Product Transportation & Price - Explained
How does the cost of transportation affect the price of a product?
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Table of ContentsHow does Cost of Transportation affect Product Price?Free Onboard PricingZone PricingFreight Absorption Pricing
How does Cost of Transportation affect Product Price?
Marketers must consider the cost of transporting a product when establishing a pricing strategy. This will depend upon what our product is and where we are in relation to our buyers or our customers. For some products, transportation costs can be pretty considerable. So there are different ways that we can handle this situation.
Each of these is discussed below.
Free Onboard Pricing
Free onboard pricing is where we guarantee to get the product to a Port, in other words, a major shipping location, and we cover the cost to that point. Then the buyer pays for any shipping beyond that point. So that's one way we could sort of split the cost with the buyer.
Zone pricing is where we sort of average the cost of getting a product to a buyer based on the region where they are located. We charge that average price for everybody in that region. In this way, the buyer is paying the cost, but we're kind of averaging it out across the different people in that region.
Freight Absorption Pricing
Freight Absorption Pricing is where we're just going to pay the cost of delivery or transportation outright. That is, there is no separate cost for the purchaser above the purchase price.