Flexible Market Entry Pricing Strategy for a New Automotive Supplier

Automotive Supplier

Competitive pricing is an important requirement for original equipment manufacturers (OEMs) seeking new parts suppliers—yet some performance attributes can command a premium price. Understanding where the balance lies is critical to a successful strategy for industry suppliers.

Situation

A North American metals and mining company developed an innovative product for the automotive market, but the company had limited experience with the industry, the competitive situation, and advanced pricing tools.

Company leaders approached A.T. Kearney to conduct a value chain cost analysis to gain a better idea of the cost structures of competitor products, understand what performance attributes OEMs would be willing to pay for, determine how OEMs would decide whether to switch to a new supplier, and recommend a tool that would help them develop pricing strategies in the future.

Approach

Our approach was based on competitor research and interviews with both industry decision makers and potential customers:

Cost structures of competing products. Conducted competitor assessments and expert interviews and used these to model cost structures for select competing technologies. These models helped point to where in the value chain the company could best capitalize on the benefits of its product offering.

Price and performance attributes. Interviewed customers to identify the "must-have" and "trade-off" product attributes leading to price premiums. Established a fact base for value-per-attribute and modeled the price and performance impact.

Customer business case considerations. Built business cases that considered upfront investment costs for the OEMs and payback periods based on different sales volumes.

Case-specific pricing strategies. Developed options for pricing strategies, evaluated applicability for different scenarios, and built a flexible modeling tool that evaluates pricing strategies under changing market conditions.

Impact and Advantage

By the end of the project, the metals and mining company had an excellent understanding of the factors influencing how OEMs select parts suppliers. The firm received a flexible pricing tool to model specific pricing scenarios using market conditions, competitive technology costs, and customers' business case requirements. Our work allowed it to develop a market-entry strategy informed by a solid understanding of the automotive industry, customers, and competitive threats.

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