Which Price is Right?

"I saw a huge difference between this software and the [survey]," says Adinew. "It is actually testing my customers. They call; we quote a price; they are actually shipping." In DHL's case, the Zilliant software measures something just as important: customers who called, got a quote, and didn't ship -- a failed price.

The stakes were huge. In the international markets where they competed, FedEx and UPS were underpricing DHL by 20% to 30%. But DHL has a strong international reputation. Did it need to match those discounts to hold its customers? Would less of a discount do the job?

The scale of the problem, in ordinary terms, was vast. DHL was looking at prices in 43 different markets (United States to Mexico, for instance, or United States to Japan), in a range of weights. Just the basic price grid had hundreds of boxes -- and DHL needed to test prices in every market for every product.

And the deadline was brutal. DHL and Zilliant talked in September 2001. Prices had to be set by December 17, to make the price-change date of February 1. After Adinew hired Zilliant, the company got its software installed at DHL's Tempe, Arizona call center in 14 days.

The Zilliant software would sit behind DHL's own systems, randomly offering customers the "experimental" prices, then recording the results. "We're taking real orders," says Adinew. "If something happens, and they shut it down, well," he laughs, "I wouldn't be talking to you right now."

Adinew and his staff had guesses about where raising and lowering rates would change volume and profitability. But Zilliant tested a range of prices for every product and every market, just to see. In the end, the system gathered tens of thousands of data points. DHL wound up changing hundreds of prices. And there were plenty of surprises. "Most of our prices went down," says Adinew. "But did we have to match the competition? Not at all." In fact, by lowering prices just a bit, DHL's "ad hoc" business not only stabilized, it grew. People were willing to pay more for DHL.

One key measure of the success of DHL's walk-up rates is the "quote-to-book" ratio. Of people who call to get a quote, how many actually ship? Before the Zilliant test, the number was about 17%. The new prices have increased the ratio to nearly 25% who call and ship. Revenue is up and profitability is up -- in the shipping business, in a recession. "That's the beauty of it," says Adinew. The Zilliant experiment paid for itself, he says, "ten thousand times over. I can't tell you the number, but it's huge."

Prices make the world's economy go round. OPEC looks like it's about power; it's really about price. CNBC looks like it's about business; it's really a TV network devoted to prices. Even money, for all its ostensible power, is just a solvent for price. And yet, for all their significance, prices have most often been taken for granted. Scientific pricing ends that.

Adinew, with his airline background, knows the power of what he did. "This was no guessing game," he says. "We will never do this the old way again. This is science." DHL is now starting to use the Zilliant software across all kinds of other segments of its business. And Adinew has seen the future: "In 10 years, no major company will be able to survive without this kind of software. You just won't be able to compete."

Charles Fishman (cnfish@mindspring.com), a Fast Company senior editor, considers himself "extremely price sensitive." His colleagues just think he's cheap.