Freight-absorption pricing is a geographical pricing strategy in which the seller absorbs all or part of the freight charges to get the desired business. The seller might reason that if it can get more business, its average costs will decrease and more than compensate for its extra freight cost. This pricing is used for market penetration and to hold on to increasingly competitive markets.
Freight-absorption pricing is “a pricing method in which the manufacturer bears some or all of the freight costs involved in transporting the goods to the customer.”
A geographical pricing strategy where a company absorbs or partially absorbs the freight charges while delivering the goods for capturing the business is called freight-absorption pricing. This strategy is an evaluating one where the manufacturer bears a large or a few parts of the transportation or cargo costs related to shipping the goods to the customer. Here a manufacturer cites a distant client, the plant cost along with cargo cost. Because cargo assimilation assists in spreading fixed costs by generating extra clients. It is an ideal model for a company having low factor costs and high fixed costs.
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