Marketing & Commercial Policies Baru

8/8/2019 Marketing & Commercial Policies Baru

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Marketing Policies

y

Also called as the strategiesy Purposely served to

evaluate cost and profitstructure

y Mainly to understandeconomic behavior

y To fit in current situation

so that lost in profit will

not incurred

y Grow market share,internally or by acquisition

y Grow revenue at targetedrates

y Maximize return oninvestment

Sales

Marketing Strategies


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Level of Competition for Each Modeof Transportation

Monopoly

1 competitor

ImperfectCompetition

(Oligopoly)

Few, Largecompetitors


(Monopolistic)

DifferentiatedServices

PureCompetition

An increase in P,D=0


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Mode 1: Motor Carriers

y Cost Structure:

Primarily a variable cost carrier. The majority of thecost of motor carriage is made up of items that are

considered to be variable costs (Labor, Fuel,Maintenance)

y Why a variable cost carrier?

Primarily because they dont have to construct their ownright-of-way. The U.S. Govt. picks up the cost ofconstructing the highways. Carriers simply pay a userfee for use of the road.


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y Since they are primarily variable cost carriers, it is difficult

for motor carriers to spread FC to reduce cost per unit

because there is not much FC to spread=

y Few economies of scale

U.S. Motor Carrier Industry

y About 86% of freight bills

y A

bout 25% of weight shippedy Why?

They cant efficiently carry heavy, bulk, low-value

products (coal, grain) as well as rail and water carriers


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y Cost Structure:

Considered to be primarily a fixed-cost carrier because theyhave to construct their own right-of-way. They must build

their own rail line if they wish to expand service to a newlocation. (As a result, volume is the name of the game)

y Operating environment:

Monopoly within lanes or referred to as a natural monopoly

y Recent mergers reduced the number of players

Mode 2: Rail


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y Cost structure:

The initial up-front cost of the plane is substantial,

however, over the long run, air transportation is

primarily a variable cost industry. Over the life of theplane, the majority of the cost of operation is variablecost (labor, fuel, maintenance)

y Operating environment:

Oligopoly

Mode 3: Air


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Cost Analysis in Transportation

y Many different types of costs

y Many different ways to view a cost

y For example:

Accounting cost:

Depreciation:A non-cash expense that systematicallyallocates the cost of an asset over its useful life.

Accounting also has fixed costs, variable costs etc.

The Role of Costs in Pricing DecisionsThe Role of Costs in Pricing Decisions


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Other Types of CostsOther Types of Costs

y Economic cost:

Opportunity cost is the cost of a lost opportunity.

If I didnt invest in a new manufacturing machine I couldhave invested in a new computer system or purchased acommon stock

y Social cost:

The cost of pollution on the environment.

Each cost has different impacts on an entity, the economy,and society as a whole and each cost acts differently.


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Othertypes of

costs

Semi-variablecosts: Have both afixed and a variable

component. (eg:Phone service has a

basic fee and thencharges additionalfor heavy use)

Direct variablecosts:VC directly

traceable to theproduct or service

(eg: hourly wage fora worker)

Fixed costs: arefixed in total but

vary by unit

Variable costs:varyin total but are fairly

fixed per unit.


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Why Estimate Costs?

y The goal is to understand costs so that we can use pastinformation as a good predictor of future costs.

yThis is important for strategic planning and budgetingpurposes.


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Pricing

Costs Relevant to Establishing a Transportation Price

Commodity cost

Loading/unloadingcharacteristics

Susceptibility to loss and/ordamage

Volume and regularity oftraffic

Types of equipment required

Route cost

Operatingconditions

Trafficdensity


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Demand Considerations Relevant to Establishing

a Transportation Price

Commoditydemand

Economic conditions in the userindustry

Rates of competing commodities

Rates of competing modes

Route demand

Competitionwith other

carriers

Production-

pointcompetition

Traffic density


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Pricing Policies:

Environmental Conditions ofCompetition

Monopoly

1 competitor


(Oligopoly)

Few, Largecompetitors


(Monopolistic)

DifferentiatedServices

PureCompetition

An increase in P,D=0


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y Grow market share-price services at market level rates or

below to become dominant player in that industry,

aggressively make acquisitions

y Grow revenue and earnings at targeted rates-price at or

near fully allocated costs, some acquisitions if known

value

y Return on investment-growth secondary, conservation

of capital primary, always price above fully allocated

costs

Marketing Strategies and its Influence on

Pricing


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Pricing Strategies

Cost of service pricing

Charge enough to cover just variable costs

Pure competition

Fully allocated pricing

Charge enough to cover fixed and variable costs

Oligopolyor Monopolistic competition

Value of service pricing

Charge what the market will allow

MonopolyorOligopoly


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Value of Service Pricing

y This refers to charging whatever the market will allow

(whatever someone is willing to pay for the service).

y

This method maximizes revenue regardless of the costsinvolved in proving the service.

y This method is often followed when competition levels

for a given traffic lane, (e.g. specialized type of

transportation etc. are extremely low)


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Fully-Allocated Pricing

y This type of pricing policy covers all variable costs and

the portion of fixed costs attributable to that particular

move.

y Basically this method tries to cover total costs of each

shipment.

y Followed strictly this method will result in a break-even

proposition.


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Cost of Service Pricing

y This form of pricing charges a rate that covers only (orat a minimum) the carriers variable costs.

y This price should be the absolute floor that a carrier will

charge.

y This pricing scheme should not be used for the long-term because it can:

Lead to cross subsidies

Lead to bankruptcy

y Pricing below VC can be determined to be illegal ifproven


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1) Density

This is the weight/space

relationship

2) Stow-ability

Cubic dimensions of aproduct affect

transportation asset usage

3) HandlingHow often the product

must be handled impactsprice

4) LiabilityAddresses the risk of

damage

Key Factors Impacting Price


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Airlines Alliances

flight schedulingflight scheduling baggage handlingbaggage handling catering catering

ground servicesground services maintenancemaintenance Flyer programsFlyer programs

airport loungesairport loungesequity holdingarrangementsequity holdingarrangements

code sharing-selling seats on

another aircarrier

code sharing-selling seats on

another aircarrier

Forms of alliances


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International Trade

TheBasics

1. Balanceof Trade

2. Foreign

ExchangeRates

3.

ComparativeAdvantages

4. TradePolicies


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Balance of trade

y The balance of trade is the difference of momentary valuebetween imports and exports, over a certain period of timefor a country.

y This gives a current account balance, which can either be

positive (surplus) or negative (shortage).y It is measured by the difference between the income that one

country earns from the rest of the world and the income thatthe rest of the world earns from that country (imports andexports of agricultural goods).

y Example: U.S. agricultural current trade account balance is insurplus; we are producing and exporting more than we areimporting and consuming.


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y Raw material imports v. manufactured exports:

To positively affect/improve our trade balance, the goal is to import

raw materials and export manufactured goods. Most agriculturalproducts are raw materials.

y A government budget deficit can cause a drop in the value of thedollar.

(e.g: If the value of the U.S. dollar is low compared to foreigncurrency, this creates an incentive for exporting and is a factor thataffects the balance of trade)

y Surpluses and deficits correspond with the business cycle. So it is

alright to have some surplus (in a good economy) and some deficits (inrecession). If we did not, we would not be able to spend our way outof a recession. Economists only want the trade to balance out in thelong run


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Foreign Exchange

y The exchange of currency from one nation to another.

Example: The U.S. dollar to the European Euro.

y Also referred to as FOREX.

y Terms to describe international trade:

Rising, falling, strengthening, weakening.


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y Strengthen -describes when the value of the currency is more

dominant when compared to two or three other currencies. A stronger currency means a consumer can buy more.

y Weakening - when the value of a currency is not as valuable as

its normal amount.

y Domestic changes

Measured using the Consumer Price Index (CPI).

The CPI measures the changes of the purchasing power ofthe dollar over time.

If the CPI increases the dollar is buying less and vise versa


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Weakening Currency (e.g: US)

y Advantages:

the US firm can sell easier to foreign markets more tourists

can buy products from the US and this increaseAmerican

markets

y Disadvantages: Consumers face higher prices on foreign

goods.

Higher price =

Higher price of living.

Hard for U.S. firms to get into foreign markets


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Comparative Advantages

Is the situation presented where someone can produce agood at a lowerlower opportunity cost than someone else.

Absolute Advantage:

Entities can produce something using a smaller number ofinputs than another party producing the same product.

Just because someone has an absolute advantage does notmean they have the comparative advantage.

Specialization of Trade:

Production means are dedicated to one product instead ofmultiple


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International Trade Policy

y Bilateral trade is trade between 2 countries

y Bilateral is known for its FreeTradeAgreements (FTA)

y Multilateral trade is trade between 3 or more countries

Bilateral & Multilateral Trade

Tariffs & Quotas

A tariff is a tax on an import or exportSpecific Tariff- a specific tax on each unit

Ad Valorem Tariff- a percentage of the goods value

Quota - the amount of product a country can import or export

A quota can either be in terms of volume or value


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Bilateral &Multilateral Trade

- Bilateral trade is trade between2 countries

- Bilateral is known for its Free

Trade Agreements (FTA)- Multilateral trade is tradebetween 3 or more countries

Tariffs & Quotas

- A tariff is a tax on an importor export

- Specific Tariff - a specifictax on each unit

-Ad Valorem Tariff - apercentage of the goods value

- Quota - the amount ofproduct a country can importor export

- A quota can either be in termsof volume or value

International Trade Policy


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Transportation Policy

y Importance of federal government role

Defined through laws, regulations, funding programs

No unified federal transport policy

y

Congress and the President

y Over 60 federal agencies involved

y 30 congressional committees

y Two independent regulatory agencies

y Department ofJustice


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WhyDo We Need a Transportation

Policy?

y Significance of transportation

y

Capital requirements

y Need for government assistance

y Public ownership sometimes necessary

y Policy: framework for allocating resources


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Declaration of National Transportation Policy

y ICCTA(Interstate Commerce Commission Termination Act) spelledout federal policy for STB(Surface Transportation Board regulationof modes (except air)

y Policy interpretations:

Recognize and preserve inherent advantages Safe, adequate, economical and efficient service

Restatement of common carrier obligations Reasonablecharges, unjust discrimination, undue preference, unfaircompetitive practice

Fair wages and working conditions

Meet needs of commerce, U.S. Postal Service, and national

defense

y Specific direction for rail and motor


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Who

establishespolicy?

Executive

Branch

Congressionalcommittees

Regulatoryagencies

Judicial system

Industry

associations


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National Transportation Policy-

Inconsistenciesy No air carrier policy

yOverlooks exempt motor and air

y No attempt to define reasonable charges, discrimination,unfair competition-defers to regulatory agencies]

y No definition of inherent advantages andinconsistencies of interpretation-changing advantages


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THANK YOU

Marketing & Commercial Policies Baru

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