Parts Pricing: the hidden profit gem – LTW case

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Good news in times when selling main products like cars or machines gets tough: you can still boost profits by optimizing parts pricing, the hidden profit gem. Let’s deep dive this below.

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Parts Pricing: the hidden profit gem – LTW case

Research indicates that an average industrial or automotive company generates 20% of its revenues from spare parts sales and at the same time more than 50% of their profit! Given the profitability of the spare parts market, manufacturers have realized that this element is critical for company operations.

Pricing is the key for harvesting the untapped potential of the spare parts market and is the best lever for improving profitability. Industry estimates show that a 1% increase in price can lead to an 11% increase in operating profit. By using the right pricing tactics for spare parts, manufacturers can realize significant increases in sales volumes, operating profit and customer satisfaction.

Pricing of spare parts is thus a key factor for boosting profitability in many businesses, especially when selling cars or machines is more challenging like now in many markets. However, in certain industries, it is often third-party suppliers, or even the company's own suppliers, that dominate the spare parts market, rather than the manufacturers themselves. By optimizing spare parts pricing companies can effectively counter this trend. As in the case of LTW.

LTW success case

In a context of increasing uncertainties and market dynamics, manufacturing companies and their spare parts businesses encounter significant challenges. Remaining competitive and future-proof requires resilience as the foundation. LTW Intralogistics GmbH , an international intralogistics company, has optimized parts pricing using a solution offered by a leading provider in parts pricing called MARKT-PILOT to conduct comprehensive analysis of the spare parts market and develop market-oriented pricing strategies.

The challenge

Sales potential was lost due to opacity and inflexible processes in the spare parts business. Static price lists and reactive price adjustments were no longer sufficient in meeting current market demands. The traditional cost-plus logic was also an issue, particularly in dynamic and volatile times, where adapting to changing customer requirements is essential.

Machine and plant manufacturers often lack a comprehensive overview of the global market, leading to setting spare parts prices either too high or too low, thus leaving valuable sales potential untapped. Simultaneously, automation and digitalization of processes are increasingly crucial for long-term success.

Thomas Narbeshuber, Business Unit Manager Service at LTW Intralogistics GmbH, aptly summarizes the current situation in service: "The challenge in after sales is to meet the constantly changing requirements of customers as a logistics supplier, especially in increasingly dynamic and volatile times."

But how can these processes be made more efficient and profitable?

Innovative pricing strategies to foster trust

To maintain competitiveness, an intelligent pricing strategy is imperative. This entails creating a simple pricing model seamlessly integrated into existing processes and easily maintained. With the implementation of MARKT-PILOT , LTW Intralogistics has adopted a scalable solution, positioning the company as a fair and reliable partner for its customers in terms of both availability and prices. The software's swift deployment without the need for extensive implementation enables a quick start. Narbeshuber elaborates: "Our aim was to find a lean and scalable pricing solution aligning with current market data. With MARKT-PILOT , we have reliable information on prices and delivery times for our purchased parts, providing a solid foundation for negotiations with our customers."

Increased commercial success

LTW Intralogistics has demonstrated tangible results: the initial implementation of the identified price potential has increased the proportion of market-driven prices from 8 to over 40 percent.?MARKT-PILOT facilitated this attainment of spare parts targets within a short timeframe. By streamlining the pricing process and saving working hours, LTW significantly enhanced price quality while reinforcing the scalability of its pricing. This enhancement extends to customers, who benefit from fair and market-based spare parts prices, thereby fostering sustainable increases in customer satisfaction and loyalty.?

Several clients I work with were able to generate quick wins and increase profits with the Markt-Pilot solution. This is why I can recommend it. Request free of charge information and if interested also a demo here scrolling down to the bottom of the webpage.

?What is your view on parts pricing?

Interested in learning more about pricing myths? You will find pricing insights in the book The 10 Rules of Highly Effective Pricing.

‘Company marketers spend a lot of time on promotion and take pricing for granted.?Zatta's new book The 10 Rules of Highly Effective Pricing will help wake up company marketers to the profit coming from creative pricing’. Philip Kotler, S. C. Johnson Distinguished Professor of International Marketing, Kellogg School of Management, Northwestern University

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You are most welcome to share your views, feedbacks and own pricing experiences. Thanks a lot for your interest and support!