Author: John A. Quelch, Greg Conley
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.
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
• DHL Airways – based in SF and managed all US Operations • DHL International. – Based in Brussels and managed all operations outside US. -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%.
-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.
-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.
• 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.
-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.
-3 pricing approaches:
• Monthly flat fee, where DHL automatically visited customer daily. o No volume discount.
• Frequently discount structure, based on volume (based on...