Federal Express established itself as a key player in the competitive airfreight industry, just three years after beginning operations, as a direct result of its unique strategic hub system and a policy of limiting package size to under 70 pounds.
By capitalizing on this strategy, FedEx was able to boost its average delivery volume in 1976 to 20,726 packages per day via its three services, Priority-One, Standard Air, and Courier Pack, compared with an average of 10,521 delivered daily the prior year. Clearly the company’s calculated use of strategically-located hubs, nighttime flight routes, and limited package size allowed the company to carve out a niche by reliably delivering packages on an immediate, overnight basis.
However, untapped growth potential and a lack of marketing led FedEx managers in 1976 to determine how the company should allocate its new marketing budget, and who the company ought to target. After some analysis, it is clear that Heinz Adam, director of marketing administration, should direct Federal Express management to target potential users of Courier Pak delivery, in order to exploit unfulfilled potential in the emergency service department. Here’s why: 1.
Of the three services offered by Federal Express in 1976 (Priority-One, Standard Air, and Courier Pack), Courier Pack exhibited the highest percentage of profit margin. The Courier Pack earned a 66 percent margin per unit, based on a flat price of $12.50 per unit, and variable unit costs of $4.25. Comparatively, FedEx’s Priority One service generated a 54.89 percent unit margin, based on a unit price of $23.50 and variable costs of 10.50, while its Standard Air service only generated a 26.94 percent unit margin, at a price of $12.62 per unit and variable costs of $9.21. Clearly the Courier Pack is able to generate the most profit per unit because it is most efficiently delivered. If the company were able to boost sales of this service, the company’s overall...
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