An Optimal Customized Pricing Strategy for Truckload Transportation

Introduction

The strategies used to achieve success in today’s business world and related activities have gradually gained importance. As the most important one of them, logistics plays a significant role in business, referring to the ability to mobilize the whole organization and all of its resources in the most compatible manner. Accordingly, pricing has become a prominent feature in many areas of logistics (Basu et al., 2015). Customized pricing is an approach in which customer response to prices is analyzed where a seller gives different prices to each customer. A customer may want to obtain information about pricing related to different features of products or services. A seller may provide different prices to each customer, which may change depending on factors such as customer characteristics and the product or service (Yan et al.,2017; Caplice et al.,2003).

Companies should determine the prices they will provide to their customers in different segments as a means of increasing the profit in each of these segments, with the goal of designing customized pricing models allowing different prices to be given to different customers (Phillips,2005).

Price bidding occurs after a seller has obtained information about the customer and understood the details of the service being demanded. In the truckload transportation sector, prices may vary depending on the calculation of prices for products in different amounts to be sent to different locations, customer types and characteristics (Caplice and Sheffi, 2006). When considered from this point of view, pricing in the truckload transportation sector emerges as a customized pricing problem. There are three actors in the model developed within the scope of this study: The customer, who wants to have a certain freight shipped (i.e. the one who wants to receive the service); we identify them as customer, the trucker,who will provide the service; and the truckload company (bidder) that establishes a pricing relationship between the first two actors. The company receives a price from the trucker, and provides a price to customer, adding a certain profit margin to the price given by the trucker. The truckload company will want to increase its total margin by way of the price it will give to the customer. Accordingly, customers’ attitudes and responses to the price must be modeled, and their flexibility in regard to the bid price must be analyzed.

Figure 1 presents a summary of all the actors in pricing analysis for this study.

Figure 1.

Actors for pricing analysis for this study

The most important aspect of optimal customized pricing is the need to calculate appropriate bid response functions, with the goal of obtaining a price that will maximize the contribution margin to be obtained using bid response functions (David et al.,2017). The probability of the given price being accepted by a customer can be calculated by estimating bid response functions (Dutta and Natesan 2016). There are many variables affecting the acceptance of a price for truckload spot market, which can be classified as customer type, product features and customer’s purchase characteristics. Customer characteristics can have features such as customer scale level, customer buying frequency, customer loyalty, amount of money left by the customer in the system. Product and service characteristics can refer to characteristics such as type of product. Price bidding has many uncertainties. Giving the lowest price does not necessarily mean that the price will always win the bid, as there are many factors other than price that affect whether the bid will be accepted or not (Bodea and Ferguson,2017).