In its 2011 On the Road: U.S. Automotive Parts Industry Annual Assessment, the United States Department of Commerce reports the number of bankruptcies in the automotive parts industry has leveled off. Many suppliers have become leaner and more efficient by rationalizing capacity and production, but the near-term horizon will remain difficult. These struggles are borne from a series of trends: a weak economy; automakers’ pressures to cut supplier prices; higher costs for critical raw materials; and increased competition from global providers.
Competitive pressures from Chinese and Indian service parts manufacturers will increase for the ultra-competitive U.S. market. This trend will continue through an increased number of imports of aftermarket parts, including many from low-cost countries, which further erodes a U.S. manufacturer’s ability to compete. Additionally, competition will increase as foreign suppliers – European and Asian alike – have established operations over the past 20 years in North America to serve the Detroit 3 and their national counterparts. Regardless, any market share gains will come at the expense of the current market participants.
As noted in the Department of Commerce report, many manufacturers have implemented plans to make their operations more lean and efficient, with little positive near-term influence on margins. Recognizing that price is the number one lever to improve margin, companies must look to evolve their pricing strategies in light of these new economic realities. Pricing pressure and increased competition are a nightmarish combination when companies attempt to achieve a sustainable, strategic, optimal pricing strategy.
One such strategy is market-based pricing.
Market-based pricing strategy uses competitors’ prices taken from market research, competitive intelligence and websites to calculate a market-based price. Service part companies can then set pricing at a positive or negative differential to that market-based price. While simple in nature, this basic approach may be fraught with skepticism if questions arise from incomplete pricing data, unknown competitive discounting practices, and wholesale v. jobber v. list price differences.
Instead of pricing that uses market-based strategy with incomplete data to calculate price averages, professionals must consider more accurate methods that leverage market intelligence automation and science-based software. During the coming weeks, I will delve into the details and how to address this trend. Stay tuned!