Global Logistics Pricing Study 2017: Companies have too little focus and not enough guidance when it comes to pricing
Low price increase transparency and a common disregard for willingness to pay in pricing are just two results that outline why logistics companies struggle with their margins compared to other industries. Simon-Kucher’s Global Logistics Pricing study not only outlines these flaws, but also indicates regional and segment-specific differences (e.g. ocean freight vs. trucking) within the logistics industry.
The numbers are alarming: Only one out of four respondents confirmed that their logistics company managed to increase prices higher than their costs last year. A majority of respondents don’t have any price increase information at all. This is a key finding of the Global Logistics Pricing Study 2017*, conducted for the first time by the global strategy and marketing consultancy Simon‑Kucher & Partners. A total of 270 respondents in leading positions in logistics companies from more than 20 countries participated in this study. The study covered all logistics segments from trucking, rail and parcel, supply chain and ports/airports, to ocean- and air freight.
Pricing strategy not focused on profit
The Global Logistics Pricing Study 2017 shows that in over 60 percent of cases, profit is not the key focus of a company’s pricing strategy. Yet a stronger focus on a profit-oriented pricing strategy can help logistics companies to significantly increase their margins.
Although respondents state that customer satisfaction is the second most important pricing strategy objective, logistics companies still have large room for improvement with regards to tracking the Net Promoter Score (NPS)**. Only 19 percent of all respondents are aware that their company regularly measures the NPS and derives strategic implications from it. The majority of respondents are not sure about the frequency of NPS tracking at all.
Amongst all logistics segments, parcel/express has the highest focus on profit (approximately 50 percent) and the best knowledge and application of NPS. “Systematically tracking and understanding the NPS is important for logistics companies to grow, both from a revenue and profit perspective”, explains Dr. Philipp Biermann, Partner at Simon-Kucher & Partners.
Price setting process not tool-supported and mainly focused on costs
On average, more than half of all respondents state they have no tools or guidelines to support them in their price setting process. The pricing decision therefore remains either completely static or based on gut-feeling only. North American logistics companies are slightly better in this aspect, using more tools and guidelines to support their price setting than their colleagues in Europe or Asia. From a segment perspective, ocean- and air freight are least advanced when it comes to pricing guidance.
In almost 50 percent of all pricing decisions, costs are the primary driver. Only 30 percent of the respondents’ pricing decisions consider willingness to pay criteria (hard/soft customer characteristics and deal characteristics) as key price drivers. “In logistics companies, pricing still mainly focuses on costs”, says Sven Wengler, Director at Simon-Kucher & Partners. “While costs of course can’t be neglected, logistics companies should also consider willingness to pay in this process, like other industries do. Logistics companies that successfully include customer- and deal specifics (and thereby willingness to pay) in their price setting have managed to significantly increase their profit margins”.
Respondents unsure about price increase information and unable to achieve a higher price than cost increase
Logistics companies have always struggled with price increases. That’s no major news. However, the fact that more than half of all respondents are not even aware of last year’s individual price increases for big customers is quite alarming. In terms of price increase transparency for small customers, the picture is even worse: Only one out of four respondents knows last years’ price increases for this segment, with parcel/express being the exception.
Full transparency of price increase information helps logistics companies to better prepare for their (annual) price negotiations and thereby improves negotiation results. As a result of the low price transparency, approximately 75 percent of all companies were unable to achieve a higher price than cost increase, and therefore to improve their margins.
Parcel/express is clearly outperforming in pricing
Simon-Kucher & Partners aggregated the results of the entire survey into an overall score that determines a segment’s pricing power (on a scale from 0 to 100). As expected, the scores were rather low for most of the segments. While ports/airports by far received the lowest score in this survey, the parcel/express segment is clearly outperforming, slightly ahead of air freight. On a regional scale there were no significant differences with regards to the pricing score.
Dr. Biermann summarizes the results: “The leading position of parcel/express in terms of pricing power is also supported by the fact that this is one of the most profitable segments within the logistics industry. Nevertheless, all segments still have large room for pricing improvement and we hope to see some of those in the next Logistics Pricing Study.”
A summary of the study is available upon request.
*About the Global Logistics Pricing Study 2017: A total of 270 participants, of which 53 percent
are from management positions, from companies of more than 7 logistics segments and over 20 countries across the Americas, Asia-Pacific and Europe, took part in an online study conducted by Simon-Kucher & Partners in the spring of 2017. Respondents answered questions on their pricing strategy, price setting, and price implementation.
** Net Promoter Score (NPS) measures the willingness of customers to recommend a company’s products. It is used as a proxy for gauging the customer’s overall satisfaction. The NPS is calculated by Promoters (%) − Detractors (%).
Dr. Philipp Biermann is a Partner at Simon-Kucher & Partners and the Head of its Global Logistics Practice Center. He is based in the company’s Cologne office in Germany.
Sven Wengler is a Director at Simon-Kucher & Partners. He is based in the company’s Boston office in the United States.
2nd Annual Logistics Strategy Forum
June 8, 2017 | Miami, FL, USA