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Applying Strategic Market Planning to FedEx
FedEx (NYSE: FDX) is one of the leading providers of global logistics services to the Business-to-Business (B2B) and Business-to-Consumer (B2C) marketplaces globally. FedEx is particularly strong in the U.S. where 73% of total revenues in their latest fiscal year were generated (FedEx, 2010). FedEx's approach to marketing is to accentuate the role of trusted advisor in shipping, 3rd party logistics (3PL), and supply chain services (Trunick, 2004). The company has been very successful with their branding and marketing strategy efforts, being consistently recognized as one of the top ten brands in the world every year by Fortune Magazine during their annual surveys (Elmer-DeWitt, Birger, Colvin, Quittner, Taylor, Boyle, Hira, Murphy, Simons, McLean, Schlosser, Gimbel, Gumbel, Kapner, Schknder, Fortt, 2008). FedEx successfully uses integrated marketing communication (IMC) strategies to accentuate and strengthen their brand's image and reputation as being fast, very trustworthy and accurate in the delivery of packages, documents and in the case of the logistics services, enter ship-board containers (Anderson, Narus, Rossum, 2006). The branding has been so successful that the company's name has become synonymous with shipping, the way Kleenex has become a mainstream word for tissue (Christensen, Cook, Hall, 2005).
The FedEx culture revolves around a strong commitment to customer service and accountability to customers for results. This culture is further supported by state-of-the-art Information Technology (IT) systems that make package tracking and delivery verification automated so their customers can use the FedEx websites to confirm delivery or determine status (Alghalith, 2007). As 80% of FedEx revenue is generated from B2B customers globally, the need for automating many customer-facing tasks is critical for the company to stay profitable (FedEx, 2010). All of these benefits from a technology and IT standpoint form the catalyst of their marketing strategies and unique value proposition as well. Because of this commitment to responsive and accountable service, FedEx placed highest in the most recent University of Michigan Business School National Quality Research Center's American Customer Satisfaction Index in the express delivery category (FedEx, 2010). FedEx uses a variety of internal measures of customer satisfaction including the well-known SERVQUAL methodology to regularly quantify and analyze where customer expectations are being met and where they are not (FedEx, 2010). This methodology gives FedEx insight into how best to manage investments in improving their marketing to set expectations more accurately, and in augmenting areas of customer service that need assistance, all of which set the foundation for how the company manages strategic innovation (Trunick, 2004).
Part 2: Strategic Innovation and its role in marketing
Marketing plays a central role in the strategic planning of FedEx, as any potential merger, acquisition or new service launched within the company must stay consistent and support the unique value proposition that has proved to be so successful (Anderson, Narus, van Rossum, 2006). Second, the implications of strategic plans on the value of the brand must also be considered and planned for over the long-term. Third, entering entirely new markets, as the company has tried in the 3PL and supply chain services areas (McAree, Bodin, Ball, Segars, 2006), is extremely risky and needs to be coordinated at the advertising and marketing strategy level to ensure success (Lester, 2000). All of these factors contribute to the central role marketing plays in the strategic planning process.
FedEx defines the new service development process differently depending on which area of their business they are attempting to grow. For the acquisition of Kinko's in 2004, the strategy revolved more around services-based innovation practices that the company had strengthened in their B2B-based businesses (Kohnen, 2007). The acquisition of the copy and services chain was also driven by the need to establish a greater market presence in the B2C market, where FedEx and other shipping and logistics providers have historically had a difficult time making inroads (Novack, Thomas, 2004). The new services development process also takes into account the core vertical markets in the B2B industry that generate the majority of FedEx's revenue. These include retail trade and the retail supply chain, finance and insurance due to time-sensitive documents that must be delivered for co-signature on the original, healthcare as agreements must be delivered as printed originals for signature, and the remaining 20% of B2C spending in shipping by (FedEx, 2010). The decision to acquire Kinko's took into account these markets and the potential to bring service cost, and the time savings into each segment, leading with service innovation (Kohnen, 2007).
Another aspect of FedEx's new service development strategies is based on disruption of existing business models, as is seen in the approach taken to launch the supply chain and logistics outsourcing service (Christensen, Anthony, Berstell, Nitterhouse, 2007). FedEx set out to disrupt the supply chain services and 3PL markets by offering end-to-end service programs at costs significantly below existing competitors in these markets (Nichols, 2003). The result has been a steady growth of this business for FedEx and a complete redefinition of operating efficiency and automating logistics in this market. FedEx concentrates on how strategic innovation can be made into an advantage through strategic market planning as well (McAree, Bodin, Ball, Segars, 2006). The findings in this section build the foundation for the next, which is on how FedEx makes the most of their innate strengths overall.
Part 3: Strategic Marketing Planning
The strategic market planning process seeks to find those markets were the company can excel at service or disruptive innovation while also drastically re-ordering process efficiencies in the markets and industries they choose to enter (Varadarajan, 2010). The examples of successful new market development including Kinko's and the successful launch of their supply chain services businesses are cases in point (Kim, Yang, Kim, 2008). The company regularly assesses their unique strengths and looks for where they can successfully apply them to new and emerging markets. Using a SWOT (strengths, weaknesses, opportunities and threats) analysis framework, insights can be gained into the future direction of FedEx from a strategic standpoint as well.
FedEx has concentrated on creating unique competencies and strengths in the areas of logistics and supply chain expertise (Bhardwaj, Momaya, 2006); optimizing their routing systems through effective use of IT systems and strategies (Novack, Thomas, 2004); continual investment in brand equity to ensure market leadership; build-out of alternative channels for small and medium businesses (SMB) and the B2C market (Gordon, 1992); and a corporate culture that rewards and recognizes exceptional customer service (Spence, Essoussi, 2010). Of these, the expertise in logistics and supply chains and investment in IT for streamline their routing systems provide marketing with a solid foundation on which to build commitments of exceptional service. These strengths are also evident in how effective the company has been with the integration of 1,200 Kinko's stores to the logistics, pricing and global routing system
FedEx is too dependent on the U.S. market, as 80% of total revenues are generated from this market, and the jet fleets are aging rapidly (FedEx, 2010). These two factors, in addition to the lack of market growth throughout Europe, have made revenue growth for FedEx remain essentially flat over the last few years. FedEx is losing ground in Europe to other logistics and freight companies including UPS and several Asian-based competitors (Kim, Yang, Kim, 2008). The lack of success in Europe could potentially lead to further earnings declines and needs to be addressed through either a joint venture, merger or acquisition.
Given the unique set of core strengths the company has, there are many excellent opportunities for growth. First, the FedEx ground business is proving to be resilient to the economic downturn and is predicted to be the foundation for a $1.8B incremental growth in this area of the FedEx business model by 2012 (FedEx, 2010). Second, FedEx has significant potential to earn additional revenue from the logistics and supply chain management of automotive goods, high fashion products, high technology, and pharmaceuticals. These industries have many of the same characteristics of the industries that form the foundation of FedEx's success to this point. The value-to-weight segments of the freight industry also show significant potential for growth that FedEx has yet to successfully capitalize on as well.
The greatest threat that the company faces is the unpredictable costs of fuel and the escalating costs of jet aftermarket support services, which makes the greatest impact on their profitability on a monthly basis. Second, the lack of privatization of the U.S. Postal Service and the threat the government will continue to subsidize technology for the service instead of outsourcing it to FedEx is a threat. The USPS operates at a perennial loss in the billions of dollars and if the U.S. government decides to spend massively to upgrade it to create a FedEx competitor, the company will see a reduction in sales (FedEx, 2010). Another critical threat for the company is the continued merger & acquisition activity in the logistics markets, and the growth of automated shipping technologies and websites. These two factors…[continue]
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