Case Notes/Answers
Case Solutions for AIRBORNE EXPRESS by Jan W. Rivkin
Discussion Questions:
1. How and why has the express mail industry structure evolved in
recent years? How have the changes affected small competitors?
2. How has Airborne survived, and recently prospered, in its industry?
3. Quantify Airborne’s sources of advantage. [If assignment questions are
posted electronically, one can add: For guidance, please click here.]
4. What must Robert Brazier, Airborne’s President and COO, do in order
to strengthen the
company's position?
, 5-700-085
REV: SEPTEMBER 5, 2007
TEACHING NOTE
Airborne Express
Synopsis
The Airborne Express case illustrates how a company can carve out a distinctive and long-viable
position in a highly competitive industry. Despite being one-ninth the size of its largest rival in an
industry with significant economies of scale, Airborne survived for years and, at times, prospered. It
did so by targeting a subset of customers with particular needs and tailoring its every activity to meet
those needs uniquely well. The differences in activities between Airborne and its rivals created a 20%
cost advantage for Airborne.
The case is designed to be part of a module on competitive positioning in a core or advanced
course on business-unit strategy. The case has unusually detailed descriptions of Airborne’s
competitors so that students can pinpoint differences at the activity level and identify three different
internally consistent bundles of choices. The case also has rich data on costs. Starting with an
estimate of Federal Express’ cost structure, which is given in a case exhibit, students can build up
Airborne’s cost structure and pinpoint the sources of Airborne’s cost advantage.
Teaching Purpose
The case is written to serve a number of purposes. In order of priority, the case allows students to:
• Observe three internally consistent positions in a single industry. Airborne’s configuration of
choices differs sharply from those of Federal Express and UPS. Federal Express and UPS have
had distinct positions historically, but the case shows how they have converged over time.
• Grasp the logic of a focused, low-cost strategy. A careful choice of customer scope, coupled
with the tailoring of activities, has enabled Airborne to reduce its costs a great deal without
sacrificing commensurate willingness to pay (WTP) among its target customers.
• Analyze relative cost positions in detail, using cost drivers.
• Use an understanding of total and marginal relative costs to identify priorities for Airborne.
, 700-085 Teaching Note—Airborne Express
• Review the analysis of a firm’s external environment. The case has ample data to examine the
structure of the express mail industry in detail. The dynamics of the industry are especially
interesting: in a fashion reminiscent of John Sutton’s Sunk Cost and Market Structure,
competition in the express mail industry has led to an escalation of sunk costs over time and
increasing concentration despite rapid industry growth.
• Observe path dependence and “imprinting” in interconnected sets of choices. Many of the
critical differences between UPS and Federal Express reflect the fact that UPS was founded in
the age of Frederick Taylor and Federal was founded in an age of empowerment and
information technology.
Intended Contribution
In line with these teaching purposes, the Airborne case aims to do two things that, to my
knowledge, prior strategy cases do not. First, the case enables students to complete an unusually
detailed relative cost analysis.1 Thus the case gives instructors a vehicle to teach students techniques
of relative cost analysis that strategy consultants often employ. While prior strategy cases have
tended to focus on average relative cost, the Airborne case considers the competitive implications of
both average and marginal relative cost. Interestingly, Airborne has low average but high marginal
costs. This makes the company vulnerable in a price war with deep-pocketed rivals, despite its low
average costs.
Second, at a more conceptual level, the case illustrates how interactions among decisions help give
rise to different ways of doing business within an industry. Among express mail carriers, decisions
about pickup, delivery, sorting, information technology, marketing, sales, human resource
management, service levels, target customers, etc. are related to one another. That is, each alters the
marginal costs and benefits of changing the others. As a result, there exist multiple bundles of
choices that are internally consistent, in the sense that a change in a single decision will not improve
firm performance. The strategies of Airborne, Federal Express, and UPS represent three such
bundles. One can conceptualize the bundles as “local peaks” on a high-dimensional performance
landscape. For much more on this landscape perspective, please see “Advanced Competitive
Strategy, Notes for Educators: 1. An Overview of the Course” (HBS No. 706-449). The Airborne case
is written to be useful for instructors who want to adopt the landscape perspective and for instructors
who simply want a clear example of a distinctive competitive position.
Instructor Preparation
For conceptual material on competitive positioning and relative cost analysis, please see my class
note with Pankaj Ghemawat entitled “Creating Competitive Advantage” (HBS 798-062). The note
relies on the work of many scholars, especially Michael Porter, Adam Brandenburger, and Harborne
Stuart.2
1 Other strategy cases that allow students to perform relative cost analyses include Adolph Coors in the Brewing Industry
(HBS No. 388-014), Matching Dell (799-158), Dogfight Over Europe: Ryanair (A) (700-115), and The British Motorcycle Industry
at a Crossroads (703-031), for instance. None of these allows analyses as detailed as does the Airborne case.
2 See especially, Michael E. Porter, Competitive Strategy, New York: Free Press, 1980; Michael E. Porter, Competitive Advantage,
New York: Free Press, 1985; and Adam Brandenburger and Harborne Stuart, “Value-based Business Strategy,” Journal of
Economics and Management Strategy 5 (1996): 5-24.
2
Case Solutions for AIRBORNE EXPRESS by Jan W. Rivkin
Discussion Questions:
1. How and why has the express mail industry structure evolved in
recent years? How have the changes affected small competitors?
2. How has Airborne survived, and recently prospered, in its industry?
3. Quantify Airborne’s sources of advantage. [If assignment questions are
posted electronically, one can add: For guidance, please click here.]
4. What must Robert Brazier, Airborne’s President and COO, do in order
to strengthen the
company's position?
, 5-700-085
REV: SEPTEMBER 5, 2007
TEACHING NOTE
Airborne Express
Synopsis
The Airborne Express case illustrates how a company can carve out a distinctive and long-viable
position in a highly competitive industry. Despite being one-ninth the size of its largest rival in an
industry with significant economies of scale, Airborne survived for years and, at times, prospered. It
did so by targeting a subset of customers with particular needs and tailoring its every activity to meet
those needs uniquely well. The differences in activities between Airborne and its rivals created a 20%
cost advantage for Airborne.
The case is designed to be part of a module on competitive positioning in a core or advanced
course on business-unit strategy. The case has unusually detailed descriptions of Airborne’s
competitors so that students can pinpoint differences at the activity level and identify three different
internally consistent bundles of choices. The case also has rich data on costs. Starting with an
estimate of Federal Express’ cost structure, which is given in a case exhibit, students can build up
Airborne’s cost structure and pinpoint the sources of Airborne’s cost advantage.
Teaching Purpose
The case is written to serve a number of purposes. In order of priority, the case allows students to:
• Observe three internally consistent positions in a single industry. Airborne’s configuration of
choices differs sharply from those of Federal Express and UPS. Federal Express and UPS have
had distinct positions historically, but the case shows how they have converged over time.
• Grasp the logic of a focused, low-cost strategy. A careful choice of customer scope, coupled
with the tailoring of activities, has enabled Airborne to reduce its costs a great deal without
sacrificing commensurate willingness to pay (WTP) among its target customers.
• Analyze relative cost positions in detail, using cost drivers.
• Use an understanding of total and marginal relative costs to identify priorities for Airborne.
, 700-085 Teaching Note—Airborne Express
• Review the analysis of a firm’s external environment. The case has ample data to examine the
structure of the express mail industry in detail. The dynamics of the industry are especially
interesting: in a fashion reminiscent of John Sutton’s Sunk Cost and Market Structure,
competition in the express mail industry has led to an escalation of sunk costs over time and
increasing concentration despite rapid industry growth.
• Observe path dependence and “imprinting” in interconnected sets of choices. Many of the
critical differences between UPS and Federal Express reflect the fact that UPS was founded in
the age of Frederick Taylor and Federal was founded in an age of empowerment and
information technology.
Intended Contribution
In line with these teaching purposes, the Airborne case aims to do two things that, to my
knowledge, prior strategy cases do not. First, the case enables students to complete an unusually
detailed relative cost analysis.1 Thus the case gives instructors a vehicle to teach students techniques
of relative cost analysis that strategy consultants often employ. While prior strategy cases have
tended to focus on average relative cost, the Airborne case considers the competitive implications of
both average and marginal relative cost. Interestingly, Airborne has low average but high marginal
costs. This makes the company vulnerable in a price war with deep-pocketed rivals, despite its low
average costs.
Second, at a more conceptual level, the case illustrates how interactions among decisions help give
rise to different ways of doing business within an industry. Among express mail carriers, decisions
about pickup, delivery, sorting, information technology, marketing, sales, human resource
management, service levels, target customers, etc. are related to one another. That is, each alters the
marginal costs and benefits of changing the others. As a result, there exist multiple bundles of
choices that are internally consistent, in the sense that a change in a single decision will not improve
firm performance. The strategies of Airborne, Federal Express, and UPS represent three such
bundles. One can conceptualize the bundles as “local peaks” on a high-dimensional performance
landscape. For much more on this landscape perspective, please see “Advanced Competitive
Strategy, Notes for Educators: 1. An Overview of the Course” (HBS No. 706-449). The Airborne case
is written to be useful for instructors who want to adopt the landscape perspective and for instructors
who simply want a clear example of a distinctive competitive position.
Instructor Preparation
For conceptual material on competitive positioning and relative cost analysis, please see my class
note with Pankaj Ghemawat entitled “Creating Competitive Advantage” (HBS 798-062). The note
relies on the work of many scholars, especially Michael Porter, Adam Brandenburger, and Harborne
Stuart.2
1 Other strategy cases that allow students to perform relative cost analyses include Adolph Coors in the Brewing Industry
(HBS No. 388-014), Matching Dell (799-158), Dogfight Over Europe: Ryanair (A) (700-115), and The British Motorcycle Industry
at a Crossroads (703-031), for instance. None of these allows analyses as detailed as does the Airborne case.
2 See especially, Michael E. Porter, Competitive Strategy, New York: Free Press, 1980; Michael E. Porter, Competitive Advantage,
New York: Free Press, 1985; and Adam Brandenburger and Harborne Stuart, “Value-based Business Strategy,” Journal of
Economics and Management Strategy 5 (1996): 5-24.
2
