Book name: Introduction to Information Systems – Lo – O’Brien,
James

“Read chapter 10 Supporting Decision Making. Review the
short case regarding Deutsche Post DHL on pages 462-463.

answer should be between 200-300 words.”

Question:

1.  What are some of the assumptions on which the new
allocation tool was built? How likely are those assumptions to stay
the same in the future? In other words, how enduring would this
tool be?

The case:

“Deutsche Post DHL is the result of the acquisition of DHL, a
courier company that originated in California and expanded into
extensive international operations, by Deutsche Post, the heir of
the government-run postal operator in Germany. As a result of this
and a series of major acquisitions between 2000 and 2005, the
Deutsche Post DHL group found itself as the umbrella organization
owning a complex portfolio of several regional and specialist
brands. As the company focused more and more on the international
logistics business, creating a strong and unique global brand
became an important aspect of that transition. As many of its
customers also operate on a global scale, the development of a
strong DHL brand was key. In 2002, DHL began an ambitious
brand-building effort that would ultimately transform the entire
organization.
Many marketers consider brand management to be more art than
science. Indeed, creativity figures prominently in brand management
courses and articles. Although it is certainly important, there is
also room for more fact-based approaches that can shed some light
on the kind of questions faced by DHL. Convinced of this, Dr. Klaus
Zumwinkel, then chief executive officer of Deutsche Post DHL,
initiated a project under the auspices of the department of
corporate brand management that brought together market research,
academic experts, and consultants to answer those questions and
develop a tool to help implement the answers across DHL’s worldwide
operations.
The brand-building effort took place in stages spanning years of
work and research. Underlying the entire project is the notion that
customers progress through a series of steps in the purchasing
process that represent different stages of consumer development.
For the particular case of DHL, those stages were identified as
brand awareness, brand consideration, brand usage, choice of main
provider, and choice of sole provider. This theoretical model is
based on a hierarchical approach to decision making; for example, a
customer must first be aware of a brand or product in order to
judge it. To evaluate the strengths and weaknesses of the DHL brand
across these different stages, large random samples of customers in
each country were interviewed, answering questions about DHL as it
compares to the other major providers (e.g., FedEx, UPS, TNT, or
any major local brand). These data were collected worldwide in two
waves
in 2004 and 2006, with a new wave planned every five years or so
for updating purposes.
The analysis of these data, which ultimately led to building a tool
to support local managers in allocating their marketing resources,
proceeded in five stages. First, the sequential choice model
outlined above was overimposed on the data to better understand in
which of the five purchasing stages the DHL brand was particularly
strong and in which it was not. The overall objective of the entire
project, of course, is to move as many customers as possible to the
last stage: DHL as their “choice of sole provider.” This first
analysis also compared DHL to a benchmark competitor with the most
market share in the particular market under examination. The
results were very revealing. In the U.K. market, for example, DHL
had an advantage over TNT in the percentage of customers who both
knew the brand and considered it part of the relevant set of
alternative service providers—a 10 percent advantage. By the time
customers reached the “main provider” stage, the tables had turned
and the 10 percent advantage become a 7 percent disadvantage
compared to TNT.
These results were fed into the second stage of the process to
understand how much of that gap could be closed by improving the
brand. In this step, specific brand attributes of both DHL and TNT
were compared across stages of the customer choice process to
understand in which attributes and stages the differences in
branding efforts could be responsible for the problems observed in
the customer conversion process. This analysis identifies which
specific attributes may need to be targeted, and what could be the
increases in revenue derived from those efforts—on the assumption
that if the most relevant attributes at each stage were improved
beyond those of TNT (or any other competitor), increased sales
would follow. The key in this step of the process is that not all
brand attributes appear to be equally valuable. Stages three and
four further refined these results by employing mathematical models
and optimization algorithms to derive optimal weights for each
specific combination of brand attribute and stage. Using a simple
visualization tool based on the relevance for purchase of each
attribute and how well DHL fared against its competitors, a matrix
mapping all these for both DHL and TNT along these two axes
highlighted where DHL should focus in the future.

All the previously discussed results were used as input into the
final step of the process, the development of a tool that would
support the optimal allocation of local marketing resources across
media and activities. When you think about it, there are a number
of choices as to what marketers may do with their budget. They may
launch an advertising campaign in television and print media, or
focus on targeted direct mailing, use online media, or sponsor
sport events, just to name a few. It can also be used to revamp the
stores, and train employees in ways that enhance the interaction of
the face of DHL with its customers. The choice of medium and
activity should be largely determined by the brand attributes that
are being targeted. For example, changing perceptions about how
“environmentally conscious” DHL is as a company will most likely
require a very different approach from communicating that it offers
“great service at low prices.”
However, because financial resources are always limited, these
choices must be made under a budget constraint. Using previous
results, the researchers derived an elasticity for each brand
attribute, which represents the expected increase in revenue which
comes from an increase in perceptions of a particular brand
attribute. Then, brand attributes should be targeted based on their
effectiveness, which will vary for each particular country or
market. Underlying all this is the optimization of a
constrained-profit-maximization problem, but the support tool
itself can be easily implemented in a spreadsheet. The results were
quite dramatic: In the U.K. market, for example, all attributes
were given relatively similar weights when allocating marketing
dollars (pounds actually) to them. The new tool, on the other hand,
recommended allocating 54 percent of resources to two specific
attributes, 38 percent to three other attributes, and spreading out
the resulting 8 percent. This new allocation scheme is expected to
result in a net increase of 4.8 percent in sales over the existing
approach.
The global brand-building effort resulted in an improved perception
of DHL as a global partner for several customers. Bernie
Ecclestone, president and chief executive officer of Formula One
Management, attested to the success of DHL’s brand strategy: “We
are obviously very proud and very happy to be partners with a very
successful brand.” Pascal Eymery, vice president of Supply Chain
and Logistics at Airbus, highlighted trust as a core perception of
the brand, resulting in joint advertising campaigns: “DHL has
earned our trust because they are committed to very good
performance standards in terms of quality, service, and costs.” The
collection of data and their subsequent analysis for each
individual country helped highlight that each market is somewhat
unique in what needs to be done in order to strengthen the global
brand. It also helped communicate that both brand strategy and
fact-based decision making were here to stay—indeed, brand strategy
discussions are now a permanent item in global board
meetings.
On the financial side, the impacts of the project and the resulting
tool have also greatly exceeded all expectations. While the “value”
of a brand is notoriously difficult to quantify, conservative
estimates indicate that the value of the DHL global brand increased
from $4.19 billion in 2003 to $5.51 billion in 2008, or 5.6 percent
per annum. Using the cost of capital of DHL, obtaining such an
improvement should have cost $265 million in brand expenditures,
whereas actual brand expenditures over the same period were lower
at $200 million—a return on investment of 38 percent for the
project. Not controlling for the effects of brand acquisition, at
the end of 2008, the global DHL brand was internally valued at
$8.22 billion. This compares well with an independent valuation of
$9.72 billion by an external report, which noted that “Sometimes it
looks like an overnight success. But it rarely is. The brand
achieved its position due to hard work over many years, developing
and communicating clear and sustainable benefits.” It is
indisputable that its brand is now a key DHL asset.”