Staying ahead in the aftermarket

Changing consumer attitudes and demographics provide challenges and opportunities for aftermarket businesses

Published:  09 May, 2018

The automotive aftermarket is facing a period of great opportunity and change. With sales of new cars in decline, third-party parts providers are recognising the increasing importance of aftersales service. Faced with increasing competition and evolving customer expectations, garages must adapt their processes and adopt new technologies to succeed.

According to the Society of Motor Manufacturers and Traders (SMMT), the automotive aftermarket makes a significant contribution to the UK economy. However, all too often, service parts management is mishandled. From vehicle manufacturer linked franchised dealers to independent garages, there are multiple areas of the service supply chain that can be improved such as service parts inventory management, pricing and responding to customer needs more quickly and efficiently. As such, IT investment in aftermarket optimisation solutions has been disproportionate to its revenue generation, and businesses that want to take a share of this growth market must address this.

Increased competition
The SMMT predicts that the value of the UK aftermarket is set to rise to £28 billion, with the sector set to employ more than 400,000 people by 2022. Dealers and garages will find themselves in a highly competitive market – and competition not just from other similar businesses: Studies from multiple research organisations suggest after-sales service is increasingly strategic to manufacturers’ long-term financial performance. Manufacturers could use aftersales to increase revenue up to 30%, according to IDC. A Bain & Company report revealed manufacturing companies’ service business grew by 9% annually, compared to a 5% growth rate captured on the product side of the business. With more brands focusing on the service supply chain, to compete and win, investing in aftermarket optimisation solutions is critical to success.

Accommodate millennial expectations  
So, garages will find themselves competing with manufacturers for a share in the lucrative parts and servicing market in the near future. Their advantage lies in customer relationships, localised experience and their ability to adjust the cost and type of part to whatever the customer needs. The customer’s needs have changed. The millennial generation is always-on, always-connected and has shepherded the on-demand economy, resulting in an ‘instant gratification’ mindset, especially when it comes to service. Customers today want faster resolution from service practitioners and value at the right cost. If a garage doesn’t have the right part in the right place at the right time, and available at the right price, millennials could take their complaint to social media and will readily switch suppliers.  

Is the right part in stock?
An important element of this is having the right parts in stock. Repair services are key to a superior customer experience. This area not only serves as a consistent ‘face’ to your company – the individuals interacting with your customers on a regular basis – but can also be a key component to improving financial performance for your business as a whole. The communication around ordering and delivering the part is an important element of providing a good experience to the customer, but if you cannot supply your customer with the right part when they need it, they will look for it elsewhere. Companies should ensure they have all necessary service parts available, but demand patterns are erratic: Parts may not move off the shelf quickly during most of the year, then demand may spike for one reason or another, such as seasonality. Often, the reasons behind these demand spikes go unrecorded or even unnoticed. Businesses need to get inventory levels right, understand demand and manage the service supply chain timeline. The first step is an effective service parts inventory management solution that automatically tracks stock, orders
new parts just in time, forecasts accurately and manages the entire service lifecycle.

Keep an eye on pricing
Large online retailers are tapping into the profit potential of the aftermarket by negotiating price deals with suppliers and responding to consumers who are familiar with their brand and enjoy the speedy delivery they offer. Amazon and eBay’s activities have driven traditional suppliers in the UK to develop their internet presence so that the UK has become the European leader in online retail for automotive parts and services (7% of sales compared to 5% in Germany and 4% in France).

However, the average replacement parts buyer – a segment that represents the majority of customers – doesn’t have the knowledge to purchase parts without guidance. This means that local dealerships and garages are likely to have the upper hand over online behemoths like Amazon – especially if they stay on top of pricing.

Service parts pricing is one of the most significant contributors to success in aftersales service. This involves monitoring competitor pricing and adopting more modern service parts price optimisation solutions. The traditional method used for parts pricing is ‘cost-plus,’ whereby a fixed margin is added to manufacturing costs. Cost-plus is as easy as it is unsatisfactory, compromising both profits and brand equity. Inward-looking, it fails to take into account factors such as criticality and emotion in purchasing decisions. Picture yourself in your car in need of a new windscreen wiper: You may care little for the name of its manufacturer, but you will be prepared to pay more for a swift replacement. However, if the hum of your engine is like music to your ears, when that sound goes wrong you’ll probably only want one brand to replace it: The original. And you’ll know that that’s unlikely to be cheap. To optimise aftermarket parts pricing, the key goals should be:

  • Responsiveness to market conditions and the ability to adjust pricing rapidly
  • Reactivity to market dynamics such as actual street prices, relative price sensitivity, price leadership and whether a part is captive or competitive

  • A consistent pricing policy to protect brand image and reinforce customer confidence   Cost-plus formulas and Excel spreadsheets must be replaced by scientific and dynamic pricing methods that offer a data-driven approach to the optimised price of a part. If implemented, this can immediately translate into better margins.

Transform and optimise
Businesses are beginning to realise that an investment in sophisticated after-sales service solutions, as well as adopting new business practices, has the potential to significantly improve  this high performing, high growth area.

With increasing competition from multiple players, dealers and independent businesses may need to completely transform and optimise their service supply chains to become more customer-centric and efficient. New technology enables businesses to respond to these demands and opportunities and those that adopt it will be the ones that succeed.

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