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April 6th, 2021 | 7 min. read

Jose Paez
Solution Strategist at Pricefx

Steps to Determine Proxy Pricing in Aftermarket 

How does your business determine proxy pricing for aftermarket sales? 

With some organizations holding thousands of products that have been developed over decades, it can be difficult to determine their real pricing power, not to mention your position in the market for said products, if any. 

For example, when you have customers seeking parts for machinery 10 years old, how do you begin to determine pricing? 

How does your competition factor in? What say does brand value have? Does it come down to win and loss? 

There are some key variables to consider when determining proxy pricing in aftermarket sales. Each of these can be enhanced by integrating pricing solutions into your organization.  

High-end tools exist that can analyze thousands of products at any given time. 

But how exactly do they factor into the process? 

Competition: PMA vs OEM 

Let’s use airplane manufacturing as an example. As an airplane manufacturer, you are required to go through FFA certification and a number of other regulations. All in order to make sure that the components you produce are safe before you go on to sell them. 

When you’re the only manufacturer in town, you can more or less command any price you want. That is until another manufacturer takes a trip to the FFA for approval on similar components. 

PMA or Parts Manufacturer Approval stands as a direct competitor to OEM or Original Equipment Manufacturer. 

The moment a PMA enters your market, for one of your products, your pricing power crashes. As with any industry, competition forces prices down. 

While this may offer customers a choice, that sadly means their choice may no longer be you. So it’s safe to say that the more PMAs you’re up against, the less control you have within the market. 

Unfortunately, PMAs, or your competition, are one of the major variables you must take into consideration when proxy pricing. 

Fortunately, powerful pricing solutions carry the ability to set proxy pricing in relation to your customers for thousands of aftermarket products. 

Tools like PriceAnalyzer help you gain accurate insights into your pricing, margins, customer and product segments to identify pricing opportunities for aftermarket sales. 

By offering vast analytical functionality to identify margin leakage and price increase opportunities, with complete visualization throughout the price waterfall with rapid implementation with Excel, data warehouses and other pricing data sources. 

Which is ideal for working with legacy products and those that may not have seen the light of day in years. 

Can PMA Parts Compete with OEM? 

With much discussion around PMA and OEM, PMA can be easily dismissed as a poor alternative. However, this is increasingly not the case. At least in some industries. 

More and more, the perception of PMA is changing as in practice, they can often be as reliable as their OEM counterparts. Which is exactly why accurate and powerful pricing solutions are essential. 

Whether your products are more expensive or your clients simply aren’t sure who to choose, you need to be able to justify your products at every turn. 

As competition heats up, you need every tool you can fit on your belt. And there is space for a powerful pricing solution. 

However, this isn’t always the case and sometimes there’s something else at the forefront of your business, supporting each and every sale you make. 

Brand Value in Proxy Pricing 

Sometimes, having the lowest priced product on the market doesn’t help your competitors. 

In the case of OEMs, oftentimes customers will come to you because they’re looking for that authenticity one that can only be provided by your brand in this case. 

For instance, in the air space industry specifically, it’s all about safety. While competition for the airplanes themselves might be hot, competition for the parts is less so. Customers want to know they’re taking off with the real deal, not some off-brand alternative. 

So they’ll return to you time and time again to do business because the alternative is decidedly less safe in many cases. 

However, in the automotive industry, there’s a shift. Car manufacturers are trying to produce parts that cannot be reused from one model to another in an attempt to protect themselves and their products from companies that create and sell nonofficial parts. 

Yet, there’s still extremely competitive pressure from independent companies that produce only spare parts. By building brand value and offering something genuine, you can be assured that when proxy pricing, you have an advantage in the aftermarket. 

Within pricing solutions and at the negotiation table, you can justify your price to a greater extent knowing that it’s the real deal something that will draw the attention of customers away from the knock-offbutcheap alternatives. 

PriceOptimizer ensures that when you reach the table, you’re equipped with insight-based price management. Allowing you to always back up your pricing and giving you the confidence you need to sell this to the client. 

ValuePricing_manufacturer_webinar

Win and Loss Analysis in Proxy Pricing 

Placing yourself within the market is a difficult challenge for any business. 

Finding out where you stand requires a complex understanding of the situation. As well as your internal data and the data of your competitors, which is not always available. 

With pricing solutions, you can run a win and loss analysis that can actually compare your business to that of your competitors. 

You can begin to see trends, such as whether you’re cheaper or more expensive than the market, despite not having much data on the market in the first place. Some companies call this value-based pricing or attribute pricing. 

In essence, it allows you to view things from the perspective of the customer. Perceived perception performance from the customer perceived value. Through win and loss analysis, you can start to really determine your place in the aftermarket and assess your value when it comes to proxy pricing. 

Tools like QuoteConfigurator support your sales and back office teams with CPQ, calculation and simulation capabilities. 

So, once you’ve determined your products place within the market, you can put together error-free responses to price inquiries. In record time too. 

Where Does Pricing Sit in Your Organization? 

For many organizations, pricing used to sit within each manufacturing site. Each plant had its own pricing team, who didn’t communicate with other sites. 

Sometimes, the price of the same product would vary from site to site. 

While price shopping, customers would bounce across these sites and this created a lot of in-house competition. 

Eventually, this led to the formation of pricing teams who were placed within the strategic marketing organization. 

As such, they began to understand proxy attributes that gave an understanding of price power, a model that took many years to develop. This further led to the pricing teams becoming pricing organizations, taking charge of every aspect of pricing. 

Where you once had scattered divisions across multiple sites, cohesive pricing organizations are prepared to deliver effective pricing solutions within your business. 

A serious task. But are they equipped with serious tools? 

By investing in powerful pricing solutions like PriceFx, your business can lead the charge in aftermarket sales and provide the best service for your clients. All whilst charging the right price for your business and your products.