There is considerable profit to be had from improving sales performance in the aftermarket for OEMs. These sales are on average at least TWICE as profitable as selling new equipment. So how do you know how much your company needs to or can increase aftermarket business?
Perhaps your company already has a healthy share in the aftermarket, so your goal might be simply to maintain the status quo and keep in front of the competition. On the other hand, perhaps your competitors currently have the jump on you, and to get ahead, you need to double your current aftermarket unit sales. The size of your market share should figure prominently in your aftermarket strategy for growth.
Don’t Confuse Market Share by Only Considering Make Products
It’s critical to understand the entire opportunity when calculating market share. Manufacturers often overestimate their share in the aftermarket when parts manufactured by a third party are left out of the equation.
For instance, suppose you calculate your market share based only on revenue from equipment parts that your company actually manufactures (make products). Now suppose that share works out at 75%. Do you really have a 75% share?
What about the parts your customers purchase elsewhere? The equipment you sell may use parts you purchase from a supplier instead of manufacturing in-house; things like oil change kits, bearings, or consumables.
If you are not selling those items, your customers have no choice but to buy them elsewhere, perhaps from competitors, you hadn’t included in your market evaluation. Looking at the equipment you engineer and manufacture as a “whole” and adjusting your aftermarket strategy accordingly will enable you to realize more potential for growth.
Calculating market potential requires thorough market analysis, including factors such as installed base, average equipment lifespan, and maintenance trends, and should include both make and purchased parts.
Formula for Annual Market Potential:
Market Potential = Total Operating Installed Base × Avg. Annual Parts Spend
Formula for Annual Market Share:
Market Share (%) = (OEM’s Actual Annual Parts Revenue /Market Potential) × 100
Market Share in Aftermarket Strategy: Why Does it Matter?
As Harvard Business School economists Robert D. Buzzell, Bradley T. Gale, and Ralph G.M. Sultan explain in a Harvard Business Review article (Market Share—a Key to Profitability), larger market share generates several spin-off advantages, which include:
Higher profit margins
Lower purchase-to-sales ratios
Reduced marketing costs as a percentage of sales
Higher product prices
Improved product quality
These advantages should provide more than enough incentive to analyze and track both market share and market potential in the aftermarket. Market share in particular can be a highly motivational measurement, especially if you organize sales and purchasing teams to work collaboratively to bring the greatest opportunities to your customers. You can even target this as part of individual employee performance management and incentivization, provided you help your salesforce understand why it matters.
The Role of Analytics in Meeting Market Potential
Using market share expansion as a performance incentive requires that you constantly monitor sales data and present it in a way that everyone in your business can comprehend. A good aftermarket analytics platform, capable of displaying data in easy-to-visualize formats, can make ongoing measurement less of a chore and correspondingly, less likely to be neglected.
Equip360 from GenAlpha simplifies monitoring and management of the aftermarket for OEMs. It has an integrated data analytics module, enabling analysis and measurement of parts performance. Data is translated into actionable information and presented as concise, comprehensible dashboard visualizations.
You can find out more about eCommerce Analytics and of course, if you have any questions, our contact form will get you quickly in touch with a GenAlpha aftermarket parts specialist.