In 2024, most OEMs are still taking a highly reactive, siloed approach to contract pricing. Very few have a consolidated, real-time view of their live contracts, inventories, or service schedules. Not only does this prevent OEMs from maximizing potentially game-changing aftermarket opportunities, but it weakens financial and operational performance overall.
While navigating an increasingly competitive environment and rising service costs, OEMs can gain a vital edge by taking a more strategic, innovative approach to contract pricing. Getting this right will equip OEMs to automate pricing, accurately track contract status at speed and scale, while significantly enhancing margins.
“With the right suite of innovative solutions, OEMs can gain full visibility of their active contracts, upcoming service events, and inventory locations down to the dealership level.”
Luke Huckerby, Senior Solution Consultant, Syncron
Manually analyzing contract profitability when handling complex product ranges for various customers results in pricing errors, increasing risk levels for service providers. So not only is innovative contract pricing critical for boosting performance, but to remaining competitive and relevant in today’s market.
To help you transform your strategy and access the unignorable advantages on offer, we have highlighted the five key steps you need to take:
- Deploy Data Analytics
Data is vital. Begin by collecting detailed historical information on previous OEM contracts, including pricing, costs, and profitability. This data is essential for identifying trends and patterns to inform and tailor the most effective future pricing strategies. Your ability to collect and analyze this data will be reflected in the effectiveness of the transformation.
You will also need to conduct extensive market research to understand and gather data on industry benchmarks and competitor pricing strategies. This includes analyzing competitor offerings, pricing structures, and market positioning, enabling you to spot gaps and opportunities in your own pricing approach. Benchmarking against industry standards ensures that your pricing is competitive and aligned with market expectations.
- Implement Value-Based Pricing Models
While cost-plus pricing is a common practice in the OEM sector, it can be ineffective when dealing with market variability and customer value perception. Implementing more dynamic pricing models that adjust intelligently to factors like demand, production costs, and competitive pressures is the way forward. This added flexibility and responsiveness to market changes would be essential to maximizing margins and competitiveness.
Game-changing results can be achieved when prices are set based on the perceived value to the customer, rather than solely on cost-plus margins. Making this value-based approach to contract pricing work calls for a deep understanding of the unique value your products provide, such as your aftermarket support, the quality of your components, or the customization options available. By focusing on the value delivered to the customer, you can justify higher prices and improve customer satisfaction simultaneously.
- Automate Optimization
Driven by increasing costs, OEMs are shifting to models that prioritize profits on service outcomes, rather than those associated with finished goods. What we are witnessing is a transition to servitization, with the goal being to adopt outcome-centric business models rather than product-centric ones. The benefits include new revenue streams, better responses to customer needs, and greater product innovation.
Accessing the advantages of servitization requires OEMs to account for the greater risk exposure it entails, which is why innovative contract pricing is fundamental. Successfully adopting the technologies and solutions to automate your contract pricing enables both cost prediction and contract quoting capabilities. As a result, intelligent cost modeling can be achieved in spite of growing complexity.
- Master Contract Management
Standardizing your pricing frameworks and guidelines is key to ensuring contract pricing uniformity across regions and customer segments. Dedicated templates and tools have an important part to play in this streamlining process, improving customer satisfaction, retention and overall competitiveness.
Centralizing your contract data more effectively is also crucial to your contract pricing transformation. With an integrated, digital platform, all contract data can be stored and monitored in a consolidated way, making it easier to access, analyze, and manage. Automating pricing approvals can take this a step further, reducing bottlenecks, accelerating the contract negotiation process, and flagging more complex cases where necessary.
- Adopt the Right Software
Shifting from static to dynamic pricing is at the core of contract pricing transformation, so the right software is of paramount importance. This is how real-time pricing adjustments are made, with competitor pricing, market conditions, and customer behavior assessed autonomously.
Predictive analytics is necessary for forecasting demand and proactively adjusting prices, while maintaining profitability and ensuring competitiveness. The combination of the right software and data analytics will increase buying pattern visibility, and allow important pricing strategy decisions to become data driven.
Cutting-edge Contract Pricing Intelligence
OEMs that use Syncron Contract Price gain access to predictive technology that consolidates the five transformative steps outlined above. With dashboards that offer full visibility and control, contract structures are easily defined, pricing models are simplified, and contract status can be tracked with precision. Crucially, pricing for service, labor, and parts is automated, and margins are improved by predictable cost analysis.
It is not only our technology that sets us apart, but our deep understanding of OEMs and our aftermarket expertise. With industry experts working in sync with our solution designers, the Contract Price solution is tailored to OEMs based on experience and ready out of the box, accelerating time to value. To find out more about the solution, contact our team today!