability and stock price: revenue enhancement, asset productivity and cost containment. Consider the revenue enhancement lever through strategic parts pricing.

If done well, pricing can provide a large return on investment, significantly outdistancing efforts to increase sales or cut costs. In fact, in the automotive space, just a 1%  increase in average prices can lift EBITDA by anywhere from 15 to 25 %. What’s more, most pricing initiatives pay off in only 6 to 12 months.

This data strengthens the case for the importance of getting pricing right. Working with OEM clients across industries, Accenture’s experience reinforces the potential pay-off of strategic service parts pricing approaches. Automotive, household appliance and heavy equipment and industrial machinery clients have realized up to 15 to 20 %  in annual gains as a result of strategic pricing initiatives.

Savvy OEM leaders are aware of the impact of the pricing lever on growth and performance. An Accenture survey of 1,000 CXO-level leaders in various industries across 12 countries in North America, Europe and Asia, offers a view into their thinking.

The majority of survey respondents have seen sales and volume growth, profits and market share increase as a result of price optimization. Further, nearly two-thirds of companies gain responsiveness and revenues as a result of price optimization.

And increased pricing and promotion market responsiveness and optimizing price-to-segment/customer are among this group’s emerging pricing concerns.

Moving through barriers to change : 

With pricing such a powerful lever of profit improvement—and leadership recognizing its importance—why are OEMs stalling when it comes to spare parts pricing? In many cases, their inaction is related to a number of tough challenges :

Resource shortage – Finished goods often have more dedicated pricing managers and higher budgets, which translates into resource strain on the spare parts side of the business.

Parts overload – The typical OEM can manage 50,000 to 500,000+ parts with approximately 1 to 20 full-time employees for pricing.

Insufficient data – Spare parts pricing teams often must work with bad or suspect information, few benchmarks and incomplete inputs that make it impossible to effectively quantify and track results.

Knowledge drain – Turnover and on-shore reliance has led to limited throughput or capacity.

Channel resistance – Many OEMs typically have a reputation for being overpriced, which stems, in part from, inconsistent pricing and a general lack of dealer confidence in price-setting policies. This can translate into push-back and poor adoption rates.

Inertia – Many OEMs are well established and operate at scale, which can make it difficult to quickly mobilize strategic change, adapt to market shifts and alter longstanding processes.

Industry isolation – Resources tend to develop and remain in the OEM industry, which limits manufacturers’ ability to adopt leading practices pioneered elsewhere.

These challenges add up to inconsistent pricing for many OEMs. This, in turn, has created common consumer perceptions that OEM parts are overpriced due to mysterious “black box” pricing and price spikes when a part goes out of production.

Getting aligned with consumers : 

This issue of consumer perception is a deeply rooted one—and it must be remedied for manufacturers to truly move the needle on strategic pricing. In other words, OEMs cannot “get into the ballpark” on market-based competitive parts pricing unless they bridge the disconnection between how they currently set prices and how consumers estimate them.

Take the example of the automotive industry. Consumers’ price estimates and perceptions reflect inputs like make and model, part size and complexity, past parts purchasing experiences and even insights from family and friends or the neighborhood mechanic.

And for many types of repair, consumers are more concerned about overall service costs, not just specific parts pricing. At the end of the day, most people simply want the problem with their car fixed—and they are often willing to make brand trade-offs to get it done, depending on the urgency of their situation.

On the other hand, manufacturers may be setting prices only with the context of the cost to manufacture and category margin goals. From the consumer perspective, resulting prices can appear illogical, even arbitrary. Prices perceived as too high could make consumers’ product failures even more negative experiences. Prices perceived as too low could unnecessarily erode the manufacturer’s margins.

Either way, pricing inconsistency is a threat to the manufacturer’s brand image, which cannot be taken lightly in a market where there is intense competition from all sides. Changing this dynamic means that manufacturers need to start thinking more like their customers when it comes to competitive parts pricing.

Looking ahead : 

In such a high-stakes environment, the price of inaction is simply too great. Reinventing competitive spare parts pricing is a must for OEMs to build market share for key spare parts while achieving strong margins across their competitive parts portfolios.

MNC’s in India “look beyond slowdown & economic environment” to continue investments | Business Standard

 

Amid a demand slowdown and an uncertain economic environment, India’s domestic industry might be chary of making fresh investments, but the global business community seems to have a different outlook on the country.

If the announcements made by MNC’s (multinational companies) and their joint ventures since last year — of investments to the tune of Rs 1,85,000 crore in India over the next few years — are any indication, they clearly are betting big on the country’s growth story.

This committed money is being pumped into the consumer-facing industries like FMCG, consumer durables, automobiles, telecom, airlines, retail and pharmaceuticals. The investment commitment by these foreign companies exceeds the $18.28-billion FDI inflows into the country (according to Reserve Bank of India data) in 2012-13. And, it is being made for a variety of reasons — expanding manufacturing capacity, new product development, increasing distribution penetration and raising stake in Indian ventures for more effective control.

At the top of the heap is the FMCG sector, primarily propelled by the huge investments announced by global beverage giants Coca-Cola and PepsiCo, besides a fresh splurge from Procter & Gamble to take on Hindustan Unilever, its key rival. The foreign FMCG companies have announced combined investments of around Rs 85,000 crore, nearly half of all the announcements made.

Only two days ago, PepsiCo Chairperson & CEO Indra Nooyi announced her company would invest Rs 33,000 crore in the country by 2020. Add to this Coke’s promise of $5 billion — made in June 2012 — and the money to be brought in by the two by the end of the decade exceeds  Rs 58,000 crore. These investments are part of their plan to penetrate deeper into the market and be available at eight million retail outlets of the country — at present, they are present at a fourth of those — and offer their products cold. This will require more refrigerators, trucks, bottling plants and innovation. 

The strategy needs to be backed with more money to ensure products are available at low price points..

Procter & Gamble had also announced a mega plan earlier this year — of investing $1 billion over the next five years. Currently, India accounts for only five per cent of the company’s developing-market turnover. It plans to increase emerging markets’ share in its global turnover from 38 per cent to 50 per cent by 2025. P&G’s chief rival, Unilever, has brought in more than Rs 19,000 crore, only a few months back, to raise its stake in its Indian venture from 52 per cent to 67 per cent, under a buyback offer.

Also, Japanese consumer major Hitachi had in December last year said it would invest Rs 4,700 crore in India to set up five new manufacturing unit by March 2016.The Japanese, who have lost out to their Korean peers in the Indian consumer durables play, are now comitting big bucks to catch up. For example, Hitachi, which is planning to set up five new manufacturing plants by 2016, Panasonic and Daikin are together putting in Rs 6,500 crore to take on the Koreans.

“ India has emerged as a key destination because the US and Europe markets are not growing. Those in Brazil and Russia collapsed last year, while China is a tough market to crack. This makes India a must-invest destination, as the untapped opportunity here is huge.” 

In a clear contrast with their foreign counterparts, Indian companies were not putting in large amounts of money in the country. “Unlike foreign companies, Indian consumer goods, retail, FMCG and other firms do not have strong balance sheets. Besides, they are highly leveraged because of their unrealistic diversification. So, they cannot raise funds.”

similar trend is also seen in the automobile sector, where investment plans are not being shelved, despite falling sales. As many as EIGHT automobile companies, mostly passenger car makers, are putting in over Rs 41,000 crore. In July, Nissan-Renault CEO Carlos Ghosn said his company would bring in $2.5 billion over the next few years, doubling its investments in India so far. And, after deciding to shift its thrust to the lower end of the market, it hopes this money would help it grab at least 15 per cent market share in the country.

US car maker, Ford, also seems to have meant business when it said it was investing $1 billion in setting up a new plant at Sanand, Gujarat. This facility would help it raise its manufacturing capacity to 440,000 cars and over 600,000 engines by 2014. Besides, of course, there is Japan’s Suzuki, which is investing Rs 3,500 crore in setting up a new plant in Gujarat to add 250,000 cars to its annual capacity.

The telecom sector, after a lack-lustre 2012-13, in which it received a mere $92 million as FDI inflows, is again looking up. As much as Rs 24,000 crore worth of investments in the sector are lined up — much of that will be spent this year.

One of the reasons for the optimism is that the Government of India has raise the FDI cap for the Telecom sector from 74 per cent  to 100 per cent. Also, the industry is seeing consolidation, as well as better realisation from tariffs, with an end to price wars. Vodafone and Telenor will shell out more than Rs 11,000 crore to raise their stakes in their respective Indian ventures. In addition, the foreign telcos will put in more money, not accounted for, to buy spectrum in the 800-MHz, 900-MHz and 1,800-Mhz bands, which will come up for auctions in January next year.

Vodafone India CEO Martein Pieters said :  “We are obviously bullish on the India opportunity. India has disappointed us a bit with regulatory uncertainty in the past two years, but now that phase is almost over. Our profitability has gone up.”

So far as the Indian skies are concerned, the new FDI policy — permitting foreign carriers to take up to 49 per cent stake in their Indian domestic peers — has already brought in some action. Foreign carriers, including Etihad Airways, AirAsia and Singapore Airlines are investing more than Rs 2,500 crore in India. And, many like Qatar Airways are waiting in the wings to buy into Indian airlines.

In retail, the initial controversy and various FDI policy flip-flops aside, there have been some concrete strides. A Wal-Mart or a Carrefour might still not have made an entry in multi-brand retailing, but Swedish furniture giant IKEA is set to open stores here. Its FDI proposal was cleared, opening the doors for more single-brand retailers to move in, as the government allowed 100 per cent FDI in single-brand retail.

Also, Swedish retailer H&M also joined the group, with the FIPB (Foreign Investment Promotion Board) on Wednesday clearing its proposal to invest Rs 720 crore in the country.

“Triumph Motorcycles” readies India bike line-up | Hindustan Times

British big-bike specialist ” Triumph Motorcycles “ is all set to take their eagerly awaited plunge into India, official launch date confirmed for Nov, 2013. First seen here at the 2012 Auto Expo, Triumph Motorcycles India, are now set to bring Indian enthusiasts a wide range of big bikes starting this Nov, extending from the Iconic, affordably priced “Bonneville” to the top-of-the-line muscular “Rocket III”. 

Triumph readies India bike line-up – Hindustan Times

“Sales Discounts”: Discounting the Price is Discounting the Value |by: Geoffrey James | SalesForce

Sad to say, many salespeople get in the habit of using discounts to close deals. There are several reasons that this usually isn’t a good idea.

  • First, the sales discount reduces your profit on the sale.
  • Second, a discount implies that the best price wasn’t offered first.
  • A discount “cheapens” the price / value of whatever you’re selling in the mind of the customer.

It’s much more effective to think of list pricing as something that you defend, rather than discount, according to Robert Nadeau of the Industry Performance Group. He recommends the following process : 

1. Identify What’s Different : 

In order to justify paying a higher price for your offering, your customer will need to see either you, your offering and/or your company as different (and, specifically, better) than the competition.  There are SIX basic types of “differentiators” : 

  1. Feature. A characteristic or capability that your offering has and other products lack.
  2. Brand. An emotion uniquely tied to your company or offering.
  3. Convenience. Your offering is easier for the prospect to purchase and support than the competitor’s.
  4. Quality. Your offering is higher of quality (lasts longer, works better, etc.) than the competitor’s product.
  5. Commitment. You’re personally more committed to the customer relationship than the competition.
  6. Integration. Your offering works better with products that the prospect has purchased in the past.

The more differentiators that you can identify and articulate, the easier it is to defend your price. 

2. Create a Financial Case: 

Now that you know what’s different about your offering, tie each differentiator to one or more of the following FIVE types of financial benefits:

  1. Increased revenues. How will your offering help the prospect improve their revenue ? How much more product could they sell ? How much are those extra sales worth to them ?
  2. Decreased costs. How will your offering help reduce the prospect’s costs ? How much will they save in labor costs ? How much will they save in overhead ?
  3. Improved quality (of their own product). How will your offering help improve the quality of the prospect’s offering ? How much will they save in reworks, scrap, overtime, corrective action costs, and so forth ?
  4. Faster delivery (of their own product). How will your offering improve the prospect’s ability to deliver their own offering ? How much will they save in canceled orders, expediting costs, air freight charges, and so forth ?
  5. Lower risk. How will your offering reduce their exposure ? How much will they save in penalties, legal fees, and litigation ?

The bigger the financial impact of the problem and solution, the less relevant your price becomes.  And tying those benefits to your differentiators gradually pushes the other choices (specifically, the lower-priced competitors) entirely off the table.

3. Get Consensus on Financial Impact : 

Work with the prospect to get agreement on specific negative financial impacts of the problem that your offering solves.  Make sure the decision makers agree with the cost analysis.  The bigger the negative impact, the better the value.

Then work with the prospect to define all the ways that the problem that your solution addresses impacts their revenue and profit. Include direct costs, lost opportunity costs, personnel costs–whatever applies.

For example, if you can service your product at the customer’s site within one hour and the low-cost competitors can only get provide within 24 hours, determine how much it would cost the customer to be without support for 23 hours.

Approaching a sales situation in this way gradually forces the competition out of the picture because it builds a financial case around what’s unique about you and your product.  As you build the financial case, the prospect becomes convinced that only your product makes financial sense.

Italian car maker “Lamborghini” bullish on US & India as crackdown hits China sales | VCCircle

” Annual sales of luxury cars in India stand at just about 1% of the total car market, compared with around 7 % in China”.

Italian car maker Lamborghini will struggle to find another China as sales of its super sports cars in the world’s biggest auto market have hit the skids due to a government campaign against conspicuous spending.

Automobili Lamborghini SpA, owned by Germany’s Volkswagen AG, however, sees long-term potential in the nascent Indian market and hopes better-than-expected sales in the United States, its biggest market, will offset the China sales slowdown, Chief Executive, Stephan Winkelmann said.

“Unfortunately, there are not so many Chinas around the corner. And China for us is a challenge right now,” Winkelmann told reporters in New Delhi.

“Still it’s a big market, it’s our number-two market. But I think, you know, as much as I know about the local policies, and what the government is doing, for the time being it is a little difficult to buy these type of goods.”

Lamborghini sales in China grew steadily in recent years to about 230 cars last year, making the country the ‘fighting bull’ brand’s second biggest market after the United States. 

Sales of the car are expected to be around 200 this year, said Winkelmann, who was in the Indian capital to launch Lamborghini’s second dealership in the country.

The China slowdown is due in part to the new political leadership’s campaign against lavish spending and graft.

Super luxury brands, such as Lamborghini, are seen as especially vulnerable to the crackdown on lavish spending as pricey sports cars have come to symbolize corruption in China.

“It was an incredibly rising market for three years when out of nowhere it came to number two market. To answer very clearly, there is no other market which, in this period of time, can grow in this sense,” Winkelmann said.

India potential : 

Global luxury carmakers are piling into India, Asia’s third-largest economy, and recent high-profile launches include the Jaguar F-Type, whose price starts at about 14 million rupees ($226,000).

But high import duties, with tax on some luxury cars exceeding 100 per cent, as well as potholed and congested roads in major cities are a challenge for luxury car makers like Lamborghini, which expects to sell more than 20 cars in India this year, up from 17 in 2012.

The base model Lamborghini in India starts at $370,000. Annual sales of luxury cars in India stand at just about 1 per cent of the total car market, compared with around 7 per cent in China.

Although the Indian economy has slowed over the last year, luxury carmakers see tremendous growth potential in the country, which, according to a Consulting Group, had 164,000 millionaire households in 2012.

“This is an opportunity we see for our future. And we hope that sooner or later, in terms of taxation, in terms of infrastructure, this is going to be easier to market, and then you have the opportunity to grow in numbers,” Winkelmann said.

The luxury car sales in India is expected to rise to 41,339 in 2018 from an estimated 16,524 this year, according to LMC Automotive. China’s luxury vehicles market is expected to rise to 1.5 million in 2018 from an estimated 800,364 this year, it said.

In an effort to raise sales that far lag emerging Asian rival China, the German big three of Mercedes-Benz, Audi AG and BMW AG are trying to win buyers outside the ultra-rich with locally-made hatchbacks and smaller cars.

The bet seems to be paying off, with Audi reporting a 19 per cent rise in its January-August sales, while Mercedes said its sales rose 32 per cent in the April-June period, helped by the launch of its compact A-Class model.

IHS Automotive forecasts Lamborghini will sell 44 vehicles in India in 2018.

“(Taxation) is a challenge for the super sports cars. The traffic, the road conditions. I remember first time I came to India, it was very different. So I think that there is a huge effort which is done, but still, but it is a small market, and taxation is not helping us as I said,” Winkelmann said.

“India could become SUV hub for world”: Alan Mulally, CEO, Ford Motor Co |The Economic Times

 

Alan Mulally, President & CEO of Ford Motor Co, sees ” India becoming a compact SUV hub”, in an indication that India’s continuing economic tepidity hasn’t changed the company’s big plans for the country.

Mulally met media persons in Chennai on Monday as Ford rolled out its long-awaited compact SUV model EcoSport from its factory in Maraimalai Nagar, near here, to dealers.

” Who would have ever taught that the small SUV would be the fastest growing segment in India? India is a great market and is the lead edge indicator as to what people want in the world,” said Mulally, whose name wasn’t officially disclosed in Ford’s invite to the event due to the security protocol.

Ford set to drive in automatic SUV EcoSport to woo women in India

Renault Duster has stolen the thunder in the budget SUV category in recent months from formidable players such as “Mahindra (M&M) & Maruti”.

This is Ford’s biggest bet in India after their small car Figo, launched in early 2010. The EcoSport was first showcased one-and-a-half years back at the Delhi Auto Expo and, as observers reckon, it has taken a long time to come.

Ford has spent $142 million ( 822 crore) to produce Ecosport in India, one of its five places in the world to produce the vehicle. Currently, it is being produced at Camacari (Brazil) and Chongqing (China). Rayong (Thailand) and Tatarstan (Russia) will subsequently start producing the model.

Around the time of the Figo launch, Ford had announced it would launch eight more models by 2015. Critics have, citing the EcoSport delay, wondered if Ford is taking too much time to bring in newer models, losing momentum meanwhile.

Mulally brushed aside that concern, saying, ” We are absolutely committed to bringing more and more products.” The man who turned around the ailing Ford Motor Co acknowledged the current challenging economic environment in India but indicated he won’t be bogged down by the near-term trends.

“A lot of people ask us if it’s the right time to deliver EcoSport?” Mulally said, “We look at where the world is headed and take a long-term view of our investments. The slowdown will not come in the way of our commitment to India or the Asia Pacific.”

His point is GDP growth will be back on track eventually, increasing discretionary spending. That should boost the demand for cars. “Same as aeroplanes,” said Mulally, who was heading Boeing before being brought as Ford chief by Bill Ford Jr in 2006. Mulally, in fact, said he sees Asia-Pacific contributing 40% of global vehicle sales of Ford in the next 5 years.

“Nissan” to launch premier SUV ‘Terrano’ this year in India | The Economic Times

Japanese auto major “Nissan” has christened its yet to be launched sports utility vehicle (SUV) as ‘ Nissan Terrano’, which it plans to launch in the Indian market this year.

” Terrano will be produced at Nissan’s Oragadam plant alongside the premium hatchback “Micra”, “Sunny” sedan & “Evalia” urban class utility vehicle, expanding Nissan’s locally-built model range to four,” Nissan India said in a statement.

 

Nissan Motor India President & CEO, Kenichiro Yomura said ” Terrano” will play a key role in increasing sales within the Indian market.

“I am delighted to reveal both the name and the very first image of what will be a very important model for Nissan,” Yomura added.

Yomura said driving performance and other features of the new model would be revealed at a later date. Nissan Motor India is a 100 % subsidiary of Nissan Motor Co Ltd Japan.