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Equipment makers and dealers protect aftermarket margin by pricing each class of part against its own reference point, pricing service on the downtime it prevents, and keeping cost off the parts counter screen. Pricing Insight's work with an equipment manufacturer shows how quickly counter discounting and cost-plus mark-ups erode the installed base.
Your parts counter can see cost on screen, customers ask for a discount on every order, and margin on the installed base keeps falling.
Why does aftermarket pricing drift?
For equipment manufacturers and their dealers, every machine sold creates years of demand for parts, service and support. That demand follows the installed base, and it is often priced with less care than the original sale. Parts are marked up from cost, counter staff discount to settle the order on the day, and service is priced by the hour rather than by the downtime it prevents.
In a 2019 diagnostic of an industrial equipment, parts and service business, overall pricing capability scored 67.3%, the highest of five diagnostics in the Pricing Insight statistics workbook. The same business scored 53.1% on having the resources and process to price tenders and contracts well, the lowest of the five. Strong general pricing discipline did not reach the contract and service book.
The Asia Pacific business of a global forklift manufacturer shows the mechanisms. Parts interpreters could see costs on screen, and customers pressed for a discount on every order. Margins fell across competitive, generic, consumable and capital parts such as axles. Accessories were mispriced because nobody could see the profit on a fully configured unit. Dealers earned from hire, service and parts on the installed base, while the manufacturer captured little of that value.
The fix was operational. Discounts were restricted, staff access to cost was removed, configuration costing showed the profit on each unit with its accessories, and an electronic quote and price-list tool replaced manual keying from printed lists. As published, margins stabilised and expanded without loss of volume.
How should each class of part be priced?
Four classes. Each has a different reference point and a different degree of price sensitivity.
- Competitive parts, available from other suppliers to the same specification: priced against the customer's alternative, held within a price corridor.
- Generic parts, such as filters, belts and fasteners: market price on the lines customers check, margin on the lines they do not.
- Consumables, replaced at every service: priced on frequency of purchase and how visible the price is to the customer.
- Capital parts, such as axles, engines and major assemblies: priced on the cost of the machine being out of service until the part arrives.
A single cost-plus mark-up across all four overprices the lines customers compare and underprices the lines they cannot source elsewhere.
How should service be priced?
Service is bought to avoid a failure, not to buy an hour of labour. Value at Risk covers three costs the customer avoids: supply failing, the equipment failing in use, and technical problems going unsolved. A service rate card, a response-time tier or a preventive maintenance contract is priced against those costs, measured in the customer's units: hours of lost production, hire equipment brought in, penalties paid.
The same logic applies to the equipment itself. At the forklift manufacturer, heavier 5 to 7 tonne forklifts carried substantially more pricing power than lighter models, because they served demanding industries where a failure was expensive. Sales representatives had been chasing price-only buyers and ignoring the customer's cost of downtime.
Which controls hold the result?
- One dealing desk reviews quotes above a set threshold
- Discount limits are set by part class and product, with more room on lines that build the installed base
- Counter staff see price and approved discount, not cost
- Price lists are maintained in one system and issued to dealers electronically
- Overrides are logged and reviewed monthly by approver
What do the results show?
The forklift manufacturer's Asia Pacific business moved from an A$100,000 annual loss in earnings before interest and tax (EBIT) to an A$3m gain within 12 months, as published. That result covers the whole business, including discount governance and sales focus on new equipment, not the aftermarket alone.
Next step
Talk through your parts price file with Ron Wood: which lines compete, which are captive, and who can discount them. Ron's number is +61 410 534 099.
The diagnostic figures are from the Pricing Insight cross-client statistics workbook (five diagnostics, 663 respondents, 2019 to 2025), with the client identified by sector only. Engagement details and results are as published in a Pricing Insight case study.
