What I Would Change If I Were Running an Automotive Aftermarket Company Tomorrow Series (Topic #1)

Michael Timmons
2 days ago
7 min read

Updated: 14 hours ago

I've spent most of my career in the automotive aftermarket, and if I were handed the keys to an aftermarket company tomorrow, I wouldn't start by changing the sales team, cutting expenses, hiring a new marketing agency, or immediately launching ten new products.

I would start with one question: What problems in our industry are customers still dealing with that nobody has solved correctly?

Because somewhere along the way, I think too much product development became product comparison.

A competitor launches something.

We buy it.

We tear it apart.

We benchmark it.

Then we ask the engineering team to make ours a little stronger, a little lighter, a little cheaper, add another feature, change the finish, or put a different spin on it.

There is nothing inherently wrong with competitive benchmarking. Every good company needs to understand what is happening in the market.

But benchmarking should help you understand the market.

It should not become your product development strategy.

There is a big difference between improving someone else’s gadget and solving a problem the customer still has.

I Would Start With Problems, Not Products

Some of the best product opportunities are sitting right in front of us.

Listen to installers.
Listen to dealers.
Listen to distributors.
Listen to OEM accessory teams.
Listen to consumers.
Listen to customer service.

And probably most importantly, listen to the complaints.

What takes too long to install?
What breaks?
What doesn't fit correctly?
What requires another product to make it work?
What causes returns?
What creates warranty claims?
What do installers constantly modify?
What do customers wish existed?
What product works great on one vehicle but poorly on another?
What are people accepting simply because “That's the way it has always been”?

Those conversations are product-development gold.

Instead of asking: “How do we build a better version of their product?”

I would ask: “Why does this problem still exist?”

That is where innovation starts.

Build the Business Case Before Building the Product

The second thing I would change is how companies determine whether a product deserves to exist.

A great product isn't automatically a great business.

Before engineering gets too far down the road, I want to understand how the product works financially across every channel we expect to sell through.

This is where automotive aftermarket companies sometimes get into trouble.

They develop the product first.

Then they figure out the pricing.

I would do both simultaneously.

If we want the product to work through OEM, traditional two-step distribution, specialty retail, installers, and D2C, we need to understand those economics before tooling gets approved.

The product should be engineered around both the customer's problem and the company's margin requirements.

That doesn't mean building a cheap product.

It means building an intelligent product.

I Still Believe Multi-Channel Margin Alignment Is Possible

I've heard people say that you can't build a product anymore that financially works for everyone.

I don't agree.

I think it is harder.

But harder and impossible are two completely different things.

The objective should be to build enough margin into the product architecture so the product can move successfully through multiple channels without destroying profitability or creating channel conflict.

For an OEM program, there must be enough room for the OEM to achieve the margin structure they require while still leaving the manufacturer with a healthy return.

For traditional two-step distribution, your distributor needs margin.

Their dealer or installer needs margin.

And you still need margin.

That means you can't treat distributor pricing as an afterthought.

If your product only works financially when sold directly to the consumer, you don't really have an omnichannel pricing strategy.

You have a D2C product with wholesale pricing attached.

There's a difference, and it has consequences for how the product gets to market.

I Wouldn't Be Afraid of a Higher D2C Price

This is another place where I would probably challenge conventional thinking.

Your direct-to-consumer price does not always need to be the cheapest price in the market.

In fact, I would intentionally keep the product slightly above the category average, assuming the product earns that position.

If we solved a legitimate problem, engineered the product correctly, created a better ownership experience, supported it properly, built a strong brand around it, and stood behind it, then why should our goal be to become the cheapest option?

Price should communicate value.

The key is to make sure the value is real.

If everyone else sells around $499 and our product genuinely solves a problem the others don't, maybe we're $529 or $549.

That's okay.

I would rather explain why we cost $40 more than explain why our product is exactly the same as everybody else's.

And maintaining pricing discipline at D2C also protects the rest of your channel.

Your distributor should not have to compete against you.

Your dealer should not have to compete against you.

Your installer should not have to explain why buying from them costs more than buying directly from the manufacturer.

D2C should complement your channel strategy, not destroy it.

The Product Has to Create Room for Everyone to Win

The best channel strategy isn't about deciding who makes the most money.

It is about creating a structure where everybody has a reason to sell the product.

The manufacturer needs a healthy gross margin to fund engineering, marketing, inventory, people, warranty, and future development.

The distributor needs enough margin to inventory, market, sell, ship, and support the product.

The retailer or installer needs enough margin to recommend it and spend time educating the customer.

The OEM needs a product that meets its quality, warranty, packaging, regulatory, supply-chain, and profitability expectations.

And the consumer needs to believe the value they received was greater than the money they spent.

That's margin alignment.

When those interests are aligned, the product has a much better opportunity to scale.

Stop Building Products for Your Competitors

Here's another thing I would challenge.

If your product-development meetings spend more time discussing competitors than customers, something is probably wrong.

Competitors matter.

But they're not the customer.

I've watched companies become obsessed with what another brand is doing.

“They just launched this.”

“They added this feature.”

“They're selling at this price.”

“They're using this material.”

“We need something like that.”

Maybe.

But maybe we don't.

Maybe they're chasing us.

Maybe they're wrong.

Maybe the entire category is solving yesterday's problem.

The danger of constantly watching competitors is that eventually everyone ends up building slightly different versions of the same thing.

Same features.

Same messaging.

Same price range.

Same customer.

Same compromises.

Then everybody wonders why the only way to gain market share is to discount.

Innovation Gives You Pricing Power

This is the part I think gets overlooked.

When you're selling essentially the same product as five competitors, price becomes extremely important.

When you're solving a problem the other five products don't solve, price matters less.

That doesn't mean customers will pay anything.

They won't.

But true differentiation creates pricing power.

And pricing power creates margin.

Margin allows you to invest in marketing.

Margin allows you to support distribution.

Margin allows you to pay good employees.

Margin allows you to carry the right inventory.

Margin allows you to improve quality.

Margin allows you to develop the next product.

That's why product development and financial strategy cannot operate independently.

Innovation creates margin opportunity.

I Would Put Sales, Engineering, Marketing, and Finance in the Same Room

Another change I would make immediately: product development would not belong exclusively to engineering or product management.

Sales should be involved because they hear what customers are asking for.

Customer service should be involved because they know what customers hate.

Marketing should be involved because they understand positioning and the competitive landscape.

Operations should be involved because somebody eventually has to build and deliver it.

Finance should be involved because somebody needs to determine whether the business model works.

Engineering should be involved because they have to turn all of those ideas into something real.

And leadership should make sure the organization doesn't lose sight of the original question:

What problem are we solving?

That sentence would probably be written at the top of every new-product-development document in the company.

If we can't answer it clearly, I would seriously question whether we should be developing the product.

The Goal Isn't More SKUs

One of the easiest traps in the aftermarket is confusing a large catalog with innovation.

Sometimes fewer products are better.

I'd rather have 100 products that solve real problems, generate healthy margins, turn inventory, and have strong market positions than 1,000 SKUs that exist because somebody decided we needed to fill another square in the catalog.

SKU count doesn't impress me.

Product productivity does.

I'd want to know:

· How fast does it turn?

· What's the gross margin?

· What's the return rate?

· What's the warranty rate?

· How many channels successfully sell it?

· What's the attachment rate?

· How much inventory does it require?

· What's the customer acquisition cost?

· Is it creating repeat customers?

· And does the customer recommend it after buying it?

That's a much better picture of product health.

This Is Where I Think the Opportunity Is

People sometimes tell me: “You can't build products like that anymore. There isn't enough margin.”

Maybe that's true if we're developing another version of something that already exists.

If five companies already manufacture basically the same product, everyone already understands the cost structure. Pricing becomes compressed. Distribution knows exactly what margin to expect. Consumers can compare everything online in seconds.

You're fighting inside an established box.

But what happens when you create something that solves a legitimate problem?

Now you're defining the box.

You have more control over positioning.

You have more control over pricing.

You have more control over your value proposition.

And most importantly, you're giving customers a reason to choose you that has nothing to do with a 10% discount code.

That is the type of aftermarket company I would want to build.

A company that listens more than it copies.

A company that develops products around problems instead of competitors.

A company that understands that margin isn't something finance worries about after launch, it's something you engineer into the product from the beginning.

A company where OEM, distribution, dealers, installers, and D2C can coexist.

A company willing to command a slightly higher price because it delivers slightly more value.

And a company that understands something I think the aftermarket occasionally forgets:

The goal isn't to make someone else's gadget better.

The goal is to make the customer's problem disappear.

WHAT'S NEXT: What I Would Change Tomorrow

This article is the first in a series about what I would change if I were running an automotive aftermarket company tomorrow.

Because product development is only one piece.

Next comes pricing.

Then inventory.

Distribution.

Sales.