September 12th, 2017 by jasonlancaster
If you’re in the business of selling auto parts online, pricing your products for sale ought to be easy. You know how much a part costs, and you just set a price based on profit margin and competition. Simple, right?
The answer, of course, is “No.” Manufacturers often have policies that specify retail pricing, and failing to follow these policies can be trouble. What’s more, it’s not always easy to figure out your part cost because different companies use slightly different terminology.
The article below is an attempt to define common pricing terms and talk about pricing strategy. If you’re new to auto parts ecommerce – or trying to understand why some terms mean different things to different people – this article is for you.
Photo credit: Pictures of Money
First, let’s define who’s who:
Next, let’s go over some common pricing terms and what they mean:
|Wholesale Price||Typically, this is the price that a Wholesale Distributor (WD) pays for a part when they buy direct from the manufacturer.
However, this term has a lot of unofficial meanings. It’s often used to indicate a part’s actual cost, regardless of who the part is purchased from.
|To avoid confusion, it’s better to say “Wholesale Distributor Price” or “WD Price” – that way, everyone knows what you’re talking about.|
|“WD Price” or “Wholesale Distributor Price”||The price that a wholesale distributor pays for a part when they buy directly from the manufacturer.||Generally speaking, a wholesale distributor is going to mark this price up before they re-sell the part to a retailer or installer.|
|Jobber Price||This is a price that falls somewhere between the WD Price and the MSRP. The idea is that jobbers will pay this price when they buy a part from a Wholesale Distributor.
Often times, the “jobber price” is just a number. The actual price paid by a retailer or jobber will depend on the relationship. Larger retailers and jobbers who buy lots of parts tend to pay less than this price; smaller retailers and jobbers may pay more than this price.
|Think of “jobber price” as the “suggested price” that retailers and jobbers should pay when they buy from a distributor.|
Retail Price (MSRP)
|The manufacturer determines MSRP, and the methodology for determining this price varies from manufacturer to manufacturer.
Some manufacturers set this price based on the market, and others set this price artificially high so retailers and etailers can show big discounts.
|Generally speaking, MSRP is the highest possible price anyone could ever pay for a part.
However, if there’s a part that’s in short supply, retailers will mark the price up over MSRP. But this is not common.
|Minimum Advertised Price (MAP)||In an effort to help jobbers, etailers, and retailers earn a reasonable profit, most auto part and accessory manufacturers have something called a MAP policy. MAP stands for “Minimum Advertised Price.”
Generally speaking, the MAP is high enough to ensure that a jobber or retailer can be profitable.
Any retailer or jobber that advertises parts for less than the MAP can lose the ability to buy parts from the manufacturer.
|MAP is the lowest part price any retailer can officially advertise. It’s OK to sell a part for less than MAP, as long as the price isn’t advertised anywhere.
If a retailer violates the MAP policy, they can be banned from receiving parts by the part manufacturer.
|Unilateral Price||The unilateral price is the minimum price of a part. This is different from MAP in that MAP is only for advertised prices.
Unilateral pricing is basically fixed pricing.
Any retailer or jobber that sells a part for less than the unilateral price will probably lose the ability to buy parts from the manufacturer.
|Think of unilateral pricing as a fixed price.
This is different from MAP, as MAP only dictates the advertised price.
Most retailers, etailers, and jobbers price their parts at the MAP or unilateral price, assuming a manufacturer has a MAP or unilateral price policy. Sometimes these companies will set their pricing above MAP to cover additional costs, but this can hamper sales. Consumers are very good at finding and comparing part prices, and retailers who try to sell parts for more than the MAP or unilateral price are going against the grain.
If a retailer, etailer, or jobber wants to try and boost sales, they can usually offer some sort of extra or freebie to entice consumers. Coupons can usually be offered without violating MAP policies, as can free shipping, free gifts, etc. Parts can also usually be grouped into packages without violating MAP. However, it’s a good idea to check the specific MAP policy rules before you try something too clever.
Finally, when pricing your parts to sell, it’s a good idea to research prices and special offers that other companies are offering. Many etailers will offer free shipping, for example, to try and entice consumers.
If you’re a retailer, etailer, or jobber, you always want to pay as little for a part as possible. That way, when you sell the part to the consumer, you maximize your profits.
There are a lot of things that can be done to find a better price for parts:
But the “big picture” is that revenue is the key to maximizing profits. Jobbers, retailers, and etailers who sell lots and lots of parts can negotiate better pricing than retailers who sell a few parts here and there.
Still, even small retailers can find good pricing by making a few phone calls. A considerable number of jobbers and retailers buy from competing jobbers and retailers rather than wholesale distributors (WDs).
Last but not least, it’s important to mention that wholesale distributors offer a lot of extras. Most distributors provide a simple, low-cost returns program, help obtaining warranty reimbursement, tools and training, and a wide variety of delivery options. They’re also happy to sell one part to a jobber or retailer without requiring a minimum annual buy, and they answer the phone when you call, etc.
Obviously, all these extras aren’t free. Wholesale distributors ask a higher price for parts than a manufacturer, but they usually provide more customer service. The trade-offs are usually worth the slightly higher price paid.