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Basic Information of DHL Worldwide Express
Author: John A. Quelch, Greg ConleyPublisher: HBR
Case Number: 9-593-011
Publication Date: Sep 10, 1992
Revision Date: Nov 24, 1997
Course Category: Marketing
Case Summary of DHL Worldwide Express
Ali Sarrahfzadeh, DHL’s worldwide sales and marketing manager, had to present his recommendations on pricing at DHL’s annual director’s meeting.Options:
Pricing Strategy – Price leadership, charge premium prices and aim to deliver superior value-added services in all markets OR market response, setting prices independently in each country, according to customer usage patterns and competitive pressures.
Pricing Structure – Weekly or monthly handling fee? Same price charged regardless or origin and destination? Different prices for parcels and documents? Different prices for different industries? Special prices for multi-national corporations?
Discount program – Volume discounts?
Price setting responsibility – centralized (headquarters management set world prices), decentralized (country/region managers set prices) or hybrid approach (multiple pricing committees, each including managers from HQ and regions and they set prices).
Company Background and Organization
Two companies:
• DHL Airways – based in SF and managed all US Operations
• DHL International. – Based in
-In 1990, DHL accounted for only 3% of intra-US air express shipments but 20% overseas shipments from US.
-Main reason why DHL involved domestically is to increase reliability of international shipments and lower costs.
-World’s leading international express delivery network.
-Used hub system to transport documents around world.
-Organized into 9 geographic regions.
The International Air Express Industry
-Air express industry offered two main products: document delivery and parcel delivery.
-75:25 of parcels: documents
-1989, parcel grew 40% and documents grew 15%.
Competitors
-Building a comprehensive network of owned operations or agents required considerable time and investment and acted as significant barrier to entry.
-Main competitors: Federal Express, TNT and UPS.
-Small shipping forwarders, national post offices and regular airlines rounded out rest of competition.
-Intense price competition during the late 1980s.
DHL Services
-Worldwide Document Express (DOX)
-Document delivery, door-to-door at all-inclusive price
-Worldwide Parcel Express (WPX)
-Parcels that had commercial value or needed to be declared, door-to-door at all-inclusive price
-Value-added services such as computerized tracking (LASERNET), 24-hour customer service and proof of delivery.
-Problem – services could enhance customer loyalty but were expensive to provide. Customers were not always charged extra, especially since competitors also offered them.
-DHL’s extensive international customers network electronically linked. Could be a key differentiator.
-Table D: among top 4, DHL scored highest for reliability and time value of money.
Customers
-Two types:
• Know where they’re shipping, will choose carrier that’s well respected.
• Don’t know where future shipments going. DHL more at risk of making bad pricing decision since don’t have enough information.
-Parcel market more price sensitive than document market
-Customers are very service sensitive.
Pricing
-DHL country managers had almost total control of pricing.
-Set prices based on what market could bear, prices charged by competition, DHL’s initial entry pricing in other countries, DHL’s then current pricing around world.
-DHL prices historically 20-40% higher than competitors.
-DHL had sophisticated software, PRISM, to analyze profitability but not used extensively in all offices.
Pricing Structures
-3 pricing approaches:
• Monthly flat fee, where DHL automatically visited customer daily.
o No volume discount.
• Frequently discount structure, based on volume (based on forecast demand).
• Nominal fee for pick-up or could drop off at DHL office.
Price Negotiations
-Largest customers had 1-2 year deals. When contract was up, interested shippers put in bids.
-Hard to compare because major shippers organized into different regions and lanes.
-DHL reps had significant flexibility when negotiating proposals, customization helped negotiations.
Sales and Advertising
DHL spent 4% of sales on advertising. Different slogans in US and
Conclusion
-DHL profits might be maximized if each country manager could charged each customer what “market could bear”. But order and consistency were necessary for pricing strategy, structure and decision-making. Need to enhance relationships with customers and get them to choose DHL as sole provider.
Case Analysis of DHL Worldwide Express
1. How do customers purchase air express services? Are there differences between customers that might be used to price discriminate?- Decision on how to ship documents was frequently made by an individual manager or secretary.
- Parcels were shipped by the traffic manager who could typically select from a list carriers approved by the purchasing dept.
Yes, there are differences. There are two principal types of customers. First, there are the people who base their decisions depending on the level of satisfaction that the shipment company’s current customer base have. They are not price sensitive and because it is easy to anticipate their purchase volume and shipment, it is easier for DHL to come up with a base price. However, there are customers whose destinations are not foreseeable. Hence DHL cannot set their discounts properly on the basis of anticipated volume for these customers.
2. How does DHL set prices?
-3 pricing approaches:
• Monthly flat fee, where DHL automatically visited customer daily.
o No volume discount.
• Frequently discount structure, based on volume (based on forecast demand).
• Nominal fee for pick-up or could drop off at DHL office.
3. What are the pricing changes facing DHL?
Moving to a consistent worldwide pricing structure, as opposed to regional pricing which would better gauge customer usage patterns and competitive pressures.
4. Should DHL offer worldwide pricing contracts? Why, or why not?
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