5. Basing Point Pricing

As with freight equalization, the motives behind basing point pricing are competi­tive. Basing point pricing establishes some point other than the one from which the product is actually delivered as the point from which to compute price. Price is computed as if the product were delivered from the basing point. If the location chosen is the location of a major competitor, prices can be forced to be similar to the competitor's at every geographic customer location. This new location for price computation is referred to as a basing point. Firms may use single or multiple bas­ing points.

The steel and cement industries were early leaders in the use of the basing point pricing method. This is understandable because basing point pricing is attractive when (1) the product has a high transportation cost relative to its overall value; (2) there is little preference among buyers as to the supplier of the product; and (3) there are relatively few suppliers and any price cutting leads to retaliation by rival firms. From the customer's perspective, the industries are located at the same points. Because this is in fact not true, the actual cost of supplying a given customer by each firm is different. Then how can a firm charge the same prices?

Some Legal Concerns

Whenever a pricing method generates prices that are not in line with the cost of producing, selling, and distributing the product, certain legal considerations result. For the logistician, unless actual transportation costs are reflected in the product to each customer, there is a degree of price discrimination. Single, zone, freight equalization, and basing point pricing methods are inherently discrimina­tory. For example, if the same price is charged throughout a zone, those customers nearest the point from where the goods are being delivered absorb more than their share of the transportation costs, or they are paying for some "phantom" freight. Those customers in the farthest reaches of the zone are subsidized. The extent of the freight subsidizing depends on zone size.

Although some methods of geographic pricing can be discriminatory, some discrimination can benefit all customers even though the benefits may not be uni­form. The reduced costs associated with administering fewer prices may be enough to offset the phantom freight charges to the least favorably located cus­tomer.

The Federal Trade Commission has challenged some delivered pricing policies and freight absorption policies. However, such policies are not necessarily illegal as long as the seller is willing to sell on an f.o.b. basis at the purchaser's request; the seller maintains uniformity of price at all delivered points, as in the case of a single national price policy; the price after freight absorption is higher than that of a com­petitor; and the buyers and/or their customers are noncompetitive.

Exercises.

1) Answer the questions.

1. Why are most products distributed in packaging?

2. What is protective packaging?

3. Who is usually responsible for setting price policy?

4. What does the abbreviation F.O.B. stand for?

5. Who is zone pricing for?

2) Make word combinations from the following words.

1. freight	a) pricing
2. geographic	b) protection
3. transportation	c) price
4. basing	d) expenses
5. customer	e) rates
6. delivered	f) origin
7. shipment	g) charges
8. packaging	h) cost
9. storage	i) location
10. product	j) point

Glossary Unit 1

Competitive advantage	конкурентоспособность	An advantage that makes a company more able to succeed in competing with others
A product’s substitutability	замещение товара	When people start buying one product instead of another or when a company starts making and selling one product instead of another
A selling strategy	торговая стратегия	A plan or series of plans for achieving an aim, especially success in selling products/services
After-sales support	оказание послепродажных услуг	Help that is given to someone who has bought a product, for example free repairs or help in using the product
An element of customer service	отдел обслуживания клиентов	The department in a large organization that deals with questions and complaints from its customers, gives advice on using the product or service it provides etc.
An intangible part	нематериальный актив	Something that a business has and can make money from, but that is not something physical and so cannot easily be valued, for example a name of a product, technical knowledge, loyalty from customers etc.
Convenience products	пищевые полуфабрикаты быстрого приготовления	Food products that are made and packed in a way that makes them very quick and easy to use
Distribution strategy	стратегия товародвижения	A plan or series of plans for making goods available to customers after they have been produced
Freight equalization	уравнивание платы за перевозку груза	When the same amount of money is paid for transporting goods in large quantities by ship, plane, train, etc.
Inventory-carrying cost	стоимость поддержания товарно-материальных запасов	A cost relating to owning a firm's assets including raw materials and work in progress and finished good
Market acceptance	восприятие рынком	When market agrees to take something offered
Order tracking systems	заказ на систему слежения/сопровождения	A request for a system recording all the things that someone has done
Perishable products	скоропортящийся продукты	Products such as food products that must be used within a sort period of time
Physical distribution strategy	реальная стратегия товародвижения/распределения	Real and actual plan or series of plans for making goods available to customers after they have been produced
Price computation	расчет цены	The procedure of calculating a price
Price discrimination	ценовая дискриминация	The practice of charging different prices for the same product in different markets
Product availability	доступность товара	The fact that product is able to be used or can easily be bought
Reasonable degree of customer patronage	резонный уровень приверженности покупателей	Fair and sensible degree of the support a customer gives a shop, restaurant etc. by spending money there
Shopping products	процесс поиска и покупки продукта	Searching for or buying goods or services
Specialty products	специализированный товар	Specialty products are special or unusual in some way, and are therefore usually expensive
Storage facilities	складское хозяйство	Special buildings or equipment that have been provided for keeping or putting something in a place while it is not being used
To alter weight	изменять показатель	Make criterion different in some particular way, without permanently losing its former general characteristics
To anticipate distribution needs	прогнозировать потребности товародвижения/распределения	Make a prediction about necessary distribution
To bring equal gains in sales	приводить к равномерному увеличению продаж	Cause the same increasing of sales each time
To create a service differential	дифференцирование услуг	Make a difference in the company’s services or in the same services in different places
To factor into order cycle time	включить в цикл выполнения заказа	Include something in a process of completing an order
To handle returns	оперировать доходом	Deal with the amount of profit made from an investment
To incur high costs	нести большие издержки	Do something that means losing money or paying too much money
To insist on particular brand	утвердить определенный бренд	Confirm a certain brand
To maintain efficient distribution	продолжать целесообразное товародвижение/распределение	Make distribution continue in the same way and at the same high standard as before
To shop around	присматриваться к ценам, качеству товаров	Compare the price and quality of different things before you decide what to buy
Ultimate consumers	потребитель конечного продукта	The person who buys and uses a particular product in its final form

Unit 2. Customer Service.

Anyone who thinks the customer isn’t important should try doing without him for a period of ninety days.

Anonymous

Before you read.

Discuss the following questions.

1. What is included into customer service in your opinion?

2. What elements of customer service can a logistician control?

3. In what ways are orders usually processed?

Customers view the offerings of any company in terms of price, quality, and service, and respond accordingly with their patronage or lack of it. Service, or customer service, is a broad term that may include many elements ranging from product availability to after-sale maintenance. From a logistics perspective, customer service is the outcome of all logistics activities or supply chain processes. Therefore, the design of the logistics system sets the level of customer service to be offered. Revenues generated from customer sales and the costs associated with the system design establish the profits to be realized by the firm. Deciding the level of customer service to offer customers is essential to meeting a firm’s profit objectives.

Part 1. Customer Service Definition and Elements.

Logistics customer service is necessarily a part of a firm's overall service offer­ing. There are various definitions of it and quotations about it.

1. Customer service, when utilized effectively, is a prime variable that can have a significant impact on creating demand and retaining customer loyalty.

2. Customer service refers specifically to the chain of sales-satisfying activities which usually begins with order entry and ends with delivery of product to customers, in some cases continuing on as equipment service or maintenance or other technical support.

3. Logistics customer service for many firms is the speed and dependability with which items ordered (by customers) can be made available.

4. More recently, customer service has been referred to in terms of a. fulfillment process which has been described as the entire process of filling the customer's order. This process includes the receipt of the order (either manual or electronic), managing the pay­ment, picking and packing the goods, shipping the package, delivering the package, providing customer service for the end user and handling the pos­sible return of the goods.

Customer Service Elements

From a corporate-wide perspective, customer service has been viewed as an essential ingredient in marketing strategy. Marketing has often been described in terms of an activity mix of four Ps—product, price, promotion, and place, where place best repre­sents physical distribution.

A comprehensive study of customer service, sponsored by the National Council of Physical Distribution Management, identified the elements of customer service according to when the transaction between the supplier and customer took place. These elements, are grouped into pretransaction, transaction, and posttransaction categories.

Pretransaction elements establish a climate for good customer service. Providing a written statement of customer service policy, such as when goods will be delivered after an order is placed, the procedure for handling returns and back orders, and methods of shipment, let customers know what kind of service to expect.

Transaction elements are those that directly result in the delivery of the product to the customer. Setting stock levels, selecting transportation modes, and establishing order-processing procedures are examples. These elements, in turn, affect delivery times, accuracy of order filling, condition of goods on receipt, and stock availability.

Posttransaction elements represent the array of services needed to support the product in the field; to protect consumers from defective products; to provide for the return of packages (returnable bottles, reusable cameras, pallets, etc.); and to han­dle claims, complaints, and returns. These take place after the sale of the product, but they must be planned for in the pretransaction and transaction stages.

Corporate customer service is the sum of all these elements because customers react to the total mix. Of course, some elements are more important than others.

The following are considered the most important logistics customer service elements: on-time delivery, order fill rate, product condition, accurate documentation.

Exercises.