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24 April, 2011.
Md. Ziaul Hoq Faculty of business studies, American International University of Bangladesh (AIUB) 58/B, Road#21, Kemal Ataturk Avenue Banani, Dhaka Subject: Letter regarding submission of Report on “Pricing Strategy of DHL”. Dear Sir, It’s a great pleasure for us to have the opportunity to submit a report on business analysis on “Pricing Strategy of DHL” which had been a great experience for us to work with such a practical & real life issue to analyze with. We tried utmost to make & let it look like a professional one. Any shortcomings are expected to have a kind view for our encouragement. Thank you for your sincere & honest try to let us make easy & get familiar with the terms & facts of “Pricing Strategy of DHL” as well as about business analysis to help us make the paper a successful one. Our efforts will be valued, if this report can serve for what it’s been meant for & our assistance will be there for any queries. Sincerely yours Md. Tanjil (08-11016-2)
3 Assumptions and Methods 2.8.10 Differentiated pricing 3.6 Adapting the price 3.2 Limitations 1.0 Recommendation Page No Acknowledgment .0 Conclusion 5. Company Background and Organization 3.1 Purpose and Scope 1.2 Price 3.5 Setting the price 3.13 Pricing Structures 3.3 Pricing Strategy 3. Introduction 1.4 DHL’s key of success 3.7 Geographical pricing 3.12 Base Prices and Options 3.9 Promotional Pricing 3.11 Initiating Price cuts 3.14 Sales and Advertising 4. Price discount and allowances 3. Brief History of DHL 3.1 Introduction 3.Table of Content Subject Letter of Transmittal Acknowledgment Executive Summary 1.
We would like to give special gratitude to our group member. First of all we express my gratitude to my respectable teacher and supervisor Md. Finally and most importantly we feel the pleasure to convey my gratitude to all officials for facilitated my work by providing their assistance. Introduction 1. Ziaul Hoq lecturer & our honorable course teacher AIUB. And we would like to pray my apology if you find any unwilling mistake in this report. advice and suggestion in the service marketing course. We are pleased to him for his worm hearted supervision. 1.1 Purpose and Scope: .All praises to almighty Allah for enabling me to complete the report on an overall study on “Pricing Strategy of DHL” We are very happy prepare and present this report. who creates lots of opportunity to collect information to make this report.
2. That is why • • • this Report deals mainly with findings rather than recommendation. This report is a part of the curriculum of the course “service marketing” and it is based on the Business analysis on “Pricing Strategy of DHL”. Most of the employees found most of the related topics as “confidential. 2011. Collecting information and organizing. . has assigned us to prepare this report. The research is done by using scientific method. Our respectable course instructor.2 Limitations: • Our knowledge is limited in this field for performing analysis. 1. Ziaul Hoq.Md.” Time limit Lack of information 1. Background Through this report we make an effort to understand the Pricing Strategy of DHL. The area has been chosen for this research on the “Pricing Strategy of DHL”. Its due submission date is 24th April.3 Assumptions and Methods: Through this report our objectives are following To find out the current business Pricing Strategy of DHL.
000 offices worldwide. Qatar to Zimbabwe. and it operates a fleet of more than 250 aircraft. boat. Japan. and Lynn developed a way to decrease turnaround time in the shipping business by flying bills of landing to port ahead of time. More recently. ahead of FedEx and UPS. DHL Worldwide Express delivers. and South America since summer 1999. In 1969 Dalsey. Overall. when it established a hub at the Cincinnati/Northern Kentucky International Airport. and profits. located at the Cincinnati/Northern Kentucky International airport.000 destinations in about 230 countries and territories. Hillblom. or bicycle. DHL has expanded its interests in Asia. DHL began expanding its service to the Philippines. DHL was the only company to continue air express service in Indonesia ." To bolster its international influence. Featured alongside companies like Reuters. The company did not begin developing a network within the United States until 1983. In the years to follow. and Shell. sales. DHL was named the "World's Most Global Company" by Global Finance Magazine. Affiliate DHL Airways provides air cargo services in the US. rather than agent. Within a few years. That year the company also became the first to offer international service to Europe's Eastern Bloc. The company is the world leader in cross-border express deliveries. DHL was specifically cited for its practice of establishing "its own. DHL would also be the first to include Vietnam and the People's Republic of China in its delivery network and the first to reestablish service to Kuwait following the Gulf War. The company started to serve Europe in 1974. from Albania to Kyrgyzstan.despite the civil unrest in that country during May 1988. The company has about 4. Singapore and Australia. Hong Kong. In December 1998. Australia. I plan on focusing in on the overnight operations based out of the Cincinnati hub. and Sub-Sahara Africa in 1978. operations overseas" and for employing "as many local staff as possible. Citibank. . Latin America in 1977. DHL started out moving documents between San Francisco and Honolulu. based on criteria including global reach.Brief History of DHL: By bus. DHL links 120. In looking at DHL and its place in the overnight shipping industry. the Middle East in 1976. the process soon evolved into an international door-to-door express mail service throughout the Pacific. assets.
S. as few multinational corporation (MNC) headquarters had expressed interesting in negotiation such agreements. DHL comprised two companies: DHL Airways which based in San Francisco and managed all U. Each company was the exclusive delivery agent of the other. The main reason DHL is involved in domestic shipping within the U. It was privately held and headquartered in Brussels. the U. Within Europe. 65% of DHL shipments were sent via scheduled airlines and 35% via owned or leased aircraft. In 1990 DHL had 900. and Robert Lynn.S air express shipment but 20% of overseas shipment from the U. In 1991 the company operated 12 hubs. The three were involved in shipping and discovered that.Company Background and Organization: DHL Worldwide Express was the world’s leading international express delivery network.S operation and DHL International which based in Brussels and managed all operations outside the U. serviced 189 countries. by forwarding the shipping documents by air with an on-board courier. In 1990. while on most intercontinental routes it used scheduled airlines. DHL grew rapidly and. Belgium. DHL did have many regional agreements with MNCs as well as contracts in individual country markets.S. by 1990. DHL was organized into nine geographic regions. Larry Hillblom. and the MiddleEast. DHL generally used owned or leased aircraft to carry its shipments.S.000 accounts of which the top 250 account represented 10% of revenues and 15% of shipments. Regions manager oversaw the relevant country managers and/ or DHL agents in their .S is to lower costs and increase the reliability of their international shipment. DHL used a hub system to transport shipment around the world. (from exhibit 1). they could reduce the turnaround time of ship in port. DHL accounted for only 3% of intra-U. Most MNCs were decentralized. DHL had only about 10 global contract with customers (represent 1% of revenues). In 1991. The company was formed in San Francisco in September 1969 by Adrian Dalsey.
large or small. price skimming. and sales coordination among the country operating units Introduction: Price: Price is the sum of all values that customer give in order to get the benefit To establish a selling price for a product: No matter what type of product has to sell. Almost all companies. such as penetration pricing. Prices must be established to assure sales. product life cycle pricing and even competitive pricing. The main function of the worldwide marketing services group were business development. . response to the competition. Review prices frequently to assure that they reflect the dynamics of cost. discount pricing. There are several different pricing strategies. Though pricing strategies can be complex. and profit objectives. the basic rules of pricing are straightforward: All prices must cover costs and profits. The most effective way to lower prices is to lower costs. communication of best practice ideas. base the price of their products and services on production.regions and held profit and loss responsibility for performance within their territories. labor and advertising expenses and then add on a certain percentage so they can make a profit. Pricing Strategy: Pricing strategy refers to method companies use to price their products or services. the prices have to charge the customers or clients will have a direct effect on the success of your business. market demand. information transfer.
A professional organization able to maintain local initiative and local decision making While working together within a centrally managed network. and management information/ communications. Allocation of resources consistent with the recognition that DHL is one worldwide business. and price for each customer. tracking. interest. A state-of-the-art worldwide information network for customer billing. products.DHL’s key of success: Absolute dedication to understanding and fulfilling DHL’s customer’s need with the appropriate mix of service. A working environment that rewards achievement. and team spirit. Ensuring the long-term success of the business through profitable growth and Reinvestment of earnings. tracing. . and which offers each person in DHL superior opportunities for personal development and growth.
usually using this strategy for leaders in their industry. DHL published a tariff book which has updated yearly. because with this strategy it will earn Business revenue and market share. if there is high Product or service demand. and if the company has a good (and low) cost structure. The firm must decide where to position its product on quality and price. DHL’s prices were historically 20% . when it introduces its regular product into a new distribution channel or geographical area. DHL using market skimming as a pricing strategy. and when it enters bids on new contract work.40% higher than those of competitors. DHL make some attempt to measure their demand curves using statistical analysis by a software package called PRISM (pricing implementation strategy model) which is really sophisticated. This strategy will work if the market is large enough. PRISM was used for the following purposes: . Competitors who followed DHL into new markets often pattern their pricing structure after DHL’s.Setting the price: A firm must set a price for the first time when it develops a new product. if there are enough buyers. In most countries.
we want to know how far DHL implemented the concept of the price adaptations. Geographical pricing: In geographical pricing the company decides how to price its product to different customers in different customers in different locations and countries. market— segment requirements. Adapting the price: Companies usually do not set a single price. it developed many different pricing strategies and structure. origin and destination. DHL’s base prices were calculated according to the product (service). . and promotional support. In all country markets served. They can customize the table to the customer’s needs. DHL have pricing flexibility. As a result of discounts. taking into account the competitive intensity of the route. A frequency discount structure under which a discount was provided based on number of units shipped. DHL sales reps could negotiate discounts from book price up to 35% after calculated fixed and variable costs. net profits by geographic lane and product line.• Analyzing the profit impact of possible tariff adjustment. but rather a pricing structure that reflects variations in geographical demand and costs. the cheaper the unit shipment cost. guaranties. and overall contribution margins. DHL followed one of three pricing approaches: monthly handling fee. delivery frequency. order levels. a company rarely realized the same profit from each unit of a product that it sells. weight. In this Analysis. because this customization is really helps negotiations. and other factor. allowances. and loaded halfkilo. service contracts. frequency discount. • Identifying low or negative margin customers whose yields should be managed upwards. PRISM was not used extensively by All DHL offices sometimes DHL Estimating demand curves by survey and statistical analysis for simple pricing structure. • Setting price strategy for different customers segment. As DHL expanded service into new countries. purchase timing. The more often a customer used DHL during a given month.
volume purchases. weight. For the allowance concept. and so on. and DHL’s then current pricing around the world. In this case. Prices were often higher for parcel than for documents of equivalent . competitors copy them and they lose their effectiveness. Companies must do this carefully or find that their profits are much less than planned. From this strategy. The strategy which customize the table to the customer’s needs. and destination. which appropriate with the condition and situation of the country Price discount and allowances. product. like negotiations price that make possible to get flexibility price. DHL base price were calculated according to product (service. locations. but to hold out their customer they make a strategy pricing structures. If they do not work. and loaded half-kilo. Most companies will adjust their list price and give discounts and allowance for early payments. DHL initial entry pricing in other countries. origin. Differentiated pricing Company often adjusts their basic price to accommodate differences in customers. they typically set prices based on four factors: what the market could bear. DHL do this concept with pricing structures such as monthly handling fee. price charged by competition (which was often initially the national post office). we know that the pricing policy is different in each country. DHL have 2 kind of product services there are worldwide document express and worldwide parcel express). Although FedEx charged the same for parcel and documents. If they work.DHL country managers had almost total control of pricing. and off-season buying. frequency discount. They waste the money that could have been put into other marketing tools. Promotional Pricing Promotional pricing strategies are often a zero-sum game. DHL have a differentiation on product basic price. DHL also have the other strategy. DHL did not make a promotional pricing. and this strategy really help the negotiations.
packaging. DHL followed one of three pricing approaches: monthly handling fee. we want to know about DHL strategies in initiating and responding to price changes. and loaded halfkilo. Initiating Price cuts: Several circumstances might lead a firm to cut prices. product Base Prices and Options: DHL’s base prices were calculated according to product (service). Initiating and responding to price changes: Companies often face situations where they may need to cut or raise prices. Pricing Structures: In all country markets served. origin. and destination. In this analysis. and additional paperwork. and additional paper work. packaging. DHL charged a flat monthly fee to customers who wanted to be included on its regular pickup route. Prices were often higher for parcels than for documents of equivalent weight due to extra cost for customs clearance. weight. One is excess plant capacity: the firm needs additional business and cannot generate it through increased sales effort. Under first approach. Sarrafzadeh said . frequency discount. handling.weight due to extra costs for custom clearance. handling.
customers recent it and salespeople can’t defend it. except that discounts were based on total weight shipped during a given monthly rather than on the number of shipment. CONCLUSION . In spite of they may sometimes attract the small routine shipper. the cheaper the unit shipment cost. The more often a customer used DHL during a given month. DHL senior management typically gave only general direction to sales reps on negotiating discounts. a frequency discount structure under which a discount was provided based on number of units shipped. Typically sales reps had separate monthly sales objectives for international. Besides. DHL launched a new advertising campaign in US with slogan “Faster to more of the world”. it has often proved hard to raise the monthly fees as fast as the per-shipment charges. Because it does not related to unit of value. domestic and total sales and received a bonus whenever they exceeded any one of the tree. DHL spent roughly 4% of worldwide sales on advertising. As a result. It’s easy for competitors to discover what the discounts are and undercut them.the monthly fee can work but only if it is properly marketed. A point noted they’re no longer discounts. Price Negotiations DHL sales reps had significant flexibility when negotiating proposals. The loaded half kilo structure resembled the frequency discount structure. Sales reps were organized geographically and were evaluated primarily on monthly sales. Sales managers were evaluated against profit as well as revenue objectives. SALES AND ADVERTISING DHL had a single sales force which sold both document and parcel services. In 1990. Better to publish only the book prices and apply discounts as needed on a case by case basis.
We believed a degree of order and consistency was necessary in DHL’s pricing strategy. Structure. RECOMMENDATION . and decision-making progress.DHL’s profits would be maximized if each country managers simply charged each customer.
Pricing structure • Difference in price charged for documents and parcels should be differentiated because of additional costs incurred for parcel shipping. • Difference in price across different industries. .DHL have a good strategy for the pricing policies. DHL still have an attention with the competitor do and to the customer needs. • Decline in price might be seen as decline in quality of service – may switch to other provider. DHL can hold out the market share by improve the quality of their service. Pricing Strategy – Price Leadership • Past and current – DHL charge premium price for delivering superior service. Shipping fee should be the same for customers across different industries. Although have a highest price. But. • Maintain image in the eyes of customers DHL delivers superior value. so DHL should continue this strategy. • Offer special price for Multinational Corporation seeking to cut deals if they allow DHL to handle all of their express shipping accounts Should be exercised and must help retain and gain large accounts for DHL’s marketing team.
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