Pricing and revenue management in the CEP industry
Greg Urban
Business consulting in logistics, postal and parcel, supply chain professional, strategy, innovations, AI, IT, and due diligence in supply chain, Last Mile Expert
The courier express parcel (CEP) industry is highly competitive, and pricing and revenue management are critical components for companies operating in this market. CEP companies must develop pricing strategies that balance customer needs, profitability, and market competition. In this article, I will present various aspects of pricing and revenue management in the CEP industry, including contract construction, annual price increases, price list construction, surcharges, discounting strategies, contract compliance, and churn prevention.
Contract Construction:
Contract construction is essential to pricing and revenue management in the CEP industry. CEP companies must develop template contracts that are tailored to the specific needs of their customers. One practical approach is to base contracts on discounts or revenue/volume tiers instead of a fixed price per piece. This approach allows for greater contract management flexibility and helps drive customer shipping behavior.
Annual Price Increase:
CEP companies typically increase their prices annually to cover rising costs and maintain profitability. However, balancing the price increase with market competition and customer expectations is crucial. A high price increase can result in customer churn and loss of market share, while a low price increase can negatively impact revenue and profitability. It is essential to consider changes in cost structure and adjust annual price increases accordingly to remain competitive in the market.
Price List Construction:
CEP companies must develop a comprehensive and transparent price list that is easy for customers to understand. The price list should be flexible enough to accommodate different customer needs and requirements. Pricing should be based on products, weight tiers, and shipping lanes. Surcharges can be applied to fuel cost increases, residential delivery, peak season, and handling dangerous or non sortable goods. Adding surcharges to manage volume profiles helps drive demand and profitability.
Discounting Strategies:
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Discounting is a common pricing strategy CEP companies use to attract and retain customers. CEP companies must analyze customer data to identify customer segments that are more price-sensitive and tailor their discounting strategy accordingly. A well-designed discounting strategy can increase customer loyalty and reduce churn. Tier contracts can incentivize higher volume shipments, while the level of escalation of discounting decisions should be considered to drive sales force behavior. Discounting based on lanes or transport means utilization can help to manage demand and reduce costs.
Contract Compliance:
CEP companies must have a robust contract compliance process to ensure customers comply with the terms and conditions of the contract. The contract compliance process must be transparent, and the consequences of non-compliance must be communicated to customers. The real shipping profile should be validated against customer declarations to prevent revenue leakage.
Churn Prevention:
Customer churn is a significant challenge in the industry, and preventing churn is critical for revenue and profitability. CEP companies must identify and analyze churn patterns to develop churn prevention strategies. Churn tracking can help identify potential churn risks. Tradeoff discounting, such as offering a higher discount for a higher volume, can incentivize customers to increase their shipping volume and keep a profit from a contract.
Artificial Intelligence (AI) can help CEP companies manage pricing and revenue management effectively. AI-powered pricing algorithms can analyze large volumes of data to identify pricing patterns, customer behavior, and market trends. This analysis can help CEP companies develop more effective pricing strategies, such as dynamic discounts that adjust prices based on changes in market demand or customer behavior. AI can also help predict future demand, enabling CEP companies to optimize their pricing and capacity planning. Moreover, AI-powered contract compliance tools can monitor customer compliance with the terms and conditions of the contract, reducing revenue leakage and improving profitability.
To summarize, a large number of revenue management tactics can be digitalized and fully or partially automated thanks to AI algorithms and the ability to process big data volume. CEP business is a business of big numbers, and even small changes in revenue per piece or cost per piece will significantly impact overall profitability and position on the market.?
Strategy, Analytics, Revenue Growth, Business Performance
1 年Good read! Agree with all points, deploying these solitions is a nice but tough path
Product leader, Growth enabler, Commerce & Logistics Expert
1 年Greg Urban Interesting read! I think an often forgotten aspect of the shipping cost and contracting discussion is that there is a shipping revenue tap to use that very few Retailers dare to start using. It is proven that consumers are prepared to pay for their deliveries based on that their preferences are met. The alternative scenario is the current consistent race to the bottom for everyone involved.
Last Mile Expert, Independent Board Advisor & Business Angel. Specialises in CEP and e-commerce last mile with focus on PUDO/parcellockers and M&A due diligence support.
1 年Autually Greg Urban we do a complete last mile pricing wokshop with our buddy Richard Zinoecker who is a bit of a pricing guru:).
Passionate about driving Growth and Innovation in Logistics & Fulfillment
1 年Greg Urban great post. This article highlights the importance of pricing and revenue management in the competitive #cep industry. By leveraging AI and big data, CEP companies can optimize their pricing strategies and enhance their overall profitability and market position.
Super interesting read!