Dhl Pricing Strategy free essay sample

Although DHL is cautious in charging for this differentiation because of lack of guarantee, their advertisements and strength are in that regards. -Value added services such as package tracking technology, consulting for international shipping requirements are offered for free within the shipment price itself -DHL’s strong custom relationship and network are high worth for parcel business specially for air express parcel business in Europe -DHL is rated high on â€Å"value for money†, so customers think they get more benefit for the price they pay to DHL. There is scope for 2. What are DHL’s strengths and weaknesses relative to the competition? Strengths: -DHL has a well-established brand name that is synonymous with reliability and value for money -Extensive International Network an accessibility of package shipment locations much more than its competitors. -Faster Speed of delivery By using a variety of scheduled international carriers, DHL is able to optimize its transport network to minimize deliver times -Worldwide scope, infrastructure, relationship network and people -Custom network and relationships for faster parcel clearing -Higher ratings in reliability and value for moneyStrong Europe foothold Weaknesses: -Very less global contracts (only 10)/ Less MNC accounts when DHL infrastructure is suited to serve widely spread out global companies -Single sales force selling both documents and parcels, although the decision makers for the two product lines are different at the customers’ end -The pricing scheme is complex and varies greatl y throughout the regions based on country managers decisions -Not a strong domestic player in large countries like US, Canada and Australia 3. What are some advantages and disadvantages of DHL’s current pricing structures?Are they exercising price leadership? Explain. Advantages: -Different pricing structures can accommodate different type country market customers. -Flexible pricing structures, which gives the regional managers direct control over pricing. The sales reps are allowed to give discounts to their biggest customers upto 35% without any approvals and upto 60% with upper management approvals which was beneficial in customizing proposals Disadvantages: -Due to different product lines of DOX and WPX, the frequency structure of either the half kilo structure didn’t yield optimized discounting strategy.Discounting should have been on revenue base than weight or frequency -Country managers had full control which sometimes led to unprofitable price setting or discounting -The monthly pricing structure was disadvantageous as an â€Å"all you can get† pricing. It also made it hard to increase the price without clear basis of the expected shipment costs increase DHL is exercises price leadership in new markets where the competitors base their prices off of them. They also have been charging a premium for their services and all the competitors are basing off their prices lower to that of DHL’s.They are the dominant firm and the competitors are compelled to match and beat their price. 4. In assessing these new pricing opportunities, should DHL establish a worldwide pricing policy or allow regional managers to customize prices locally? Clearly explain pros and cons. If you anticipate that your recommendation will generate conflict, explain how this will be managed. If you are going to forgo opportunities to customize prices, justify your strategy. Worldwide pricing model provides opportunity for simple and structured pricing. It could be useful for securing global contracts.Worldwide pricing policy will simplify accounting for them as well as allow a lower cost for their biggest customers. It will allow DHL to attract global contracts and MNC contracts. This will help increase penetration in the same accounts and reduce splitting of document and parcel contracts. Regional pricing allows DHL to effective extract a higher value from the customers in special areas like Africa – where they are the only service provider. Lowering the cost there won’t net them more customers, but will impact the company’s bottom line. Moreover, regional managers know their regions the best and they are responsible for profits and losses in their regions. Worldwide pricing is convenient but less profitable. Costs and profitability were significantly different between geographies and regions. So setting up worldwide pricing could be profitable in some and unprofitable in other regions as profitability analysis would be done based on average costs. A central pricing policy will minimize any impact that the regional managers may have.The pros for each approach are cons for the other. Given the facts in the case, the best option for DHL is to try a hybrid approach, where there is a base pricing structure which is worldwide. The regional managers have the authority to increase or decrease the price for their own regions depending on the type of the customer they are serving. DHL could come up with a structure which gives discounted pricing to worldwide contracts with the expectation of getting a larger share of the customer’s business in both document and parcels business.Bundling of document/parcels pricing will be great so that customers don’t split the two between two different air express companies. This approach is not expected to generate much conflict as pricing could be based on customer segments and geographic spread. Regional managers can customize their regions by providing discounts on top of the base pricing structure. As long as the regional managers have visibility and incentives to improve company profitability than just their own regions, it should result in less conflict. 5. Given your recommendation in (4), what should be the role of the corporate pricing manager? If you were in his/her shoes, how would you handle the upcoming meeting? As the Corporate Pricing Manager, I would ask all regional managers to come prepared with details such as size of customer segment, product line revenues (DOX,WPX), fixed and variable costs servicing these segments, PL statements, dynamics and interactions of their regions with others, analogous competitor prices, and recommendation of pricing structure for their region with the goal to maximize profitability while maintaining market share.As a team then we can establish as price floor for services in their particular regions. It will allow the sales reps to determine the level of discounts to offer to the biggest customers when they are negotiating with them. My agenda for the meeting will be to explore how prices in region affect the business in the other region. Specifically I would try to find out if the regions had the potential to cannibalize others. For e. g. the unprofitable regions like Canada exhibit 12.This meeting will be a great platform for all regions to figure out the pricing and profitability dynamics of overall company based on their individual actions. Goal from this meeting is to a) brainstorm a common framework to be used by all regions in tweaking their prices b) unify all regions by asking them to think more broadly in terms of cross price elasticity between regions. Enforce stricter discounting policies and enable regional managers to explain customers about the value created by DHL and associated pricing.Having a pricing strategy that is based on numbers and PL statements will be a much reasonable approach than arbitrary setting a worldwide pricing policy. Once backed by data, the regional managers are less likely to reject the pricing policy. Moreover, it’s important to keep them motivated as well. We will also discuss possibility of initiating a new team to help customers deal with regional pricing structure.