Aftermarket (merchandise)

In many economic literature, the term "aftermarket" refers to a secondary market for the goods and services that are 1) complementary or 2) related to its primary market goods (original equipment).

Thus, in many industries, the primary market consists of durable goods, whereas the aftermarket consists of consumable or non-durable products or services.

Accordingly, the "aftermarket goods" mainly include products and services for replacement parts, upgrade, maintenance and enhancement of the use of its original equipment.

There are two essentials of the aftermarket: installed base and lock-in effect.

A certain level of installed base of original equipment customers is necessary for the sufficient demand of aftermarket products.

Therefore, significant installed base normally makes aftermarket profitable as an established installed base is likely to consume the aftermarket products repeatedly over the lifespan of their durable goods.

Lock-in effect or installed-base opportunism refers to the situation where the customers can only consume the aftermarket goods produced by original equipment manufacturer.

The reason could be:

These two essentials, installed base and lock-in effect, make aftermarket less volatile relative to primary market and therefore more likely to be profitable.

The most well-known aftermarket strategy model is "Gillette’s razor and blades business model" also known as "freebie marketing" whereby a product is largely discounted or even free as a loss leader in order to increase the sales of its complementary goods.

Often the durable goods are offered at a low price (or even below marginal cost) in order to attract new customers amid competitive primary markets and the loss from the primary market will be rebated by the profits from consumables in aftermarket.

In this case, an established installed base is essential to ensure sustainable business practice.

Tying or bundling of aftermarket products with original equipment also could be the strategies for aftermarket.

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Wikipedia