First-year student Rohan Rajiv is blogging once a week about important lessons he is learning at Kellogg. Read more of his posts here.
A case study on “The sandwich strategy:”
Federal Express (FedEx) created an overnight delivery service toto compete with the United States Postal Service (USPS). Responding to FedEx’s entry and early success, USPS created a product called Express Mail priced at $8.95, as compared to FedEx’s $12.
FedEx, had it been like most companies, would have reduced price and gone to war with the USPS. But, price is not just a number. It is a way of signaling value and FedEx understood that. So, they responded by redefining their market.
FedEx’s existing “Overnight Delivery” did not specify what time the delivery would arrive. So, FedEx introduced precision not only in terms of the delivery day, but also in terms of the delivery time.
They then included two deliveries – one in the morning and another in the afternoon.
They then labeled the service as “Priority” and “Standard”. For firms dealing with customers, “Priority” sent a powerful message about how they valued their customer’s business. Firms like Goldman Sachs and JP Morgan Chase were happy to pay for this service distinction. Besides, if mail marked “priority” showed up tomorrow morning with a dozen other envelopes, what do you think a person picked up to read?
And, the kicker – FedEx increased the price of its Priority service to $13. It kept the lower end Standard service at $9, effectively “sandwich”-ing USPS between its premium and value offerings.
In one move, FedEx changed the nature of the competition from one on price to one on brand and value. It also backed the decision with technology investment in tracking parcels that provided additional benefit for customers.
The lesson? When faced with adversity, don’t just react with what comes intuitively. Take some time off and think about how you could respond by doing what’s counter intuitive. And, if you’re feeling stuck or hopeless, remember the time FedEx raised its prices when being attacked by a huge competitor.
Rohan Rajiv is a first-year student in Kellogg’s Full-Time Two-Year Program. Prior to Kellogg he worked at a-connect serving clients on consulting projects across 14 countries in Europe, Asia, Australia and South America. He blogs a learning every day, including his MBA Learnings series, on www.ALearningaDay.com.