In a global environment, the strategies that managers pursue have a significant effect on a business performance as compared to the competitors. Hill and Jones define strategy as a set of actions that a company’s managers put in place in order to increase performance of the company (2013). When the strategies lead to a superior performance of a company relative to its competitors, then the company is said to be at a competitive advantage. This is a case study of Federal Express, in the small package express delivery industry. It analyzes the company’s value creation frontier and the necessary building blocks of competitive advantage are necessary for the company to maintain above average profitability. This paper determines main aspect of product differentiation and capacity control that Federal Express could use in order to maintain an edge over its rivals. The efficiency of the current business model of the company is analyzed and a new business level strategy is recommended. This paper also analyzes how the global competition will influence the new business strategy and suggests a way of confronting global competition.
In the Small Package Express Delivery Industry, several companies exist including FGX, Federal Express and DHL. Of these companies, Federal express has managed to stand out as the one with most successful business model based on its value creation frontier. Since the company was founded, it has based its strategic competitiveness on careful nurturing of reliability and delivery speed. These competencies have proven to be essential in pursuing the business opportunities of the company. The company has always believed that value could be added to business operations if they received what they needed urgently on an overnight basis. The company’s business model has always been based on responsiveness to customers, innovation and reliability of their delivery system (Hill & Jones, 2013).
According to Hill & Jones, the competitive advantage of a company is based on company-specific strengths that enable a company to differentiate its products from those offered by other competitors and achieve lower costs than the competitors (2013). The four building blocks of competitive advantage that every company needs are innovation, customer responsiveness, quality and efficiency. Since federal express’s business model is based on customer needs, the company will need innovation in order to maintain above-average profitability. In the small package express delivery industry, companies are constantly devising new ways of ensuring faster and more reliable systems of delivery services to their customers. Innovation is always smart as the company that pioneers new products, services or strategies often earn enormous profits. The rival companies in the small package express delivery industry have been relying on Federal Express’s speed to plan their need and so innovation can help the company earn enormous profits from pioneered strategies (Pantaleo & Pal, 2008).
Product differentiation is the process by which a company designs products in order to satisfy customer’s needs. A company would therefore obtain a competitive advantage by creating and making products would satisfy customer needs better than its competitors. Product differentiation allows rival companies to offer products with different features hence allowing competition for the market share. In the small package express delivery industry, Federal express can offer a product with superior qualities creating a brand name that the company could use to maintain an edge over its rivals. In addition, differentiation will enable Federal Express create a distinct product and charge a premium price for the product (Pantaleo & Pal, 2008).
Flooding the market with a product can lead to lower prices of the product because of excess capacity. In the small package express delivery industry, companies take packages through the companies’ hubs and to the customer’s destination. If all companies provide similar delivery services, then prices would be lower and hence revenues will be lower too. If Federal Express creates and sells unique products to the market, then there would be minimum supply of that product into the market and hence the company can increase its profitability. Capacity control can manage business rivalry and increase profitability in the small package express delivery industry by not allowing excess supply of a product into the market. Over time, Federal Express can attract more customers because they have designed products with the most innovative features that the customers desire most hence achieve a sustained competitive advantage over its rivals. Federal Express can use product differentiation and capacity control to improve its business model and offer products with superior features. This can help the company sell its products to new markets, developing a niche, reap profits and maintain an edge over its rivals. Based on this case study, both product and process innovation at Federal Express can increase pricing options for the company and create more value by reducing production costs and this will make the company to continue to maintain above-average profitability (Mulcaster, 2009).
A business model is a company’s perception and conception of how the set strategies that a company pursues complement each other enabling a competitive advantage. Since it started, Federal express has been using a customer-based business model hence ensuring fast and reliable delivery services to its customers. Over the years, Federal Express thrived on a business model and culture of delivering quality service to the customers. The current business model that the company uses is customer-based and highly technology-driven service model. This model has enabled the company to allow its customers track their shipments through internet and also built a one-to-one customer relationship. The company used the internet to distribute information to the customers in addition to selling products online. The company has integrated its internet programming interfaces for customers’ internal network use and engaged more customer usage of automated shipping and tracking services. This model has added customer’s experience online hence giving the company a competitive advantage over its rivals. The use of this model has enabled the company achieve low costs, ease use of services, free set up and easy ordering, purchasing and delivery. Integration of customer-based services with technology-driven services also raised the competitors’ barriers to entry and customer switching costs (Mulcaster, 2009).
Given that all companies in the small package express delivery industry deliver packages to their customers, Federal Express can adopt differentiation as a new business-level strategy that will give the company a competitive advantage over its rivals. The company can add value to the products it offers through unique and superior features than those of its rivals. Federal Express can do so through superior product features, excellent customer service, advanced technological features, and so on (Pantaleo & Pal, 2008).
When a company uses product differentiation through innovation, excellent quality or customer responsiveness, it is adopting a business model that is based on offering customers differentiated products. Global competition occurs when businesses in the world market offer similar products to the market. A business’s competitive advantage in the global market is always determined by businesses in the same industry. Product differentiation is a business strategy that is meant to ensure competitive advantage in a market. In a global competition, product differentiation may be expensive for a company as customer and market needs change with time. Although product differentiation attracts loyalty from customers, it can be quite costly in terms of carrying out market research and development on customer needs, product development, advertising and even monitoring. Global competition can also act as a barrier to product differentiation as customers tend to remain loyal to the already established products. When the product is not well received in the global market, then all the company’s effort in production go to waste. Federal Express is an already established company in the industry with an upper hand in the market share. The company can therefore use this to its advantage to create unique and quality products for its customers. Brand loyalty to Federal Express products can also help the company break even in the market and establish a niche (Mulcaster, 2009).
In conclusion, Federal Express can achieve competitive advantage by properly formulating and implementing strategies that will lead to superior performance over its competitors. This case study describes the strategic planning techniques used to formulate strategies for achieving business goals of Federal Express. It also recommends effective business strategies based on the analysis of domestic and global operating environment, market dynamics and internal capabilities in the small package express delivery industry. It also discusses ways in which Federal express can design a business model and design strategies that will ensure competitive advantage.