DHL used to have one-price-fits-all list prices for shipping packages in the United States and around the world, and when potential customers called for rates DHL scared them off by asking for more than FedEx or UPS. With Web pricing tools, DHL tested the market by offering cold callers different prices to see how low prices could go and still make a profit. In the end, DHL wound up changing hundreds of prices. There were plenty of surprises. Most prices did go down, but the company did not have to match the competition. In fact, by lowering prices a bit, DHL’s “ad hoc” business not only stabilized but it also grew. For instance, of people who called to get a quote, 17% actually shipper prior to the pricing overhaul. The new prices have increased the ratio to nearly 25%. Constant price revision, however, can be tricky where consumer relationships are concerned. Research shows it tends to work best in situations where there is no bondbetween the buyer and the seller. One way to make it work is to offer customers a unique bundle of products and services to meet their needs precisely, making it harder for them to make price comparisons. This tactic is being used to sell software, which is vulnerable to price wars because the cost of producing more copies is near zero. Application service providers are ‘renting’ their software and support by the month instead of selling an unlimited-use license.
The tactic most companies favour, however, is to market perfect pricing as a reward for good behaviour rather than as a penalty. For instance, shipping company APL, Inc., rewards customers who can better predict how much cargo space they will need with cheaper rates for booking early. Customers are getting savvier about how to avoid buyer’s remorse. They are changing their buying behaviour to accommodate the new realities of dynamic pricing – where prices vary frequently by channels, products, customers and time.strategy is in line with current trends, with companies emphasizing health consciousness, the time is right for Kellogg to perk up and get in on the action.
The tactic most companies favour, however, is to market perfect pricing as a reward for good behaviour rather than as a penalty. For instance, shipping company APL, Inc., rewards customers who can better predict how much cargo space they will need with cheaper rates for booking early. Customers are getting savvier about how to avoid buyer’s remorse. They are changing their buying behaviour to accommodate the new realities of dynamic pricing – where prices vary frequently by channels, products, customers and time.strategy is in line with current trends, with companies emphasizing health consciousness, the time is right for Kellogg to perk up and get in on the action.
Question 1. Under what conditions will dynamic pricing be smart and successful
pricing?
Question 2. Explain the success of DHL’s ad-hoc business from a pricing perspective?