More accurate pricing models. More frequently updated.
Price Setting is the process you use to define the monetary value of your products and services. This process directly impacts your market share and profitability.
Are you using traditional pricing approaches such as “matching market price” or “cost plus mark-up”? None of these approaches are optimal and often result in profit leakage and high price disparities.
When setting the price of your services you must first clarify your strategy in the context of the market (profitability/growth/retention for each product category and customer segment) and then consider two other key factors:
- What is the cost of the service?
- How much are your target customers willing to pay (WTP) for these services?
WTP depends on competitive offers available in the market and how your offer compares with them, not only on price but also on value (transit time, convenience, reliability, etc).
Learn how a more accurate estimation of pricing factors can boost your profitability…
Effective Cost Modeling for Pricing
Many carriers do not use the right cost model for pricing, leading to unprofitable transactions (when costs are underestimated) or low conversion (when costs are overestimated). A unit cost per parcel for each product is not suitable, because the cost actually depends on multiple factors such as weight, size, distance, pickup density, delivery density, vehicle types, etc. Additionally, an effective cost model for pricing must segregate variable and fixed costs and, for these last ones, take into account capacity utilization with unit costs calculated at full capacity. Finally, a system of incentives and surcharges can be used to smooth shipping profiles and contribute to a higher network efficiency.
Learn how a more accurate cost model can boost your profitability…
Price Segmentation by Willingness-to-Pay
The Willingness to Pay (WTP) is the maximum price a customer accepts to pay for a given product or service. It varies from customer to customer depending on different criteria including customer characteristics, type of goods and competitive context.
Salespeople instinctively assess a customer’s WTP when building an offer and most price policies include discounts based on volume or revenue. However many WTP factors are ignored and, as a result, money is left on the table. By predicting WTP thanks to Machine Learning (applied to transaction price and win-loss analysis) and combining the results with market research and competitive intelligence, carriers can predict customers willingness-to-pay more accurately and significantly improve the effectiveness of their pricing decisions.
Learn how prediction of customers’ WTP can boost your profitability…
Price Segmentation by Willingness-to-Pay
The Willingness to Pay (WTP) is the maximum price a customer accepts to pay for a given product or service. It varies from customer to customer depending on different criteria including customer characteristics, type of goods and competitive context.
Salespeople instinctively assess a customer’s WTP when building an offer and most price policies include discounts based on volume or revenue. However many WTP factors are ignored and, as a result, money is left on the table. By predicting WTP thanks to Machine Learning (applied to transaction price and win-loss analysis) and combining the results with market research and competitive intelligence, carriers can predict customers willingness-to-pay more accurately and significantly improve the effectiveness of their pricing decisions.
Learn how prediction of customers’ WTP can boost your profitability…
Price Policies for logistics services
A price policy is the set of rules that define the prices for products, value-added services and surcharges. It provides guidance to sales reps for each negotiation consisting of a start price, a target price and a minimum price and corresponding threshold under which approvals are required. In the case of logistics services, a price policy consists of three elements:
- List Prices (LP) defined in the form of rate cards in general valid from one origin and varying by destination zones and weight bands (or other dimensions of the shipments such as number of pallets, cubic meters, loading meters, etc.)
- Discount Rules that sales can apply to offers, based on committed volume or revenue.
- Incentive Agreements (often referred to as conditional discounts or rebates) that sales can offer to increase a customer share of wallet and contribution margin.
Dynamic Pricing (based on capacity utilization)
Moreover, they use different granularity. Price may be fixed by product or differentiated by customer segment, type of deal and time period (“Dynamic Pricing”)
Dynamic pricing refers to the practice of adjusting freight rates based on various factors such as demand, supply, market conditions, and other relevant variables.
The price differential can be achieved either through surcharges and discounts, or directly by adjusting the base rate. In the latter, the adjustment can be performed in real-time or according to a predefined schedule.
Planned differential pricing
Carriers can implement differential pricing strategies by day, origin and destination to optimize network capacity utilization in the form of:
- a monthly calendar of surcharges and incentives,
- the management of daily capacity limits by contract
We have observed that the shipping profile of most customers significantly varies by day of week and season : some clients have profiles that contribute to increasing the peaks of the network whereas other customers contribute to smooth the peaks and fill the valleys.
By identifying customers who contribute to peaks (based on their historical shipping profiles and network capacity usage for the different operational processes), carriers can implement a selective price premium, for those customers.
Another possibility would be to calculate on a monthly basis a premium or an incentive based on capacity usage, that could be used to differentiate customer rates by traffic lane, based on months of the year or even days of the week.
Find the right price point in real-time
Find, for each transaction, the price point that maximizes the expected contribution to profit taking into account willingness to pay and the incremental and opportunity costs generated by the sale. Learn more
Trying to make prices more dynamic generally allows companies to optimize their pricing to respond to fluctuations in the market and maximize revenue.
Dynamic Pricing (based on capacity utilization)
Moreover, they use different granularity. Price may be fixed by product or differentiated by customer segment, type of deal and time period (“Dynamic Pricing”)
Dynamic pricing refers to the practice of adjusting freight rates based on various factors such as demand, supply, market conditions, and other relevant variables.
The price differential can be achieved either through surcharges and discounts, or directly by adjusting the base rate. In the latter, the adjustment can be performed in real-time or according to a predefined schedule.
Planned differential pricing
Carriers can implement differential pricing strategies by day, origin and destination to optimize network capacity utilization in the form of:
- a monthly calendar of surcharges and incentives,
- the management of daily capacity limits by contract
We have observed that the shipping profile of most customers significantly varies by day of week and season : some clients have profiles that contribute to increasing the peaks of the network whereas other customers contribute to smooth the peaks and fill the valleys.
By identifying customers who contribute to peaks (based on their historical shipping profiles and network capacity usage for the different operational processes), carriers can implement a selective price premium, for those customers.
Another possibility would be to calculate on a monthly basis a premium or an incentive based on capacity usage, that could be used to differentiate customer rates by traffic lane, based on months of the year or even days of the week.
Find the right price point in real-time
Find, for each transaction, the price point that maximizes the expected contribution to profit taking into account willingness to pay and the incremental and opportunity costs generated by the sale. Learn more
Trying to make prices more dynamic generally allows companies to optimize their pricing to respond to fluctuations in the market and maximize revenue.
