Reference no: EM132247372
Book name: Introduction to Information Systems - Lo - O'Brien, James Read chapter 10 Supporting Decision Making.
Answer the two questions at the end and submit them for grading. Each answer should be between 200-300 words in length. If you simply respond with what you think that is not adequate. Your answers must be supported with references that provide the contextual and environmental aspects surrounding your two questions replies. In other words, you must support your arguments and positions. You need to find at least two academic references (peer-reviewed journals) from another source such as a library journal article.
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?
Question-2 What are some of the challenges Deutsche Post DHL may face as it seeks to implement the new tool worldwide? How do these challenges change the job of the local marketing managers?
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."