Who should Establish Repair Options Pricing?
Guest writer Ron Wilson brings us the fourth part of his four-part series on Repair Options offerings with “Who Should Establish Repair Options Pricing?”
This is the fourth in a four-part series relating to Expand Product Support Offerings with Repair Options.
- The first article outlined the overall advantages Repair Options provides the customer and the dealership.
- The second article outlined how Parts Kits used in Repair Options can be a benefit to Parts Department of a dealership.
- The third article outlined the advantages the Service Department benefits from repair options rebuilds.
This article discusses who should set the pricing utilized in repair options rebuilds. In many cases the Service Department is responsible for setting the rebuild prices for component rebuilds. In some cases, Product Support Sales is responsible for establishing the rebuild pricing, and some dealers have established a Pricing Department outside of rebuild sales team. A third option is to utilize a Pricing Team (could be a department) that does not report to the neither of the Service and Product Support Sales Departments.
A Pricing Team can provide a skill level that includes:
- Technical expertise needed to understand component rebuild process & requirements.
- Business systems information needed to conduct data analytics and historical information relating to various component rebuilds.
- Marketing expertise to understand the needs of the customer and develop the marketing brochures and information to support the Product Support Sales efforts.
An entire science relating to Value Based Pricing provides tools, knowledge, and expertise to support the combination of historical rebuild information, market-based pricing information, and moves away from an hourly rate philosophy to a value add philosophy.
An example of some tools that can assist in reviewing and establishing rebuild pricing include:
- Pricing Ladder
- Machine Model Rebuild Opportunity
- Competitive Attribute Ranking
- Pareto Analysis
Many other pricing tools available Component Pricing Ladder provides a view of the current market pricing options. Each has its unique advantages/disadvantages. If an analysis shows the Dealer Exchange is above the OEM Reman price there are some opportunities to determine why and adjust as needed.
The same concept can be utilized comparing competitors pricing, but it is important to understand the competitors rebuild practices. Machine Rebuild Opportunity Model can assist in establishing a priority of which machine/component is most important in the current market.
Component Rebuild Customer Importance Ranking utilizes the attributes that are important to the customer and evaluates the dealer and other competitors. Corrective action can be taken to address the specific issues. It is not always about price. Price is not listed here but could be included. A Pareto Analysis reviews the breakdown of the engine rebuild process. Comparing the actual to the standard can provide a recap of potential areas of concern. The chart below represents labor hours, this can also be done representing the value of the parts utilized in the rebuilds.
Component Pricing Ladder
- 100% OEM New
- 65% OEM Reman
- 55% Dealer Exchange Dealer
- 55% Rebuild Level 3
- 40% Dealer Rebuild Level 2
- 30% Dealer Rebuild Level 1
The above information shows some of the various tools that can be utilized to evaluate pricing other than just the number of labor hours. Labor hours are important and should be included in the process, but there is more to the story and really goes back to the question.
Where does the establishing of component pricing belong?