I have received many questions about Parcel pricing from my readers. Most of us ship items either for personal reasons or at our businesses for work reasons. What I would like to explain are some of the basic pricing practices that are used in the parcel industry. In this article I am using FedEx inContinue reading “Parcels: Package-Based vs. Shipment-Based Pricing”
Category Archives: Blog Series
Density-Based Pricing and Effective Yields
Based on my years in logistics I wish to follow up on my article about Volumetric Weight and Density. I would like to discuss Density-Based Pricing and Effective Yields. What does this mean? It involves pricing based on the dimensional size of a shipment and the corresponding yields. The dimensional size determines the volumetric weight,Continue reading “Density-Based Pricing and Effective Yields”
Exclusivity Agreements
Pricing is very important in any negotiation but Terms and Conditions can be equally important as well. For example, as mentioned in my article on Capacity Management, the amount of supply that you provide to a customer is as equally important as the price you offer. There are other Terms and Conditions such as timeContinue reading “Exclusivity Agreements”
Software Pricing
In this age every company uses computer systems in one form or another for just about every function in their business. These systems need constant upgrading over the years as new technology and software features are developed. In my years working in Pricing and Revenue Management I have been on both sides of the equationContinue reading “Software Pricing”
Anti-Trust Issues (International)
I am not a lawyer, and I do not pretend to be one on TV, but I am an international business executive that has managed businesses in many different countries. What I can explain is that anti-trust means different things in different countries so I will discuss it from a business point of view andContinue reading “Anti-Trust Issues (International)”
Natural Hedges with Pricing
Following my last article on Foreign Exchange Exposure, I want to detail how to use Natural Hedges to protect a business from currency fluctuations. As previously mentioned I do not favor using financial instruments to hedge companies against foreign exchange exposure. There is a place for those types of hedging instruments in certain circumstances inContinue reading “Natural Hedges with Pricing”
Foreign Exchange Exposure
Following up on my article about International Business Risks I want to go into more detail about Foreign Exchange Exposure. Most people are familiar with foreign exchange fluctuations but there are several different types of currency exposure, and some types are more serious than other types. Below I will cover the following topics: Translation Exposure,Continue reading “Foreign Exchange Exposure”
International Business Risks
When manufacturing overseas, purchasing from overseas, or wanting to expand your sales overseas there are several “international factors” that one needs to be aware of. These are not new and have been well documented in academia and on the internet for years now, however, for the sake of being thorough, I will go over theContinue reading “International Business Risks”
Consolidation Shipping
Continuing with the theme of Volumetric Weight and Density it is now time to talk about consolidation when it comes to shipping. Consolidation occurs when freight forwarders get various sizes and shapes of cargo and build them up into ocean containers or aircraft positions to minimize volumetric weight. Let’s look at the example below. TheContinue reading “Consolidation Shipping”
Volumetric Weight and Density
We have been talking about product pricing and customer segmentation in past articles but one thing we need to discuss is how to deliver parts and products from the origin to the end customer. The best products in the world are no good if you cannot deliver it to your customers in an effective andContinue reading “Volumetric Weight and Density”
Cannibalization and Revenue Dilution
Speaking of multi-product pricing we must address the elephant in the room. Cannibalization and Revenue Dilution are big items that need to be addressed and understood. Cannibalization: This is when a company offers a new product or service that takes revenue from their other products or services. Cannibalization is very common in certain industries suchContinue reading “Cannibalization and Revenue Dilution”
Multi-product pricing
Product pricing is a bit different than pricing for services however many of the concepts are the same. As mentioned in Segment Cost Types there are differences in the cost variables. Product pricing has more manufacturing cost types and the time horizon of the product has a longer life span when compared to a service. Continue reading “Multi-product pricing”
Maturity Mismatch (Revenue Mismatch)
Revenue Management consists of all that we have talked about in previous articles. To recap it consists of Segment Pricing, Fenced Pricing, Capacity Management, Forecasting and Balanced Revenue Mix. Now, continuing with the theme of Balanced Revenue Mix I now want to go deeper into what can happen when a Maturity Mismatch occurs. First, letContinue reading “Maturity Mismatch (Revenue Mismatch)”
Balanced Revenue Mix
Maintaining balanced revenue and profit is critical for any company. When using Segment Pricing and Fenced pricing along with Revenue Management it is important to monitor how much revenue is sold at which price and profit levels. In the chart below (from a real company) I have demonstrated what I consider to be a healthyContinue reading “Balanced Revenue Mix”
Segment Cost Types
Previously I have mentioned that customers don’t care about costs, they only care about products or services that meet their price points for what they desire. However, costs are an important part of any company’s marketing strategy. And there are many different types of costs. It is important that a company knows how to understandContinue reading “Segment Cost Types”
Forecasting
Forecasting is extremely important. It drives all aspects of a company’s business. Forecasting drives pricing decisions, strategic planning, manpower levels, assets such as trucks, ships or airplanes, etc. More accurate forecasting results in a company being more efficient. Forecasts allow companies to run revenue simulations as well as cost simulations to allow management to runContinue reading “Forecasting”
Capacity Management
Capacity Management is also known as Allocation or Allotment Management depending on which company you work for, but these terms are interchangeable. In the service sector Capacity Management is key to managing supply and demand. As illustrated in the chart below Capacity is the supply. Pricing manages demand. And Revenue Management brings both of thoseContinue reading “Capacity Management”
Revenue Management
We have talked about Segment Pricing as well as Fenced Pricing in previous articles so now we will keep building on those concepts and discuss the next concept known as Revenue Management. Revenue Management is a termed used (and often misused) in many industries for many different functions, however the accurate definition of Revenue ManagementContinue reading “Revenue Management”
Fenced Pricing
Almost all of us have experienced Fenced Pricing but probably never thought much about it. Fenced Pricing is what the name implies, to create barriers or “qualifiers” for different types of pricing. Examples include: So why do companies use Fenced Pricing? The answer is simple… to prevent diluting their core revenue. Revenue “dilution” is aContinue reading “Fenced Pricing”
Segment Pricing
What is Segment Pricing? Segment pricing involves dividing your target market into different groups (or segments) based on their willingness to pay. The willingness to pay can be based on location, time and/or customer type to name a few. Location: Different geographical locations have different cost structures. For example, costs in big cities are muchContinue reading “Segment Pricing”
Marketing and Pricing
The definition of Marketing is “to provide products or services that meet the needs or wants of customers.” Marketing involves the 4 P’s. Product, Place, Price and Promotion. You can get a university degree in each of those 4 disciplines, but briefly: Product: What to producePlace: Where to market your products or servicesPrice: How muchContinue reading “Marketing and Pricing”
The Art of Pricing
The art of pricing involves analyzing a complex set of variables. And pricing can be circular with the products or services being offered. For example, when offering a product or service one can determine the price that customers are willing to pay. However, the price that customers are willing to pay affects how the productsContinue reading “The Art of Pricing”
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