Spare Part Pricing for OEMs: Insight 5 – Pricing Parts Against Replace-or-Repair Costs
Would you pay €700 to repair a computer you could replace for €1,000? Your customers are asking themselves the same question about your spare parts.
Whenever a spare part or repair is needed, there’s almost always another option: buying a new product (machine, unit, or component). Sometimes, there’s even a third alternative: repairing the broken part.
In all these cases, there’s a natural limit to how much the customer is willing to spend for a spare part. How much would you be willing to spend on a new hose for a 15-year-old industrial vacuum cleaner when a new unit costs €2,000? €100? Probably. €800? Probably not…maybe a temporary duct tape fix will do the job for now – not elegant, but practical if replacement of the complete unit is near.
💰 The Key Point:
No matter what your pricing model says, the replace-or-repair logic can overrule everything. Even if you’re the only supplier, and your part is truly a master piece, you can’t price freely. Customers always have an alternative in mind – repair, replace, or “do nothing”.
🧭 Understanding the Maximum Acceptable Cost
When setting spare part prices, you must assess the upper limit of what the customer will find reasonable. For many parts, this isn’t an issue – a €10 seal for a €1M machine won’t raise questions.
But for others, it gets complicated. Is a €1M machine worth a €200,000 repair? If it’s new – probably. If it’s near end-of-life – probably not.
🔍 Factors to Consider
There’s no universal formula, but here are key factors that influence the decision:
• Expected remaining lifetime of the equipment
• Cost of a new machine or system
• Related direct costs – dismantling, installation, calibration, etc.
• Indirect costs – downtime, training, new spare part assortment, related replacements
• Repairability – expected cost, risk, and performance after repair
• Acceptable performance loss versus repair cost
• Possibility to postpone or ignore the repair for now
🚫 The 50% Rule – Forget It
You may find simple “rules of thumb” online, like the 50% rule (“if repair cost >50%, buy new”). Forget it quickly. Industrial B2B environments are far more complex.
A worn-out, rarely used machine near end-of-life may not justify even a 5% repair cost. Meanwhile, a critical cooling pump in a power plant may be worth repairing at 50 times the cost of a new one – if replacement lead time would cause massive production losses.
💡 Conclusion
OEMs should develop a solid understanding of how customers evaluate repair vs. replacement. For most parts, a manual judgment will do – far better than relying on the 50% rule. Spare parts that offer some sort of upgrade or modernization, or require a lot of installation work and downtime, demand even closer evaluation.
Talk to your customers and listen closely to sales feedback. Once you understand the critical price level, you can decide how close to it you want to go.
💬 Share your thoughts on Linkedin!
How do you currently segment your spare parts for pricing? What challenges have you faced with differentiated approaches? Let’s discuss at https://www.linkedin.com/in/berntgunnarson/
You’re of course also welcome to contact us at bernt@naviro.se or call +46-70 6888288.
