Airborne Express Case Study

Glenn Rothwell, Lauren Wilt, Tyler Gendron, Jenn Ding, Jon Ota

Strategy and Policy, Prof. Chari

Airborne Express (A), 9/22/15

1. Describe and contrast the business strategies of Airborne Express and Federal Express in the Express Mail industry.

        Airborne Express and Federal Express each had very unique and distinct business strategies. Federal Express believed that the packages do not care how far they travel as long as they arrive reliably on-time (p5, ¶3). In addition, they found out they could efficiently use a hub-and-spoke routing system. Their strategy used an all-express-mail airline that would fly all packages to a single airport where they would be sorted and distributed. Federal Express eventually refined their target market to focus on small packages that other air carriers ignored (p5, ¶3). On the other hand, Airborne Express had a target market of larger companies that shipped large volumes of urgent items. Airborne Express’s strategy involved avoiding residential deliveries and infrequent shippers. Xerox would be an example of a company that fits their target market and allows them to fulfill customer needs by doing what they do best. In terms of technology, Federal Express gave its customers Powership computer terminals (p6, ¶2) and shipping software free of charge. This allowed customers to prepare shipping paperwork, streamline billing, and track shipments. This resulted in more efficient operations and higher customer satisfaction. Airborne Express invested selectively in technology and often let their competitors be the guinea pigs for new technology. The software system they used was very similar to the one Federal Express used except customers could not schedule a pickup or create shipping paperwork on their website. Finally, each company took very different business strategies in terms of marketing. Federal Express used an aggressive marketing strategy intending to appeal to the whole market. In 1996, advertising expenditures topped $138 million (p6, ¶4) intending to reach the largest number of people as possible while offering a money-back guarantee. Airborne Express targeted logistics managers of major shippers instead of the whole market. Airborne became known for their low prices compared to others in the industry. All in all, Airborne Express and Federal Express have differentiating strategies that help them stand out in the Express Mail Industry. Federal Express targets the market as a whole with an all-express-mail airline while Airborne Express has a specific target market that only tends to.

1. What are the key Opportunities and Threats in the Express Mail industry?

        As an industry, there are several opportunities and threats that can affect the sustained superior performance (SSP) of firms within the Express Mail industry. These opportunities and threats present themselves as trends or events in the external environment that can either help or harm the firm’s sustained superior performance. The main opportunities in the Express Mail industry all fall under a rapidly growing demand from customers and the main threats are the slow growth of the industry, the reliance on gas prices, and other competing forms of communication.

           There has been a rapid increase in demand for express mail as a whole. In 1996, express mail customers, consisting of businesses and individuals, spent $16-17 billion on express mail within the United States alone (p1, ¶4). As most businesses need to send urgent materials, they often choose to use express mail, leading to an increase in the volumes of shipment of 15-20% each year in the past decade (p2, ¶2). Businesses have been accelerating the pace of operation along with broadening their customer base, which has also increased the volume of express mail shipments per customer (p2, ¶5). All of these trends have helped increase the demand for express mail, allowing firms in the industry to exploit this demand and maintain their SSP.

           The threats to the express mail industry are much more diverse in nature. Even though there has been trends that indicate an increase in demand for express mail, the total revenue of the industry has only grown by 10-15% each year (p2, ¶2). Express mail customers are not very loyal, instead of choosing a single company to do business, customers will shop around for the best deal (p2, ¶7). Since express mail is reliant of transportation, changing gas prices will affect its total revenue. Changing technology may also decrease the demand for express mail delivery as the use of electronic mail and the facsimile provide the same service but are both faster and cheaper (p4, ¶4). It will be important for firms in the express mail industry to find ways to protect their SSP against these emerging trends.

1. What are the key Strengths and Weaknesses of Airborne Express and Federal Express in the Express Mail industry?

One of Airborne’s strengths was its specificity as to the types of businesses it delivered to. Because Airborne generally only shipped larger, urgent packages to business locations, the company was able to better meet the demands of their customer group. This allowed Airborne to be incredibly flexible in meeting specific demands and time constraints of clients. This corresponds to Airborne’s reluctance to increase its international shipping presence.  Airborne is familiar and comfortable with its current market, and therefore only delivers to locations where it is guaranteed to operate with reliability and efficiency.  Additionally, a number of strategic purchases, such as warehouse space and the airport that served as its main hub, allowed airborne to operate with lower costs to allot for. These operational costs were lowered through reduced property taxes and because Airborne did not have to pay additional costs for landing fees. Yet another strength of Airborne’s was the ability to run aircrafts at 80% capacity (p11, ¶7). By beating the industry standard of 65-70% (p11, ¶7), they were more efficient in comparison to the competition. When shipping to a metropolitan area (as 80-85% of its cargo was) (p11, ¶8), Airborne was further able to run costs down by transporting packages via truck instead of plane.  

Perhaps airborne’s biggest weakness was its failure to be comprehensively consumer-oriented. For example, the company had no retail service centers and their website did not allow for the scheduling of pickups or deliveries.  In addition, their delivery system was partially run through independent contractors, an aspect that hindered the creation of a united company culture. Furthermore, selective investments in the technological realm meant that Airborne was never on the leading edge of integrating its systems and services. An additional weakness of Airborne’s was its practice of having senior managers actively pursue large accounts. It seems that making a manager serve as a salesperson could detract from the time that manager has to innovate and fulfill his managerial responsibilities.