Chapter 4: Costing and Pricing for Transportation
Rail vs. Motor Carriers
- rail is more of a monopoly due to start-up costs, hard to enter market - motor carriers are more of a pure competition/monopolistic, low entry barriers (so many companies/players... 400,000 across US)
Character-of-Shipment Rates
LTL/TL rates, multiple car rates, incentive rates, unit-train rates, per-truckload rates, density rates
Social Responsibility Pricing
Walmart hurricane relief, 9/11 assistance
Exception Rates
a modification to the national classification instituted by an individual carrier (ex. to rating, min weight, density group)
Profit Maximization - Skimming Price
ex. iPhone 4, carrier costs for high-value goods
Survival-Based Pricing
ex. last minute airplane ticket deal
Unit-Volume Pricing
ex. tighter packaging encourages / capacity utilization
Differential Pricing
infusion of marketing into post-regulation era of transportation
Sales-Based Pricing
later stages of product / service life cycle once popular passenger movements
Area, Location, or Route Rates
local rates, joint rates, proportional rates, differential rates, per-mile rates
Time/Service Rate Structures
moving passengers or freight by local train versus national (direct vs. connecting flights)
Rule of Thumb for Making Price Adjustments
must be the result of a reduction in carrier costs because of an action by the customer, may not exceed cost savings to the carrier
Most common mistakes in carrier pricing
over reliance on cost-based pricing, failure to react to market changes, price set independently of marketing mix, "one price for all" mentality, price managed independently of overall strategic plan
Net-Rate
pricing presented as one number to shipper
Class Rates: commodity classification factors
product density, stowability and handling, liability
Mark-Up
profit / cost
Margin
profit / price (profit maximization)
Commodity Rates
special rate published on a specific commodity or group of related commodities between specific points and generally via specific routs in specific directions
Market Share Pricing
to increase market share and enjoy economies of scale
Prices (after deregulation)
under freedom from economic regulation, the use of rates set in confidential contracts between carriers and shippers has become prominent
Value-of-Service
value as perceived by the shipper, margin, often used for high-value periods
Deferred Delivery
airline charges more if you need overnight, FedEx willing to charge less if you are willing to "defer" shipment until next scheduled FedEx plane
Rates (before deregulation)
all interstate rail freight traffic and much motor freight traffic was moved on published (tariff) rates
Cost-of-Service
buildup approach, markup, popular during regulated transportation period
Special Rates
character-of-shipment, area, location or route, time/service, contract, deferred delivery rate structures
Rate Structure Systems
class rates, exception rates, commodity rates, special rates
All four types of markets an be found in transportation industries:
commodity & products, geographic point, route, intermodal competition
Contract Rates
contract services are governed by contracts negotiated between the shipper and carrier, not by generally published tariffs; based on volume, relationship with customer/supplier
Combination Pricing
cost of service - pricing floor value of service - pricing ceiling
Carrier Pricing Strategies (4)
cost-of-service, value-of-service, combination, net-rate
Factors affecting carrier pricing decisions (4)
customers (market), government, channel members, competition