Business Intelligence Software and Automotive Pricing Strategies

Suppliers to the automotive aftermarket and spare parts industries face numerous challenges when it comes to pricing their products appropriately. These challenges arise due to the inherent complexity of the market matched with a lack of understanding of what’s happening in their business. A number of innovative companies are making greater use of their sales and marketing data to improve their pricing strategies which in turn, drives the success of their business.

Companies that do not have sufficient data or understanding of their market and business can typically fall victim to the following three mistakes and pitfalls when pricing their products:

1. Standard mark-up based on costs

Data on what customers buy and pricing elasticity is hard to obtain so suppliers may utilise a ‘cost-plus’ mark-up system in pricing spare parts. This fails to take into account what competitors are pricing their products at or the level and volatility of customer demand for those products. This can easily lead to either loss of revenue if pricing is too low or loss of customers if pricing is too high.

2. Pricing based purely on competition

Other suppliers fall into the trap of basing their prices purely on what they perceive the competition is charging. If one supplier produces a higher quality product which costs more to produce than their competitor, and they're basing their price simply on what the competition is charging, then they are already reducing their profit margin.

It is much better to price your product appropriately and promote its value. This particular process can be difficult to do without sufficient insight into your market or the demands of your customers.

3. Insufficient strategic planning

Some suppliers lack the ‘bigger picture’ of what’s going on when they introduce new product offerings to the market. Here they fail to tailor the pricing model and the service-delivery mechanism to match their customers' demands and requirements. This results in either lack of take up for the new product or conversely, understocking may occur and this leads to less sales and/or profitability.

A new approach is required

With a Business Intelligence software and a data analysis tool, suppliers in the automotive industry see the ‘bigger picture’, from the business' performance to the market conditions and can price their products appropriately. “Utilising the power of a Business Intelligence tool enables quick and easy access to what is going on within our business;” explains Colin Fisher, Sales Director for Benchmark Auto Parts Distribution Limited. Fisher also stated “Vitally, it helps to steer us in the best direction for opportunities and therefore gives us the optimum chance of success when it comes to pricing and winning new business."

Tom Brett the Marketing Director at Brigade Electronics states “We use Business Intelligence software to quickly and easily set up campaigns, such as a quarterly mail-outs to members giving bonus points based on sales and certain product buys. We could have obviously done this without our Business Intelligence software but it is just so much easier and a huge time saver – it puts the power of analysis in the hands of the end user”.

How does Business Intelligence software help?

By using Business Intelligence software manufacturers, distributors and wholesalers can analyse

• The performance of their dealership

• The performance of their distribution networks

• The buying patterns of their end customer

BI software can easily identify lost or new opportunities. More importantly, BI software can provide actionable insights that can improve the launch of new products, pricing strategies and marketing campaigns.