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Air freight was assumed to be a costly option with less than 2% of the total freight taking aerial route.
The package size used to be small and generally consisted of time sensitive, high price and finished
goods. The competition with the air freight industry was intense and the presence of big players made
the entry of new players difficult.

Most of the air freight was taken with the passenger aircrafts which means that the routes for package
carrier were constrained by the route of passenger carrier in the absence of dedicated package carrier
aircraft. The major carriers such as Emery, Shulman, REA Air express were the major market players. The
advertising expenses were low as the companies mostly relied on their salespeople and intermediaries
for airfreight business.

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To our understanding most of the customers for FEC came from other segments such as shippers who
used road freight mechanisms. Customers realized that the cost of shipping with FedEx meets the
quality of service provided in terms of collection, shipping and timely delivery of the parcel and thus
they did not hesitate in spending a little more than what they used to spend with road freight. This is
clearly more a case of customer creation by defining market rather than getting customers from
competitors.

In the initial years they got most of their business from US government and defense services. Gradually
with the marketing operations in place, people realized the value proposition that came from the house
of FedEx and this led to their customer base creation.

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The main benefits that FedEx was selling were:

 Speed of delivery ʹ Air freight provided considerable time advantage as compared to road and
rail freight in terms time of delivery, safety in handling, need for packaging etc. This also helped
them to attract new customers from other means of shipping.

 Ease of shipping ʹ FedEx provided parcel pickup from shipper͛s door. This provided great
benefits by avoiding cost to take the parcel to the shipping agency and time spent. Within a
radius of 25 miles of the airport , the parcel used to be in hands of FedEx.

 Coverage ʹ This was the biggest value proposition offered by FedEx. With dedicated package
carrier, FedEx was able to provided connectivity to a large numbers of places with US. The other
players were constrained by non availability of passenger planes on routes where FedEx served.

Π


Federal Express Corporation, commonly called FedEx, was established in 1971 by 28-year old Frederick
W. Smith, a Tennessee native and former Marine pilot. It was the realization of Smith͛s 1965 term paper,
which he wrote as an undergraduate at Yale University.

He observed that if a company focuses on offering air freight, having its own planes, rather than using
passenger planes, it would provide faster delivering of packages for people who need to move items
speedily. Such company would have carved a profitable niche for itself in the courier delivery service
industry.

FedEx carved out a niche in the courier service business, by targeting people who needed to ship their
packages fast. By this focus, it found itself almost not in any competition, and therefore benefited
greatly over the years with increasing need for people to ship items quickly and also when the industry
was deregulated.

FedEx made loses in the first 26 months in business, so much that investors wanted the founder,
Frederick Smith, removed in 1975. But only two years after, the company bounced toprofitability and
later hit a billion dollars in annual revenue within ten years in business.

The company enjoyed little or no competition on routes between smaller cities because it owned its
planes, which could reach smaller cities, while its competitors, such as Emery Air Freight rely on
commercial airlines to ship its package. At the close of 1977, the company͛s sales were $110 million, and
$8 million profit.

FedEx major breakthrough came for its business in 1977 when the airline industry was deregulated.
FedEx has enjoyed clear leadership position and dominance of the U.S. airfreight industry because it was
the first to emphasize speed in its package delivery. People have come to associate the name FedEx with
overnight or speedy package delivering.

FedEx moved into international business in 1984, after it was firmly rooted in the U.S. Having achieved
market dominance in the U.S., it was ready to achieve the same success on the global stage. FedEx Corp.
is a heavily diversified company, consisting of several independently run subsidiaries in different related
industries. Although independent, the subsidiaries function collectively in competing with other
companies, and collaborate with one another to achieve individual success.

The companies function under the motto: operate independently, compete collectively and manage
collaboratively.͟ This ensures that as the companies operate independently, they can focus squarely on
giving their customers the best service possible. And as they compete collectively and manage
collaboratively, they can maximally benefit from the strong FedEx brand name.

This undoubtedly explains why FedEx Corp. is the world͛s premier shipping and information services
provider.

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FedEx͛s strategy for success in the market place relies on a combination of customer intimacy,
operational excellence and product leadership customer value proposition. describes companies who
adopt customer intimacy as companies who attract customers by understanding and responding to
individual needs better than [the] competitors .Companies that rely on operational excellence deliver
products or services faster, more conveniently and at prices lower than competitors .Companies that
pursue product leadership customer value proposition tell their customers to choose them because they
deliver a higher quality product than their competitors

FedEx͛s strengths in logistics, operations, and technological innovation allow them to pursue a
differentiation business level strategy. FedEx works to stand apart from its competitors by creating a
level of service that is difficult for competitors to match. FedEx has clearly been identified as an
innovator, but what they need to get across to their customers is that they provide a high level of quality
service. FedEx charges higher prices for its services than many of its competitors in the industry. This is
considered a premium that a customer pays for the quality of service FedEx provides. By differentiating
their standard of quality from their competitors, FedEx lets their customers know that if they are willing
to pay more, it will be worth it.

The purpose of differentiation is to establish a strong customer base which understands that FedEx does
offer a superior service than its rivals. While all players in the industry are capable of making fast
deliveries, FedEx is the most customer-friendly. Some of the special services FedEx offers are the most
support, a money back guarantee, and the capability to pick up packages from the customers home.
FedEx goes far out of its way to differentiate itself from its rivals.

FedEx understands that different customers have different needs. Therefore FedEx has divided itself into
six different segments; FedEx Express, FedEx Ground, FedEx Freight, FedEx Custom Critical, FedEx Trade
Networks, and FedEx Supply Chain Services. Each service is targeted toward a specific segment of the
market, according to the specific needs of different customers. By specifically targeting customers by
their needs, FedEx hopes to serve the immediate and psychological need for those who need a
guarantee on time and delivery. Customers may require different services at different times, falling into
more than one category. A company may need a document express delivered overnight a few states
away, and then need freight something the next day. FedEx understands that there are a variety of
needs their customers could have, and have segmented the market accordingly. That way, no matter
what the customer may need to do, FedEx will be able to serve them.