When does increasing prices go too far? That is the question one replacements auto parts manufacturer asked themselves amid a recent string of record organic revenue and profits and the answer should serve notice to the rest of the auto parts industry.
Auto parts manufactures are faced with a myriad of monumental issues, including product lifecycle challenges, aggressive foreign competitors, product warranty periods, seasonality, and channel distribution conflict.
In order to transform, auto parts manufacturers must move towards analytically driven pricing strategies. Understanding individual behavior patterns by SKU and customer will provide insights into customer behavior patterns and will unveil the true price sensitivity of individual parts.
Integrating disparate data from sales invoices, customer profiles, product specifications, product price history, competitor pricing, warranty and off-invoice discounts can produce an analytically driven pricing recommendations.
For example, an in-depth analysis for one Revenue Analytics client revealed tremendous revenue opportunities with targeted pricing action:
- Individual customers had deserted some of the client’s product lines for competitors, while other products remained captive and price insensitive;
- A computational process of large data sets discovered patterns involving frequently purchased together items revealed the opportunity to penetrate key retailers with additional product offerings;
- Specific promotional pricing practices did not generate incremental sales and diluted margins;
- Certain products offered extraordinary opportunity for ancillary sales.
By implementing an innovative pricing strategy, the client’s organic revenues increased by 3.5 percent.
The result of this targeted pricing approach: $100 million in revenue gains – well exceeding the client’s expected 10:1 return on investment.