What is Basing-Point Pricing?
Basing-point pricing, also referred to as zone pricing or freight absorption pricing, is a pricing method where the seller adds a freight charge to the cost of the product. This charge is typically based on the distance between the buyer and the seller’s base point, or the point from which the product is shipped. The freight charge is usually inclusive of all transportation costs, including insurance, packing, and taxes.
Benefits of Basing-Point Pricing
Basing-point pricing makes it easier for buyers and sellers to set prices, and it can be beneficial to both parties. The seller creates a single base point from which all products are shipped and adds the same freight charge to all orders. This makes the pricing process simpler for both the seller and the buyer, who can easily compare the cost of different products without worrying about variable freight charges. Basing-point pricing also benefits the seller by allowing them to absorb some of the shipping costs. This helps to reduce their overall expenses, which makes it easier for them to keep their prices competitive.
Disadvantages of Basing-Point Pricing
One of the main disadvantages of basing-point pricing is that it can be difficult to accurately calculate the shipping costs. The freight charge is based on the distance between the buyer and the seller’s base point, but this can be difficult to determine. In addition, different carriers may charge different rates for the same distance, making it difficult to accurately calculate the cost of shipping. Another disadvantage of basing-point pricing is that it can be unfair to buyers who are located further away from the seller’s base point. Buyers who are located closer to the base point may be able to purchase the same product at a lower price than buyers who are further away.
Basing-point pricing can be a beneficial pricing method for both buyers and sellers, but it is important to consider the potential drawbacks before implementing it. In some cases, it may be better to use other pricing methods, such as flat-rate shipping or cost-plus pricing.
- What is Basing-Point Pricing?, The Balance Small Business
- Advantages & Disadvantages of Basing-Point Pricing, Chron
- Basing-Point Pricing, Investopedia