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FedEx faces significant competitive pressure from corporate buyers in the overnight delivery market. This pressure is most evident in Fed Exs relationship with large corporate clients. These buyers have a great deal of bargaining power attributable to the large volume purchases they make. Negligible switching costs also contribute to buyers bargaining ability in the market. Buyers have a great deal of bargaining power because of the large volume of purchases they make from FedEx. Porter (1983) feels that purchasers of large volumes contribute significantly to the bottom line of businesses (p. 12).
For example, FedEx gained a lions share of the catalog business because of their ability to offer these buyers lower prices than UPS. Porter (1983) also feels a buyer group is powerful if it faces few switching costs (p. 12). This competitive force definitely constrains FedEx. Buyers that decide to leave the FedEx brand could do so knowing that the costs would be negligible. The buyers employees would not need retraining to fill in packing slips, and the buyer requires no new equipment. For example, when UPS entered the overnight delivery market in 1982 at half the price of FedEx many buyers left the company with little concern for switching costs.
Pressure from Substitute Products Communications technologies such as Email, fax, and PDF pose significant threats as substitutes to Fed Exs overnight letter delivery business. While these technologies will erode the revenues FedEx enjoys, they will not be able to displace the market entirely. The overnight letter delivery business will survive as long as consumers have important documents to send and communications technologies do not offer 100 percent reliability. Further, the complexities and costs of networked technologies will not be able to completely replace the simplicity and inexpensiveness of a packing slip. Bargaining Power of Suppliers Labor and government issues in the FedEx case illustrate the power that suppliers can have in an industry. Labor has relatively little power in its relationship with FedEx as compared with UPS.
FedEx has chosen wisely to screen potential employees for union links thereby negating the ability of labor to exert itself on the company. Government on the other hand has a great deal of power in its relationship with FedEx. Governments control the supply of landing rights at their airports. This presents a very serious problem for FedEx because without these landing rights the company would be unable to service these markets. Threat of Entry Substantial barriers exist for new entrants in the overnight delivery market. FedEx has successfully differentiated its product from other offerings in the market, with advertising, technology improvements and its desire to achieve full customer satisfaction.
For a new entrant to overcome these obstacles they would have to spend dearly. An example of this is the 30 million dollar ad campaign by UPS aimed at competing with FedEx in the overnight delivery market. A second example of a barrier to entry in the overnight delivery market relates to capital requirements. To purchase even half of the airplanes flown by FedEx would require a substantial cash outlay.
Rivalry among Firms The most important force affecting FedEx is the competitive nature of the industry in which it exists. This environment is characterized by great number of firms jockeying for positioning using cost cutting strategies that have eroded the profitability of the industry. This point is reinforced by an analysts report in 1993 that states, average yields are on a long-term decline due to competitive pressures (Crowder, Spekman, Bruner, 1996, p. 256). FedEx is attempting to distance itself from its rivals in this mature market by differentiating itself from competitors. Examples, of this include the logistical support that the company now offers its customers and the web tracking technologies developed to enhance customers ability to track packages. Strengths A major source of strength for FedEx is the companys ability to leverage new technologies that add operational efficiencies and impose switching costs upon buyers.
An example of leveraging technology to improve operational efficiency is Fed Exs introduction of the Super Tracker system. This system allows FedEx to improve operational efficiency by lowering costs and decreasing package delivery time. An example of leveraging technology to impose switching costs on buyers is Fed Exs introduction of Power Ship 3. Customers who implement this technology into their environment would face the costs of retraining employees if they decide to change shipping software. One of the major strengths of UPS is the size of the company. UPS services 610 airports worldwide in comparison to the 325 serviced by FedEx.
This global reach helps to lessen the impact UPS would feel if they relied solely on the saturated domestic overnight delivery market. Size, also allows UPS to service more customers and therefore reap larger revenues than competitors. Weaknesses Fed Exs major weakness is the companys willingness to test unproven markets. For example, with Zap mail FedEx spent 100 million before having proof that companies would accept a third party providing email and fax service. A second example of this is Fed Exs first mover expansion into Europe that has yet to be profitable. The major weakness for UPS is the companies labor force.
Unionized employees hamper the companys ability to expand into new lines of business. An example of this is Teamsters refusal to work with packages over 150 pounds. Highly paid union employees also force UPS to charge ever-increasing rates to customers. Finally, labor has also hurt UPSs international expansion strategy. Spanish employees who do not like UPSs work policies reinforce this point. Opportunities One opportunity for FedEx is to expand upon its warehousing and logistics division.
Many companies in todays business market are looking for ways to stay true to their core competencies. For example, companies like Laura Ashley whose business is design not logistics signed a 260 million dollar deal with FedEx. This market could prove to be extremely profitable for FedEx and could lessen their dependence on the saturated delivery market. One opportunity for UPS is to strengthen its strategy of focusing on corporate business. Most competitors try to be all things to all people, offering both residential and corporate delivery. UPS is the first company to realize that a more focused strategy can be more profitable.
Threats The greatest threat facing FedEx is from competitors that imitate their value proposition. This point is supported by an analyst that suggests, Although FedEx is the acknowledged service leader in the express package market, the competition is catching up (Crowder, et al. , p. 256). Imitation will continue to erode Fed Exs profits unless they continue to find innovative ways to differentiate themselves from competitors. UPSs expansion into international markets leaves the company open to the fluctuating political structures of the world. The company has opened itself up to threats it would not otherwise face in its domestic market. For example, the company must now develop contingencies for dealing with conflicts that arise in unstable foreign markets.
Innovation Leadership FedEx is the innovation leader in the courier industry for two reasons. Most importantly, FedEx has the ability to find unfilled opportunities in the market before UPS. Secondly, FedEx is the innovation leader because of its ability to identify technologies that strengthen the companys strategic position. Numerous examples illustrate Fed Exs ability to find unfilled positions in the market before UPS. The birth of the company was brought about on the innovative idea of offering customers overnight delivery and delivery to smaller locations not serviced by competitors.
FedEx would enjoy sole possession of the overnight delivery market for seven years. A second example of Fed Exs ability to find unfilled positions in the market before UPS relates to Logistics and Warehousing. Fed Exs development of Business and Logistics Services would put them two years ahead of UPS in this market. The following reinforces this point, UPSs logistics system was still two years behind Fed Exs system, which was expanding even further (Crowder et al. , p. 250) FedEx is also the innovation leader because of its ability to identify technologies that strengthen the companys strategic position. One example of FedEx using technology to strengthen strategic position is the development of the regional delivery hub-and-feeder system (Crowder et al. 241). This system would allow FedEx to increase service from 75 percent of the U.
S. A. to 95 percent. Fed Exs Command and Control System further exemplifies an ability to identify technologies that strengthen strategic position. By identifying the most efficient way to route planes for takeoffs and landings, FedEx was able to reduce per-unit costs by 38 percent (Crowder, et al.
p. 250). A final example of Fed Exs ability to identify innovative technologies that enhance strategic positioning relate to the companies package tracking system. The ability to identify package locations greatly enhances customer service.
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Research essay sample on Fedex Ups And The Bargaining Power Of Buyers
