Dynamic pricing- a win-win for UPS and customers?
What is dynamic pricing?
You may have heard the terms dynamic and surge pricing used interchangeably. While both pricing philosophies raise and lower rates based on demand, dynamic pricing is determined by outside factors, while internal factors define surge pricing.Companies like Uber utilize surge pricing to raise rates when there is a shortage of drivers. UPS will use dynamic pricing to raise and lower rates based on factors like inflation, fuel, and demand.
How is UPS using dynamic pricing?
Previously, shippers and carriers agreed on a static pricing model, with additional costs during peak shipping times. The world isn't static anymore; external factors can shift the market on a dime. In January 2020, no one could have predicted that Covid would spread around the globe, prompting unprecedented levels of online shopping. In January 2022, no one knew that Russia would declare war on Ukraine, disrupting European shipping routes and spurring rising fuel costs.To combat the uncertainty, UPS began using Deal Manager, which "digitizes the pricing process, and applies pricing science to present the right offer to our SMB customers the first time, so we are able to close deals faster and with better revenue quality. In 2022, our U.S. win rate with Deal Manager was 22 percentage points higher than the baseline." With success like that, UPS is "moving quickly to expand access to Deal Manager to more than 40 countries in 2023."
How will this affect you?
Dynamic pricing isn't anything new in the shipping industry. FedEx credited a dynamic pricing strategy to a profit of $150 million in its Q3 earnings call in March.UPS claims that its Digital Access Platform will make it easier to finalize sales with small and medium-sized businesses (SMBs) and customers in the healthcare sector. And it's working. In 2022, SMBs made up 28% of UPS's 2022 U.S. volume— an increase of 120 basis points from the prior year. In the same year, its healthcare portfolio surpassed $9 billion.
They're not slowing down, either. Tomé announced that UPS "recently launched a pilot that enables systematic day or week pricing, which is good for our customers and good for UPS." She says that "Early feedback is promising."
There's no doubt that this framework is beneficial to UPS. The real question is whether it will benefit your business.
Although Deal Manager is an effective tool for pricing, remember that its primary function is to generate a profit for UPS. Don't say yes to the "best deal" according to UPS without consulting with the experts at ShipRx first. We spent years helping the major carriers write contracts— now we're using that information to ensure you get the lowest pricing possible.