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In order to maintain profitability above average, Federal Express needs to analyze its value creation frontier and determine which of the four building blocks of competitive advantage it requires. According to Hill and Jones (2013), the value creation frontier is the maximum value that companies in an industry can provide customers with at any given time through different business models. To achieve this frontier, a company must concentrate on innovation, quality, customer responsiveness, and efficiency. These building blocks help reduce costs and distinguish a company's products or services.
FedEx is a global provider of transportation, e-commerce, and business services based in Memphis, Tennessee. As the parent company of FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services, FedEx depends on strategic and logistical support to fulfill customer requirements.
The FedEx brand name encompasses various entities that compete collectively but are managed cooperatively while operating relatively independently. A global leader in the express delivery market, FedEx offers services to individuals and businesses in over 220 countries (Amsler, Cullen, & Erdmenger, 2010).
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The company's core focus has always been on quality and customer responsiveness, with reliable services as a key attribute. In its early years, FedEx developed a system for next-day delivery of small-package airfreight under 70 lbs., ensuring packages picked up in New York at 5 p.m. would reach destinations like Los Angeles by noon the following day, adding significant value to the organization. By 1976, FedEx had rapidly expanded its volume, boasting an average daily package volume of 19,000 packages delivered by a fleet of 32 aircraft, 500 delivery vans, and serviced by 2,000 employees across 75 cities.
After experiencing losses for 3 years, the company finally achieved a profit of $3.7 million on revenues of $75 million (Charles W.
L. & Gareth R., 2013). In terms of customer responsiveness, FedEx has placed a greater emphasis on competing through information technology. Tracking packages as they move through the delivery network has always been a crucial aspect of competition in an industry that values reliability highly. The use of internet-based technology enables FedEx to offer services to customers online through its website, allowing them to request pick-ups, inquire about services and prices, track package status and proof of delivery, and seek general advice. Furthermore, the company provides a toll-free customer service hotline and round-the-clock customer service from Monday to Saturday. This strategic approach aims to influence customers and cultivate long-term relationships and loyalty.
By continuously improving its quality and customer responsiveness, two of the four building blocks of competitive advantage, FedEx has achieved excellence in value creation. Customers can depend on its punctual delivery service, providing the company with a competitive edge. The key aspects of product differentiation and capacity control that Federal Express could utilize to stay ahead of its competitors include creating a unique product and satisfying customer needs in a way that competitors cannot, as described in Hill and Jones' study (2013). FedEx's differentiated business model allows it to offer services like overnight and second-day delivery which guarantee delivery times that competitors cannot match, enabling the company to charge premium prices for its products.
In this scenario, customers choose their preferred option based on prices or situational needs. FedEx must implement capacity control strategy to remain competitive with UPS and DHL and maintain revenue. Excess capacity can lead to lower prices in the industry, impacting profitability. Factors like economic downturns and technological advancements can also contribute to excess capacity in the market, creating substitute products.During the years 1987 to 1996, FedEx saw a slowdown in the growth of its air express business due to market saturation and competition from electronic options such as fax machines. This led to price discounting and increased competition with companies like UPS and Airborne Express. In order to stay ahead and avoid constant price wars, FedEx decided to take proactive steps. They introduced new products and services, including discounts for high volume customers, second-day delivery options, and logistic services to meet the trend of just-in-time delivery.
Furthermore, the company enhanced its information system for increased reliability, allowing customers to conveniently track their package status online. In addition, globalization has decreased risks for FedEx and opened up opportunities in new markets with fewer competitors. FedEx was a pioneer in establishing a global air express network and between 1984 and 1989, acquired 17 other companies globally to strengthen its global distribution capabilities, including the significant $880 million acquisition of Flying Tiger.
Expanding its reach to 103 countries with a fleet of 328 aircraft, FedEx acquired new assets and generated $5.2 billion in revenue during fiscal year 1989. This global expansion reduces domestic competition, opens up new opportunities, and minimizes risks for the company. Venturing into international markets allows FedEx to tap into diverse experiences and technologies, diversify economic risks by investing in high-growth countries, and balance investments in slower-growing economies. Ultimately, this strategy paves the way for sustainable growth and long-term success.
Assess the efficiency of Federal Express's current business model and suggest a new business-level strategy to enhance its competitive advantage. Defend the proposal. At present, Federal Express employs a differentiation strategy by pioneering overnight air delivery services and implementing standardized packaging with specific weight and size restrictions for streamlined sorting at their Memphis hub. This operational effectiveness enables FedEx to command a higher price that customers are willing to pay for superior service quality compared to rivals.
Cost leadership strategy is a recommendation for FedEx to increase profitability by lowering its cost structure. This business model focuses on offering goods or services at a lower cost than competitors by implementing strategies such as just-in-time (JIT) delivery policies that add flexibility to production, transportation, and storage decisions (Akbalik & Penz, 2011).
By utilizing this policy, FedEx can save millions of dollars by not having to store a large amount of equipment and avoiding the need for big storage spaces. This cost-saving measure extends to FedEx stores as well, as the company's reputation eliminates the need for elaborate store designs, further saving millions of dollars. As a result, FedEx can achieve its goal of reducing operating costs and streamlining materials-management functions, giving the company a competitive edge over its competitors.
Discuss how the global competition may affect the new business strategy suggested in Question 3 and propose one major tactic that Federal Express can use to address its global competition.
FedEx's Competitive Advantage and Global Strategy. (2016, Aug 06). Retrieved from https://studymoose.com/federal-expresss-value-creation-frontier-essay
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