“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.

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.

“Yamaha” establishes 5th global R&D centre in India – to develop $500-bike | Business Standard

” Yamaha to develop $500-bike in India for global markets”.

India with its superior Engineering Talent-pool and value/quality conscious low-manufacturing costs….is currently under-going a Paradigm-Shift and position itself as one of the most-sought after “Global R & D” and “Manufacturing-Hub” for global Auto Brands in the 4-Wheeler & 2-Wheeler space, specifically targeted to catering to the consumer-Auto needs of the global Emerging & Frontier markets, over the next 2-3 decades…Read more, click the below-link……..MP.

Yamaha establishes 5th global R&D centre in India | Business Standard.