HBS- Airborne Express

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HBS- Airborne Express
Background Information
Seattle based Airborne Express was the third largest express mail business in the 1990s. The product of two specialist airfreight carriers, Airborne Express began operations in 1968 and targeted businesses requiring regular, high-volume shipments of urgent items. Airborne maintained low cost operations by focusing on efficiency. We discuss how the express mail industry evolved throughout the 1990s and what Airborne did to remain competitive. How and why did the express mail industry structure evolve the way it did through the 1990’s? The 1990s were a decade of steady economic growth and gave rise to the need for efficient and timely deliveries. As a consequence, FedEx and UPS, which had previously made concerted efforts to differentiate themselves, were forced to streamline service offerings and operations to cut costs. The “two gorillas” both offered express, international, and domestic deliveries, as well as impeccable customer service, package tracking and user-friendly websites. Without differentiation, UPS and FedEx needed to cut costs in order to improve profits and gain market share. This environment led to the classic Bertrand Pricing Model. Each firm delivered interchangeable services, and consequently, undercut prices. Exacerbating competition was the overall loss of consumer confidence. During the UPS strike, customers who relied upon that one carrier suffered losses. Switching costs were significantly lowered, as customers moved away from single-sourcing. After years of price wars, we witnessed another shift in industry dynamics. UPS and FedEx implemented distance based pricing as a new strategy, posing a difficult challenge to smaller firms, including Airborne. How did the changes affect small firms in the industry?

The Big Three (FedEx, UPS, Airborne) accounted for 85% of the market. Six other firms competed for the rest. These smaller firms targeted niche markets and were not as affected by...
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