April 22, 2024
From a Cost-Plus Pricing Strategy to AI-Powered Quotation
Transform traditional cost-plus pricing strategy with AI-powered dynamic pricing. Find out more about the benefits and how to overcome limitations.
Blog /
AI Pricing
2024-04-10
X
minutes reading
2024-04-16
In transport freight and logistics, pricing optimisation is crucial to achieving business objectives like increasing margins, market share, customer retention and revenue. Effectively setting prices requires a nuanced understanding of market dynamics, customer preferences and competitive landscapes, within which AI can offer invaluable insights.
Implementing AI technology might seem complex; it requires organising data, model development, training and extensive fine-tuning. Yet, focusing AI on select pricing areas can yield benefits over a shorter period, requiring less time and fewer resources.
Here, we run through three quick and simple AI-driven price optimisation use cases, each one broken down with a step-by-step implementation guide. These demonstrate how the time vs. investment vs. payoff weighs up, offering a cost-effective solution to AI-powered pricing optimisation.
The freight transport market is highly fragmented, with diverse industries seeking services from numerous carriers. However, pricing information on freight rate management, particularly on the spot market, remains somewhat opaque. This leads to significant price fluctuations for both buyers and sellers, independent of supply shortages or demand spikes.
For instance, the European contract road freight rate index hit an all-time high of 121 points in Q2 2022, showing a 13.1-point increase year-on-year. Following this peak, road freight demand experienced a marked downturn during 2023. Carriers seeking to secure loads amidst heightened competition adopted low-price strategies, resulting in a notable decline in freight rates. In Q1 2023, these plummeted by as much as 9%. Considering this volatility, it’s never been more important to implement intelligent solutions to navigate demand fluctuation.
This fluctuation in freight prices arises from the varying price sensitivities of customers across different industries, each with unique margins and business objectives. Companies dealing in low-value goods often prioritise cost and may favour loyalty programmes and discounts over quality. Conversely, those in high-value goods industries prioritise quality and service over price, displaying lower price sensitivity.
Understanding the dynamics of your customer base is crucial for effective business strategy. This knowledge can be efficiently gained and utilised through the implementation of AI technology.
Transportation costs vary across countries and regions, influenced by geographical factors such as pickup and drop-off locations. Effective price optimisation should reflect these differences, pricing higher for remote or challenging-to-access regions and competitively for areas with ample transport options.
Challenges arise as disparities can occur within a given area. For example, a street's accessibility due to size, rush hour congestion, or mountainous areas accessible only via rugged terrain can significantly impact pricing dynamics.
It's widely acknowledged that the transportation market experiences pronounced seasonal fluctuations, significantly impacting its dynamics. As part of our Ontruck AI Tech solutions, we've devised an AI model to optimise the buy-price and sell-price year-round. This is part of our general demand forecasting model, which is explained further in our article on seasonal demand forecasting.
With the assistance of this model, logistics service providers can regulate and refine their pricing strategies throughout the year. For instance, historical data indicates that buy prices typically decrease by 10-15% in January and February, gradually rising again until reaching maximum levels in July.
AI technology, combined with advanced data analysis, presents numerous opportunities to enhance critical business processes within transport companies. While the use cases discussed here provide a comprehensive overview, they only scratch the surface of AI’s potential.
If you're interested in exploring these solutions further, schedule a demo with us today. Experience firsthand how our technology is revolutionising pricing optimisation for logistics service providers, driving higher margins and maximum profits.
April 22, 2024
Transform traditional cost-plus pricing strategy with AI-powered dynamic pricing. Find out more about the benefits and how to overcome limitations.
April 15, 2024
Optimising spot freight rates for profitability requires avoiding common mistakes. Here are 5 dated approaches LSPs should avoid.
April 10, 2024
Discover AI-powered pricing optimisation with real-world use cases. See a remarkable return on investment with cost-effective solutions.
April 3, 2024
Discover how AI can streamline your spot quote process, improving efficiency and maximising conversions. Learn more.