Marketing Essay – FedEx Corporation

Fed Corporation A Strategic Marketing Analysis Student Number: 1324449 Word Count: 2000 words Pages: 16 (Including cover) 1324449 MS Assignment Executive Summary Every generation expects easier access to more of what the world has to offer; more products and services, more Information and Ideas, more people and places. Today, a number of companies, Fed Express, Fed Ground, Fed Freight, Fed Kink’s Office and Print Services, Fed Custom Critical, Fed Trade Network and Fed Services compete collectively under the Fed umbrella.

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From transportation to e- commerce to business solutions, Fed offers a vast range of services. Over the years, it grew into a company worth $29 billion, operating in over 200 countries (Fed, AAA). The aim of this business report was to analyze the company’s internal and external business environment, resources and segmentation strategies, and evaluate how these factors combine to affect Feeder’s operating margins and profitability. Fed was unable to escape damage during the economic slowdown In 2009. The company saw revenues and net Income plummet.

Due to the nature of the business, It Is subjected to high fixed costs, which made the drop in package volume across all of its divisions n 2009 especially difficult to digest. Fed, however, cut costs in a strategic fashion, restructured operations, and continued investing in both its brand and its customers. As a result, the company emerged strongly from the recession and is now of the largest courier service companies globally. Due to the highly competitive environment in which Fed operates, the company faces constant pressure to innovate, satisfy consumers, and gain market share.

Strengths B. Weaknesses C. Segmentation 2 Introduction Fed is one of the fastest growing companies globally. Headquartered Memphis, Tennessee, its various divisions, including Fed Express, Ground, Freight and Services operate collectively under the Fed Corporation umbrella (Fed, AAA). This scope of this report is to provide a comprehensive analysis of Feeder’s strategic capabilities, based on the company’s resources, internal and external business environment and segmentation strategies. Finally, recommendations of how the be put forward based on critical evaluations of the aforementioned factors.

External Analysis A. Porter’s Five Forces 1. Threat of New Entrants Due to high start-up costs, barriers to entry are very high. Considerable marketing capital is needed to establish a presence in an already-matured industry. Another barrier is trade tariffs and international regulations. It is difficult to establish an international transportation network, and existing firms will already establish relations with foreign countries. Existing companies also have an absolute cost advantage due to their large shipment volume, allowing them to achieve economies of scale. 2.

Extent of Rivalry between Existing Firms Established players compete vigorously, using pricing and acquisition strategies to diversify and achieve strategic growth. The recent partnership between DEL and Sinatra, China’s most prominent domestic airfreight carrier pose a threat to Fed (Wharton et. Al, 2012). Fed will require new marketing strategies and alliances to tackle the fierce competition. The low switching cost for consumers further intensifies rivalry, and firms have to constantly strive for improvements in quality, pricing and innovation to retain market share. 3.

Bargaining Power of Consumers Due to low switching costs, consumer bargaining power in the industry is high. With access to perfect information, consumers can readily compare prices and services of arioso carriers, and turn to firms with lower prices or better service innovation. Due to the industry competitive nature, time-volume contracts with major customers inherently exist. This is especially true for large corporations, like MOM, which ships in large volumes and can bargain for discount. Large buyers can negotiate rates and play competitors against each other to lower prices. . Bargaining Power of Suppliers Those that supply products (e. G. Packaging materials, vehicles) have relatively low bargaining power due to competition in their respective industries and Feeder’s indifference towards contracting one company over another. Although from an investment standpoint, it is more sensible to purchase in bulk from a single company for price and maintenance purposes. Fuel suppliers have more bargaining power. Although Fed can partially offset their vulnerability with fuel surcharges, there is cap to how much surcharge it can transfer to customers.

Although certain projects can be outsourced, Fed cannot bargain with suppliers for remedying business functions that requires immediate attention. Outsourcing operational activities also requires considerable time and expansion. Consequentially, supplier bargaining power is moderate. 5. Threat of Substitute Products Threat of substitutes is moderately low. In this day and age, many businesses have a strong online presence. It is therefore difficult to find a substitute to shipping services. Fed offers ample delivery options, including air express, home delivery, truckload, freight etc.

Customers can switch between delivery methods and still retain Feeder’s services. However, although Fed has differentiated itself with its integrated range of services, other forms of electronic communications (I. E. Fax machines) offer an alternative communication medium. B. P. E. S. T. L. E Analysts Fed holds authority certificates to serve more foreign countries than any other U. S. Air carriers (United States Securities and Exchange Commission, 2013), allowing it to offer single-carrier service to many points not served by principal competitors.

However, many of its competitors are government-owned or subsidized, giving them greater resources, lower cost and more favorable operating conditions. Under the 1958 Federal Aviation Act, both the U. S. Transportation Department and Federal Aviation Administration can exercise regulatory authority over Fed Express (ibid). Philippines recently banned Fed on the basis that their operations were ‘detrimental to the interest of local competitors and of the Philippines economy as a whole’ (Puny, 2013), thereby limiting Feeder’s growth prospects. 2.

Economical Globalization has eased barriers to trade, integrating the world’s economy. Sais’s continuous recovery and the acceleration of domestic and foreign trade favor the growth of the transportation industry. In 2001, U. S. Imported almost 60% more goods than it exported (German, 2003). With the widespread of e-commerce, consumers increasingly purchase products online. With its extensive global network, Fed can offer them solutions to transporting products better than its rivals. However, a certain amount of flexibility is required on its part to respond to unpredictable economic factors.

An example is the volatility of fuel prices, which consume a bulk of Feeder’s operating costs. Any external events that lead to oil supply reductions and consequently fuel price increases would adversely affect Fed. Protecting against piracy and terrorism threats is another obstacle because of the appreciable costs involved (World Ocean Review, 2010). 3. Socio-cultural/ Environmental E-commerce is a major catalyst of today’s economy. Increasing numbers of people who engage in online activities (e. G. E-mail, online banking) is advantageous to.

Online purchases have also been continuously growing, increasing demand for package delivery services. Survey studies revealed three in five Internet users shopped online in the last twelve months (Spryest, 2011). An expanding e-commerce market is likely to drive demand for freight 6 Today, there is a huge concern regarding environmental awareness. Fed uses environmentalism’s recyclable packaging and hybrid vehicles to reduce harmful emissions into the environment (Hoyt, 2006). This emphasizes Feeder’s posture towards environmental protection and safeness. . Technological Due to technological advances, customers can readily track their shipment. Using a wireless system, Fed offers package-tracking data through its web-enabled devices, allowing customers to track their shipments door-to-door (United States Securities and Exchange Commission, 2013). However, there is a high implementation and maintenance cost in using high-tech information technologies. Large-scale system failures could damage Feeder’s credibility, creating a logistic catastrophe. C. Opportunities International expansion

Fed Express recently acquitted its Indian service provider, Parka’s Air Freight, one of the largest domestic express companies in India (Bell, 2007). Feeder’s expansion initiatives magnify their global reach, whilst reducing their heavy dependence on the U. S. Market. Research indicates that the Chinese air-express market is expected to grow 34%, thrice the global average of approximately 11% (Denominator, 2010). With their increased focus in China, Fed is well positioned to benefit from one of the key growth markets in Asia. Contracts/Joint-ventures Fed could benefit from forming contracts and Joint ventures with large reparations.

Their Joint venture with the multinational financial services corporation, American Express further integrates and widens their customer base, potentially leading to increased profitability and growth prospects (Fed, Bibb). 7 D. Threats E-substitution Due to the Internet’s growing popularity, emailing and text messaging has virtually replaced postal letters as a communication medium. Information delivery such as accessed online (e. G. Electronic banking). Other forms of electronic communications, such as fax machines and telephones have also substituted mail. These forms of e- obstruction pose a threat to Fed services.

Intense competition The shipping service industry is highly competitive, especially in periods of little or no macroeconomic growth. Some of Feeder’s competitors have better financial resources and can raise capital more easily. Due to the industry competitive pricing environment, Feeder’s ability to achieve expansion is limited. Additionally, if competitors offer a broader range of bundled services, this could impede Feeder’s ability to maintain or grow its market share. 8 Internal Analysis Strong brand image In 2013, Fed was ranked tenth in FORTUNE magazine’s World’s Most Admired

Companies’ list (CNN Money, 2013). It invests heavily in advertising, promoting its brand through print and broadcast advertising, corporate sponsorships and special events. A strong brand image drives retail business, boosts domestic revenue thus facilitating international expansion. Large scale of operations Fed provides transportation, e-commerce, and business services. It operates through various segments. It is one of the largest express transportation companies, engaged in packages and freight deliveries to over 200 countries worldwide (Fed, coco).

Its large scale of operations enables it to serve a broad customer base, increasing its profit margin. Strong financial position In 2006, Feeder’s total asset saw an 11% increase from the previous year (Fed Corporation, 2006, p. 10). In 2009, despite the global recession, it managed to escape relatively unscathed due to its strong financial position acting as backup. Fed was consequently able to maintain its position in the market during the downturn. B. Weaknesses Dependence on the U. S. Market Fed generated almost 73% of its revenue from the U. S. Arrest in 2009 economy and/or Feeder’s sales in the U. S. Do not grow as expected. Furthermore, the concentration of operations in the U. S makes it vulnerable to country specific factors (e. G. Labor strikes). 9 Weakening financial performance Fed witnessed an overall decline in revenue in its key segments. Fed Express revenues saw declined by 8. 4% from 2008 to 2009 (Fed Corporation, 2009, p. 8). A continuation of this trend will reduce Feeder’s growth prospects and diminish investor confidence in the company. Rising prices In 2013, Fed increased prices by 3. 9% in view of the surge in demand.

Despite this, Fed still projects a 13% profit increase (Stanton, 2013). However, this temporary profitability may be harmful in the long term, as higher prices makes decreases affordability, especially in more subsistent economies such as China and India. With its segmentation strategy, Fed aims to ‘operate independently of each other and yet compete collectively (Fed, 20th), allowing each segment to specialize in its own niche rather than concern itself with the entire market. Feeder’s target market is small to medium business owners who require their services on a weekly basis.

Fed acquired Kink in 2004 for $2. 4 billion, ‘expand[inning] its presence among small and midsized businesses that have long been Kink’s main customer base’. Fed Chairman stated “it [was] supremely logical for [them] to offer revise to the whitewall’s and office segment that are analogous to what [they] offer [their] corporate customer base” (Deutsche, 2003). Fed has a more defined white-collar customer base, mainly consisting of “fast-cycle logistics shippers seeking time-definite morning deliveries” (Rasher, 2009).

Their services will meet demands for time-definite morning deliveries to wholesalers,’ (ibid. ) manufacturing businesses, retail stores, and high-value goods. 10 Recommendations Although Fed has been successful in moving into the international arena, it still does not have a competitive advantage in the shipping industry. Its chief competitor, UPS, controls the ground shipping market (see Appendix A), guaranteeing them a large portion of the domestic market share.

Fed should maintain a controlling stake in the express delivery market while increasing their market share in domestic ground delivery, by further differentiating itself from UPS through innovation and service offerings. Securing more business partnerships, even at slightly lower margins, will help develop brand loyalty. This is especially true of long-term contracts with large firms. Studies predict the international package market will grow by 5-6% in the coming ears, nearly double the expected annual growth in world GAP (Waistlines, 2014).

Fed should continuously invest capital in Asia, whilst penetrating into foreign markets by partnering with local carriers. This will give them valuable insight into a relatively foreign and unknown market. Acquiring smaller shipping companies, such as Excel (I-J) or Suppose (France) also increases their international reach. Fed could seek alternative energy sources to reduce their operating costs. Investing in solar power or bio-fuels could help counter additional costs due to increased fuel prices.

Fed should utilize economic aircrafts to increase their carrying capacity, thereby reducing the number of operating planes. Lastly, by forging strategic alliances with oil and gas suppliers, they could bargain for discounts, whilst curtailing the negative effects associated with volatile oil supplies. Looking forward, Fed has positioned itself for growth opportunities in the domestic and international arena. It has exhibited an exceptional track record of international expansion and good financial restraints during times of easy credit, proving it can operate successfully even in a tough economic climate. 11