DHL opts for higher price over growth in U.S. market
DHL, battered by negative fallout from several months of severe service failures in its U.S. express delivery business, has shifted its strategy away from being the low-cost provider and will try to compete with FedEx and UPS on service, John Mullen, chief executive officer of DHL Express in the Americas, told investors at a Bear Stearns conference last week.
DHL is rapidly trying to build its U.S. ground network following the 2003 acquisition of Airborne Express, but is experiencing growing pains despite a $1.2 billion investment to increase capacity and service by adding 12 new regional sort centers, information technology, and other upgrades.
Mullen acknowledged that DHL was too aggressive on pricing and would correct its mistake by getting the price right rather than focus on growing market share.
Analysts say DHL has since fixed its problems and that service has improved a great deal in the past three or four months.
“Once we engineer quality into our network there’s no reason why we can’t be paid an equivalent amount” as FedEx and UPS, Mullen said. FedEx and UPS command premium prices because customers perceive their package delivery services as reliable.
“We can’t just show up and say we want a 15 percent increase but it will come as we prove our bona fides over time,” said Mullen, who also sits on the board of Deutsche Post World Net, DHL’s parent company. Mullen said DHL will gradually migrate price increases for its delivery products.
Major changes in DHL’s pricing are not likely in the immediate future because it will take time to change the culture of the sales force, which has been accustomed to selling to customers based on the company’s negative perception as the low-cost provider, said industry analyst Satish Jindel, who heads Pittsburgh-based SJ Consulting Group.
Scott Davis, chief financial officer for UPS, drew attention to DHL’s woes during the company’s own investor conference May 11, saying: “We’ve always said you don’t build a ground network in the United States in two or three years.”
Davis added that customers don’t forget when their packages are late. “We don’t over promise,” he said.