Selling Delivered Delivers the Goods
| Published date | 01 July 1987 |
| Date | 01 July 1987 |
| DOI | https://doi.org/10.1108/eb057482 |
| Pages | 12-12 |
| Author | Jerry Fitchett |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
Selling Delivered
Delivers the
Goods
by Jerry Fitchett
Director and General Manager of
TNT-Ipec
Most UK exporters still sell to their European customers
at a price that does not include the cost, or even the
organisation, of transportation. However, the findings of
a recent survey of TNT-Ipec — Europe's leading express
freight delivery service — has provided British
manufacturers with evidence which proves that selling
delivered,
a price inclusive of transportation, makes
economic sense.
This article uses the results of the study to back up the
author's conviction that a switch from Free-on-Board
(FOB)* and ex-works to "delivered" pricing could win UK
exporters a greater share of European markets.
From a commercial point of view, the author's company
has nothing to gain from promoting all-inclusive
"delivered"
prices, as TNT-Ipec, with depots all over
Europe, stands to win transport business whether it is
contracted at home or abroad.
Throughout the 70s, a number of studies and articles tried
to promote door-to-door delivery at an all-inclusive price
over other forms of pricing, but the bulk of this literature
failed to get its message across because of an inability
to offer conclusive proof that "delivered" pricing actually
improved company performance. The TNT-Ipec survey
has now shown that those companies selling delivered
have indeed benefited from an increase in orders and
sales — experienced by over two-thirds of the survey
respondents — and an increase in work-load, which
would tend to go hand-in-hand with an increase in sales.
It is also notable that most of the company's more
successful European competitors sell delivered to it,
thereby ensuring that, as customer, it knows from the
outset what the total cost of purchase and delivery will
be and, moreover, it is freed from the irritation of having
to arrange transportation.
So why have attitudes to pricing remained so entrenched
in the UK? The survey indicated that over two-thirds of
exporters were resisting delivered terms, giving "tradition"
as the main reason.
Traditions are normally founded on at least a shred of
wisdom or logic, but that is not the case in this issue.
If British manufacturers were to take their blinkers off,
they would find that selling FOB to Europe made no real
sense.
FOB pricing is highly artificial, as few freight
services have a natural break-point at the British coast.
And if it were not for Customs' insistence that FOB values
are declared on exports, one wonders whether the term
would exist at all in modern European distribution.
Clearly,
then,
FOB and ex-works pricing policies provide
the shipping manager with little more than the dubious
comfort of knowing that his/her choice of pricing was
most probably that of his/her predecessor. Delivered
selling,
on the other hand, offers a number of immediately
obvious advantages. For example, customers in one area
can be served using the same transport company who
may have to make only one collection from the exporter
to serve a dozen or more customers — instead of a dozen
or more transport companies trying to collect individual
items on behalf of individual customers.
Another benefit of greater control is apparent when selling
via subsidiaries or agents. When buying ex-works, the
intermediary can take advantage of the fact that he/she
controls the margin between the ex-works and delivered
price.
The UK exporter can make this margin his/her own
if he/she controls the transport door-to-door.
Britain's share of overseas trade
in manufactured goods would
significantly increase if more. . .
were to change to. . .door-to-door
pricing
Finally, better control offers the potential for improving
customer service levels. Transport can be scheduled more
accurately allowing the importer to know precisely when
goods will arrive; and efficient transport arrangements
may also enable both importer and exporter to rationalise
their stock holding and reduce high storage costs.
Selling delivered offers a better deal than ex-works or FOB
pricing in virtually every respect. Whilst a wholesale
change of pricing preference amongst UK exporters is
not the definitive cure for the country's economic ills,
nevertheless, Britain's share of overseas trade in
manufactured goods would significantly increase if more
companies were to change to a door-to-door pricing
system.
* FOB means that the manufacturer bears the cost of transport to the
UK port of departure.
12 IMDS • JULY/AUGUST • 1987
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