Merchants around the world, unite!

TL;DR Merchants have a lot to gain by challenging carrier pricing models.

Let's end 2021 by talking about the biggest cost of the delivery experience - what merchants pay carriers. ?? Legacy and tradition states that these prices are fixed and based on some type of mix of historical and predicted order volumes. The higher the volume the lower the price. If a merchant splits the volumes between more carriers, logistics logic* say that the price per parcel goes up... Plot twist: it doesn't have to be like this. ??

To get some perspective, let's compare the carrier industry with for example the hotel industry. There are a few similarities.

1. Carriers, like hotels, have invested a lot of money in fixed assets. Sorting terminals, trucks and personnel vs. real estate, “beds” and personnel.?
2. Just like carriers, hotels produce a service that can’t be consumed retroactively. An empty bed has lost its value when the morning comes, just like a half-filled delivery van has lost its ability to add to the profit when it returns to the terminal.?
3. Both industries are also looking for, let’s call it, optimal fulfilment. Too few parcels or too few guests mean that the fixed costs aren’t covered, but after certain thresholds the marginal cost for each parcel or guest is lower (hopefully, a lot), than the extra income they provide. However, bottlenecks that appear with too many parcels or guests may require quick but expensive solutions.?

OK, there are some similarities. Now let’s look at a major difference—pricing. Imagine the following scenario. A hotel manager decides on January 1st what the price should be for their hotel rooms for the rest of the year—€150 for a single room and €200 for a double room. Done deal. This price will be the same no matter how many rooms are available, no matter whether the local trade fair goes bust or a carnival comes to town. Pretty short-sighted, right??

When it comes to hotels, we’re used to let demand and supply set the price. Book three months in advance and you’ll get a different price than if you make a last minute reservation and so forth.

What if carriers could adopt the same mindset??

• Got too few orders to a certain area—lower the price in that city or zip-code;?
• The trucks are getting full—raise the price;
• Got excess capacity on Wednesday/Thursdays week after week? Try charging the merchant lower cost these days in order to fill those trucks up;??

So what’s the point of this exercise? Well, firstly, I’d like merchants to wake up and realize the absurdity of accepting fixed yearly volume-based prices just because that’s how it has always been done. The market is full of possibilities to optimize your delivery cost based on the carrier's availability. Unite and use it. Question carrier pricing models, start treating the carrier market like the deregulated playing field it is becoming—not the one carrier fits all solution it used to be.?

And secondly… Progressive carriers—there’s a huge potential in welcoming this change. Cash to be made. Contracts to be won. Let us know when you’d like to be the pre-selected delivery opinion in Ingrid’s Delivery Checkout for example. If it is volumes you're after being pre-selected is the answer, just tell the merchant how much you’d like to raise or lower your price based on your route planning and capacity. This is a sure way to gain volume and market share. Get in touch and we’ll talk more.

That's all. See you in 2022. ??

Yeah, and check out this article in Dagens Logistik (Swedish..) about why merchants should experiment with charging more for deliveries.

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* In most well functioning markets competition is a signal to lower your price to win back market share, not raising your price to piss off your clients.