Spare Parts Pricing; Setting the right prices for sustainable profit at Atlet

Abstract:

This master thesis deals with pricing of spare parts. Spare part pricing is the
combination of the research field of pricing with the characteristics of spare
parts. The volume of the spare parts is vast compare to the primary products.
Spare parts usually stand for a minor part of the sales but a large part of the
company’s profit. Price has a great leverage on profit compared to an increase in
sales volume or cost cutting. Therefore, the profit potential of spare parts pricing
is substantial. Moreover, a consistent pricing logic can decrease the amount of
customer complaints, and increase the customer satisfaction and loyalty. A
company that has identified this profit potential is the forklift manufacturer
Atlet. Atlet Part Logistic (APL) is the department responsible for spare part
activities and is investigating the possibilities to improve the spare part pricing.
In order to do this three main research areas have been identified: pricing
strategies, pricing methodologies and pricing tools.

The purpose of this master thesis was to propose an applicable pricing strategy
for APL and to identify methods and pricing tools supporting this strategy. The
three pricing strategies considered when suggesting an applicable pricing
strategy were cost-based, market-based and value-based pricing. In addition, this
has been done with the respect to the eight focus areas: spare part pricing
methods, market adaption, discount policy, captivity, life-cycle pricing, kitting,
price elasticity and spare parts competition. The pricing tools considered were
spreadsheets with ERP support and dedicated pricing software.

An in-depth case study of how APL works with spare part pricing has been
conducted. Information on spare part pricing was gathered through literature
reviews, comparable case studies of five industrial companies and interviews
with two pricing software vendors. Since the focus of this thesis was on the
pricing of Atlet’s spare parts the generalisation of the result is limited.
Nevertheless, the results can be used as a guideline for companies with similar
preconditions and products as Atlet.

The result of this master thesis is recommendation to use a mix of the three
suggested pricing strategies depending on the characteristics of the different
spare parts. Recommendations to APL on spare parts pricing with regard to the
eight focus areas are also provided. Furthermore, spare part pricing software
have been identified for future evaluation. In addition, a timeline for possible
implementation of the suggested pricing strategy, pricing methodology and
pricing software is provided

Author/s: Magnus Cullbrand & Linnéa Levén

Language: English

University: Chalmers Universitet, Sweden

Year: 2012

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