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Covid Economics: 3 Ways OEMs Can Reduce Margin Erosion 2020-08-18

The Covid-19 pandemic has produced one of the most dramatic and rapid economic crises the world has ever known. For heavy equipment manufacturers in particular, this has led to a drastic dip in new product sales. Yet, from every challenge, however, leaders can emerge stronger and more resilient than ever. And in a time of economic uncertainty, there are immediate measures businesses can take to reduce margin erosion.

For manufacturers of construction equipment specifically, it is commonplace for customers to halt purchase decisions for new equipment when economic uncertainty -- let alone a recession -- is in the air. This means that customers will opt to keep older equipment in service for longer as a way to avoid costly upfront investments in new machinery. As a result, after-sales service becomes increasingly important to support a company’s overall performance and profitability given older equipment is more likely to need repairs and maintenance. Therefore, if managed properly, service parts pricing can help manufacturers stabilize revenue while new orders are down by helping them maximize margins.

With that in mind, here are three key ways an advanced pricing infrastructure can helping OEMs maintain margins in a challenging economic circumstances:

Segment the Business. When sales begin to decline in a downward market, most businesses will choose to cut prices as a way to catalyze purchases. The problem is, if competitors take the same approach -- which often happens -- it can lead to a race to the bottom and create an eroding market. As a result, pricing decisions should keep both medium- and long-term goals in mind, with a unique pricing strategy tailored for every business segment. This allows OEMs to maximize the value of each segment and prioritize with overall business goals in mind.

Quick Adaptation. Markets are constantly in flux -- especially now -- and OEMs need to be able to adapt accordingly. This doesn’t just mean knowing which products need a price adjustment, but being able to make the adjustments as quickly as possible. Manufacturers should invest in solutions that can help them do this and migrate away from more manual tools like Excel spreadsheets.

Map Out Price Strategy. A pricing strategy map that identifies segments, segment strategy and the associated pricing strategy must be developed. Aligning the proper pricing strategy to each segment is essential to prevent reducing prices on high-value, premium parts and captive parts, while remaining competitive in the market in other segments.

Manufacturers around the world will need to make sure they have the proper technologies, resources and strategies in place that will maximize financial performance and the customer experience. These near- and long-term strategies should support increased financial and operational performance, exceptional customer experiences and competitive differentiation. A cloud-based service parts pricing solution ensures the end customer has a great experience, while the manufacturer simultaneously maximizes revenue and margins.

While this unexpected disruption in the market can be damaging to businesses, it’s also an opportunity to evaluate and optimize key operations within the service supply chain. The manufacturers that successfully navigate this time will emerge more resilient and productive than ever.


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