What I Would Change If I Were Running an Automotive Aftermarket Company Tomorrow Series (Topic #2)

Product Pricing and Channel Pricing

In the first article in this series, I talked about product development and why I believe aftermarket companies should spend more time solving customer problems and less time building a slightly better version of someone else's product.

But developing the right product is only the beginning.

The second thing I would focus on is pricing.

And I don't mean taking your cost, multiplying it by a factor, comparing it to three competitors, and calling it good.

Pricing is one of the most important strategic decisions you will make when bringing a product to market. Done correctly, it creates margin, supports distribution, protects your brand, gives retailers a reason to sell your products, and creates room for future growth. Done incorrectly, it can damage all those things before you sell the first unit.

Pricing Is More Than a Math Problem

Obviously, the numbers have to work. You need to understand landed cost, freight, tariffs, packaging, warranty, marketing, commissions, distribution fees, promotions, and all the other costs that eventually find their way into the P&L.

But pricing isn't just accounting.

Before setting a price, I want to understand what the competition charges, what value our product delivers, and perhaps most importantly, what your brand is worth.

That last question is one I think many manufacturers overlook.

Too often, companies look at a competitor selling a product for $499 and decide they should price it at $479, $499, or $529. Or they take landed cost, apply the company's standard price-up formula, and let the product hit the shelves.

That can be a very expensive mistake.

Two products with similar costs do not necessarily have the same market value.

What Is Your Brand Actually Worth?

Every brand has a perceived value in the marketplace. Sometimes that value is higher than leadership realizes. Sometimes it's lower.

You need to know which one you are.

Are you considered the category leader? Do consumers believe your engineering is better? Does your warranty mean something? Does your brand have history? Do installers trust you? Do enthusiasts proudly put your sticker on their vehicle?

Or does the market look at your product as another imported alternative that happens to have a different logo on the box?

Those are two dramatically different positions, and they don't necessarily require the same pricing strategy.

I learned a lot about this firsthand when I stepped into my role at Rugged Ridge many years ago.

I remember reading Facebook comments early on that weren't particularly flattering. People would say we didn't design anything ourselves, that it was the same product other importers were selling, just with a different name and a different price.

You can disagree with those comments, but ignoring them would have been a mistake.

That was the customer's perception of the Rugged Ridge brand.

And customer perception eventually becomes our brand value.

So instead of arguing with the market, we worked on changing the reason they believed it.

We took the handcuffs off our industrial designer and gave him room to develop new ideas around the launch of the New Jeep Wrangler JL/JLU and JT/Gladiator.

We started creating products instead of simply filling product categories.

Within roughly 9-months, we started noticing very different comments. People were saying things like, “Remember when Rugged Ridge was just an importer? Look at what they’re coming up with now.”

That stuck with me.

Because the products weren't the only thing changing.

The brand's perceived value was changing.

And that matters when you price.

Consumers control a large portion of your destiny today. Your job is to help control the narrative so that destiny ends up where you want it to go.

I Would Price Up — And Then Price Down

When I price a product, I absolutely believe in the traditional price-up method. Start with your true cost, understand the margin requirements, add the necessary distribution levels, and determine where MSRP needs to land.

But I wouldn't stop there.

I would have another group work backward from the market.

What would a customer realistically pay for the product? Where should this brand sit against its competitors? What does the additional value justify? What does the retailer need? What does distribution need? What happens after freight, rebates, marketing funds, and promotions are added into the equation?

Then I would compare the two models.

If the price-up exercise says the product needs to retail at $699, but the market-value exercise says customers will only accept $499, you have a problem.

And you want to discover that problem before you've bought or manufactured 5,000 pieces for inventory.

Maybe the product needs to be redesigned. Maybe the sourcing model needs to change. Maybe the margin expectations aren't realistic. Or maybe you've created something unique enough that the market really will support $699.

But that needs to be a deliberate decision, not an accident.

Bring Customers Into the Conversation

Another thing I would do more often is ask trusted customers for their opinion before finalizing pricing on an important product.

I'm not talking about showing it to everybody. I’m talking about a small group of trusted distributors, retailers, installers, and/or e-commerce partners who know the category and understand the customer.

Show them the product. Explain the positioning. Give them the expected price and ask them where they think it belongs in the market.

You might be surprised by the answer.

Sometimes they'll tell you you're too expensive. Sometimes they'll tell you you're too cheap.

Both are valuable.

There is another benefit too. You've made the customer part of the development process.

You get instant market validation while strengthening the relationship.

I've always believed in roundtable decisions. That doesn't mean everybody gets a vote on everything. Someone still has to make the final decision.

But the more qualified perspectives you bring into a pricing discussion, the better your chances of getting it right the first time.

Margin Is Not Just Your Margin

This is probably one of my strongest beliefs about sales channels.

When manufacturers talk about margin, they usually talk about their margin. They look at gross margin, EBITDA contribution, and what they make per unit.

Obviously, those things matter.

But if you're selling through distribution, your margin is only one part of the equation.

Your distributor needs margin. Your retailer needs margin. Your installer network needs margin, and your e-commerce partner needs margin.

And sometimes their economics matter almost as much as yours.

If a product gives your customer just enough margin to carry it, but not enough margin to actively sell it, guess what happens?

It sits on the shelf.

Then eventually the manufacturer says, "We need to run a promotion."

So you offer 10% off. Suddenly the retailer has more margin. They advertise it. They email it. They feature it. Sales go up.

What did we really prove?

Sometimes we didn’t prove that consumers needed a discount.

We proved that our customer needed more financial incentive to sell it.

That’s a completely different problem.

Leave More Meat on the Bone

Whenever possible, I would try to build more channel margin than my competitors, not less.

That doesn't mean giving everything away. It means designing the economics so your customer genuinely wants to sell your product.

If one brand gives a retailer 25 points and another gives them 35 points, which one do you think is going to get more attention when both products solve the customer's problem?

Obviously, brand, quality, demand, and service all matter.

But money matters too. We shouldn't pretend otherwise.

I've always believed that if you can make your customer rich, your customer will make you richer.

That is why sustainable margin throughout the distribution chain is so important.

The goal should not be to create a pricing structure that depends on constant promotions to move inventory. Everyday economics should work.

Promotions should create excitement.

They shouldn't rescue bad pricing.

Selling to Distribution and Ecom Customers Has Changed

Years ago, distributor negotiations could sometimes feel like a contest to see how much additional margin the buyer could extract from the manufacturer. More points, more rebates, more marketing money, more freight support, more incentives.

Those conversations still exist. But I think good distributors today also understand something else: healthy brands need healthy economics.

If you walk into a distributor with a strong product, reasonable margin, protected pricing, reliable inventory, good data, solid marketing support, and a plan to create demand, the conversation becomes very different.

Relationships still matter tremendously. I don't see that changing.

But believing in your own product line matters too.

If you're constantly apologizing for the price, giving discounts before anybody asks, or changing programs every six months, why should a distributor have confidence in you?

Bring them a good business opportunity.

Protect the market.

Support the product.

And then execute.

Price Protection Matters

This becomes especially important with e-commerce.

Your e-commerce customers have real costs. Advertising isn't free. Content isn't free. Warehousing isn't free. Credit-card fees aren't free. Shipping definitely isn't free. Returns aren't free. Customer service isn't free.

If you give an online retailer a product with weak margin and no pricing protection, one of two things will happen.

They stop supporting it, or everybody starts racing toward the bottom.

Neither one is good for the brand.

If an e-commerce partner doesn't have enough margin to advertise your product, cover freight, service the customer, deal with occasional returns, and still make a reasonable profit, they're eventually going to move their attention somewhere else.

And they should.

They're running a business too.

This is why I believe manufacturers need to take pricing disciplines seriously. Whether that involves MAP, authorized reseller policies, promotional windows, distribution agreements, or another structure appropriate for the business, the objective should be the same: create a marketplace where good partners can make money selling your products.

Give Your Partners Time to Launch with You

One area manufacturers often underestimate is communication.

When selling through distributors and e-commerce partners, I strongly believe in giving them advance notice of meaningful product launches.

Ideally, 60 to 90 days to stocking whenever possible.

Why?

Because you're asking them to invest in your launch too.

They may need to build product pages, gather vehicle applications, load UPCs and SKUs, create images, write descriptions, update fitment data, build email campaigns, create paid advertising, train salespeople, determine inventory levels, set up purchasing, develop social content, and prepare their own customer-facing teams.

Oh yeah … the most important. Create ads to promote your product as soon as it's in stock.

In some cases, they may need to present the product internally before they can even issue a purchase order.

If you send an email on Tuesday saying, “Our new product launches Friday,” you haven't really included your distribution partners in the launch. The keyword here is partner.

You’ve simply notified them.

There’s a difference.

The best launches should feel coordinated.

The manufacturer creates the product. The distributor prepares the inventory. The retailer prepares the customer-facing experience. Marketing creates demand. Sales creates excitement.

And everybody launches together.

That's how you create momentum.

Distribution & Ecom Should Be a Partnership, Not a Shipping Address

This is another area I would change.

I would spend less time asking how many distributors we have and more time asking how productive the relationships we already have really are.

Getting a distributor to open an account is not the finish line.

It's the starting line.

I want to know what inventory they’re carrying, which locations stock it, whether their salespeople are trained, whether our application data is correct, whether we’re included in their marketing, whether their customers are asking for us, what’s selling, what isn’t, and what inventory is aging.

I also want to understand where we’re losing business and what we can do to help them grow.

A distributor should be more than somewhere you send pallets.

They should be an extension of your route to market.

And manufacturers should act like partners too.

Protect the Channel You Built

There's one more issue that has become increasingly important as more manufacturers move into D2C.

Don't ask your distribution partners to build your brand and then compete against them.

I believe strongly in D2C. It gives manufacturers customer data, creates direct feedback, improves brand communication, allows you to test products and messaging, and yes, it can generate attractive margins.

But D2C should complement your distribution strategy.

Not undermine it.

If your distributor buys inventory from you, your retailer markets your product, and your installer recommends it, then you turn around and undercut all three of them on your own website every weekend, eventually they’re going to stop trusting you.

And once channel trust is lost, it is difficult to rebuild.

I would rather maintain disciplined D2C pricing, protect my partners, and earn a slightly higher retail price or other disadvantage because we’ve built a brand that deserves it.

That is sustainable.

Constant discounting isn’t.

Pricing Tells the Market Whom You Think You Are

This is probably the biggest takeaway.

Pricing isn't just about margin.

Pricing communicates position.

When you price a product, you're telling the market something about your company.

Are you premium? Are you value-driven? Are you innovative? Are you a commodity? Are you a leader or a follower? Are you trusted or still trying to earn that trust?

The market will eventually decide whether it agrees with you.

That is why brand value, product value, competitive position, channel economics, and customer perception all have to come together before that MSRP gets approved.

No single spreadsheet can give you the perfect answer.

That's where leadership comes in.

My website: www.michaeltimmonsgg.com

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