Thursday, May 3, 2007

How Fedex became 'The Verb'

Article contributed by Anjana Rajamani.

I was hoping that a quick look at their respective websites to check out their product offerings, compare service levels and a few random checks for customer experiences, would provide me with clear, obvious reasons as to how FedEx ‘out marketed’ its centuries old competitors - UPS and USPS. Has FedEx out marketed its rivals? Clearly, becoming a $34 billion company in a short span of 35 years, FedEx has grown much faster than its rivals UPS (revenue $43 billion) and USPS (revenue $69 billion) and made their revenues look smallish relative to their century (ies) old existence.

Beyond figures, FedEx has done much more than capturing a sizable portion of the market from its rivals – it has captured a significant portion of ‘mind share’. FedEx has become eponymous for ‘anything that you can’t deliver in person’ as Xerox did for photocopying. FedEx is recognized (or very close to being so) for what it has sought to identify itself as – in its own words – “absolutely, positively” dedication to providing specialized solutions for every shipping, information and global trade. Clearly, this is not any different from what any other logistics company would try to do and in most cases, already do so to a fair extent. Why then has FedEx enjoyed such an unprecedented level of success? How has it beaten its more established rivals to become ‘the verb’?

Looking for answers, I realized that there are few things more difficult than explaining success stories. While in the cases of failure, it is often possible to identify and attribute a cause, or at best a few causes which paved way for the ultimate fate, so is not case with success. Even the staunchest of non believers in ‘destiny’ would agree that success is a phenomenon, which is too big to be attributed solely to our actions and rather rare to result from circumstances alone. Success requires a rare collusion of actions with propitious external factors, which provide the right trajectory. The reasons for success are hence not as linear and easy to identify as those for failure. With this disclaimer I set about in my attempt to explain the FedEx success story.

To start with, there are 3 broad parameters on which a business such as this can be evaluated – Product offering, Service level & Customer Experience. These parameters should explain a significant part of the FedEx success story, though the reasons for success may not limited to these. Given this, here is my take on how these 3 - should I call ‘brands’ stand on each of these –

Service level in the business of logistics and delivery, quite obviously includes pricing, compliance to strict timelines, accuracy of delivery, ability to limit damages to the consignment, movement tracking – has become fairly basic hygiene factor and hardly remains a differentiator in this line of business. After all, all of them have user friendly interfaces that provide you with options to open a customer account and manage and track all your interactions with them, promise delivery with in a fixed number of working days depending on the location, allow you to track their movement and even allow you to choose your kind of packaging, without much differences in their pricing! With a service level below these, one would hardly be in the race and these being major players one need not expect a significant deviation in their service levels (of course, providing for the one of cases).

Customer Experience, which includes everything right from the way the personnel at the office speaks to you to how the delivery man handles your package to how soon your phone gets picked up while you are trying to log a complaint, is the most diffused of the three parameters. There can be no one set of people whose experiences will be representative of the performance of a given brand. In my limited research, I have come across almost an equal number of positive and not – so – positive for each of these service providers. Given that customer experience is hard to measure, it is best to allow for a normal distribution of customer experience, assuming that few providers are more positively skewed than others.

Product offering – finally, here is the one where I see some significant difference between FedEx and its rivals. Well, what is the product offering in this case? – After all, we are talking about taking a package (at the minimum) from one and delivering it to another! By product offering, I mean the number of options a customer, be it an individual, a small business or corporation has in sending his or her consignment.

Product offering depends on the way one defines different group of customers. Most logistics providers tend to group their customers into the usual categories – Individuals, Small Businesses and Corporations. How significant is this classification? Well, it decides everything from how your consignment gets sent to when it gets delivered. While it is true that the needs of these broad groups of customers are similar, they need not always be so. Companies like FedEx seem to cater to the existence of sub-classes of customers within each of these groups.

FedEx allows the customer to decide how he needs his consignment to be sent depending upon his need for expediency and how much he is willing to pay. For example, all consignment to Canada from the US need not be sent over ground, a customer can air freight it if he wants it so. Ultimately, the customer pays for having the package delivered the way he wants it to be.

However, in the case of UPS and USPS business proceeds as per standard definitions. Their operational convenience seems to come at the cost of customer options. As long as you fall into one of the 3 silos (Individual / Small Business / Corporation), they know what is best for you. All packages in a given customer category receive the same treatment irrespective of the need for expediency or any other such demands a customer might have and is willing to pay for!

Rather than providing very few options and getting the customer to pay for what the logistics provider chooses, by not taking over all the decisions from the customer, FedEx makes the customer pay for services he / she chooses. Provision of such options, may seem too insignificant to contribute to the growth in popularity of FedEx, but in the long run it does contribute to the view that FedEx is more customer friendly than its rivals.

This is a great example of how a startup, through good product differentiation, was able to win significant mindshare and grow faster than older and bigger competitors. Now, does that sound like Google vs Microsoft?

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