In the express mail industry shipment volume was increasing quickly, but prices were falling. For this reason total revenues of the industry had been growing by only 10-15% each year and were expected to grow about 10% for the next five to ten years. The customer base of the industry was broadening due to acceleration in the pace of business. However, customers of this industry were not very loyal, even though discounts based on volume did encourage customers to focus on one carrier. Customers chose carriers primarily based on price, reliability, brand name, access to tracking and other information, customer service, convenient drop-off and pure habit. The express mail industry incumbents had pretty high capital expenditures, since they owned their own cargo airplanes, and sophisticated information systems. As of 1997, the domestic express mail market was dominated by three major competitors – FedEx, UPS and Airborne Express – that served more than 85% of the market. The industry rivalry between these companies has been very fierce. Price and “parcel” wars between them became a regular thing. Each company matched not only the others’ prices, but also innovations. The industry had very effective substitutes as well, such as ordinary mail delivery, fax and e-mail. FedEx held about 45% of the domestic express mail market and was the leader in the market. It was the inventor of the industry. The company’s operations had very high level of automation and cutting-edge technology. It also had an extremely strong focus on quality control and customer satisfaction. FedEx marketed itself quite aggressively and hosted a philosophy of putting people first. In early 1997, FedEx led a price increase, primarily for high-volume, low margin business customers.
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