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Pricing: Evaluation of Pricing Policy

DHL developed different pricing strategies as it expanded globally in the 1970s-1980s. Country managers had significant control over pricing, setting prices based on local market conditions and competitors. DHL's prices were typically 20-40% higher than competitors. In 1987, DHL began using PRISM software to analyze profitability at different levels, but it could not consolidate profits across countries. DHL's base prices considered product type, weight, origin and destination. It offered three pricing structures - monthly handling fees, frequency discounts based on shipment volume, and loaded half-kilo discounts based on total monthly weight. Sales reps had flexibility in negotiating discounts on proposals.

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64 views2 pages

Pricing: Evaluation of Pricing Policy

DHL developed different pricing strategies as it expanded globally in the 1970s-1980s. Country managers had significant control over pricing, setting prices based on local market conditions and competitors. DHL's prices were typically 20-40% higher than competitors. In 1987, DHL began using PRISM software to analyze profitability at different levels, but it could not consolidate profits across countries. DHL's base prices considered product type, weight, origin and destination. It offered three pricing structures - monthly handling fees, frequency discounts based on shipment volume, and loaded half-kilo discounts based on total monthly weight. Sales reps had flexibility in negotiating discounts on proposals.

Uploaded by

Kavya Gopakumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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PRICING

Evaluation of Pricing Policy

As DHL expanded service into new countries throughout the 1970s and 1980s. It developed
many different pricing strategies and structures. DHL country managers had almost total
control of pricing. They typically set prices based on four factors: what the market could
bear, prices charged by competition (which was often initially the national post office),
DHL’s initial entry pricing in other countries, and DHL‘s then current pricing around the
world.

DHL’s prices were historically 20% to 40% higher than those of competitors. Competitors
who followed DHL into new markets often patterned their pricing structures after DHL’s.
Since 1987, DHL use PRISM (Pricing Implementation Strategy Model) software to analyze
their profitability at the country, customer segment and individual customer level. The inputs
to the model were cost data along competitive price information based on historical data
which had been consolidated and averaged. However, PRISM could not consolidate the
profits of a given customer across countries. PRISM was not used extensively by all DHL
offices.

Base Prices and Options

DHL’s base prices were calculated according to product (service), weight, origin, and
destination. Prices were often higher for parcels than for documents of equivalent weight due
to extra cost for customs clearance, handling, packaging, and additional paper work.

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.

Besides, a frequency discount structure under which a discount was provided based on
number of units shipped. The more often a customer used DHL during a given month, the
cheaper the unit shipment cost. Sarrafzadeh noted they’re no longer discounts. Though they
may sometimes attract the small routine shipper. It’s easy for competitors to discover what
the discounts are and undercut them. Better to publish only the book prices and apply
discounts as needed on a case by case basis.

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.
Price Negotiations

DHL sales reps had significant flexibility when negotiating proposals. DHL senior
management typically gave only general direction to sales reps on negotiating discounts.

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