ILMA Compoundings - September 2020 - 29

services will likely continue to provide
more than 50% of a manufacturer's
profit with an upward trend in light of
COVID-19.
End users have several reasons for
buying parts directly from an original
equipment manufacturer (OEM),
with the top reason being the quality
assurance they get with each purchase,
Treadway said. That means a warranty
backed by the financial heft of a major
manufacturer and a vested partner.
Related to that is the protection of the
underlying warranties on the equipment and other components attached
to it. Often, the warranty protection
customers have could be jeopardized by
the use of aftermarket parts that have
not passed the OEM tests for structural
and functional integrity, he explained.
"When we track the overall aftermarket demand on parts, we indicate
that the dealer enjoys a 49% share
of all parts purchased," Zacker said.
"Even those independent channels and
fleets doing their own work would still
utilize the dealer to get the part."

PROACTIVE PRICING

Customers rarely make decisions based
on price alone, and a combination of
product features and price dynamics
can influence purchases. However,
during an economic downturn,
companies can face mounting price
pressure from multiple sides. Those
include customers demanding price
relief, management looking to encourage sales to gain volume and sales
teams wanting to provide discounts to
maintain good relationships with their
customers, said Joanne Smith, president of Price to Profits Consulting.
Smith has created a five-step pricing
crisis preparedness plan to help companies avoid an unnecessary price decline
and significant loss of profits. She said
the first step is monitoring, predicting
and analyzing the market and pricing
performance. Next, companies need to
set proactive strategies and tactics, build

a communication plan and tighten the
deal approval process. The last step is to
form a pricing crisis management team
and process.
Vocatus, an international consulting
and market research company, said
many companies' pricing is still predominantly based on internal costs or
off of what their competitors ask, but
companies can increase profits with
behavior-based pricing. Behavioral
pricing goes one step further than the
concept of value-based pricing.
"Instead of just analyzing the
perceived value of the pure product
features, in behavioral pricing, it is
necessary to analyze all sources of
product acceptance along the entire
decision-making process," Vocatus said
in a white paper.
Pricing studies are the first step
in pricing and can ascertain price
acceptance if they consider customers'
decision-making processes. A pricing
study should not only examine individual price points, but also shed light on
the dynamic perception of the overall
pricing structure in different customer
segments, according to the white paper.
Kalpana Sundar, director of product
management at PayPal Inc., said
technology could help power price
changes in an organization, making
a business agile and efficient. "When
there is extreme pressure to make price
changes, it is important for businesses
to validate the changes they make in
terms of their bottom line," she said.
Investing in pricing software can
help companies analyze the impact.
"Building integrated systems that
can connect with data and provide
visibility into the P&L becomes very
crucial," Sundar said, adding that a
robust platform can enable timely
price changes.
It is also essential to have a system
in place to measure and report on the
actual sales and profits from changes.
"Converting data into information
and information into insights will

allow companies to close any gaps they
may have in their forecasting process,"
Sundar said. "Building capabilities to
perform detailed look-back analytics
both proactively and reactively will
add value to the entire stack."

"When we track the overall aftermarket demand on parts, we indicate that
the dealer enjoys a 49% share of all
parts purchased. Even those independent channels and fleets doing their
own work would still utilize the dealer
to get the part."
Molly MacKay Zacker, vice president of
operations, MacKay & Company
FOCUSING ON SERVICE

As OEMs seek out new and predictable revenue opportunities, they can
focus on product-as-a-service (PaaS),
which enables customers to purchase
a desired result or output of a product
rather than the product itself.
"As manufacturers aim to futureproof their businesses as the world
moves toward 'as-a-service' business models, they must evolve and
optimize the performance of their
current after-sales service operations
to preserve revenue and margins as a
prerequisite to this inevitable shift,"
said Erik Lindholm, vice president of
product strategy at Syncron.
"Servitization," which is the
transformation from selling products
to selling PaaS, drives OEMs to shift
from product-centric to service-centric
business models, said Henrik Lenerius,
chief product officer at Syncron.
"While servitization will enable
OEMs to create more customer value
and reduce cost, it will also require
many to redefine the way they operate
and serve their customers," Lenerius
said. "OEMs not only need to optimize

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