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Every
industry has upper thresholds or maximum levels of acquisition,
retention, and offer response. If a firm spends an infinite
amount on acquisition spending, the maximum acquisition response
will be a number far less than one. The reason is that no matter
how much a firm spends, a large segment of customers will not
purchase the product or service. Further, there is a maximum
level for each component of Customer Equity™.
Federal Express understood the drivers of Customer Equity™
in its industry; with that knowledge it changed the industry's
maximum retention rate.
Federal Express has changed the air delivery service industry.
Prior to Federal Express's entry, air delivery firms would use
the scheduled airlines to move packages from point A to B. They
were dependent on the airlines' schedules-as well as their on-time
records. Even back in the mid-1970s, airlines had delays and
cancellation problems-not as severe as in 2000, but enough to
cause serious reliability problems for air service companies.
The typical on-time delivery service was 43 percent. This obviously
led to enormous customer dissatisfaction and low retention rates.
Customers were constantly changing their air freight delivery
company.
Federal Express recognized this problem and decided to change
the structure of how freight was handled. They developed a marketing
mix strategy, unique to the industry, which focused on distribution.
They introduced the idea of a central hub (Memphis) to which
all packages came and were then routed to their final destinations.
Just as significant, they also purchased their own fleet of
planes, which eliminated the dependency on the scheduled airlines.
The company flew its planes at night, which meant airport delays
were minimal. The strategy allowed the company to create its
now famous slogan: "When it absolutely, positively has to be
there overnight." Federal Express's retention rate became significantly
higher than the industry average (percentages in the 90s versus
43 percent), and in time they became the market leader.
Federal Express (now FedEx) changed the industry maximum retention
rate through a totally new logistics and operations strategy
that was then marketed through their famous advertising campaigns.
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"Federal
Express understood the
drivers of
Customer Equity™
in its industry;
with that knowledge
it changed the
industry's maximum retention rate…
through a totally
new logistics and operations strategy
that was then
marketed through
their famous advertising
campaigns."
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