Five Forces Analysis-US Express Mail Industry
Question 1 asked to complete a five forces analysis of the US Express Mail Industry. A five forces analysis is done to rate the attractiveness of an industry.
Threat of new entry is low because the barriers to entry are high. Newcomers to the industry would require an enormous amount of up front capital to set up the distribution networks and infrastructure, such as establishing hubs, and acquiring aircraft and a large amount of ground transportation vehicles (vans, trucks, ect). Economies of scale are significant and would deter new firms from entering because initial sales volumes would be low do to the fact that existing brands already have strong brand identification, and there are no cost advantages to entering, like government subsidiaries or favorable locations. There would also be aggressive reaction from the three main players (FedEx, UPS, Airborne) since the level of rivalry is already so high.
Buyer power (customers consisting of businesses and the general public) is high mainly because the large volume of customers have no brand loyalty in the express mail industry. Customers base their selection of a carrier on reliability, price, and convenience and there is not much product differentiation in any of those areas between carriers so customers can bounce around between carriers, essentially playing the competitors against each other, forcing prices down and demanding higher quality and services.
Supplier power is high overall. The main inputs, or supplies, for the express mail industry are fuel, airports, aircraft, ground transportation, and the employees. The employees are unionized and have the power to demand higher wages and benefits, they may not always get that, but then there is the potential for strikes, like with UPS, which costs UPS $700 million in revenues and hurt their reputation. Fuel is another supplier power that is high. Fuel is a key component and there is limited bargaining when it comes to negotiating fuel prices. Another key
Threat of new entry is low because the barriers to entry are high. Newcomers to the industry would require an enormous amount of up front capital to set up the distribution networks and infrastructure, such as establishing hubs, and acquiring aircraft and a large amount of ground transportation vehicles (vans, trucks, ect). Economies of scale are significant and would deter new firms from entering because initial sales volumes would be low do to the fact that existing brands already have strong brand identification, and there are no cost advantages to entering, like government subsidiaries or favorable locations. There would also be aggressive reaction from the three main players (FedEx, UPS, Airborne) since the level of rivalry is already so high.
Buyer power (customers consisting of businesses and the general public) is high mainly because the large volume of customers have no brand loyalty in the express mail industry. Customers base their selection of a carrier on reliability, price, and convenience and there is not much product differentiation in any of those areas between carriers so customers can bounce around between carriers, essentially playing the competitors against each other, forcing prices down and demanding higher quality and services.
Supplier power is high overall. The main inputs, or supplies, for the express mail industry are fuel, airports, aircraft, ground transportation, and the employees. The employees are unionized and have the power to demand higher wages and benefits, they may not always get that, but then there is the potential for strikes, like with UPS, which costs UPS $700 million in revenues and hurt their reputation. Fuel is another supplier power that is high. Fuel is a key component and there is limited bargaining when it comes to negotiating fuel prices. Another key