FedEx Marketing Strategy: Analysis and Competitive Positioning

Executive Summary and Overall Strategy

The following pages discuss the overall marketing strategy of FedEx, examining services offered, the company's place in the market, and its competitive advantages and disadvantages in the shipping industry. Beginning with an issues analysis, competitive strategies, product positioning, pricing, promotions, and overall marketing efforts will be suggested. Though the market leader in the overnight (express) delivery segment, FedEx should not rest on its laurels and should continue to target businesses that are currently using its services to ship urgent freight, thus increasing its market share in that segment. Additionally, in order to create more convenience for the general consumer, FedEx should consider creating a relationship with another corporation in order to set up drop centers or shipping services in their stores, and implement an appropriate media plan to target customers.

With the founding of Federal Express in 1971, the modern air/ground express shipping industry was born. In time the company became known as FDX Corporation, and in January 2000 it was renamed FedEx Corporation. Today, FedEx Corporation and its companies function under the motto of "operate independently, compete collectively, and manage collaboratively." By operating independently, each company can focus exclusively on delivering the best service for its specific market. Competing collectively under the trusted FedEx banner ensures that all of the companies benefit from one of the world's most recognized brands (FedEx, 2010).

Conventional wisdom suggests that marketing is an essential component to any successful business. Marketing is the present act of displaying an organization's identity and delivering its added value. Aside from producing a quality product that is useful to consumers, marketing's influence on consumer perception is perhaps the single most powerful tool defining a new entrant's success within an established market. Who are FedEx's consumers? What subcultures do they belong to? What do they value? What do they expect from a shipping company? What essential functions of the service make everyday life easier? It is a marketer's job to understand not only the basic demographic characteristics of their prospects, but also to understand why they choose to use a shipping service in the first place. This type of far-reaching knowledge is a critical component that separates a marketing campaign's overwhelming success from its catastrophic failure. Marketers want to see the big picture — and, more importantly, they like to begin with the end in mind. The phases completed in this project are vital to any good marketing plan because, with a complete vision of every facet of a market, steps can be taken to save time and money and to make a greater impact on target consumers.

Michael Porter has proposed three generic marketing strategies that may guide FedEx in meeting its goals: (1) overall cost leadership, (2) differentiation, and (3) focus. Overall cost leadership is defined as a firm working hard to achieve the lowest production and distribution costs so it can price lower than its competitors and win a large market share (Porter, 2008). Differentiation concentrates on uniquely achieving superior performance in a customer benefit area valued by a large part of the market (Porter, 2008). A focus strategy concentrates on one or more narrow market segments and pursues either cost leadership or differentiation within those segments.

According to Porter, a company can identify its own strengths and weaknesses in relation to its industry by analyzing the forces that affect competition in the industry and their underlying causes (A to Z, 2005, p. 272). Pretorius (2008) states that a firm can get stuck in the middle and must make a fundamental strategic decision: either it must take the steps necessary to achieve cost leadership or at least cost parity — which usually involves aggressive investments to modernize and possibly the necessity to buy market share — or it must orient itself to a particular target (focus) or achieve some uniqueness (p. 26). The latter two strategies may involve decreasing market share or sales. Porter further points out that a cost leader cannot afford to ignore the principles of differentiation. If buyers do not regard the product as comparable or acceptable, the cost leader will be forced to discount prices to undercut competitors, thereby losing the cost advantage. To achieve cost leadership, a company must keep its costs lower than its competitors' (A to Z, 2005, p. 272). To achieve differentiation, it must be able to offer something that is perceived as unique of its kind. By focus, Porter means that a company concentrates its efforts on a specific group or a specific geographical market. Low-cost production involves much more than just moving down the experience curve — a low-cost producer must find and exploit every opportunity to gain a cost advantage.

A company that pursues differentiation must also seek ways to achieve cost-effectiveness, because otherwise it risks losing its competitive edge through a disadvantageous cost position. The difference between cost leadership and differentiation is that the former can only be achieved through an advantageous cost structure, whereas differentiation can be achieved in many ways (p. 275).

Focusing consists of choosing a segment within an industry and adapting strategy to serve that segment more efficiently than competitors. By optimizing strategy for selected target groups, the focuser tries to achieve a competitive edge with respect to the selected group (p. 273). There are two kinds of focus strategy. With the cost focus approach, a company tries to gain a cost advantage in its chosen segment. With differentiation focus, a company tries to set itself apart from others in its industry within that segment.

The differentiation strategy, combined with focus, would provide FedEx with the guidance it needs to compete aggressively. Differentiation would involve FedEx offering products or services that are different from and more attractive than those of its competitors. This would encompass the features of the service and its value, while supporting the brand name that customers value — including quality research, development, and product innovation.

FedEx holds first place in the express package transportation segment, making deliveries of more than 3 million packages per day. FedEx has several divisions handling different package sizes and types: FedEx Ground handles small packages in North America, FedEx Freight handles less-than-truckload units, and FedEx Kinko's services retail office, stationery, and document needs. When FedEx acquired Kinko's in 2004, it gained over 1,000 additional retail outlets.

FedEx Express, perhaps the key operating subsidiary, delivers to over 210 countries and territories around the world, using 640 aircraft and approximately 47,000 motorized vehicles and trailers. FedEx also has a solid foundation in Europe, operating major hubs in Paris and London (Company Profiles, 2010).

Ground shipping, consisting of non-express packages, is a $20 billion market in the United States. Primary customers consist of business-to-business (B2B) customers shipping packages that must be delivered but are not considered urgent. Of those customers, the majority are manufacturers shipping directly to retailers. Next in line are business-to-consumer companies that sell their products directly to end consumers.

FedEx Corporation is a global network of companies that provide customers and businesses with the broadest array of supply-chain, transportation, business, and related information services. With annual revenues exceeding $39 billion, the corporation employs more than 290,000 employees and contractors operating in more than 220 countries and territories worldwide. FedEx Ground is the corporation's $6 billion small-package ground shipping subsidiary, specializing in dependable business-to-business delivery and convenient residential service through FedEx Home Delivery and FedEx SmartPost. FedEx Ground's workforce of more than 70,000 employees and independent contractors handles more than 3.5 million packages each day in the United States, Canada, and Puerto Rico (D'Alesandro & Crandell, 2009).

Company Overview

As society and the pace of life accelerated, a need developed to increase the speed of package delivery, and Federal Express was born. Although the industry leader, FedEx must still adapt and change when environmental factors demand it — including a changing workforce, technology advancements, and increased globalization. In response, in 2006 FedEx Ground embarked on a multiyear initiative that reshaped a series of succession planning activities into a disciplined, comprehensive, and integrated process tightly linked to its business strategy (D'Alesandro & Crandell, 2009).

The marketing plan cannot be evaluated in isolation, but rather as a means to support the overall business strategy. Many of the decisions made and the evaluation process itself will be determined by the type of business, its stage of maturity, and what the organization wants to accomplish (Firth, 2010).

Environmental Analysis

In an effort to remain competitive with United Parcel Service (UPS), FedEx began making aggressive moves to cut rising fuel costs. Having previously made the more obvious moves of cutting new hires and rolling out more fuel-efficient hybrid trucks, both UPS and FedEx decided it was time to get unconventional. FedEx developed new software to streamline the takeoff and landing schedules of its larger airplanes and reduce idling time. Newly equipped forklifts can weigh freight in place rather than hauling goods to separate scales (Boyle, 2008).

FedEx planned to close 100 facilities, effectively laying off 1,700 full-time employees by January 2011, by combining its FedEx Freight and FedEx National LTL operations at an estimated cost of $150–$200 million (FedEx, 2010).

For the first fiscal quarter of 2010/2011 ending August 31, FedEx Freight generated revenue of $1.26 billion, up 28 percent from the prior year's $982 million, but reported a loss of $16 million — down from income of $2 million a year earlier (FedEx, 2010).

FedEx Corp. reported gross revenue of $9.46 billion in the quarter, up 18 percent from $8.01 billion the previous year; operating income of $628 million, a 99 percent increase from $315 million the prior year; and net income of $380 million, a gain of 110 percent from $181 million in 2009/10 (FedEx, 2010).

On September 15, FedEx shares dropped by 3.4% on the news that profits in the quarter ending August 31 — the first quarter of fiscal 2011 — had totaled $380 million. Although they had doubled relative to the immediately preceding quarter, this profit level was still seen as somewhat below market expectations (Company Profiles, 2010).

According to Investor's Business Daily, the company also announced it was cutting 1,700 jobs in its struggling North American trucking business and gave cautious future guidance, pointing to "somewhat slower" economic growth. Revenue in the quarter rose by 18% to $9.46 billion, above forecasts. Total package volume grew by 6%, with international business leading the way, compared to only 3% growth in the US (Company Profiles, 2010).

FedEx Ground tightened its standards for independent contractors in response to concerns raised by several states regarding FedEx Ground's use of owner-operators rather than employees. FedEx sent a letter to contractors telling owner-operators of trucks that they should incorporate under state law rather than organize as partnerships or sole proprietorships, and that they should treat their personnel as employees, giving them 180 days to comply with the new standards.

These new guidelines are likely to widen the chasm between FedEx and its independent contractors. Some states have threatened to challenge FedEx's classification of drivers as independent contractors rather than employees.

Federal legislation also could affect FedEx's use of owner-operators. Senator John F. Kerry introduced legislation in December to toughen standards for employers using contractors. The bill is supported by the Teamsters union, which has led challenges to the classification of workers as independent contractors at FedEx Ground (Cassidy, 2010).

Personal factors greatly influence purchasing decisions. Although FedEx's target market falls across a variety of categories, occupation and economic circumstances are vital in targeting consumers most likely to use its services. With few competitors within the market, the ability to influence consumer perception of FedEx is vital to its success. Perhaps the most important factor in influencing that perception is the ability to adapt services to the needs of consumers.