DHL Ships New Pricing Model

Computerworld - Last year, DHL Worldwide Express Inc. was looking for a way to simplify the pricing strategy for its express shipping services in order to capture more customers. So the company turned to optimization software to help determine pricing for maximum profitability.
DHL wanted to know exactly what prices customers who live in different geographical zones would pay for express shipping -- particularly to international destinations -- so it could remain competitive, says Aman Adinew, senior manager of pricing and yield management at the San Francisco-based shipping firm.
"We wanted to create a new pricing strategy ... because we found out in certain zones we were charging more than [United Parcel Service Inc.] or FedEx [Corp.]," Adinew says. "That pricing strategy was done eight to 10 years ago."
Choosing a Tool
Adinew says that when DHL started looking for a vendor, his colleagues were leaning toward a well-established company, which he declined to name. But he decided to throw his support behind technology developed by Austin, Texas-based start-up Zilliant Inc. "I felt Zilliant had a quicker turnaround time and better analytics," Adinew says.
Marvin Newell, Zilliant's CEO, says that because one price doesn't fit all customers, companies such as DHL must understand customer purchasing behavior in order to price their services correctly and increase profits.
DHL wanted to know how many customers it would gain or lose if its prices went up or down. "We chose Zilliant Price Manager to answer that question, because the sophisticated system provided us with the information we needed to better understand how our customers respond to pricing and service levels," Adinew says.
The Core Technology
Zilliant monitors customer purchases and nonpurchases and then analyzes the information using advanced statistical techniques to understand price/volume relationships and predict the financial impact of price changes, according to a company spokeswoman.
At the foundation of Zilliant's Price Manager is a pricing data mart that combines relevant customer, cost and competitive information. By consolidating information into one source, then enhancing the data with experiments and analysis, Zilliant's software helps companies understand the effect of the seasons, competitive price changes and market shifts, the company says.
Zilliant uses mathematical and statistical algorithms to perform specific computations against all of the customer and company data and determine the best pricing levels.
IT-based pricing strategies can help companies become profitable by helping them understand which customers are likely to pay more and when, says Eric Mitchell, founder and president of the Professional Pricing Society, an association of marketing and pricing executives in Atlanta.
Bookings Get a Boost
Using Zilliant, DHL was able to get an accurate, detailed and timely picture of how price affects profit, Adinew says. Armed with the resulting information, DHL was able to set pricing and service options to increase bookings.
"Previously, if 10 people called a day, only five of them would book shipments," Adinew says. "But after deploying Zilliant Price Manager, we saw an immediate 5% to 10% increase in bookings of new customers."
With the success of the first pricing program, Adinew says, DHL plans to expand the use of Zilliant's Price Manager for future pricing initiatives.

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