Challenges for automotive suppliers
Automotive suppliers are facing a dynamically changing market with disruptive technological change and increasing internationalization. Suppliers must try to counter the market gap with OEMs and the accompanying demands for annual cost reductions.
Prevent cost breakdown
“Open Book!” is the motto in many negotiations when buyers ask for cost calculations from their suppliers. Suppliers are pressured to provide cost insights and transparency in bid comparisons by OEMs. The result is low prices and poor margins. Due to the OEMs’ unyielding purchasing policies, the scope for cost reductions has often already been exhausted.
Suppliers should avoid giving OEMs complete insight into the structure of their own costs and contribution margins – otherwise their profit margin can be dictated to them, even in the long term and in the case of innovative solutions. The successive disclosure of strategically relevant information weakens the position in future negotiations in the long term and leads to price discounts. Price negotiations should explicitly take volume deviations into account so that volume changes are not always one-sided to the disadvantage of the supplier.
Unequal distribution of market power
The automotive supplier market is heterogeneous. There are international corporations – which work on an equal footing with the major OEMs – and there are small and medium-sized companies. This can easily be shown by the level of awareness: While Bosch and Continental are familiar to most end customers, companies like AUNDE are much less so.
The gap between suppliers and OEMs becomes problematic when it comes to easily interchangeable commodities within the platform strategies. This is in line with the fact that the returns of smaller suppliers have fallen continuously in recent years – this suggests further consolidation.
Often, after a supplier has been selected, additional changes are made by the automobile manufacturer. This calls for professional claim management. Customer-initiated change requests should always be compared with the contract contents and systematically used to increase profitability through active claiming – the same applies to special deliveries and all other services not agreed in the standard. Efforts by OEMs to enforce an extension of the statutory liability period, for example, should be countered with price markups.
Technology change and internationalization
In addition to cost transparency and market power, e-mobility and automation are increasingly influencing pricing. Demand for certain components will also decline in the wake of electrification, leading to overcapacity and intensified competition.
Advancing internationalization and fluctuations in currencies and raw materials should also be considered in pricing. Accepting orders with negative contribution margins due to overcapacity can depress the price structure of the entire industry. If prices are too low, orders should be rejected if necessary and capacities reduced.
Pricing solutions for automotive suppliers
Currently, cost-based and competitive pricing are used much more frequently than value based pricing. The latter is best suited to exploiting the OEMs’ individual willingness to pay. For example, the willingness to pay of a manufacturer in the premium segment is different from that of a manufacturer focusing on the compact class or microcars.
Group-wide pricing strategy
The alignment of a group-wide pricing strategy should include the following points:
- Value based pricing of complex products and niche knowledge
- Align prices with product life cycle
- Systematic controlling of price discounts and won-lost-order analyses through pricing tools
- Bonus and customer loyalty programs in the form of incentives
- Differentiation by customer, product and region in coordination with the regional business units
- Realistic assessment of economies of scale and competitive intensity
- Establishment of an active claim management
Effective measures for pricing
- While price pressure increases at the end of the product life cycle, factors such as delivery performance and meeting quality standards are more important criteria than low prices when launching a product.
- Moreover, bonus programs can be used as an additional marketing tool for price differentiation.
- In the fields of connectivity and autonomous driving, innovations should be used to establish consistent value based pricing.
- IT-supported evaluation tools and reports should also be increasingly created in order to systematically evaluate data and derive recommendations for action.
Experiences and project examples in the supplier sector
Roll & Pastuch has successfully implemented various projects with automotive suppliers and brings extensive industry knowledge to the table. Typical tasks in the project work were among others:
- Value based pricing of complex products and niche knowledge
- Align prices with product life cycle
- Systematic controlling of price discounts and won-lost-order analyses through pricing tools
- Bonus and customer loyalty programs in the form of incentives
- Differentiation by customer, product and region in coordination with the regional business units
- Realistic assessment of economies of scale and competitive intensity
- Establishment of an active claim management
Learn more about your pricing potentials
We will be happy to answer your questions and provide you with further information.
Kai Pastuch
Kai Pastuch is Managing Director of Prof. Roll & Pastuch. Before joining as Managing Partner, he was Director at a leading international strategy and marketing consultancy. As a graduate in business informatics, he also manages our software company nueprice, which specializes in the pricing of spare parts with the product of the same name. Mr. Pastuch has extensive project management experience from numerous projects for large international companies and German medium-sized businesses in the areas of price management, marketing, sales and strategy. In addition to numerous publications in renowned journals and the publication of the reference books Praxishandbuch Preismanagement and Big Deal Management, he is a sought-after moderator and speaker on all aspects of sales and pricing. As a practice-oriented manager, he likes to get personally involved in our projects and contributes his broad experience in workshops and steerings.
