Dilemmas in Management

Redefining the

Brand

Class: Brand Management

By: Joshua R. Beyerlein

Professor: Avinash Malshe, Ph.D.

Date: May 5th, 2009

Our text defines a brand as an intangible asset, posted eventually in the balance sheet as one of several types of intangible assets including patents and trademarks. A brand is also a conditional asset….an element that is able to produce benefits over a long period of time.[1] I define a brand as the recognition, perception and feeling of emotion that people have when they hear the name of a company. What does it make you want to do? Do you want to buy that companies service or product? Would you be proud to work for them? How do you recreate a brand after a 90% reduction of work force? How do you recreate a brand after you have lied to your customers? How do you recreate a brand when a good portion of the transportation community does not think you operate in the United States at all anymore? During this paper I will first discuss the background on DHL’s brand. Next I will discuss the situation at DHL and also the situation in our current economy. I will then discuss how I would reposition the brand to make it strong again in the United States. Lastly I will discuss what I feel the future of the brand holds.

DHL’s Brand History, Development, and Growth

DHL’s website states, “In 1969, Adrian Dalsey, Larry Hillblom and Robert Lynn (D, H, and L) founded DHL as a service shuttling bills of lading between San Francisco and Honolulu. The company grew rapidly and in a few years initiated service to the Philippines, Japan, Hong Kong, Singapore and Australia, creating an entirely new industry of international door-to-door express service in the Pacific Basin. Steady expansion continued in the 1970's as DHL initiated service to Europe (1974), Latin America (1977), the Middle East (1978) and Africa (1978). The international delivery company was the first to bring air express to the Eastern Bloc countries in 1983 and to the People's Republic of China in 1986. Today, DHL is the world’s largest and most experienced international air express network with service to 120,000 destinations in more than 225 countries and territories. More than 4,400 offices support DHL's extensive worldwide coverage. DHL operates an unmatched global system of 238 gateways and more than 450 hubs, warehouses and terminals. This allows for the rapid and efficient movement of shipments, resulting in fast, reliable and cost-efficient service to over 4.2 million customers worldwide. More than 400 aircraft operate for or on behalf of DHL, giving DHL the flexibility to use the fastest possible means of transportation to any given destination. As important as these facilities and equipment are to supporting DHL's global network, it is the worldwide team of more than 170,000 professionals whose commitment to anticipating, understanding and meeting each customer's unique shipping needs that makes DHL the industry leader.[2] DHL Express is owned by Duetsche Post which is the 55th largest company in the world with over 90 billion dollars in revenue and they are also the 6th largest employer in the world.[3]

To get to where DHL Express is today they had to make several acquisitions. The largest and most instrumental was Airborne Express in 2003. DHL Express has a strong presence every where in the world, but here in the United States. Purchasing Airborne gave them the ability to deliver the import product back to the United States and gave them a full supply chain solution. Over the past three years they had invested over ten billion dollars into the infrastructure of the company to give it competitive transit times and competitive service levels.

DHL Express was financially strong last year; its only weakness was in the United States unit. DHL Express was losing five million dollars a day in the U.S. They brought in a new CEO and change was brewing. The merger of DHL Express and Airborne was declared a complete failure. Operationally its cost of doing business was two times what its competitors were. From an information technology standpoint there were a lot of band-aids on everything from the billing platform to the customer automation, to the customer service side. The company truly worked despite itself. DHL’s new CEO, Ken Allen, has decided to take the company back to ground zero. It will soon be smaller than either DHL Express USA or Airborne were before the merger. When it is all said and done over the next couple of months they will have gone from 40,000 employees in the United States to 4,000 employees. That is a 90% reduction in work force. In November, 2008 DHL announced that they are an international only integrator in the United States and will import and export product around the world, but not domestically in the United States. They have done this for two reasons; first they have sustained over a billion dollar loss in the United States for three years and the shareholders are demanding change. Second, they feel the U.S. economy is weak and that will not change for at least a couple of years.

What has this done to the brand? I would say DHL’s brand in the United States is at an all time low. First, let’s start with the integration of the two companies. When DHL tried to integrate operations they had a complete shut down in operations for around two weeks. They lost a lot of loyal accounts as packages could not move out of the hubs. Then they failed to integrate billing systems successfully causing customers to leave DHL and again hurt the brand. Lastly they started going through the reduction in work force and restructure. They promised customers continually that they would not leave the domestic market, and then they still decided it was the best business decision to make. If you look in our market DHL’s trucks are yellow without any logos on them. As I talk to customers they do not think we operate in the United States anymore. DHL Express was ranked the worst company in the United States to work for by the Washington Post. We have pulled away from all advertising and sponsorships. So you have a brand that has lied or manipulated its customers, you have no presence in most markets, you have cut your workforce by 90%, and there is no one promoting the brand. How do you recreate what was once a strong international brand here in the U.S.? This is a fun challenge for anyone that enjoys brand management.

Current Economic Situation

Next, I feel it is important to discuss the current economic situation in the United States. Our economy is currently stuck in a recession. This has had a ripple effect throughout the world as the majority of the world is dependent on the US for both supply of goods and services and consumption of goods and services. The current major contributor of this downturn of the US economy is the freezing of the credit markets. This freezing of the credit markets prevents both business and consumers accessing the money they need to operate their business or purchase homes, cars, etc. The recession could be blamed on a number of things including the previous president’s economic policies, the war in Iraq, corporations who took on too much risk in the pursuit of profits, or consumers who over extended themselves on house loans. What ever the cause, the point is that the economy is currently in a recession and is experiencing the associated down turn in economic output. This reduction in economic output directly translates into a loss of jobs. In addition, this is a self perpetuating cycle, as more workers get laid off there is less purchasing by consumers which leads to less creation of jobs to create goods and services. This is a dangerous cycle that can spiral out of control and lead to an economic melt down or depression. Hopefully, a boost in capital available to banks enabled through the trillions in economic bail out will unfreeze the credit markets and pull the economy out of recession. Even if the bail out is successful it will take time for the US economy to make a come back in my opinion. Yes, we are starting to see some upturn, but that will be short lived. As a result, companies have to adjust their work force in accordance with the expected output of the company. This translates to a reduction in force at companies across the US. With the prospect of less business and a smaller budget DHL will have to be creative about how they market there brand.

Situational - Industry Analysis

Next, we will use Porter’s Five Forces Model to evaluate and analyze the external environment. First let’s look at the risk of entry by potential competitors. The cost to start an Express delivery company is extremely high. You either need to contract with a local airline/truck line, or purchase one. There will be some niche freight forwarders that come into the market and challenge and take some market share, but overall I do not see a lot of risk from a fourth major international carrier. I could see another domestic carrier in the next 18 months, but this should not effect DHL in the short term.

The second force is the intensity of rivalry among established companies within the industry. DHL Express has two very strong competitors FedEx Corporation and United Parcel Services (UPS). There has been speculation of a price war for the past couple of years and in my opinion we are close to being in one. We have seen discounts this year that are more aggressive than in years past. These discounts have been as high as 80% off of base rates for certain products. This is a strength for DHL Express as we have the lowest cost model after the restructure. I expect this to continue and for our competition to continue to remain strong. The incentives offered have led to decreased profit margins at all three companies. After the restructure at DHL Express it seems like UPS and FedEx have forgotten about us. It is almost like we do not exist as we take there most profitable highest revenue business their import and export business.

The third force is the bargaining power of suppliers. The larger DHL Express gets the better discounts we will get on some of our major costs. Fuel is pretty standard, and is one of our largest cost items. Supplies should be reduced slightly if and when the company continues to grow and there is a good amount of competition in the letter and box packaging industry. Overall, accept for fuel, I would say DHL can control these cost pretty well. With fuel it is common in the industry to add a surcharge which helps subsidize the cost. DHL also outsources a lot of its operations and it was just announced that if they move back to Cincinnati they will be given tax subsidies upward of 3.9 million dollars. These will all be DHL employees. Competitively they can control the costs of the airlift as well. They do not own their own airline in the United States, so they buy lift from other companies. They have guaranteed lift on some of the largest airlines in the world which helps them control their cost. UPS and FedEx both fly their own airline and have to have an airplane land in each market every day whether they are full or half full. In my opinion DHL has a better cost control than their competition.

The fourth force is the bargaining power of buyers. With two major competitors, buyers do have some power, but it is limited because of the lack of major competition. A smart buyer will either send out a request for proposal (RFP) or will bring in the two competitors and ask them to bid on their business. How they treat the incumbent depends on the relationship and is different at each company. I would say the bargaining power of the buyer is mediocre unless they can make their small package transportation carrier a commodity. This can be done at the mid to mid large account, but any account larger than that makes it difficult. Either way this industry has always been able to add a general rate increase every year which is not common in a lot of industries. This makes me feel that DHL Express has a strong position with its buyers and I feel that there are plenty of potential out there only owning 9% of the market share.

The last force is the closeness of substitutes to an industry’s products. There are really only two substitutes to the transportation of product. Products have to move around the United States and globally and there are few substitutes for a service company. First is the transfer of information through email rather than hard copy. Honestly, I feel we have seen most of this reduction already and expect the paper documents that are carried by DHL Express to remain consistent going forward, especially internationally. The second substitute I could see is the possibility of companies ordering more products and shifting it to more deferred services like ocean container. I do not see this happening in today’s economy though. Nobody wants to hold inventory for fear of not being able to sell it. With the increased cost of warehousing and the fact that product is staying on the shelf longer because of the economic times we are in right now we see just the opposite. We predict more companies will go back to a Just-In-Time type ordering system vs. ordering product and keeping it on hand. Overall we feel the need for transportation and a third small package carrier in the U.S. is strong. There are few competitors and the need to move product around will not change in the short or long-term. With DHL’s worldwide presence and the world continuing to flatten it should continue to give the company strong profits in the short term.