Airborne Express case Analysis Essay

1Company Background mobile express is an express deli rattling company and pack airline, which by1997 had 16% of the domestic express mail market share. They ope ramble in a niche by targeting occupation clients located in the United States. Their important service is next morning delivery which is also the flagship of the diligence. airborne areTarget Business clientsable to differentiate by holding a locating asprimarly with next morningdelivery servicescost leaders while providing high qualityservices, equal to that of their competitors.In addition, Airborne Express is comprehendas the flexible, solution orientated expressProvidecarrier. They possess the ability of adaptingAble to offer theFlexible- solutionlowest outlay onneeds of business customers, without itorientatedthe marketexpress serviceaffecting the price structure of their services.Figure 1 Airbornes wheel of successCompetitive profitThe mail express industry is characterized by a cost structure with high variab le be and relatively low fixed costs. Firms competitive favour lies mainly in providing their service at the lowest possible cost.Airborn Express InfrastructureMarketingand sales andofferInboundlogisticsSortingoperations software systemShippingDeliveryservicesFigure 2 Airbornes express value chainMarketing, sales and technology downcast advertising costs sales mainly through a strong sales-force that establishes personal relationships with their clients. No research and developments costs in research and development. Ability to copy and integrate rapidly when competitors adopt brisk successful innovations. Inbound logistics Airborne express own its main hub (purchased at a very low price because of rural location) on which it collects its packages. No landing fees, because of ownership, which substantially reduce their costs. Sorting operations Sorting operation rely mostly on labor than machines, compared to competitors. As labor is none-unionized labor, it provides Airborne with cheaper labor force. Operations mainly situated in one location (sorting facility and warehouses), allowing a depress cost structure in addition to most economies of scale. 2Package shipment Fleet of 175 aircrafts, mostly McDonnell Douglas type, purchased used at low price. Deliveries mostly concentrated in top 50 US metropolitan areas, as most businesses are located in such areas, allowing high utilization rate of aircrafts (80%), and therefore some economies of scale.Delivery services pickup and delivery services mostly operated by in leechlike contractors (paid by the mile or parcel), 10% cheaper than company owned pickup and delivery services. More parcels per give away because clients are situated in mostly metropolitan areas. No retail service centers (little need as most clients are business clients), compared to competitors who are dependent on such service centers.Industry AnalysisExhibit 1 gives an overview of attractiveness of industry. Positive for companies operating in this sector is market for express deliveries is onerous to access. Capital requirements are high market is saturated with established companies operating the industry. (To FeDex for example, has become synonym to overnight shipping). In addition there is little supplier power. Main suppliers are pickup and delivery service companies, and these are exposed to high competition which contributes to low negociate power. On the other hand, it is a very saturated market. The market leaders, FedEx and UPS operate in most of the parcel markets (international, domestic, businesses, private ). The remaining companies target niche markets and are either direct competitors of either FedEx or UPS. What differentiates them is usually price and image. In general, the industry is characterized by strong competition between firms, as firms provide similar services, with a high degree of substitutability. With a sector exposed to such competition, profit margins outsights are relativ ely low.Generic strategies100%80%Marketshare60%Airplaneutilization rateOperatingmarginsPrice/ Performance abutting morningdelivery40%20%0%FedexUPSAirborneDeliveryqualityPrice/ Performance Next afternoon deliveryFigure 3 graphs based on numbers from Exhibit 23OperatingMargin10%10%9%9%8%Average price (all parcel types) $358%7%$347%6%$336%5%$325%$314%$304%3%$293%Average price (allOperating2%$282%parcel types) next97%98%99%100%1% 96%morning Marketdeliveries1%0%Share0%$25,000%10% $30,0020%30% $35,0040%50%Both FedEx and UPS are currently looking for marginal revenue opportunities. History of industry has showed importance of innovation .Currently, UPS has choose a new pricing strategy that has been followed by FedEx. The question is whether Airborne should adapt same pricing strategy as their competitors.Cost/ Benefit digestAdvantages of adopting new pricing system Maintain pace of competitors, Not to misplace profitability and market share as a result ofcompetitors overtaking shorte r standoffishness mail market dueto lower pricing. Market sensible to market innovation. Illustrated by theinnovation war between FEDEX and UPS in the 90s. Brand know as flexible, so why not adopt a flexiblepricing system?Disadvantages of adopting new pricing system Imposing a new costly system Increase costs and decrease profits if prices arestill lower than competitors in the overnightmorning delivery and in the lower weightproducts. Businesses are the clients, and services areprobably set by contracts and negotiations onvolumes and not per unit. Distance based pricing mostly influencedecisions of consumers quite an than businesses.Maintaining the status quo lose profitability and markets share competitors overtaking short distance mail market due to lower pricing. Long term effects Airborne risks operating only on longer more costly transportation routes, and will largely influence profitability if only operating in particular proposition markets.Airborne ExpressAdotpingNot ad optingCompetitorsLittle worseThis chart chose us the probable effectsof not adapting new pricing systemgiven that we already know they buzz offimplemented the changes.Much worseAdoptingMuch conk outSameMuch worseNot adoptingLittle worseMuch betterSameFigure 4 Game theoryRecommendationThe real risk of not following in competitors footsteps is that Airborne express might lose clients, especially smaller business clients. The effects would be the risk of operating in only long distance deliveries, which are also the most expensive.In addition, Airborne has an image of being flexible and solution orientated. Not implementing distance based pricing can dilute their brand image, especially in an industry where innovation is important. Given the risks, recommendations for Airborne Express (in order not to lose paste to competitors), is to implement distance based pricing.4Exhibit 1 gatekeepers five forces analysisThreat of new Entrants (low) Saturated markets High capital requirements E stablished brands Some economies of scale Low product differentiationDeterminants of provider Power(Low)-Input, little dependent onsuppliers* aircraft carriers bought used*Pickup and delivery servicescompanies are exposed to highcompetition, and therefore havelittle bargaining power.Rivalry among firms (high) 3 big competitors and 6 second players* Ups operate in all markets,* Remaining operate in niche markets. Provide similar services. FedexDeterminants of vendee power(high) Many suppliers Low product differentiation Low switching cost High variable costs Some brand loyalty Low buyer switching costs Competitive advantage through innovation Discounts with volume Price sensitiveThreat of substitute products (High) Low switching costs, unless contracts havebeen negotiated. Similar product quality,(99% of package ontime with UPS, FED and 97% with Airborne Prices are similar, except Airborne has lowerprice for the industries flagship product separate products such as electronic mailE xhibit 2 Numbers for radar GraphCompaniesUtilization rateAvg price overnight morningdelivery, 1-10 lbsAvg price overnight nextafternoon delivery 1-10 lbsDelivery qualityOperating Margins (19961997)Domestic market shareFedex65-70%20,53UPS65-70%21,54Airborne80%18,5521,6518,5216,6399%6.1%99%9.1%97%7.9%45%25%16%5