Evolution of FedEx

Inception
• Express delivery as an idea introduced first in a thesis by Fred Smith
• Earlier, planes would fly during the day and used intermediaries
rendering it “economically inadequate”.
• The idea was fairly novel considering only 2% of the shipments in U.S.
were shipped via air express
• Headquarters moved to Tennessee for its central geographic location,
good weather
• Federal aircraft placed around designated “home” airports to pick up
couriers in a 25 mile radius
• First reported profits in May 1976 and became the first U.S. startup to
achieve 1 billion dollars in revenues in 1983
International Expansion
• Expansion driven by acquisition of regional air cargo companies
• Gained distinction of being world’s larges all-cargo airline after
purchasing Tiger International in 1989
• FedEx International Priority (IP) was the fastest growing package
delivery service

Going ground
• Several concerns were looming around for FedEx
• Email and other forms of communication being introduced
• Overnight package delivery market becoming very competitive
• Business shippers becoming more savvy and shifting their packages to lower
cost options such as second-day or third-day delivery (Offered by UPS)
• Acquired Caliber Systems to add ground services to its offerings
• The main asset of Caliber Systems, RPS, was estimated to control 11-
12% of the market
• RPS model comprised of operators/owners responsible for their own
costing as opposed to FedEx which had salaried employees
• Higher margins (11%) achieved by RPS as compared to 3% of FedEx’s
express unit.
Market Competitors
• United Parcel Services (UPS) and Airborne Freight were major competitiors to
the FedEx Express business.
• UPS was the world’s largest delivery company by either volume or revenue and
was a renowned brand, just like FedEx.
• UPS recently blended its air and ground services in the same network to offer
different services under one distribution network.
• This meant one driver, one information system for both modes under a single
brand name.
• Airborne was the third larget express carrier emerging as a low cost provider.
• USPS was another low cost option but lacked behind in tracking systems and not
so reliable Priority Mail.
FedEx Express Sales Strategy
• 2200 executives, 1.5 million customers reflecting hierarchal
segmentation.
• Customer segmentation based on amount of revenue generated by
customer in previous year.
• Businesses with more than $10mn annual billings were given highest
priority. Associated account executives analyse their business and
negotiate contractual agreements.
• Lowest priority is given to small accounts of $6000 to $40000.
Executives are engaged in making sales calls to negotiate a single
contract.
• Provided superb customer service and reliability reinforced through
advertising campaigns. Eg. Money-back guarantee for undelivered
packages.
• In-person calls to target multitude of contacts within a client, who are
mainly logistics, procurement or customer service managers.
• Improving tracking capabilities and efforts to decrease transit time
FedEx Ground Sales Strategy
• Consisted of about 800 account executives serving approximately
65000 customers
• More profitable in metropolitan areas
• Signing new clients was slightly difficult because of the absence of
brand name recognition
• Package yield , average revenue per package, was a key component of
Ground account executive’s sales objective
• Additional activity targets to be completed in order to qualify for
incentive compensation
ARISE- Achieving Revenue and Information
Technology Synergies across the Enterprise
WHY?
• Customers have to deal with atleast two salespeople – one for
Express and another for Ground
Objectives:
• Create a well balanced sales approach between Express and Ground
delivery
• Other Marketing and customer information technology objectives
• Provide bundle pricing for the services