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24 April, 2011.
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
Subject Page No
Letter of Transmittal
Acknowledgment
Executive Summary
1. Introduction
1.1 Purpose and Scope
1.2 Limitations
1.3 Assumptions and Methods
2. Brief History of DHL
3. Company Background and Organization
3.1 Introduction
3.2 Price
Acknowledgment
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. First of all we express my gratitude to my
respectable teacher and supervisor Md. Ziaul Hoq lecturer & our honorable course teacher
AIUB. We are pleased to him for his worm hearted supervision, advice and suggestion in the
service marketing course.
We would like to give special gratitude to our group member, who creates lots of opportunity
to collect information to make this report.
Finally and most importantly we feel the pleasure to convey my gratitude to all officials for
facilitated my work by providing their assistance. And we would like to pray my apology if
you find any unwilling mistake in this report.
1. Introduction
1.1 Purpose and Scope:
Md. Ziaul Hoq, Our respectable course instructor, has assigned us to
prepare this report. 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”. Its due submission date is 24th April, 2011.
1.2 Limitations:
• Our knowledge is limited in this field for performing analysis. That is
why this Report deals mainly with findings rather than
recommendation.
• Time limit
• Lack of information
2. Background
The company did not begin developing a network within the United States
until 1983, when it established a hub at the Cincinnati/Northern Kentucky
International Airport. That year the company also became the first to
offer international service to Europe's Eastern Bloc. In the years to follow,
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. More recently, DHL was the only company
to continue air express service in Indonesia - despite the civil unrest in
that country during May 1988.
In December 1998, DHL was named the "World's Most Global Company"
by Global Finance Magazine, based on criteria including global reach,
sales, assets, and profits. Featured alongside companies like Reuters,
Citibank, and Shell, DHL was specifically cited for its practice of
establishing "its own, rather than agent, operations overseas" and for
employing "as many local staff as possible." To bolster its international
influence, DHL has expanded its interests in Asia, Australia, and South
America since summer 1999.
The main reason DHL is involved in domestic shipping within the U.S is to
lower costs and increase the reliability of their international shipment. In
1990, DHL accounted for only 3% of intra-U.S air express shipment but
20% of overseas shipment from the U.S. DHL grew rapidly and, by 1990,
serviced 189 countries, (from exhibit 1).
DHL used a hub system to transport shipment around the world. In 1991
the company operated 12 hubs. Within Europe, the U.S, and the Middle-
East, DHL generally used owned or leased aircraft to carry its shipments,
while on most intercontinental routes it used scheduled airlines. In 1991,
65% of DHL shipments were sent via scheduled airlines and 35% via
owned or leased aircraft.
In 1990 DHL had 900,000 accounts of which the top 250 account
represented 10% of revenues and 15% of shipments. DHL had only about
10 global contract with customers (represent 1% of revenues), as few
multinational corporation (MNC) headquarters had expressed interesting
in negotiation such agreements. Most MNCs were decentralized. DHL did
have many regional agreements with MNCs as well as contracts in
individual country markets.
Introduction:
Price:
Price is the sum of all values that customer give in order to get the benefit
No matter what type of product has to sell, the prices have to charge the
customers or clients will have a direct effect on the success of your
business. Though pricing strategies can be complex, the basic rules of
pricing are straightforward:
Pricing Strategy:
Pricing strategy refers to method companies use to price their products or
services. Almost all companies, large or small, base the price of their
products and services on production, labor and advertising expenses and
then add on a certain percentage so they can make a profit. There are
several different pricing strategies, such as penetration pricing, price
skimming, discount pricing, product life cycle pricing and even
competitive pricing.
DHL’s key of success:
Absolute dedication to understanding and fulfilling DHL’s customer’s
need with the appropriate mix of service, products, and price for
each customer.
This strategy will work if the market is large enough, if there are enough
buyers, if there is high Product or service demand, and if the company has
a good (and low) cost structure.
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. PRISM was used for the
following purposes:
• Analyzing the profit impact of possible tariff adjustment, taking into
account the competitive intensity of the route.
PRISM was not used extensively by All DHL offices sometimes DHL
Estimating demand curves by survey and statistical analysis for simple
pricing structure. DHL’s base prices were calculated according to the
product (service), weight, origin and destination.
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, and overall contribution margins.
DHL have pricing flexibility. They can customize the table to the
customer’s needs, because this customization is really helps negotiations.
Geographical pricing:
In geographical pricing the company decides how to price its product to
different customers in different customers in different locations and
countries. As DHL expanded service into new countries, it developed
many different pricing strategies and structure.
DHL country managers had almost total control of pricing, they typically
set prices based on four factors: what the market could bear, price
charged by competition (which was often initially the national post office),
DHL initial entry pricing in other countries, and DHL’s then current pricing
around the world. From this strategy, we know that the pricing policy is
different in each country, which appropriate with the condition and
situation of the country
For the allowance concept, DHL also have the other strategy, like
negotiations price that make possible to get flexibility price. The strategy
which customize the table to the customer’s needs, and this strategy
really help the negotiations.
Promotional Pricing
Promotional pricing strategies are often a zero-sum game. If they work,
competitors copy them and they lose their effectiveness. If they do not
work. They waste the money that could have been put into other
marketing tools. In this case, DHL did not make a promotional pricing, but
to hold out their customer they make a strategy pricing structures.
Differentiated pricing
Company often adjusts their basic price to accommodate differences in
customers, product, locations, and so on. Although FedEx charged the
same for parcel and documents, DHL have a differentiation on product
basic price, DHL base price were calculated according to product (service,
DHL have 2 kind of product services there are worldwide document
express and worldwide parcel express), weight, origin, and destination.
Prices were often higher for parcel than for documents of equivalent
weight due to extra costs for custom clearance, handling, packaging, and
additional paperwork.
Companies often face situations where they may need to cut or raise
prices. In this analysis, we want to know about DHL strategies in initiating
and responding to price changes.
Pricing Structures:
In all country markets served, DHL followed one of three pricing
approaches: monthly handling fee, frequency discount, and loaded half-
kilo. Under first approach, DHL charged a flat monthly fee to customers
who wanted to be included on its regular pickup route. Sarrafzadeh said
the monthly fee can work but only if it is properly marketed. Because it
does not related to unit of value, customers recent it and salespeople
can’t defend it. As a result, it has often proved hard to raise the monthly
fees as fast as the per-shipment charges.
The loaded half kilo structure resembled the frequency discount structure,
except that discounts were based on total weight shipped during a given
monthly rather than on the number of shipment.
DHL had a single sales force which sold both document and parcel
services. Sales reps were organized geographically and were evaluated
primarily on monthly sales. Typically sales reps had separate monthly
sales objectives for international, domestic and total sales and received a
bonus whenever they exceeded any one of the tree. Sales managers were
evaluated against profit as well as revenue objectives.
CONCLUSION
DHL’s profits would be maximized if each country managers simply
charged each customer.
RECOMMENDATION
DHL have a good strategy for the pricing policies. Although have a highest
price, DHL can hold out the market share by improve the quality of their
service, so DHL should continue this strategy. But, DHL still have an
attention with the competitor do and to the customer needs.
• Past and current – DHL charge premium price for delivering superior
service.
Pricing structure