There’s an old adage usually attributed to Yogi Berra that says, “Nobody goes there anymore. It’s too crowded.”
It’s a saying that might apply to the U.S. automotive aftermarket these days. While the U.S. aftermarket is the largest national aftermarket in the world by far, it is also one of the most complex and competitive markets too. And if you don’t enter it correctly, market yourself correctly, and build relationship and distribution channels correctly, “You’re going to be toast.”
That’s the warning from Henry Allessio, the managing director of Walden Consultants, Ltd., who spoke Thursday, Nov. 6 at the Sands Expo Center as part of his presentation, “Selling to the U.S. Aftermarket: Getting It Right.” Frankly, it’s a message he’s been giving out for years, but then again, for years he’s watched international parts suppliers and other companies make the same mistakes, ultimately dooming them to failure.
Not that Allessio is trying to deter investment in the U.S. market. He just wants those prospective investors to be realistic.
“When you get the numbers from the associations, you’ll hear that the whole aftermarket is about $300 billion,” Allessio says. “That’s an amazing number. But it’s also retail dollars. For a manufacturer, selling at wholesale dollars, it’s more like $50 billion. That’s still a lot of money. But 1/3 of that market is controlled by the OEMs. So let’s eliminate that from discussion.”
The point, Allessio says, is that there’s many ways to slice and dice the numbers. What you have to do is narrow the market and find a strategy that works for you.
In doing so, Allessio cautions against the twin land mines of niche marketing and velocity pricing.
Niche marketing means that you may find an inroad to the American market by producing a part that is missing or underserved by the American parts manufacturers. It looks like easy money. It isn’t.
“There are indeed effective market entry strategies for non-American parts manufacturers, but in order to unlock the market’s real potential foreign suppliers must look beyond the first, and probably the easiest, sale,” Allessio says.
American manufacturers are most likely already producing the high-volume/fast-moving items they need. What they are wiling to outsource to you are the slow-moving, “piddling nickel-and-dime volume” parts.
Instead, foreign suppliers must consider a wide product range, with a willingness to accept some lower margin sales offsetting the higher ones, rather than letting American buyers “cherry pick” a disproportionate number of lower profit reference numbers.
“Start developing your reputation and think long-term,” Allessio says. “Down the line other suppliers may start to weaken or opportunities in other categories may open up. That’s how inroads are made.”
As far as pricing, Allessio says not to worry.
“Pricing in the American aftermarket is the easiest thing you’ll come up against as you try to enter the market,” he says. “You know why? When you are sitting in front of a purchasing agent, that guy will smile, look you in the eye and tell you how much you’ll be charging for that part.”
Keep in mind that a foreign supplier’s fast moving item at home may not be a fast-mover in the American market. By basing their velocity pricing strategy on their home experience, the foreign supplier will often lose out on a potentially more profitable deal.
So unless you can make your parts cost effective in the American market, based on the pricing demanded by the buyer, you could be fighting an uphill battle.
Where foreign manufacturers can excel is through customer service.
“Appropriately tailored services can open up customer prospects downstream in the distribution chain, among customers conditioned to smaller discounts,” Allessio said. “This approach can also reduce supplier substitution by providing a measure of shelter which mere pricing cannot.”