Aberdeen: Service Parts Pricing Optimization Shows Benefits

New study says companies with such strategies have increases in service parts gross profit and revenues

New study says companies with such strategies have increases in service parts gross profit and revenues

Atlanta  May 3, 2005  Companies implementing service parts pricing solutions can significantly increase revenue and improve profitability, according to a recent benchmark study from the research firm Aberdeen Group.

In the study, entitled "Maximizing Profitability with Optimized Service Parts Pricing," Aberdeen Group highlighted the revenue and profitability improvements recognized by companies implementing service parts pricing solutions and noted, "Companies employing market adaptive or optimized service parts pricing strategies have seen 13 percent and 11 percent increases in service parts gross profit and revenues."

Aberdeen said that competing parts suppliers, customer demands and internal pressures to increase profits are fueling the need for companies to switch from their over-used, cost-plus pricing tactics, where service parts prices are derived from a standard percentage mark-up from purchase price, to optimized service parts pricing, where market information and price elasticity help determine optimal selling prices to maximize gross profit.

The study revealed that companies implementing price optimization solutions not only increase profit margins, but also improve competitive position, increase market share and improve customer satisfaction and loyalty. Furthermore, the study found that companies leveraging service parts pricing and planning optimization tools together are among those earning "best-in-class" titles in their industry, outperforming their competition and "seeing results on the top and bottom lines that dwarf those of companies using outdated tools."

Although there is a recognized need for price optimization tools (83 percent of the companies surveyed for the study reported that service parts pricing is extremely important to their company's financial health) and an increasing number of leading-edge companies are reaping the benefits from implementing price optimization solutions, Aberdeen said many companies remain behind the curve, relying on spreadsheets for their service parts pricing, resulting in a loss of gross profit, market share and customer satisfaction.

A copy of the full report is available on the Web site of Servigistics, at www.servigistics.com.