Federal Express B
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Introduction
Federal Express main products are delivering packages to widespread locations within a short time. In this case study, we would focus our discussion on its most profitable services, i.e. Priority One, Standard Air Service, and Courier Pak (Table 1).
Federal Express Product
FedEx specializes in guaranteed overnight delivery of high-priority packages, documents, and heavy freight.
How does Courier Pak fit in Federal Express?
For services users
Courier Pak is a guarantee overnight delivery service, and is expected to be delivered to anywhere within the FedEx system for the cost of $12.5 with the weight up to 2 pounds regardless the distance of the destination. Courier Paks waterproof, tearproof envelope offered a unique physical shipping method to the customers, and provided protection for the documents & accommodates their security need.
For Federal Express
As mentioned in the case, there is a significant market potential (almost 870000 pieces per day) for documents and small package mailing. An analysis shows that in FEC stations, the volume for Courier Pak is 30% more than Priority One. That means Courier Pak market has a growing potential. In addition, it is found that the variable cost of it is the lowest among all other overnight delivery services provided by Federal Express (Table. 2). That means Courier Pak may be a more profitable product.
Our analysis
Current situation
Typical users of airfreight were producers of time-sensitive, high priced, finished goods such as valuable architecture and confidential documents. But in 1976, a spring survey shows that only 24% customers used both Courier Pak and Priority One services while less than 1% of them used only Courier Pak. Moreover, the capacity of the aircraft was 6200 pounds and the average weight of the package for Priority One and Standard Air Service was 14 pounds while it was 1 pound for Courier Pak; which Courier Pak could provide larger revenue per aircraft. On the other hand, FedEx also included delivery routes into small cities that other companies didnÐŽ¦t, and which cities had found that the number of shipments to be growing rapidly.
Potential for Courier Pak
From Table A, it shows us that the routine air package market was at 122.3 million compared to emergency and rush packaged, which were only 18 million combined. The Courier Pak is in the routine air market and has tremendous growth potential. Furthermore, from Exhibit 4 there was a continuous growth in both average daily package volume and average daily revenue from 1974 to 1976 for shippers using different service methods, which implies that there were rooms to improve the sales after then.
In September 1974, Courier Pak prices increased from $5 to $8.50. After Economy Air discontinued, the price of which increased to $12.5, more than two times of its original price in early 1974. However, the package volume of Courier Pak continues increasing, which showed that there is a need for customers using Courier Pak. On the other hand, price inelasticity occurred for the product. Thus, there was a great potential market for using Courier Pak.
The Goal
Federal Express would like to increase Courier Pak volume from 1300 Courier Pak to t least 6000 per day.
Strategies
Identify Market Segment
Decision of using Courier Pak was mostly made by the executives or their secretaries rather than the shipping department. Those people were seeking the delivery service for emergency, rush and special handling of documents and other small valuable items. Exhibition 4 shows us that, in 1975 and 1976 a majority of FECs shipments were for next day delivery.
Assess market opportunities
As stated in the case study, “Bulk products and commodity goods were rarely sent by air. Indeed, most air shipments were rather small.” From this we know that the business environment of the mid 1970s almost directly into the relative strengths of a small-package air service. This type of environment, combined with FedExÐŽ¦s unique flight routes (go to small cities) and reliable pick-up/delivery system created an opportunity that the company wisely seized with Courier Pak.
The review for delivery of documents or other small items are up to 870,000 pieces per day; this implies that there are opportunities for shippers using Courier Pak whenever their documents weighted less than 2 pounds. FedEx has to go through the process of opportunity identification in adopting the needs of the customers. Then opportunity