BOSTON, MA — May 2, 2005— By some estimates, companies that are ineffectively pricing their service parts are missing out on millions or even billions of revenue dollars that would immediately impact their top and bottom lines, according to the recent Aberdeen Report, Maximizing Profitability with Optimized Service Parts Pricing: A Benchmark Study.

“Most companies price their service parts using a cost-plus approach,” said Mark Vigoroso, Aberdeen’s vice president of post-sales service research and author of the report. “The preferred alternative to cost-plus is price optimization, whereby a company monitors the market and measures the price elasticity of each discrete part and applies this to determine the one price that maximizes gross profit.”

Companies that are optimizing their service part prices are seeing an average of 13% increases in service parts gross profit and 11% increases in service parts revenues, according to Aberdeen’s research.

Regardless of industry, competitive maturity, channel sales strategy, or depth of technology experience, Vigoroso suggests that every company can take specific actions to improve its approach to service parts pricing and significantly impact its financial and competitive positions, by doing the following:

• Build case for service operations focus: At 63% of the companies surveyed by Aberdeen, executive management assigns secondary or no importance to the service parts operation’s potential impact on revenues and profitability.
• Chart technology evolution strategy: Backed by this executive buy-in, service parts managers should evaluate pricing technology solutions that provide dynamic views into part-specific price elasticity and help to optimize parts prices for maximum overall profitability. As indicated by survey respondents, the capabilities of spreadsheets, retail pricing systems, and most ERP systems fall short in meeting the unique requirements of service parts pricing.
• Understand your demand patterns and lifecycle stages: A critical element to pricing service parts effectively is understanding how your customers are purchasing and using parts.
• Understand and track the competition: On a part-specific basis, companies should always have an up-to-date view into the competitive landscape, which should serve as a critical input into parts pricing and marketing decisions.

Maximizing Profitability with Optimized Service Parts Pricing: A Benchmark Study diagnoses the challenges and opportunities with pricing service parts; quantifies the performance improvements and financial payback companies can expect from service parts pricing optimization; and recommends courses of action for firms of all maturity levels.

A complimentary copy of the Aberdeen Group Study, “Maximizing Profitability with Optimized Service Parts Pricing,” is available from Servigistics at http://servigistics.com/whitepaper6.htm.

AberdeenGroup is the leading provider of fact-based research and advice for the global technology-driven value chain, delivering solutions for business and technology executives. Our portfolio of research-based solutions comprises benchmarking, market and solution assessments, solution selection and sales acceleration programs, and networking conferences.

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