Introduction to the Strategic Challenge
Airborne Express, the US mail industry company, received extremely positive financial reports. Revenue for the third quarter of 1997 was 29% higher than expected, while net earnings had increased by 500% (Rivkin, 2007, p. 1). While the strike by United Parcel Service (UPS) had an impact on the situation, it was negligible. The Chief financial officer of Airborne Express assumes the company’s development and revenue growth to be positive primarily due to productivity gains and improvement of operating costs per shipment (Rivkin, 2007). However, the company adheres to the old model, according to which the shipping price does not depend on the distance. At the same time, major companies in the industry 1998 announced a transition to a new model, in which the price of a shipment directly depends on the distance. Thus, Airborne meets a strategic challenge: is it necessary to move towards a distance-based model or stick to the old system.
The mail industry in the US predominantly offers overnight shipments, but many companies have thrived by offering second or third-day shipping at less cost. Despite the 15-20% growth in delivery volumes, the revenues of companies were growing by only 10-15% each year due to falling prices (Rivkin, 2007, p. 2). Almost every company has used express delivery services for urgent document shipment. However, shipments varied considerably in volume and weight, which made these parameters unpredictable. Important factors when choosing a company for customers where the delivery price, brand name, opportunity for tracking, and overall customer service. The most urgent shipments were transported by cargo planes, while less prioritized items were often delivered by trucks.
The major companies in the domestic market were United Parcel Services (UPS), Federal Express, and Airborne Express. Federal Express has been an industry leader with a recognizable brand for customers. The main competitive advantages of the company were constant monitoring of performance, quality control, as well as the introduction of technological improvements. Additionally, Federal Express had an aggressive marketing strategy and a focus on employee training. Each UPS truck could pick up three times more deliveries per stop than Federal Express, thanks to the latest technology and innovation in routing and facilities (Rivkin, 2007, p. 8). The company paid less attention to marketing until 1996 but focused on the development of technological equipment.
Description of the Company
Airborne Express has received less attention in the industry than Federal Express or UPS but has experienced more rapid growth than its competitors. By 1997 it held around 16% of the domestic market (Rivkin, 2007, p. 11). The main competitive advantage of the company over other services was its own airport, which allowed it not to pay landing fees and provide the necessary improvements. In contrast to its competitors, the company also relied more on manual labor than automation. Most Airborne Express shipments were second-day of afternoon deliveries, which made the use of trucks more relevant to them and presented a cost-effective opportunity. Despite fewer rush shipments, the percentage of shipments delivered on time was lower than that of competitors. In terms of technology, the company preferred to follow the successful experience of its competitors.
Strategic Analysis of the Challenges and Solutions
Airborne Express’s business strategy needs to build brand awareness in order to gain a competitive advantage. The strategic issue has arisen as the company strives to follow the headliners of the industry. Airborne Express should put more effort into technology development and marketing without changing its pricing policy. Additionally, the company should also focus on non-urgent shipments, while the number of on-time deliveries is lower than that of competitors.
Discussions and Implications
Strategic insights or lessons for managers are presented, demonstrating how important it is to build brand awareness for customers and offer unique services. While Federal Express and UPS were industry leaders, Airborne Express sought to replicate their success. However, the company should have used the resources already available and built its business strategy around them, offering services that could be better than those of competitors.
Rivkin, J. W. (2007). Airborne Express. HBS No. 798-070. Boston, MA: Harvard Business School Publishing. Web.