What Factors Should You Consider When Pricing Spare Parts?

Written By: Vipul Agrawal
  • 8/28/2017
Spare Parts Pricing for Service Parts Management

The cost-plus model has been the de facto spare parts pricing technique among most organizations, but it isn’t the only applicable model. Multiple, dynamic pricing models enable businesses to grow service revenue while ensuring customers have the parts the need to maintain operations.

What are the service parts pricing trends and best practices you should look to as you consider your pricing strategy?

Part classification  

Part classification, or how parts are assigned within your pricing model, can be decided based on multiple factors. Keep in mind that part characteristics, such as what the part is, are far less important than pricing characteristics, which determine whether the part in question is competitive.

By segmenting based on part pricing, you can develop different pricing strategies for different segments and decide which parts you want to price aggressively and where you have more elasticity.

Value-based pricing

Your organization’s engineering information can be critical to appropriate service part pricing. The length, width, or depth of a part, how long a part is expected to last, and how that part reacts to environmental conditions should all affect the final price.

Remember that spare parts become more expensive to maintain over time, so you’ll want to adopt a pricing solution that is forward-looking as well as one that considers your engineering information.

Data, data, data

One of the key challenges in setting optimal service parts pricing is gathering enough historical and competitive data in order to make the best pricing decisions or formulate a strategy. More than that, even organizations that have data are bogged down by the fact that the pricing data they have is years or months old, and isn’t forward-looking or predictive.

In a global, dynamic marketplace, forecasting prices is even more important than knowing historical prices. Consider the presence of alternative channels for service parts, internal channel conflicts for your end-users, and your competitors supply when building a pricing strategy.

In highly competitive segments, inappropriate pricing can quickly lead to unhappy customers and rapid loss of market share, and yet service parts pricing solutions that factor in classification, value, and data remain underutilized. To learn more about how to leverage your spare parts pricing as a competitive differentiator, read about JLG Industries’ success with this practice here:

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About the Author

Vipul Agrawal

Dr. Vipul Agrawal is the Technical Vice President of PTC's Servigistics Business Unit. He has an extensive command of the technical aspects of service parts optimization. In 1999 he co-founded MCA Technologies with Morris Cohen, and together they developed the first commercial multi-echelon optimization algorithms. Vipul joined Servigistics and then PTC through acquisition, and has contributed to the innovation that has distinguished Servigistics as the industry-leading service parts optimization solution. Vipul published the article “Winning in the Aftermarket” in Harvard Business Review with co-authors Morris Cohen and Narendra Agrawal. In his current role, Vipul is focused on supporting PTC’s Servigistics Business Unit and helping service organizations orchestrate world-class service parts optimization (including service parts management and service parts pricing). He is part of the team leading rapid innovation with connected service parts management, leveraging ThingWorx to improve forecasting and optimization using equipment data.