September 2017: Pricing Strategies: "Do You Have The Right Recipe"?

It's not that often that I run across a topic that never seems to stop intriguing my mind and is perpetual in subject matter. Staying on top of managing our "Pricing Strategies" is a never ending process and requires consistent maintenance.

Coming up with the right "Pricing Strategy", whether it's selling automotive parts and service, smart phones, or food products requires an on-going strategy to achieve a product's or service's maximum sales and profitability potential throughout the sales cycle.

Business Dictionary defines the meaning of "Pricing Strategies" as follows;

"Activities aimed at finding a product's optimum price, typically including overall market objectives, consumer demand, product's attributes, competitor's price, and market and economic trends."

There are actually quite a few definitions available on the internet and they all appear to be similar, but beyond just the basic definition, there are actually four basic descriptions of "Pricing Strategies" that some "Smart Parts" Managers may not be aware of. 

For as far back as I can remember in my parts manager days, parts pricing was pretty simple and were mostly dictated by the manufacturer, local competition and demand. Back in the day, we didn't really care to even "delve into" the topic of "Pricing Strategies".

I do believe that all of that has changed in today's automotive parts marketplace. A couple of month's ago, I wrote about how competition between the Original Equipment Manufacturer, (OEM) and Aftermarket Parts Manufacturers' has grown into a multi-billion, world-wide industry that is responsible for a considerable percentage of our overall Gross Domestic Product, (GDP).

I believe all this growth, competition and demand requires "Smart Parts" Managers to take a leap forward in today's marketplace to take a serious look into our "Pricing Strategies". This also requires the "Smart Parts" Manager to know the four basic pricing strategy descriptions. 

The best place that I would recommend to get educated on "Pricing Strategies" is a website called marketingteacher.com. The website actually breaks down the "Pricing Strategies" matrix on these four basic descriptions, which are as follows;

Premium Pricing: Product or service is considered at a premium, which allows the product or service to be marketed at a higher price and is of higher quality. 

Penetration Pricing: Product or service is designed or considered to sell at a high penetration rate with higher quality at a lower price resulting in higher volume sales.

Economic Pricing: Product or service is considered or designed for the market at lower quality and at a lower price. This pricing strategy is generally attracts all consumers in all marketplaces.

Skimming Strategy: Product or service is designed or considered to sell at a higher price, even though the product or service is of lower quality. Most often utilized in products or services that are "captive" in nature and less competition.

I think most of us can visualize, or think of many products and/or services that fit each one of these four basic descriptions listed above. In my opinion, we could also apply these pricing strategy descriptions in all areas of automotive parts sales.

To make these pricing strategy descriptions come to light for "Smart Parts" Managers, let's actually apply these pricing strategies with a few examples of where they would fit in the automotive parts world that we live in today;

Premium Pricing: In the premium pricing category, we could perhaps include "factory specific" parts, or even "captive parts" such as Body Control Modules, (BCM), Wiring Harnesses, Interior Trim, Instrument Control Modules, etc. 

We could even include "factory specific" parts at lower cost prices such as certain bolts, fasteners, clips, retainers, etc. where an escalation "cost plus" matrix can be applied to maximize gross profits to offset parts sold at lower gross margins. 

Penetration Pricing: In this pricing strategy, we could definitely include our OEM oil filters, air filters, cabin filters and wiper blades where quality is an expectation from our customers at a competitive price. Most of these parts are usually "flat priced", utilizing a weighted price averaging calculation.

Most competitive parts, or menu parts could also fall into this pricing strategy description with the end results being high sales volume and gross profits, not necessarily focusing on gross profit retention percentages.

Economic Pricing: Appropriately named, in this pricing strategy description, there is perhaps a lesser chance of "Smart Parts" Managers utilizing the strategy due to the customers' expectation of quality service and products provided by the automotive dealer. 

This pricing strategy is more often used by independent automotive service facilities as quality is not as important and price is the driving force. Although, with more and more dealerships offering "good, better and best" options on some services and repairs, this pricing strategy could come into play.

Skimming Strategy: Not one pricing strategy that I would recommend that often, but it could come into play in some low cost accessory or display items in the Parts Department, which I refer to as "trinkets".

Items such as key fobs, key chains, air fresheners, license plate frames, some wearable items, or any other "point of purchase" item that usually attracts the impact buyer. 

Quality of product is not usually questioned in lieu of the desire to buy because it doesn't cost that much and can relieve that "itch to buy" which we have all experienced from time to time.

Quality of product may also not be a factor in some other "NPN" part numbers such as nuts, bolts, screws, some chemical products, etc.

In my opinion, having a pricing strategy which helps sorting parts into these individual descriptions makes it much easier to distinguish how parts are priced in the first place. 

It would also make it much easier to categorize parts that need to have an escalation matrix, flat price or carry the manufacturer's suggested retail list price.

Most importantly, we need to realize that parts can move from one pricing strategy description to another at any time based on movement, demand or competition.

Knowing which "Pricing Strategies" to use at the right time is always a good recipe for achieving expected results in sales and gross profits.

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com