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UPS Marketing Plan

Advanced Marketing Management

Marketing plan for United Parcel Service

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[i:8e65ab47a8]Mission Statement:

“End-to-end global supply chain provider.”[/i:8e65ab47a8]

Executive Summary:

The company analysis shows that UPS is actually positioned as a domestic (U.S.) ground shipping company, instead of being the primary coordinator of the flow of goods, information and funds throughout the entire supply chain on an international basis, as UPS perceives themselves. UPS is the follower in the overnight (express) deliveries segment. Therefore the marketing plan recommends gaining market share in that segment by withdrawing market share from FedEx, which is the market leader in that segment.

Therefore, UPS should target companies (such as hospitals, finance companies etc.) and households who are currently using FedEx for urgent freight. In addition, UPS should also position themselves in the international shipping market. Therefore, they should target global manufacturing companies where UPS can handle storage, tracking and shipping on a worldwide base.

The major strength of UPS is its ubiquitous US ground network, which was built more than 90 years ago and is six times bigger than that of FedEx’s. UPS can reach virtually every address in the U.S. In addition, UPS figured out how to under-take quick mid-distance deliveries – as far as 500 miles in one night – by truck, which is much less expensive than by air. One should also consider that UPS has much better operating margins in air deliveries than FedEx.

Therefore, is it absolute feasible to gain market share in the overnight (express) segment? To push this idea UPS should establish an alliance with Wal-Mart in order to set up Drop Boxes in their stores, offer night and Saturday delivery, corporate rates, a coupon for frequent household users, and implement appropriate media advertisement according to the target customer group.

UPS has a weak international position since none of the US freight transportation companies has a dominant global position there is a huge potential that UPS could be the leader. In addition, UPS has just received the rights for six direct flights to China.

This is just one of the further steps UPS should undertake in order to conquer the Asian market. UPS should build up an Asian network by setting up an Asian hub, buying air routes, and establishing relationships to Asian governments. In addition, UPS should increase key-account (salesforce) to address global manufacturing companies in order to undertake their global shipping and by showing presence at international trade events. As shown, UPS can increase its international market share.

By undertaking the mentioned actions UPS can increase their market share in the overnight (express) segment and as well in the international segment. Thus, they are positioned as the first choice for reliable, fast and reasonably priced ground, overnight (express) and international delivery.

Current situation

1.1 Market situation

Domestic (United States) ground shipping, consisting of non-express packages, is considered to be a $17 billion market or 16% of the national delivery market. The primary customers are companies (B2B-Business), which have to ship goods in the US, which the delivery is not very urgent.

The major customers are manufacturers which ship directly to retailers and B2C e-commerce companies which sell their products directly to households. PriceWaterhouseCoopers predicts online sales to households will rise from $32 billion last year to $95 billion in 2003. Additionally, it expects delivery charges on these sales to rise from $2 billion to $8.7 billion over the same period.

Defining the US Air Express market as Domestic Overnight and Domestic Deferred, the sales for the total market is estimated to be $34 billion. The major customers are B2B customers who need to ship goods and letters on a fast or/and international base. But also private households, which have to send urgent letters or parcels. Year to date through August 3, 2001, the S&P Air Freight Index fell 2.5%, versus a 7.2% decline in the S&P 1500. A significant slowdown in domestic air cargo volumes can be observed.

In addition, the overall transportation market is very sensitive to the economy, because if there is no consumer demand, goods do not need to be shipped.

1.2 Product situation

The ground shipping product line, 65% of domestic revenue, experienced merely a 0.9% increase in volume growth/per day in comparison with last year. Having an average daily volume of 10,945,000 units in the U.S., UPS’s ground deliveries product line has a unit cost of $4.95 and a unit profit of $0.61, which leads to an operating margin of 11%.

Next Day and Deferred Air products experienced 3.3%-3.7% volume growth per day in comparison with last year. Having an average daily volume of 2,162,000 units in the U.S., UPS’s air deliveries product line has a unit cost of $14.6 and a unit profit of $3.76, which leads to an operating margin of 22%.

In general, UPS’s revenue increased from 1999 to 2000 by 10.1% and net profit rose by 232%. In addition, the return on equity increased from 8.8% in 1999 to 26.4% in 2000, but also a debt to equity increased from 13.3% in 1999 to 23.4% in 2000.

1.3 Competitive situation

The transportation industry can be described as highly competitive. The main competitors are Federal Express (FedEx) and the U.S. Postal Service (USPS). Table 1 shows the market share regarding market segments of the three players. Other important competitors, especially in the airfreight business are Airborne Express, DHL Worldwide and also Lufthansa Cargo.

UPS’s main competitor FedEx, which is the largest integrated airfreight carrier , has a smaller operating margin in air deliveries (6%) in the U.S. than UPS (22%). Overall average, including all geographical markets, UPS has an operating margin of 15% in comparison with FedEx’s 7%.

Market Segment U.S. Postal Service United Parcel Service Federal Express

Ground Parcels 9% 75% 11%

Overnight Air 6% 31% 44%

2nd Day Air 45% (Priority Mail) 16% 26%

E-Commerce business (B2C & B2B) 33% 55% 10%

Table 1: Market share of the big three

1.4 Distribution channel

UPS’s fleet consists of 152,500 trucks and 560 planes.

1.5 Macroenvironment situation

The world’s GDP is estimated to grow at a rate of 3.5 per cent in 2001 down from 4 percent in 2000. Furthermore, an overall trend of globalization and merging can be observed. Additionally, Terrorism does affect the macroenvironment, not that just security costs increases but also a US-led military action in response to terrorism can increase the fuel prices.

Finally, another macro trend is that parcel service gets deregulated in a lot of countries, such as Germany, China, etc.

Opportunity and issue analysis

2.1 Strengths Analysis

– UPS, is a core transportation name to own, based on its superior returns and position in the small-package delivery market

– Ubiquitous US ground network, which was built more than 90 years ago and is six times bigger than that of FedEx’s. Thus, UPS can reach virtually every address in the U.S.

– Integration of overnight delivery into its vast ground-transportation network. As a result overall overnight delivery cost is almost half of FedEx’s costs.

– UPS’s management is considered to be the broadest and deepest in the in-dustry.

– Best return on equity and balance sheet among the world’s major freight transportation companies.

– Well-known corporate design (brown color)

– Very good in logistics and related services. UPS handles storage, tracking, re-pair, and shipping for big clients.

– Six new direct routes to China

– Tracking software that works with every corporate system.

2.2 Weaknesses Analysis

– Weak positioned in overnight (express) shipping segment, small market share in airborne service in comparison with FedEx.

– Expansion beyond packages. UPS has added logistics, freight forwarding, and vendor financing, but currently with very small returns.

– Weak brand recognition, FedEx commands rates from corporate customer that are 8-12% higher than those at UPS for identical service.

– Weak in the Asian market

– No dominant global position

– CEO is leaving UPS in 2002

2.3 Opportunities Analysis

– International growth, because none of the U.S. freight transportation compa-nies has a dominant global position and several markets are going to be de-regulated (e.g. China, Germany etc.)

– International shipment volumes are expected to post high single-digit gains, reflecting strength on the export side, mainly in Europe and Canada.

– Growth of Internet retail (B2C)

– As the flows of information become more important to the movements of goods, UPS can increase their market share, due to their IT knowledge

– Ground transportation segment can benefit from outsourcing and inventory re-duction efforts of companies

2.4 Threats Analysis

– FedEx’s contract with the USPS for handling overnight and Priority Mail.

– FedEx’s Drop Boxes at post office facility of USPS .

– FedEx’s effort ($500 million) to increase ground network

– Threat of substitute like Email and increasing online-security (electronic sig-natory) may lessen the need to courier deliveries

– Increasing fuel prices

– Terrorism, as security increases and, thus, cost of transportation rises

– Teamster contracts, because the union contract of most of UPS’s non-management employees ends July 31,2002. If a timely new accord seems elusive, some UPS customer could start moving their business to rivals.

– Weakening economy

– FedEx as an alternative investment choice for the investment community

2.5 Central marketing problem

The central marketing problem of UPS is it’s positioning. UPS is actually positioned as just a domestic (U.S.) ground shipping company, instead of being the primary coordinator of the flow of goods, information and funds throughout the entire supply chain on an international basis, as UPS perceives themselves.

Objectives

3.1 Financial objectives

In order to deliver a good performance, the following objects must be set.

– Produce an EPS of $2.69 in 2002.

– Increase operating margin by 1.4% points.

3.2 Marketing Objectives

– Increase average daily volume of ground deliveries from 10,945,000 units in 2000 to 11,100,000 in 2002, which represents an add-on profit contribution of $34 million from ground delivery.

– Increase average daily volume of air deliveries from 2,162,000 units in 2000 to 2,350,000 in 2002, which represents an add-on profit contribution of $180 million from air delivery.

– Increase average daily volume of international deliveries from 1,129,000 units in 2000 to 1,300,000 in 2002, which represents an add-on profit contribution of $60 million from international.

– Increase plane fleet by 10 units in 2002

– Increase market share of first time user of overnight (express) by 5% in 2002, measured by surveys among business customers (B2B).

– As a result increase revenue by 14.6% in 2002.

Marketing Strategy

4.1 Segmentation

Geographical Segmentation:

– United States of America

– South America

– Europe

– Developed Asian countries

– Emerging Asian countries

Customer Segmentation:

– Private households (B2C)

– Companies (B2B)

4.2 Target Market

According to the central marketing problem UPS has to target the following:

– In order to gain market share of FedEx’s overnight product UPS should target companies (such as hospitals, finance companies etc.) and households, which are currently using FedEx for urgent freight.

– Global manufacturing companies where UPS can handle storage, tracking and shipping on an international basis.

4.3 Positioning

First choice for reliable, fast, and reasonably priced ground, overnight (express), and international delivery.

4.4 Slogan

The only thing we can do is fast and that we can do everywhere.

5 Action Plan

5.1 Product

In order to increase customer satisfaction, UPS should provide a “money-back-guarantee” for overnight (express) freight, if it is not right on time.

With the intention of attracting more customers, UPS should introduce night and Saturday deliveries, like FedEx does.

5.2 Price

UPS should stay somewhat beneath core competitors price in order to promote their overnight product and, thus, gain market share in that segment. For the new services such as night and Saturday delivery, they should charge a premium.

With the attention of gaining more business customers for the overnight product, they should offer corporate rates. In order to gain more households, they should offer frequent user coupons.

Key-account management should negotiate contracts with individual pricing with global companies.

5.3 Place

In order to gain more customers and provide greater choice, reliability, and convenience for households and small and midsize companies UPS should establish a Drop Box network. This could be done by an alliance e.g. with Wal-Mart because there is literally a Wal-Mart everywhere.

Establishing an Asian network by setting up an Asian hub and buying air routes. Additionally, building relationships with governments of emerging Asian countries in order to be first in that market when the deregulation process starts.

5.4 Promotion

UPS should undertake media advertisement with the goal to address FedEx’s overnight customers. Therefore, UPS should advertise on CNN, on Business Week, in Web-Portals (e.g. Yahoo Finance) for addressing business customer and in regular TV-Program and newspapers in order to address households.

UPS should increase key-account (salesforce) to address global companies in order to undertake their global shipping. They should push their international business by talking to global companies and showing presence at international trade events.

In addition, UPS should continue sponsoring racing sports events such as Formula 1, Indy-Series, etc., because they are associated with speed.

Projected income statement

Year 1998 1999 2000 2001e 2002e

Revenue 24788 27052 29771 30980 34123

Revenue Growth 9,1% 10,1% 4,1% 10,1%

Cost of Goods Sold 7352 7779 8713 9850 9950

Gross Profit 17436 19273 21058 21130 24173

SG&A Expenses 14346 15285 16546 17500 18500

Operating Income 3090 3988 4512 3630 5673

Operating Margin 12,5% 14,7% 15,2% 11,7% 16,6%

Total Net Income 1741 883 2934 2700 3100

EPS ($) 1,51 0,76 2,54 2,34 2,69

EPS Growth -49,3% 232,3% -8,0% 14,8%

Table 2: UPS’s projected P&L statement

Note: SG&A Expenses are going up, due to marketing efforts and so do cost of goods sold due to the increase in revenue and additional expenses such as increasing fleet size.

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