Download Chapter 9 - Costing and Pricing in Transportation

Chapter 9
Costing and Pricing in
Transportation
• The motor carrier industry is totally free to
operate wherever it wants geographically
and charge any rates it desires.
• Note that a difference exists between the
terms rate and price.
Rate
• A rate is an amount that can be found in a rate
tariff book, as payment to a carrier for performing
a given transport service.
• It is a lawful charge that a carrier can impose on a
given commodity movement; therefore, a rate has
the full force of the law behind it for its timely
payment.
• A rate is determined primarily by considering a
carrier’s costs only and not by assessing the
overall market situation at that moment in time
and how these market forces influence supply and
demand.
Price
• A price, however, is a much clearer notion of how
postderegulation transportation firms determine
and impose charges for their services.
• A price implies a value or level that is determined
based on prevailing market forces.
• Clearly, the notion of price implies a dynamic
economic environment, one that is receptive to
changes in customer demand and carrier supply.
MARKET CONSIDERATIONS
Their exists four market structure models: pure competition,
perfect monopoly, oligolopy and monopolistic competition
Market Structure Models
The necessary conditions for pure competition (1) are
generally stated as follows:
• There are a large number of sellers.
• All sellers and buyers are of such a small size that no one
can influence prices or supply.
• There is a homogeneous (the same type of) product or
service.
• There is unrestricted entry.
Market Structure Models cont’
• If pure competition is one type of market
structure, the other extreme is a perfect monopoly
(2) market with only one seller of a product or
service for which there is no close competitor or
substitute.
• In such a situation, the single seller is able to set
the price for the service offered and should adjust
the price to its advantage
• To remain in this situation, the single seller must
be able to restrict entry.
Market Structure Models cont’
• A third type of market structure is oligopoly (3).
• Oligopoly can be defined as competition between
a “few” large sellers of a relatively homogeneous
product that has enough cross-elasticity of demand
(substitutability) so that each seller must, in
pricing decisions, take into account competitors’
reactions .
• The individual seller is aware that in
changing price, output, sales promotion
activities, or the quality of the product, the
reactions of competitors must be taken into
account.
• All modes encounter some form of
oligopolistic competition.
Market Structure Models cont’
• The fourth type of market structure is
monopolistic competition (4).
• Many small sellers, but there is some
differentiation of products.
• The number of sellers is great enough and the
largest seller small enough that no one controls a
significant portion of the market.
• No recognized interdependence of the related
sellers’ prices or price policies is usually present.
• Any seller can lower price to increase sales
volume without necessarily eliciting a retaliatory
reaction from competitors.
Relevant Market Areas
• A general statement classifying the market
structure of the entire transportation
industry cannot be made because it is
necessary to view structures in particular
market areas.
Relevant Market Areas cont’
• To determine pricing in transportation, we
must describe the situation between two points,
for one commodity, in one shipment size,
moving in one direction.
• Commodity rates are competitive on
commodities between specific points.
• In setting prices, a carrier must have
knowledge of the relevant market area as to
decide which one of the economic models to use
COST-OF-SERVICE PRICING
There are two separate concepts in cost-ofservice pricing:
• basing prices upon average cost or
• basing prices upon marginal cost.
COST-OF-SERVICE PRICING cont’
• If the firm desires to maximize its profits (see
Figure 9.1], it will produce quantity Qm and
charge price Pm.
• The firm would be making excess profits in the
economic sense because the price is above average
cost and the firm is not producing at a point for
optimal allocation of resources.
• This is a monopoly situation.
COST-OF-SERVICE PRICING cont’
COST-OF-SERVICE PRICING cont’
• Might decide to impose regulation upon this firm.
• Now, if the “regulators” want to set a single price
that would cover the firm’s cost of production and
at the same time sell all the output, then the price
should be Pr and the output Qr.
• In this instance, we would be basing the price on
average cost. There would not be any excess
profit in the economic sense, and consumers
would be receiving more output at a lower price.
• This is the regulated situation.
COST-OF-SERVICE PRICING cont’
• ?If price is set at marginal cost equal to marginal
revenue, we have a higher price (Pc) and less
output (Qc) than the average-cost approach yields.
• The advocates of an absolute marginal-cost
approach argue that the output between Qc and Qr
is such that the marginal cost of producing these
additional units of output is greater than what
buyers are willing to pay for the extra units
supplied because the marginal-cost curve is above
the demand curve over this range of output.”
• This is the competitive situation.
COST-OF-SERVICE PRICING cont’
• Does cost-of-service pricing has any relevance
for establishing prices?
• Prices charged by transportation companies is
a criteria that guide shippers in selecting the
mode of transportation.
• When deciding on a carrier, the shipper will
balance the carrier’s price against the carrier’s
service characteristics such as transit time,
reliability, and loss and damage record.
COST-OF-SERVICE PRICING cont’
• For the transportation decision to be
properly made, the price charged should
reflect the cost of providing the service to
ensure carrier and economic system
efficiency
VALUE-OF-SERVICE PRICING
• Value-of-service pricing is sometimes defined as
charging what the traffic will bear.
• In actuality, this phrase can assume two meanings.
• First, it can be used to mean that prices are set so
that on each unit the maximum revenue is
obtained regardless of the particular costs
involved.
• That is, no service should be charged a lower price
when it could bear a higher price.
VALUE-OF-SERVICE PRICING cont’
• The second meaning, which can be more
conveniently expressed in a negative form and
which is relevant to our discussion, is that:
• No service should be charged a price that it will
not bear when, at a lower price, the service could
be purchased.
• This lower price will always cover the marginal
cost incurred by the company in providing the
service.
VALUE-OF-SERVICE PRICING cont’
• One rather common definition of value-ofservice pricing in transportation is pricing
according to the value of the product; for
example, high-valued products are assessed
high prices for their movement, and lowvalued commodities are assessed low
prices.
VALUE-OF-SERVICE PRICING cont’
Several points are in order here:
• First, even if a cost-based approach is taken
to setting prices, high-valued commodities
would usually be charged higher prices
because they are typically more expensive
to transport.
VALUE-OF-SERVICE PRICING cont’
• There is generally more risk involved in moving
high-valued commodities, and more expensive
equipment is necessary.
• Second, the value of the commodity is a legitimate
indicator of elasticity of demand; for example,
high-valued commodities can usually bear higher
prices because transportation cost is such a small
percentage of the final selling price.
• Figure 9.4
• [Demand Elasticity refers to the sensitivity of
customers to the changes in the price]
VALUE-OF-SERVICE PRICING cont’
• From Fig9.4
• The demand curves of two different types of
commodities for transportation services are
shown.
• The high-value item has a steeply sloping
demand curve implying price inelasticity.
• On the other hand, the low-value item has a
gradual slope, implying price elasticity
VALUE-OF-SERVICE PRICING cont’
• In essence, the value of the commodity
gives some indication of demand or the
ability to bear a charge, but competition also
will affect the demand for the service, that
is, the height and slope of the demand
curve.
VALUE-OF-SERVICE PRICING cont’
• Value-of-service pricing also has been
defined as third-degree price
discrimination or a situation in which a
seller sets two or more different market
prices for two or more separate groups of
buyers of essentially the same commodity
or service.
VALUE-OF-SERVICE PRICING cont’
• 3 conditions must exist before a seller can
practice third-degree price discrimination.
 First, the seller must be able to separate
buyers into groups or submarkets according
to their different elasticities of demand; this
separation enables the seller to charge
different prices in the various markets.
VALUE-OF-SERVICE PRICING cont’
• The second condition is that the seller must
be able to prevent the transfer of sales
between the submarkets. That is, the buyer
must not buy in the lower-priced market and
sell in the higher-priced markets.
• Third, the seller must possess some degree
of monopoly power.
VALUE-OF-SERVICE PRICING cont’
• Another name given to value-of-service
pricing is differential pricing.
• Differential pricing can be done based on
several methods of segregating the buyers
into distinct groups.
VALUE-OF-SERVICE PRICING cont’
• It can be done by commodity (such as
coal versus computers), by time (seasonal
discounts/premium rates), by place (as
Figure 9.5 demonstrates), or by
individual person.
VALUE-OF-SERVICE PRICING cont’
• The key here is essentially determining
what the shipper is willing to pay for the
service, given the competition in the market
from other carriers, the demand for the
product itself, and any other factors
affecting demand.
VALUE-OF-SERVICE PRICING cont’
• Example: Assume that a particular railroad is
establishing prices on three different commodities.
• One of the commodities is large computer
systems, which has a very high value and for
which there is limited substitutability.
• The second commodity is color television sets,
which are of medium value and have some
substitutes.
• The third commodity is coal, which is low in value
and has substitutes.
Example cont’
• Assume further that the value of a particular
computer system is $200,000 and that it
weighs 1 ton. If the rate charged for
movement was $1,000 per ton, it would still
only be 0.5% (0.005) of the value of the
product.
Example cont’
• The colour television might have a value of
$10,000 per ton.
• Therefore, a rate of $1,000 between the same
points would represent 10% of the value.
• Finally, the coal might be worth $50 per ton.
• A rate of $1,000 would represent 2,000% of its
value.
• Therefore, charging a common price would
discourage some shippers, particularly of lowvalue products.
VALUE-OF-SERVICE PRICING cont’
• The essential ingredient in the value-ofservice analysis is the notion that each
commodity movement has its own unique
demand characteristics.
• If the railroad placed the same price on all
commodities shipped, it would discourage
some shippers from moving their goods at
that price.
VALUE-OF-SERVICE PRICING cont’
• Consider what would happen if the meat
counter at the local supermarket priced all
the various cuts and types of meats at the
same level.
• Obviously, it would sell the T-bone steaks
quickly and have only chopped steak left.
• end
RATE MAKING IN PRACTICE
• 3 rate structures exists in USA:
• The class rate (1) system provides a rate for any
commodity between any two points. It is
constructed from uniform distance and product
systems.
• Exception rates (2) are designed so that carriers
in particular regions can depart from the product
scale system for any one of many possible
reasons, which will be discussed later.
RATE MAKING IN PRACTICE cont’
 Commodity rates (3), on the other hand,
are employed for specific origin—
destination shipping patterns of specific
commodities.
RATE MAKING IN PRACTICE cont’
• It would be simple if all transportation services
were sold on the basis of ton-kilometre;
• that is, we would have to pay x dollars to move 1
ton, 1 kilometre.
• transportation services are not sold in tonkilometre; they are sold for moving a specific
commodity in a specific shipment size between
two specific points.
RATE MAKING IN PRACTICE cont’
• In addition, it is necessary to consider the
thousands and thousands of different commodities
and products that might be shipped over any of
these routes.
• There are also the different modes to consider and
different companies within each mode.
• It also might be necessary to consider the specific
supply—demand situation for each commodity
over each route.
CLASS RATES
• Because it is obviously impossible to quote
trillions and trillions of rates, the
transportation industry has taken three
major steps toward simplification.
• Figure 9.8 summarizes this class rate
simplification.
CLASSIFICATION FACTORS
• The factors that are used to determine the
rating of a specific commodity are the
product characteristics that impact the
carrier’s costs.
• The four factors that are to be considered
is: product density, storability, handling,
and liability.
CLASSIFICATION FACTORS cont’
• Product density (kg/m^3) directly impacts
the use of the carrier’s vehicle and the cost
per hundredweight (cwt) (100lb = 45.45kg).
• The higher the product density, the greater
the amount of weight that can be hauled and
the lower the cost per hundredweight and
vice versa
CLASSIFICATION FACTORS cont’
• Stowability and handling reflect the cost
the carrier will incur in securing and
handling the product in the vehicle.
• Product characteristics such as excessive
weight, length, and height result in higher
stowage costs for the carrier and a
corresponding higher classification rating
CLASSIFICATION FACTORS cont’
• The final classification factor, liability,
considers the value of the product.
• When a product is damaged in transit, the
common carrier is liable for the value of the
product.
• Because higher-valued products pose a
greater liability risk (potential cost), highervalued products are classified higher than
lower-valued products.
SPECIAL RATES
• Special rates have evolved from special cost
factors or to induce certain shipment
patterns.
Character-of-Shipment Rates
• One set of special rates relates to the size or
character of the shipment.
• Carriers generally have certain fixed costs for each
shipment.
• Many rate forms have been developed that take
advantage of the fact that additional units or
weight in each shipment do not incur additional
amounts of these fixed costs.
SPECIAL RATES cont’
LTL/TL RATES
• Less-than-truckload (LTL) shipments
require several handlings.
• Each one of these handlings requires dock
personnel, materials-handling equipment,
terminal investment, and additional
communications and tracking effort
SPECIAL RATES cont’
• A truckload (TL) shipment, on the other hand, is
generally loaded by the shipper and moved intact
to the destination, where the consignee unloads it.
• No intermediate handlings are required, nor does it
have to be loaded or unloaded by carrier
personnel.
• As a result of these factors, larger TL shipments
have lower rates than LTL shipments.
SPECIAL RATES cont’
MULTIPLE-CAR RATES
• Railroads offer volume discounts for moves
of more than one carload that are shipped as
a single string of cars from one point to
another. The cost of moving several cars in
a single shipment is proportionally less than
the cost of each car moved singly.
SPECIAL RATES cont’
MULTIPLE-CAR RATES cont’
• For example, the multiple-car movement of 10
cars can be handled by the same effort (empty car
drop-off, pickup, intermediate and delivery efforts,
and documentation) as a single-car shipment.
• The only basic difference is the additional weight
moved in the larger string of cars.
• Because of this economy of movement, railroads
offer such rates in coal, grain, fertilizer, chemical,
and many other basic commodity moves.
SPECIAL RATES cont’
INCENTIVE RATES
• The term incentive rates generally applies to
a rate designed to induce the shipper to load
existing movements and equipment more
fully.
• These special rates usually apply only to
weight or units loaded over and above the
normally shipped quantities.
SPECIAL RATES cont’
INCENTIVE RATES cont’
• For example, sappliance manufacturer typically
ships in carload quantities that only fill a car to 80
percent of its actual capacity.
• That is, the carload rate minimum is 40,000
pounds and the car is typically loaded to 48,000
pounds, but 60,000 pounds of appliances can be
physically loaded into it.
• The carrier would prefer to have this car more
fully loaded. In an incentive rate situation, the
carrier would offer a rate lower than the carload
rate that would only apply to the weight above the
48,000-pound norm in this example.
• It is more economical for the carrier to
handle more weight in existing moves than
to handle additional moves.
• By inducing the shipper to load each car
more fully, fewer cars and moves would be
required over the course of a year, and the
same actual volume would be shipped.
SPECIAL RATES cont’
UNIT-TRAIN RATES
• Unit trains are integrated movements between an
origin and destination.
• These trains usually avoid terminals and do not
require intermediate switching or handling of
individual cars.
• The railroad experiences economies through high
car utilization and reduced costs of movement
because the rates are low in comparison to
individual moves.
SPECIAL RATES cont’
PER-CAR AND PER-TRUCKLOAD
RATES
• Per-car or per-truckload rates are singlecharge rates for specific origin-destination
moves regardless of shipment commodity or
weight.
• These rates also apply to container
movements.
SPECIAL RATES cont’
ANY-QUANTITY RATES
• Any-quantity (AQ) rates provide no discount or
rate break for larger movements.
• That is, there exists an LTL rate but no TL rate for
large shipments.
• The AQ rates apply to any weight in a shipment.
• They are usually found with large, bulky
commodities such as boats, suitcases, and cages
where no economies are realized by the carrier for
larger shipments.
SPECIAL RATES cont’
DENSITY RATES
• Some rates are published according to
density and shipment weight, rather than by
commodity or weight alone.
SPECIAL RATES cont’
Area, Location, or Route Rates
• A number of rates relate to area, location, or
route.
• These special rates deserve consideration
and discussion.
Area, Location, or Route Rates
LOCAL RATES
• Local rates apply to any rate between two
points served by the same carrier. These
rates include full-cost factors for pickup,
documentation, rating, billing, and delivery.
Area, Location, or Route Rates cont’
JOINT RATES
• Joint rates are single rates published from a
point on one carrier’s route to another
carrier’s destination.
• They are usually lower in total charges than
the combination of the local rates because
of through-movement economy.
Area, Location, or Route Rates cont’
• PER-KILOMETRE RATES
• Some rail, motor, and air carriers provide
rates that are based purely upon the
kilometres involved.
BLANKET OR GROUP RATES
• These rates apply to or from whole regions,
rather than points.
Area, Location, or Route Rates cont’
• TERMINAL-TO-TERMINAL RATES
• Terminal-to-terminal rates, often referred to
as ramp-to-ramp rates, apply between
terminal points on the carrier’s lines.
• These rates require the shipper and
consignee to perform the traditional pickup
and delivery functions.
SPECIAL RATES cont’
Time/Service Rate Structures
• One such contract provides for a standard
rate for a transit time service norm.
• The shipper pays a higher rate for faster
service and a lower rate for slower service.
Time/Service Rate Structures cont’
CONTRACT RATES
• services are governed by contracts
negotiated between the shipper and carrier
• One basic contract service feature calls for a
reduced rate in exchange for a guarantee of
a certain minimum tonnage to be shipped
over a specified period.
Time/Service Rate Structures cont’
• Many different rate and service configurations are
found in motor carriage.
• These contract rates call for such services as
scheduled service, special equipment movements,
storage service in addition to movement, services
beyond the vehicle (such as retail store shelf
stocking by the driver), small package pickup and
movement, bulk commodity movement, or hauling
a shipper-owned trailer.
Time/Service Rate Structures cont’
• The key in any contract service is to
identify the service and cost factors
important to each party and to construct
inducements and penalties for each.
Time/Service Rate Structures cont’
• DEFERRED DELIVERY
• The deferred delivery rate is common in air
transportation. In general, the carrier charges a
lower rate in return for the privilege of deferring
the arrival time of the shipment.
• For example, air express companies offer a
discount of 25 percent or more for second- or
third-day delivery, as opposed to the standard
next-day delivery. The deferred delivery rate gives
the carrier operating flexibility to achieve greater
vehicle utilization and lower costs.
Other Rate Structures
• Generally, the more volume a shipper
tenders to a particular carrier, the greater the
discount.
DISCOUNTS
• In the motor carrier industry, a discount is a
common pricing practice for LTL shipments
moving under class rates
LOAD ALLOWANCES
• A loading (unloading) allowance is a
reduced rate or discount granted to the ship
per that loads LTL shipments into the
carrier’s vehicle.
AGGREGATE TENDER RATES
• A reduced rate or discount is given to the
shipper that tenders two or more class- rated
shipments to the carrier at one time.
TWO OR THREE-WAY RATES
• The terms two-way rates and three-way
rates apply to rates that are constructed and
charged when backhaul or triangular moves
can be made.
MENU PRICING
• Carriers are beginning to provide more and more
value-added services for shippers, such as
loading/unloading, packaging, merge-in-transit,
and sorting, along with traditional transportation
services. Menu pricing allows the shipper to pick
and choose those services the carrier should
perform, and the shipper is charged accordingly.
PRICING IN TRANSPORTATION
MANAGEMENT
Factors Affecting Pricing Decisions
• Many carrier pricing decisions are based on some
reaction to a stimulus from the business
environment.
• In transportation, the environment comprises
many constituencies,four of which include
customers (market), government, other channel
members, and competition.
Factors Affecting Pricing Decisions
cont’
• Customers (market)
• A profit-maximizing-oriented carrier will not set a
price in the long run that prohibits the movement
of freight or passengers.
• The carrier’s price will be set at the level that
maximizes its return.
• This, however, is dependent on what the market
perceives to be a reasonable price and/or what the
market is forced to pay (in monopolistic
situations).
• For example, business travelers might be
willing to absorb increases in air fares in
exchange for the convenience of shortnotice reservations, whereas leisure
travelers might not.
• Customers then have a formidable impact
on carrier prices.
Government
• governmental controls affect how carriers
price their services through policies and
regulations
Channel Members
• In the case of carriers, other channel
members can include other carriers in the
same mode and in different modes.
• If one carrier decides to raise its price, the
other carrier either has to reduce its price or
risk losing business, given that the market
has a high price elasticity.
Competition
• Finally, competitors will impact carrier-pricing
strategies.
• History has shown that even in transportation
oligopolies (such as airlines and LTL motor
carriers), price leaders that offer discounts to
customers will find that competitors will match
those discounts, even at the risk of reducing
industry profits
Major Pricing Decisions
• Pricing decisions can be grouped into three
categories.
• First, a carrier faces a decision when
setting prices on a new service.
• Too high – competitors
• Too low – not enough profit
Major Pricing Decisions
• Second, a carrier must make decisions to
modify prices over time.
• Market changes, operating changes, and
service changes will require prices to be
changed.
Major Pricing Decisions
• Finally, carriers will make decisions
initiating and responding to price
changes. The concept of a “price leader”
within an industry is not new. If you are the
price leader, then you initiate the change; if
not, then you respond to the change.
Establishing the Pricing Objective
• Pricing objectives for a carrier should
reflect overall company objectives and
reflect, in many ways, how the carrier will
compete in its markets.
Establishing the Pricing Objective cont’
survival-based pricing
• survival-based pricing is aimed at
increasing cash flow through the use of low
prices.
• It uses the marginal cost concept - an empty
airline seat cannot be inventoried and is lost
at takeoff, the marginal cost of filling that
seat is small
Establishing the Pricing Objective cont’
unit volume pricing
• This attempts to utilize a carrier’s existing
capacity to the fullest, so the price is set to
encourage the market to fill that capacity.
profit maximization
• Carriers using this type of pricing usually
are concerned with measures such as return
on investment.
Establishing the Pricing Objective cont’
• A skimming price is a high price intended
to attract a market that is more concerned
with quality, uniqueness, or status and is
insensitive to price.
• For example, Concorde
• This strategy works if competition can be
kept out of a market through high
investment costs or firm loyalty.
Establishing the Pricing Objective cont’
penetration price strategy
• This can lead to a sales-based pricing objective, which can
be an effective strategy because
• (1) a high price can be charged until competition starts to
enter;
• (2) a higher price can help offset initial outlays for
advertising and development;
• (3) a high price portrays a high-quality service; (4) if price
changes need to be made, it is more favourable to reduce a
price than to raise it; and (5) after market saturation is
achieved, a lower price can appeal to a mass market with
the objective of increasing sales.
penetration price strategy cont’
• (4) if price changes need to be made, it is
more favourable to reduce a price than to
raise it; and
• (5) after market saturation is achieved, a
lower price can appeal to a mass market
with the objective of increasing sales.
market share pricing
• A market share pricing objective can be
used in an industry whose revenues are
stagnant or declining.
• This objective tries to take market share
from competitors through the use of lower
prices.
social responsibility pricing
• Finally, a social responsibility pricing objective
forgoes sales and profits and puts the welfare of
society and customers first.
• For example, after the tragic incident in New York
City on September 11, 2001, many carriers offered
to carry such items as food, clothing, building
supplies, and medical supplies into the devastated
area at greatly reduced prices or for free.
Estimating Demand
• In a perfectly competitive market, unit
demand will decrease as price increases
(supply vs demand)
• The concept of price elasticity can be used
in estimating demand. Price elasticity refers
to the change in demand because of a
change in price.
Estimating Demand cont’
• For example:
• Business versus leisure travelers in the airline
industry.
• Business travelers are relatively price inelastic
because demand for business travel by air does not
fluctuate widely with increases in price.
• However, leisure travelers are very price elastic
and might tend to delay travel or seek travel by an
alternative mode if there is an increase in air fares.
Estimating Demand cont’
• A direct attitude survey might also be used
in determining demand under a new pricing
structure. For example, asking customers
and/or potential customers.
• A market test is a possible way to
determine potential demand when market
testing is feasible.
Estimating Costs
• A decision must be made as to which costs
should be included in the total cost analysis.
• The cost of providing a service must be
calculated to determine the attractiveness of
a market for a carrier.
Price Levels and Price Adjustments
• Discounts are a reduction from a published
price that rewards a buyer for doing
something that is beneficial for the supplier.
• Quantity discount: LTL versus TL prices
reflect carrier savings from larger shipments
• Airlines use a form of seasonal discounts
to encourage vacation passengers to travel
during carrier off-peak periods.
• Cash discounts, relatively new to the
transportation industry, reward customers
who pay their bills within a stated period of
time – helps with cash flow
• geographic adjustments are used by shippers and
receivers to compensate for transportation costs in
the final price to the customer.
• One common type of geographic price is FOB
origin or FOB destination pricing.
• In FOB origin pricing, the buyer is responsible for
transportation costs; in destination pricing, the
shipper is responsible (see Figure 9.10).
Most Common Mistakes in Pricing
1. The first common mistake is to make
pricing too reliant on costs.
• Other factors like competition, customer
preferences and values, and government
regulations will affect the level at which
the price will be most beneficial to the
carrier.
Most Common Mistakes in Pricing cont’
2. The second common mistake is that
prices are not revised frequently enough
to capitalize on market changes.
Most Common Mistakes in Pricing cont’
3. Setting the price independently of the
marketing mix is a third common mistake.
• The marketing mix, also known as the “4Ps,”
consists of product, price, promotion, and place.
• Managing one of these areas independently of
the others will result in a suboptimization of the
carrier’s resources and its profits.
Most Common Mistakes in Pricing cont’
4. Finally, price is sometimes not varied
enough for different service offerings and
market segments.
• A “one price for all” mentality does not
work in the transportation industry and will
not maximize profit.
Pricing is also critical to a business’s
competitive advantage, position within its
markets, and overall profitability.
end