Harvard business school case Essay

1) mobiles performance from 1986-1997 stern be depict as dismal. Throughout the period the family managed to remain profitable all(prenominal) year, further they underperformed the McGahan averages. airborne averaged 1.72% ROS (including 1997, which was an outlier for this set), 2.46% ROA, and 9.34% ROE. This was comp bed to the ROS, ROA, and ROE of 4.7%, 5.9%, and 12.6%, respectively. airborne also had meeker margins than its competitors, FedEx and UPS, so it can be inferred that mobiles performance is poor non just in general but also considering the industry. It should be comment that the industry leader, FedEx, could non consistently beat the averages either, so the industry is non earning astronomical margins to begin with. However, UPS does consistently beat the averages, so Airborne should non be entirely excused due to its industry.The strategy come alongs to be low- constitute, extensive based. Based on awards 1 and 8, it is obvious that Airborne is chargin g lower equipment casualtys than the competition. This is however half of the low- live strategy. It would at first appear that Airborne is exclusively charging lower prices, but has not developed a lower damage structure because its margins are so low. However, there is record to support a lower price structure as well. First of all, it would be sort of difficult to senseless(prenominal)dite a similar cost structure and nonetheless turn a profit if one looks at the FedEx comparison in Exhibit 1. This is not the tho evidence of a low cost strategy. At first glance, it appears that Airborne may not drive a lower cost structure because of the size of their derogation cost versus revenue. Because Depreciation was the only cost that was give in the Financial Results Exhibits for all terzetto companies, it has to serve as the sum for comparison. Versus revenue size, Airborne actually was a good deal higher than UPS, and barely lower than FedEx.It is important to consid er what the cost agency though. Most likely, the dispraise be are based on depreciation of the aircraft, the major(ip) asset purchases that these companies make. If the depreciation cost is divided by the number of planes in the fleet, whence Airborne appears to be paying less per plane, this could be supported by the statement that they use planes from the 60s and 70s. It would calculate that the cost structure is lower in this case. Also the case mentions that Airborne is able to gather its planes to a higher faculty, mingying less costs incurred per item because the escapism cost is spread out  everyplace more revenue generating packages. Also, Airborne does not invest in the technology that the others do, such as introduce, that would pass on to costs and also be the mark of differentiation.Airborne also uses the cheaper give method over air to save property, another low cost method. Airborne does not engage in costly advertising campaigns. Airborne is definitel y pursuing a low cost strategy, they just face to be doing a poor job of it as far as earning similar margins. In monetary value of the broad versus narrow based, there may be an argument for Airborne positioning themselves for urban foodstuffs because the customers they serve treat to be in the major 50 areas of the US. The fact remains that Airborne does not specifically serve only these urban areas according to the case, so they would most likely serve any part of the country. They do seem to be focusing on domestic shipments because they do not pass their own aircraft on international shipments, but the even so do energize international shipments, lending more weight to the broad argument.2)Substitution this is a major scourge. The specific service that Airborne provides is easy to find from competitors, not to mention that there is no proprietary characteristic of the Airborne service that would ineluctably encourage a customer not to switch with the exception of pric e. take-off The threat of imitation is not as high. If a competitor were to imitate, they would pee to develop a separate cost structure, and the Airborne way does not really fit into their business models. If a startup were to attempt to imitate, then there would be many costs that would be instead prohibitive. It would be expensive to buy all the planes, at over $5m each, the airport, and spend the money on fillting customers.Hold Up This threat appears to be quite low. The customers will most likely not ask for lower prices, and the company owns a lot of the planes and inputs. The only conceivable threat is from employees. Pilots typically have unions (the case does not mention a union of Airborne pilots), so they could use that union clout to ask for more money. The only pinch to the likelihood of holdup was the employee description of frugal and strait-laced. These are not words that usually have positive connotations, so this could be a hint that employees are unhappy.Slac k Slack is harder to gauge than the others, but it appears that the threat is low. It appears that company is cutting costs in all areas where they can. This bare study setup would definitely not be indicative of a heed that could produce slack. They could conceivably get slack because they do not work as hard via advertising and promotion, so potential customers do not know about their price advantages. The only really pertinent component part of information I found was that the capacity was listed at 80%. That leaves extra capacity that they could be using, indicating slack. This observation is offset by the fact that this capacity is still higher than the competitors. All in all, there is more evidence to support a low threat of slack.3)I mean that Airborne should aggrandize a distance based price structure. While it may present a threat to the cost edge that they currently have over competition, it also could lead to higher revenues. The company already has a cost advantage , so it should be able to still outprice the competition. The distance based pricing model could let the company gain some of the revenue that they are missing. If the company uses more trucks anyway, over a larger distance, the cost nest egg should add up, and Airborne will still earn a profit.The only major threat that a pricing change presents is lost batch because of losing customers. However, customers are used to a distance based system, as it is the industry standard. Also, if they have the lower price compared to UPS and FedEx, the main selling point is still in place. I would not recommend this change only in the event that Airborne would cease to be the cost leader afterwards adjustments, because that would destroy their edge and model. There is no evidence to indicate that this could be the case, so I stick by my recommendation.4)The relationship with RPS looks like it can be quite valuable. I would have to say that I do recommend a change in terms of service offered, and that in turn could be a slight modification of strategy. I think that, with main competitors offering tracking and other information services, Airborne needfully to offer some kind of tracking service as well. The tracking service might have moved from being a identify service that customers pay a premium for into an industry standard. Part of the low cost strategy is at least giving the consumer what would be considered a typical service. If differentiation increases the willingness to pay, I think that not offering a key service that the customer expects could substantially decrease willingness to pay. Airborne should prepare a stronger alliance with RPS and take advantage of the opportunities.If they can take market share away from UPS and offer a higher quality service, that should mean more revenues. Airborne is currently outpricing the competition substantially in Exhibit 1 they have almost half the per package revenue of federal official Express, and in Exhibit 8 t hey charge almost 20% less per package. The extra service could justify a higher price but keep them in the low-cost position as there is survey of room to raise prices. This should make a difference in terms of more revenue. I am unaware as to the elasticity of the price of shipping packages, but it would seem to me that, as long as they have the lowest price, the sight should not decline.Another reason to join forces with RPS is the large amount of ground shipments. This is where they get the higher margins, and RPS can increase the volume. It would seem that a company should jump at the opportunity to increase the volume of higher margin activity. There is little discussion as to the costs associated with the relationship, but it seems to be implied that Airborne does make money from the activities conducted together. This would mean feel a lot more like UPS than FedEx, and UPS is the only one of the tierce companies with acceptable performance indicators. All in all, I recom mend that Airborne stay with a low-cost strategy, but they should use the relationship with RPS to get some more customers and raise their poor margins. As it stands the company is not doing well, and this could be what they need to finally get the company to earning a gracious profit.