Why Aftermarket Parts Are Key During Economic Uncertainty
In uncertain economic times, the aftermarket parts business has emerged as a critical focus for manufacturers of assembled durable goods. The sector offers a significant opportunity for higher margins, often double those of original assembled products. However, capitalizing on this opportunity requires a thorough understanding of several key functional capabilities. From analyzing the total available market for OEM aftermarket parts to ensuring on-time delivery, mastering these areas is essential for driving aftermarket-led margin and revenue growth. Strategic imperatives for succeeding in the aftermarket parts business highlight the importance of market analysis, channel coverage, customer influence, and efficient logistics.
Manufacturers of assembled durable goods have increasingly focused on the OEM aftermarket parts business, a venture that holds the potential for significantly higher margins. In fact, aftermarket parts often boast a margin profile that is at least 2x that of the original assembled product.
While this opportunity may seem straightforward, it requires a comprehensive understanding and excellence in various functional capabilities in the following areas:
EBOOK: Creating a Digital Path for Aftermarket Growth
Finding available share of the market
Before embarking on an aftermarket-led margin and revenue growth strategy, it is crucial to comprehend the total available market for OEM parts fully. Many assembled products, such as machinery and automotive, have a working lifespan of 20-30 years. Typically, parts are covered under warranty for the initial years, and customers often opt for refurbished or grey market parts for hardware nearing the end of its lifespan. This understanding is key to making informed business decisions.
Understanding the available market share of OEM aftermarket parts requires proper analysis of the useful life of original equipment, which refers to the period during which a product can be used for its intended purpose; parts aging, which refers to the process of parts deteriorating over time, and the right time window in OE lifespan where customers can be influenced to purchase OEM parts. The analytics to assess this require knowledge of product usage, assessment of historical sales and OE data by channel or end customers, and understanding of parts lifespans.
Assessment of End User Geographies & Channel Coverage
Many assembled durable goods are sold through channels, but this often limits OEMs’ ability to assess the physical location and end customer of the product after sale. While IoT (Internet of Things)—based services have made it easier for some portions of the market, several aging products sold 8-10 years ago without any connectivity make regionalizing the available share of the market harder.
The ability to use analytics appropriately from parts sales and distribution coverage data is critical to analyzing the available market share by geographic region and possibly by customer.
Ability to influence the buyer to buy the OEM part
For an aftermarket growth strategy to succeed, it would be best to start by understanding the value of buying OEM parts. There is a natural affinity for OEM aftermarket parts in the early part of the ownership cycle of a durable good due to the customer’s view of OEM knowing their product the best. However, there are other bases on which an OEM aftermarket part growth strategy can rely.
The best opportunity to engage your customer’s understanding of the value of OEM parts is during the warranty period because they are more engaged with the OEM and likely more open to messaging that establishes the value of coming back to OEM even after the warranty period expires. Some companies have tried to build digital lock-ins where the customer has to seek recalibration of a sensor after part replacement, and the recalibration must be completed through the OEM. Coercive measures tend to have short-term sustainability, so it is important that OEM parts be well-engineered, available for quick delivery, and have a warranty to ensure customer confidence.
Finding how to best reach the buyer at the point of expressed need for part
Even when a customer has the propensity to buy OEM parts, it does not necessarily guarantee that at the point of need when their machinery is down, they will reach out, search, find, and buy the aftermarket parts from the OEM. This is where digitization of the aftermarket part purchase journey becomes critical.
The customer usually needs more information on the right part for their machinery purchased several years ago to search for and purchase the replacement. Service technicians need the information at hand if they are from the local dealer. At this point, the opportunity is lost to a refurbished or a local OEM-like parts manufacturer taking the business.
Guaranteeing on-time-delivery
Even when aftermarket parts are easy to find, a large, durable product is out of service, and quick, guaranteed time and delivery are critical. OEMs generally share inventory between original equipment and aftermarket parts businesses, and as original equipment has traditionally been the focus of manufacturing, aftermarket parts are a secondary concern.
This is where analytics on frequently purchased parts can help influence the plan-for-every-part (PFEP) process so that appropriate inventory levels exist to guarantee on-time delivery and put the durable product back in operation for the customer.
Improve and Stabilize Your Aftermarket Parts Business for Economic Uncertainties.
The aftermarket parts business represents a vital avenue for manufacturers seeking higher margins and steady revenue streams, especially during economic uncertainties. By comprehensively understanding the available market share, regional distribution, and customer behavior, OEMs can effectively influence buyers and ensure timely delivery of parts. Emphasizing the value of OEM parts during the warranty period and leveraging digitization for ease of purchase are crucial steps in capturing this lucrative market. As the demand for reliable and quickly available aftermarket parts continues to grow, manufacturers that excel in these areas will be well-positioned to thrive in an increasingly competitive landscape.
If you’re interested in learning how CDS Visual can help you boost your aftermarket part sales, get in touch with us.
