Capital Goods and Equipment

The capital goods market includes industrial machinery such as forklifts, earthmoving machines, farm equipment, mining equipment, motor vehicles & trucks.

The rise of manufacturers across from Korea, China and Malaysia has placed considerable pressure on traditional US and European manufacturers. Companies like Caterpillar, John Deere and commercial vehicle marketer Scania all achieve price premiums for their brands and deliver above average industry profitability and returns for their shareholders. How?

Aftermarket - service and parts

The emergence of the grey market in spare parts means that new units can no longer be sold below cost as a form of annuity in expectation of future profits from parts sales. The volume mix between new units across the range and the pricing of replacement parts must be calibrated to ensure adequate cash flows and profitable sales in both the short and long term.

In a market space where cost + % pricing reigns supreme, the concept of end-customer value plays must be the driver of pricing strategy.

New Management Techniques

Detailed channel management and product valuation techniques are now critical to development of pricing that delivers sustainable profits. Customer segmentation, needs analysis, value in use / value at risk in addition to concepts such as Total Cost of Ownership (TCO) are now part of the pricing equation.

Purchase price is now expressed in the form of lease payment, hire, changeover cost, replacement parts and service contracts. Financial solutions form an important element to the pricing in these markets.

Segmentation

Segmentation of the marketplace to leverage your company's product and service offer to those customers who respect and need your value proposition is the key to success. Much time, resources and effort will be wasted in an attempt to go to market to customers who are indifferent to your value offer or who find the offer irrelevant in their search for a value based solution.

Understanding customer value and then managing your pricing to optimise the value is a challenge requiring time, commitment and resources in order to be successful.

Developing solutions

In developing value based solutions, some of the key questions to consider will include:

How great is the end customers' willingness-to-pay for these improvements / product developments?
How can a win-win situation for both supplier and auto manufacturer be created?
Which target costs can be derived from this willingness-to-pay for product developments?

• How can customer preferences be incorporated into technical products (Quality Function Deployment)?
• What is the optimal price positioning for my product in view of the objectives being pursued (profit and/or sales volume)?
• Can a brand premium be obtained for my product from the end customer?
• How much of a premium can I demand from the manufacturer?
• Can my product be turned into a brand product in the eyes of the end customer? If so, is it more difficult to replace me as supplier?
• What volume does the manufacturer gain or lose by installing or not installing my product?
• Are our strategies affected by exports? If so, what is the optimal currency / international price strategy?
• Do we need a price corridor? If so, what is the ideal price level and corridor width?
• Do we have the right rebate system?
  

Working with Pricing Insight

Our consulting approaches are specifically tailored to enable companies supplying the capital goods industry to optimise their price and discount systems. We support the preparation, development and execution of:

• pricing strategy initiatives
• pricing policies & tactics,
• processes to monitor, report and control price realisation.