First, perhaps the term Independent Aftermarket (or IAM) itself needs an introduction. It is a catch-all phrase in the auto industry for the ecosystem of independent workshops, parts retailers, and parts manufacturers. A crucial statistic about parts manufacturers is that more than 50% of auto-component companies in India clock an annual turnover lower than Rs 150 Crore and an average PAT of under 5%i. With this scale, you need a different approach to growing in the IAM, where dynamics are different from doing business with OEMs.
Becoming an OE supplier has significant entry barriers. But once the first order is in, there is a high probability of repeat orders if the company meets quality, price, and timeliness benchmarks. In sharp contrast, the independent aftermarket has no entry barriers, but repeat orders require an investment in the 4As of Availability, Affordability, Awareness, and Advocacy.
The first barrier to finding growth in the aftermarket is accepting that creating a scalable route-to-market and brand building is a necessary investment. Promoters of most parts companies come from an engineering mindset and understand good-old number crunching! So, a large cheque for buying new machinery is quickly signed. But a request for a small spend on marketing triggers a game of 20-questions with the accounts department & the management! After all, output from a machine is a certainty; marketing ROI is a conjecture!
Circling back to the 4A’s, below are some observations about each.
Availability: Most companies prefer to appoint distributors to make their products available in the local market. Distributors perform five roles in their market on behalf of the manufacturer.
They build relationships on behalf of the principal with local retailers and workshops. They collect orders from retailers & workshops and deliver them to their doorstep. They pass on channel offers from principals to the market and provide credit to fuel market share growth. Sometimes they go the extra mile and open wholesale cartons to sell small packs to minimize slow-moving inventory with retailers & workshops. Any distributor who does all of the above is perfect and, therefore does not exist in real life! But rigor in the appointment of distributors by the company field sales team will go a long way in winning sustainably in a market.
Affordability: Affordability is not just about price. It is also about margins for the entire chain- distributor, retailer, and workshop. Being the cheapest and the most premium are both, generally, not successful strategies. If one will get you the stamp of low-quality, the other will knock you right out of consideration. A helpful principle while working on margins is figuring out who influences the sale of your product the most and putting the most money in their pocket! For example, with car engine oils, the customer rarely argues with the mechanic’s brand choice.
Awareness: After Availability and Affordability, it is time to build Brand Awareness. Mechanics look for credibility in product claims. Tall claims of superiority will be met with incredulity! Unless you can demonstrate it’s true, in which case they will remember you. My experience of 17 years in this space suggests attention-grabbing gimmicks rarely work! But product demonstrations and opportunities to touch & feel the product go a long way. Successful manufacturers in the aftermarket invest in these.
Advocacy: Lastly, your aftermarket business needs your product to be recommended by mechanics and retailers to each other, and to vehicle owners, for your business to grow. If Awareness is built right, your product already has the foundation to build Advocacy with retailers and mechanics. Cash couponing and loyalty programs are common advocacy tools in the auto-aftermarket. Thinking of them as measures to maintain competitive parity is most advisable. Brands that have tried to beat the competition on coupon and loyalty pay outs have eventually run out of steam. Generally speaking, a good time to invest in loyalty programs is when your annual aftermarket turnover is on track to cross Rs 50 Cr sustainably.
Of course, while the above observations are generally true, no one can guarantee that all the above suggestions will work in every case. You are the best judge of your business context. When you know the context, you will know which rules apply!
Author: Rajeev Radhakrishnan, CEO, T7E Aftermarket Connect and Editor-in-Chief, MechaniK TV, a skill-tech platform for automotive mechanics
Disclaimer: The views and opinions expressed in this article are solely those of the original author. These views and opinions do not represent those of The Indian Express Group or its employees.