Reference no: EM132208824

Jim O’Brien has realized for quite some time that some of Hardee’s customers are more profitable than others. This is also quite true for certain freight lanes. However, Hardee has traditionally structured its prices around discounts off their published tariff rates. Most of the discounts have been based on freight volume only. Jim knows that his dri- vers and dock people do more for certain customers than move volume; they count freight during loading, sort and segregate freight on the dock, weigh shipments, and do some labeling.

Jim foresees some of the new service demands from his customers being very diffi- cult to cost and price because they won’t necessarily be based on freight volume. Some of these new demands will include merge-in-transit, event management, continuous shipment tracking RFID capability, and dedicated customer service personnel. Tradi- tionally, Hardee has used average cost pricing for its major customers. Some of his pri- cing managers have urged Jim to consider marginal cost pricing. However, Jim has developed a keen interest in value-of-service pricing methods versus the traditional cost-of-service pricing.

The problem with both approaches for Hardee is that they have no form of activity- based costing or any other methodology that will allow them to really get a handle on where their costs are hidden. Jim knows what Hardee pays its drivers, knows the costs of equipment and fuel, and knows the overall costs of dispatch and dock operations. Hardee’s average length of haul is 950 miles and its loaded mile metric is 67 percent.

1. Do you agree with David White? Why or why not?

2. If Mid-West Trucking follows the request by David White and Stops providing discounts on westbound freights (charge both eastbound and westbound freights equally), what is the consequence for Mid-West trucking and for its clients?

3. Should Mid-West Trucking stop providing discounts to westbound shipments immediately, as requested by David White?