As large companies like Amazon and Alibaba enter the aftermarket auto parts business, should brick-and-mortar retailers and auto manufacturers be nervous? With their vast reach, popularity and insane margins, these larger ecommerce companies are primed to disrupt the aftersales service category like never before. And given the resources they can dedicate to virtually any new business vertical, auto dealers must step up their game — or at the very least evolve — to keep pace.
Here are three areas where both manufacturers and traditional aftermarket part providers can devote their attention to provide a necessary added boost:
1. Keep an Eye on Pricing
Service parts pricing is one of the most significant contributors to success in aftersales service. Monitoring competitor pricing can help aftermarket auto parts retailers and manufacturers seize the upper hand in a street fight with an Amazon.
In a recent Bloomberg report, RBC analyst Scot Ciccarelli referred to Amazon as a “dangerous” competitor in the category. Yet while it has huge reach and a potential pricing advantage, the average replacement parts buyer — a segment that represents a majority of aftersales customers — doesn’t have the knowledge to purchase parts without guidance.
This means that specialty shops (think AutoZone or NAPA) and local dealerships are likely to have the upper hand over the “big names” — especially if they stay on top of pricing.
Beyond keeping tabs on competitor pricing, specialty shops and manufacturers can win even as Amazon moves into their lane by adopting more modern service parts price-optimization solutions. Cost-plus formulas and Excel spreadsheets must be replaced by scientific and dynamic pricing methods that offer a data-driven approach to the optimized price of a part. If implemented, this can immediately translate into better margins.
2. Better Manage Parts Inventory
With Amazon’s popular Prime service, the company offers irresistible features such as same-day delivery. But even same-day delivery doesn’t replace the ease and speed of running to the shop around the corner in the middle of a project. And it’s all the more reason why shops and manufacturers must have the right service parts in stock at the right time. For example, Target saw a 40% reduction in “out-of-stocks” during the 2015 holiday season by simply taking a more scientific approach to inventory management.
Not having parts in stock has ramifications for your dealership’s bottom line and customer loyalty. You can’t afford to let this happen, especially with the influx of competition throughout the retail category.
3. Adopt Data Management
From in-car performance statistics to customer loyalty insights and marketing information, the aftersales service category is a deep reservoir of data that points the way to greater profitability. With all the data that’s produced and available, the opportunities to manage opportunities and anticipate obstacles are limitless.
The do-it-yourself aftermarket service parts business is currently a $50 billion industry. And right now, although it’s up for grabs, sticking to the status quo won’t help your dealership. You must embrace an updated approach. If you do, the service parts category could be yours for the taking.