Airborne Express - Case study
Strategy and Policy
1. Describe and contrast the business strategies of Airborne Express and Federal Express in the Express Mail industry.
Federal Express believed that as long as packages arrive reliably and on-time, any route was acceptable. They also found that express mail would be efficient through hub and spoke routing. An all express-mail airline would lift packages from across the nation to a single airport, sort them, and send them to their destinations. They refined the target market to focus on small packages more than bulk shipping. Federal Express gave customers Powership computer terminals and shipping software, allowing them to prepare shipping paperwork, streamline billing, and track shipments. Federal Express used mass media marketing to reach all possible customers. Airborne Express targeted the business customer that regularly shipped a large volume of urgent items to other business locations. They passed over residential deliveries and infrequent shippers. They are very selective to whom they serve which allows Airborne Express to fulfill customers needs by doing what the company is best at. They also owned the airport that served as its major hub instead of renting out space like Federal Express does. The aircraft used by Airborne were used and their cargo containers were specially designed to fit through a normal airplane door. This combination led to an 80% utilization of space instead of the 65-70% that was the norm of Federal Express. Airborne stayed away from newer technologies and allowed others to be “Guinea Pigs” with new systems, they even relied more heavily on man power than automated sorting. They avoided mass media and targeted logistics level managers with a sales force.
2. What are the key Opportunities and Threats in the Express Mail industry?
In order to have a clear understanding of Airborne’s position and to make recommendations about future moves, it is critical to examine the industry environment - competitors, customers, and suppliers. To do so, the Porter’s five forces can be used. Within this framework, a weak competitive force can be viewed as an opportunity because it allows a company to earn greater profits.
Trying to find the opportunities of the express mail industry, the existent barriers of entry can be seen as a weak force because they make it harder for companies to enter this industry. The costs of becoming established in this industry are so large that it discourages potential entrants. For instance, a company entering this industry would have to incur large upfront costs to operate, such as constructing a hub and purchasing a fleet of airplanes. In addition, a potential entrant must spend large amounts on technology (for example, information management software) in order to be competitive in this industry. Another barrier of entry is the economies of scale possessed by the main players. Due to their size, they are in better position to negotiate favorable contracts with suppliers.
Another interesting force is the intensity of rivalry between companies within the industry. As we can read in the case, industry observers expected volumes to grow at roughly 10% annual clip for the next five to ten years; this means that, if demand in the industry continues to grow, the competition and the rivalry between companies will become more moderate. Consequently, this situation will provide greater scope for companies to compete for customers.
The Express Mail industry faces a number of threats, which can be examined using Porter’s five forces model. One of the most threatening forces is the availability of substitutes within the industry. Consumers have a number of different substitute companies to choose from, which vary in price and delivery method. Once a contract was up, customers had no loyalty, and had the ability to choose among a number of carriers.