New Approach to Transportation Service Pricing Based on the Stakeholder Model of Corporate Governance

Abstract

Efficient pricing is the key to success in business, which significantly affects the company’s sales, profit and value. The article describes the new margin-value-based approach to transportation services pricing, which is based on the ideas of stakeholder management, integrated management systems, cost-volume profit analysis methodology. Unlike traditional approaches to the operation analysis, the new model provides for constant financial cost of the invested capital, income tax and building the target economic value added (EVA) in order to maintain growth of the company’s value. The authors introduce the ‘modified marginal coverage’, which includes (in addition to operating costs) all the above components. Break-even graph (where the company’s EVA is equal to zero) is presented. In terms of the margin-value-based pricing, the authors structured the estimated price of transportation services, which allows to apply differentiated approach to cost management at a certain level and EVA generation, controlling and balancing between the interests of various stakeholders. Unlike traditional pricing models, in which the lower limit of the price may ruin the value, application of the new model allows to set the company’s target growth rates by estimating minimum sales and the lower level of the transportation service price, which determine the value creation frontier for various scenarios of the development strategy implementation. The authors suggest specific indicators for transactions efficiency, operations of revenue generating units, customer performance, which allow not just to conduct factor analysis, but also to affect motivation of the company's employees. Application of the suggested pricing method will contribute to increase in the company’s value and maintain long-term economic growth.

DOI: 10.5901/mjss.2015.v6n4s4p299