Consumer Behavior Trends in Service Industry - Case Study Example

Investigation of Consumer behavior trends in Service Industry: FedEx. Target marketing in the competitive service industry Table of Contents Table of Contents 1 Introduction 2 Background of FedEx 2 Role played by Consumer behavior concepts 3 Section A 6 Choice of product/service (Reflective analysis of the service) 6 Section B 10 Consumer behavior themes versus Parcel delivery Industry 10 FedEx Customer consolidation 10 Implication of Consumer Behavior to business position 12 Conclusion and Recommendations 13 References 15 Introduction To succeed in the global market, organizations require rapid and reliable access to the market segments from Africa to Asia and America to Europe. FedEx express is one of the leading company in transportation service. FedEx delivers over 3.3 million packages daily to 215 countries. The company’s customers are in excess of one million and are served by over 140,000 workers stationed to approximately 50,000 drop-off centers worldwide. With 645 operational aircraft and roughly 42,000 vehicles, it forms an integrated global network. This paper focuses on the challenges FedEx faces specifically on customer relations, winning competition and marketing strategies relative to the ever changing consumer behavior (Consumer buying behavior, n.d.). Background of FedEx Fred Smith presented a paper on logistics while attending Yale. The paper sanctioned need to establish a rapid delivery service to distribute spare parts, and he also mentioned that advances in computers would one day replace physical inventory management through a system that moves data faster. Although he scored a C grade, upon returning from the Military he set up ‘hub and spoke’ system for sorting out delivery parcels in a central location in America, and suggested that the system can be tried elsewhere in United States. After subsequent independent research studies, a need for overnight delivery in business was established. This formed the genesis of Federal Express in 1973 (CustomerServiceWorld, 2000). Federal Express (FedEx), after establishment as a major contender in airfreight industry, FedEx scheduled three services to increase delivery volume. These include Standard Air, Priority-One and Courier Pack. Within the first three years of starting operations, FedEx had adopted unique policy of limited package size and a strategic hub system. This strategy stirred its delivery volume to an average of 20,726 packages per day in 1976 compared to 10,521 delivered the previous year. This is put FedEx on high standards, carving out a niche in market through reliable and immediate delivery on overnight basis. However, existence of untapped market growth potential and lack of marketing led its managers in 1976 to forge strategies on how its marketing strategy should be accommodated in the financial budget (Consumerreports, 2008). What are consumer behavior concepts? The act of buying behavior refers to processes of making decisions by people who wish to purchase products or service. Based on this definition, consumer buying behavior refers to the buying behavior of the consumer. Purpose of analyzing consumer behavior A company or organization is expected to assess consumers buying behavior in order to 1. Gorge buyer’s reactions in relation to marketing strategy employed and the resulting impact of the firm’s business position, 2. Emphasize on the firms marketing concept which stresses consideration of Marketing Mix (Where, when, what and how consumers make purchases) that offers utility to customers, and 3. Help the firm in forecasting consumer’s response to marketing strategies (Consumer buying behavior, n.d.). Role played by Consumer behavior concepts Consumer behavior concepts greatly influence an organizations communication and marketing strategies. Key facets behind study of consumer behavior are within the context of identification and selection of target markets. This is achieved through differentiations of consumers based on geographical, psychological, demographic, and behavior response segmentation variables. Firms facing current business uncertainties strive to formulate closer relationships between marketing concepts and the communication strategy. For this reason, it is a must that marketers gain access to consumer behavior data, in terms of their buying habits, favorable media channels, in order to design communication strategies which appeal to the consumers (Tuckwell, 2009). Identification of buying decision makers, factors influencing buyers, motivation of buyers and their actions are some of the challenges marketers encounter in developing marketing strategies. Consumers’ motives and needs are presented as main areas marketers concentrate in their daily decision making processes. According to Maslow’s hierarchy of needs, Self-actualization is ranked last, followed by esteem, then social and safety needs in the middle, while physiological needs are ranked first and they form the base for consumers decision making (Tuckwell, 2009). Personality and Self-concept is an important consumer behavior, it distinguishes an individuals psychological characteristics in four categories, 1. Real self, 2.self- image, 3.looking-glass self, and 4.ideal self. This concept is critical for marketers because individual’s perceptions in receiving and interpretation of information vary. These variations are classified into three classes, selective exposure, selective perception, and selective retention. Based on these variation characteristics of marketers are able to develop communicative ad messages to coincide with consumers attitudes, which are either favorable or unfavorable. An attempt to create alteration in attitude is both risky and expensive (Tuckwell, 2009). Therefore targeting a market segment requires marketers to be innovative by identifying and selection either group references of family in influencing buying decisions. This brings as to the concept of market segmentation, where customer targeting involves segmentation of markets by dividing a huge market into few homogeneous markets according to similarity in lifestyles or shared needs. In a three step process, a marketer is able to first identify a market segment, second select a market segment with full potential, and third position company product to the consumers within the target segment (Tuckwell, 2009). However, personality of the product requires the marketer to split the segment further into demographic segments to suit gender, age, cultural mix, occupation, income, education, marital status and household formation. Under demographic trends, the model defines the populations ageing factor, economic power especially for women, transitions in family formation, and ethnic diversity. This trends are important for marketers because of their impacts on launched products, for example over-50s are very receptive and an attractive market. In contrast, buyers decision making in the current financial unpredictability are driven by occasional uses, benefits, frequency and loyalty (Tuckwell, 2009). Positioning of products by marketers is a complex process and requires skillful analysis of competitors, target market, product quality, price, communication, and distribution (John & Michael, 2001).This calls for essential skills like creativity and media strategies. To position a product is in essence the selling aspect, thus a marketer needs to apply the selling concept to consumers through motivation by instilling an image or tangible benefit to the minds of buyers. This can be achieved through advertisement, to deliver the positioning strategy. The ad communicative message targets, brand leadership, innovation, head-on, product differentiation and lifestyle. However, this strategy is always challenged by presence of competitors and it needs to keep changing by repositioning of the products as per consumers attitude change or direct competitor variations (Tuckwell, 2009). Section A Choice of product/service (Reflective analysis of the service) Mail and parcel delivery service industry has come of age. With the advent of global digital technology and online shopping, mail and parcel delivery has become a critical function business. This is excellent avenue for providers of parcel and mail service to feed the global village of buyers and generate more revenue. The demand for mail and parcel delivery has more than double since the turn of new century, with shipment of consignments across the globe. FedEx UPS and others are the providers of this service. The industry however has a catch. To win allegiance of high profile customers, a provider is expected to consistently deliver high quality service that is complimented by customer-centered verification and management (Agilent Technologies, 2004). FedEx carried out it first model of market targeting under Heinz Adam who was then the director in-charge of marketing and administration. The objective of this analysis was to exploit the unfulfilled market potential in its emergency delivery service department and improvement of profit margins in all the three services. In its recent launch of advertising strategy created by BBDO Worldwide (November 22, 2007), FedEx spelt out new themes of Access, Success and sustained growth targeting Germany, UK, France and India. Under this banner, FedEx aims at enhancing customers’ access to opportunities in the market as well as improving their possibilities in business. This strategy led to unlikely compliments from a news article in marketing week magazine describing FedEx’s new push as an example to be emulated by other companies in realizing potential opportunities, whether the prospects exist in the local communities or globally (CustomerServiceWorld, 2000). FedEx recognizes the increase in web-users and how online shopping hence it has utilized potential opportunities that come along with internet and digital technologies (Junnarkar, 2000). FedEx which was initially known as the speed overnight-delivery giant as gradually transformed its activities to a slower home-delivery paradigm aimed at catering for needs of online shoppers Consumerreports,2008).This strategy is currently operational in main metro markets like Chicago, New York, Dallas and Los Angeles inline with customer preference for lower-cost delivery options after internet shopping (Junnarkar, 2000). According to remarks by Rodger Marticke FedEx’s Ground executive vice president he asserted that increase in e-commerce service greatly influenced the company’s mode of thinking and the eventual shift to offer the service. This service is built on customer needs by focusing on their preferred drop-offs and specific dates. Other competitors like United Parcel Service (UPS) and United States Postal Service have stepped up efforts to embrace fortunes led by e-commerce explosion. Bringing web purchases to the buyer’s home is currently the leading revenue boost (See figure 1 bellow) (Junnarkar, 2000). Figure 2 Shows Comparison of major players in the delivery industry and their ratings. 3 shippers, 3 time frames Charges to send a 5-pound package from Yonkers, N.Y., to Folsom, Calif., as of late September. Shipper Next-day air 2-day air Ground Postal Service $36.85 $16.80 $10.58 FedEx 73.50 43.65 10.06 UPS 73.50 43.65 13.99 (Source: Consumer Reports Magazine issue, 2008) Under this customer behavior change, new entrants have emerged like DNet and Kozomo.com promising to make faster deliveries within one hour of consumers purchase. This has opened up the market for greater competition. For example companies which operated as Web grocers have also realized the potential in operating delivery service and even expanded to deliver consumer electronics and books. This has forced FedEx to lower delivery costs for online shoppers to fit within the competition. However, with its well established brand name, FedEx has already generated 1,000 clients in the past three months alone including Omaha Steaks who deal in online meat retailing and PlanetRx a drugstore. The impact created under this market segment especially to marketers arises from the costs involved in sending a single truck to only one residential home in a single town. Marketers have to generate a larger density of deliveries in their regions to make the service profitable to FedEx (Junnarkar, 2000). Developing and keeping relationships with existing customers is an essential business strategy. Yet complaints and problems always feature over longer customer relationships. Means of handling the emerging problems effectively is important in maintaining customer loyalty and satisfaction. FedEx has over one million customers in the EMEA market segment. FedEx express currently is faced with a twofold challenge, first to deliver much faster and second to be more reliable to its customers at a better price to realize good profit margin(Figure 2). Competition and innovation in the mail and parcel industry has increased greatly across the globe. Therefore FedEx managers need an expansive insight into the company’s operational performance, supplemented with excellent customer knowledge for it to push developments tailored with services for customer satisfaction and increase revenue returns (FedEx Express, n.d.). Figure 2. Shows FedEx earnings trends from 2007 to 2009 Until recently, marketing and sales departments have been using a variety of sources to analyze customer behavior. The variations in data sources created numerous discrepancies in information to be shared between the two departments. FedEx resolved the challenge by creating consistent views on customer shipping attitudes through implementation a standardized infrastructure using 1. An oracle 9i data warehouse, with this system FedEx is armed to tackle the dynamics in technology environment by anticipating technological advances in future and how they will impact on the consumer behavior and lifestyle patterns (John & Michael, 2001). 2. It also impressed BusinessObjects as the key business intelligence and standards tool. The system improved efficiency by enabling managers to tailor marketing campaigns and services to address specific needs of customers, enhancing service quality and maximizing generation of revenue opportunities 3. Developing web intelligence, business objects broadcasts, and agent scheduler to deliver information to over 1,000 users. This strategy improved customer segmentation, enhanced market segment targeting and campaign management, and monitoring of suppliers performance versus KPIs (FedEx Express, n.d.). Section B Consumer behavior themes versus Parcel delivery Industry Company’s in service industry are struggling with the economic slowdown and have devised methods of trimming costs arising from customer service as a means of boosting satisfaction to customers. The goal of this strategy is to generate customer loyalty. However, with today’s downturn in economy, few firms set up market research to monitor the economic trends in order to accomplish this balancing act which has proofed to be very difficult to accomplish. Majority of firms don’t dare to try it out, instead they respond by downsizing services costs in their quest to meet short-term financial targets. The second category of firms sacrifice quality of services delivered, hoping that when economy recovers they will hasten investments in customer service improvements to win them back only to realize its too late (Mukharji, Denneen, Chernoff, & Kovac, 2008). FedEx Customer consolidation FedEx in its bid to consolidate customer base strategically positioned its services. It improved customer insights in Middle East, Europe, Africa and India larger market segments through implementation of Oracle 9i-based data warehouse. This system is drawn from Product position concept with the objective of influencing customers’ perception to FedEx service unique characteristics compared to those of competitors (John & Michael, 2001). The above system is fed with information from over 20 different source systems which include peopleSoft HR, an external Bradstreet and Dun, and CRM. The dashboard is an aggregation of sales information generated by 70 managers in sales department, while businessObjects Broadcast Agent Scheduler and Web intelligence delivers reports to almost 600 targeted account executives. Consequently, marketing teams in FedEx apply Set Analysis to easily create 100 different customer segmentations to be targeted for marketing campaigns. This strategy has modeled its competitive strategy by generating consumer demand for its brand attributes hence differentiating its image from that of its competitors. The service differentiation has been achieved in FedEx through spirited campaign to manipulate the marketing mix in favor of its service by emphasizing on quality, reliability, and widening off-shore drop-outs across the globe (John & Michael, 2001). FedEx customer revenue maximization FedEx has addressed previous challenges on data sources. Information on customer shipping information is currently available on daily basis. This enables FedEx in motoring of deliveries and determination of times of package deliveries (John & Michael, 2001). The dashboards system provide an ambient time for senior management to reflect on the supplier performances against 25 shipments and contractual KPIs. This signals early warnings incase of potential problems that would undermine relationships with customers. Secondly, FedEx’s Set Analysis has diminished challenge on customer behavior, by assessing whether they are using competitor’s solutions, customers preferred destinations, and the different kinds of shipments or services they intend to use (FedEx Express, n.d.). FedEx regularly carry out environmental analysis of the mail and parcel delivery service. This enables it to identify potential external forces threats and forces on its customers and opportunities of revenue generation. FedEx initiated Set Analysis system with goal of refining and targeting campaigns to specific market segments. This means it proactively reaches out to customers with whom their attitude and behaviors indicate that they are likely to discontinue or reduce the service. Alternatively, the Set Analysis has opened up means of assessing opportunities for revenue generation arising from new services. Easier accessibility of reports for sales performance brought by this strategy has opened avenues for finance and account executives as well as sales managers to immediately initiate tracking of sales figures realized against total objectives (FedEx Express, n.d.). Implication of Consumer Behavior to business position Impact of customer dissatisfaction on company’s market share is big threat to its business. Therefore attaining customer satisfaction and service efficiency is central to business growth. However, most managers view customer satisfaction and service efficiency to be incompatible goals in business. The impact to marketers is that upon economic recovery, companies which had strong core of loyal clients position themselves to gain from the growth faster by virtue of having a competitive edge over their competitors. FedEx fits in this category of firms, its large market segment worldwide combined by superiority of its service operations rates it highly on customer loyalty scores which is reflected by its sustained growth (Mukharji et al, 2008). FedEx has invested in learning customer needs, then translating the insights to innovative services which improves their services continuously. As an illustration, when FedEx compiled a variety of strategic acquisitions in early 1990s. It expanded and diversified its portfolio by institutionalizing “The Purpose promise” as a pledge for its customers to come first in every interaction. The unifying theme transformed FedEx by promising high-quality service in all its business family which include, ground, air, office business solutions or freight delivery (Mukharji et al, 2008). FedEx services, was set in the firm to oversee consistence of the service in all its subsidiary companies. The goal of this strategy was to enable customers’ access full range of services offered by FedEx including, supply chain, transportation, business, e-commerce and information related services. Through integration of marketing, sales, customer service support, information technology, and pricing for its global FedEx brand, FedEx is capable of coordinating its revenue better and achieve success in all its programs in the entire enterprise (Mukharji et al, 2008). Subsequently, FedEx has a multiyear plan of managing customer service on time horizons set to continuously improve customer service goals. It has a working strategy and working group which forecasts consumer behavior to determine how the outcome of their experience, second, the group is tasked to monitor operations and how they can be structured, how to improve core processes and new advances in technology that would cut costs and reduce inefficiency (Mukharji et al, 2008). Conclusion and Recommendations In conclusion, strategies of centralizing customer-service functions helps in attaining and maintaining customer loyalty scores as it happened in FedEx which is among the highest in the service industry (Mukharji et al, 2008). Customer utility strategies concentrate more on direct service to customers forgetting company employees. According to Jackson, Hollmann, and Gallan (2006), service firms have an obligation to treat their workers well because the manner with which they treat its workers is same as the way employees will treat customers. FedEx has recognized its frontline employees as a major source of image rating by consumers. Therefore, enhancement of employee satisfaction through offers incentives, motivation, and initiation of career development empowers them in customer-facing roles. The company gets a double gain since workers become enthusiastic as frontline workers in meeting customer needs as well as increasing their retention rates (CustomerServiceWorld, 2000). From discussion in this paper it was noticed that mail and parcel service companies can overcome challenges in the industry, by carrying out a real-time end-to-end service visibility to understand aggregated group customers and individual subscribers. This will result in rapid diagnosis, detection and resolution of customer issues that will have negative impact on their experience. Parcel delivery service requires urgent revolution to adopt wireless services. This will shorten parcel delivery and updating on order status by delivery agents or drivers. This will in turn help management in monitoring service quality for customers. Likewise it will enhance measurement and reporting on the actual quality of the service delivered to avoid violation of service level agreements (SLAs) (Agilent Technologies, 2004). References Agilent Technologies. (2004).Agilent OSS Customer-Centric Service Manager. Retrieved October 3, 2009 from < http://cp.literature.agilent.com/litweb/pdf/5989-1181EN.pdf > < http://www.touchrate.com/StriketheRightBalance-HBR-PDF.pdf > Consumer buying behavior (n.d.). Chapter 6 Class Notes. Retrieved October 3, 2009 from < http://www.udel.edu/alex/chapt6.html > Consumerreports. (2008).Overnight shipping: FedEx vs. UPS vs. the Postal Service Our ship-off puts deliverers to the test. Retrieved October 3, 2009 from < http://www.consumerreports.org/cro/money/shopping/shopping-tips/fedex-vs-ups-vs- the-postal-service/overview/package-delivery-services-ov.htm > CustomerServiceWorld. (2000).Tony Mosely explains what makes Federal Express so good. 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