Thursday, March 25, 2010

Lets Get That Second Line of Parts Out of the Box

At Colgate we had a second line of products for customers who did not want to pay for the brand name and all that goes along with it. One of my buddies was the head of cost accounting and he patiently explained how a long line of variable costs were stripped out/substituted to create competitive prices with acceptable margins. I’d describe the process at Colgate as being more like getting a flu shot compared to the brain surgery involved in establishing a second line of parts in our industry.

If you want to make millions of dollars more for your company, read the verbatims that you get from the parts manager surveys; we just read over 3,000 of them from the NASPC Recessionary Parts Survey. The dealers talk a lot about prices, and they give specifics – so, you don’t really need a lot of imagination to figure out where the problems are.

“We need quality maintenance items at better prices ... battery prices are WAY TOO HIGH!!!! Brake pads also…Do studies on the highest defect items driving our customers to the aftermarket and get in the game!!!!” (Asian OEM) “The items we purchase from independents the cost is substantially lower than the cost from “X”. I can mark them up and make the same gross and the customer will see the price as reasonable and still purchase the part.” (European OEM)

These retailers are talking about fast-moving Wal-Mart Parts (which are a source of embarrassment) and NAPA Parts (which is a source of customer defections). These are the fastest moving parts in select categories: brakes, shocks, struts, filters for the Auto guys. Let’s look at an example. I just went to Google and typed in “brakes for Ford F150.” Got back about 20 million hits. Clicked on “Auto parts Warehouse” and plugged in a search for a 2000MY F150 base model with the small V-8. That got me 104 matches. The top two choices on the list were for either a $57.44 “OE Comparable” pad set or a $116.96 set of pads. Didn’t scroll through the other 102 matches.

Time Out: I suspect Ford does not offer 104 matches through their dealers. I’m not even going to check that out.

The points are: (1) there is a lot of competition for fast-moving parts used in common maintenance/ repairs, (2) there are a lot of price-point choices that are offered to end-customers that fit different pocketbooks, and (3) yeah, a case can be made for a second line of other-branded parts.

The decision path to deciding to launch a second line of parts resembles the one used by Obama to get health care reform passed. Lots of debate; fire and brimstone opinions; prognostications that life as we know it will come to an abrupt end.

Second line parts don’t help dealers increase
their wholesale sales and re-capture lost parts
market share!

Why not? Maybe it’s not the parts, it’s the limitations
we impose on our thinking?

Second line parts are just re-boxed genuine parts
that don’t save a dime!

Not so, need to get engineering to specify
more competitive alternatives for different customer needs, and
get the supply chain team to look at cheaper distribution alternatives.

Second line will cannibalize parts sales
with cheaper alternatives that dealers will
mark-up to match old suggested list prices.

Need to focus second line on parts and services that dealers
have largely lost – some brakes, some shocks, some filters.

The gavel comes down, debate ends and the second line idea is killed or slammed through by an enlightened leader. The enterprise then spits out a bunch of generic branded parts that are near-genuine. Everybody names them differently and then supports them pretty much with zero brand marketing. That’s OK.

But, why name them differently? It seems we are missing an opportunity here.
Time Out: A large part of the attractiveness of ACDelco and Motorcraft to the independent aftermarket (IAM) is in their near-genuine affinity. Both are second-channel enterprises that sell these near-genuine parts to the IAM (and to dealers) … and in the process re-capture lost parts market share from customers who have decided against dealer service. ACDelco and Motorcraft have pretty impressive distribution capabilities. OEMs who do not have a second channel must reach the IAM through their dealers and distributors. As we all know, this does not work too well for M&R parts.

It seems to me that if one can logically justify a second line of parts, one could then justify adopting a common name for these parts – where the common brand name operates more like a protected co-op. More specifically, everybody who launches and controls a second line should use the same “brand name.” Affording all the second-line brand name protection we can dream of can be done by capable and creative lawyers. The second line would benefit from a near-genuine halo from all the other OEMs … and, more importantly, can generate cumulative brand equity from all the OEMs using the “second” brand name.

All that’s just drivel if we can’t use this to sell more parts. And to do that we actually have to get them in front of the customer. This is where ACDelco and Motorcraft come in. Why not negotiate with them to distribute this near-genuine second line of parts to the IAM? (By the way, I have not discussed this with them, so, I don’t know if they want to play in this sort of sand box). On the surface, it would make sense, because it would broaden their product lines and give them “near-genuine” all-makes line extensions … good for their Warehouse Distributors and good for the Jobbers. ACDelco and Motorcraft have feet in both the OEM and IAM camps, so they would be my first choice. If they aren’t interested, NAPA and AutoZone might be interesting distribution partners. Best of all, this need not be a “Co-op” decision … any participating second-liner OEM can choose as they see fit. It might be helpful to assume that this isn’t just another stupid idea and to think about it.

Bottom Line: If we can construe justification for a second line of parts, we need some out-of-the-box thinking about how far we, collectively, can go with it.

No comments: