Page 1 of 4 Federal Express B Courier Pak

Consultants and Co. has performed a thorough analysis of the past and current performance of the Courier Pak service from Federal Express. The analysis shows Courier Pak to be great service with a huge potential for growth in the coming years. Courier Pak saw a 67% growth between 1974 and 1975 and is currently seeing a 71% growth from 1975. The amazing part is that this growth is all organic and not a result of any advertising. However, the current market share of Courier Pak represents only 7.8% of the overall market for rush delivery of small packages. Consultants and Co recommends targeting the higher end of the market made up of executives in service based industries who are not price sensitive and expect a high caliber of service. FEC should further position Courier Pak as the service of choice of all executives who care about the value of time. The Courier Pak service is profitable and it fits perfectly with the overall company strategy for growing Federal Express. The company was started to fill a need in the market for air transportation of small packages. It was based on the principle that packages had different needs than people so both needed to be flown on different aircraft while serving different locations. Courier Pak leverages the existing abilities of FECs fleet of 41 (32 owned and 9 contracted) airplanes, 500 vans, and 2000 employees to expand its product offering to more than packages. It allows FEC a chance to become a business partner fulfilling the needs of its associates with rush delivery of sensitive documents rather than just delivering goods. Since the company is already operating the infrastructure, a Courier Pak costs FEC just the variable cost i.e. $4.25 while FEC charged the customer $12.50 for the service. That yields FEC a gross profit of $8.25 per Pak or a 66% profit margin. These numbers alone should convince FEC to continue operating the Courier Pak service. However, from a logistics point of view FEC would have to consider the overall volume of each airplane available to transport packages. Currently, FECs airplanes get cubed out before they hit the weight limit but an increase in Courier Paks the airplane could carry a maximum of 6200 Paks with each weighing an average of 1 pound without taking into account any other packages. Now that we understand one of the three Cs (Company) along with one of the four Ps (Product), lets dive deeper into FECs competitors and the overall market for this service. The market for this service several times larger than FECs share and that market is growing at about 20% per year. Appendix 1 Table 2 shows that FECs Courier Pak only accounts for 7.81% of the market share in the rush delivery segment. While it is true that the same day service offered by the airlines is slightly different and allows of higher weight limits, Consultants and Co. believes that there is major overlap in this category. The advantage of FECs Courier Pak over Express Mail and the airlines is the door-to-door service using a fireproof and waterproof envelope. FEC also faces some competitive challenges. First, Courier Pak costs more than Express Mail. It costs $62.5 up front to buy the 5 Courier Paks while an average Express Mail will cost $6. Second, FEC has minimal brand recognition and currently does not have many corporate relationships or the advertising needed to generate sales. Third, Courier Pak imposes a

Page 2 of 4 stricter weight and size limit compared to the airlines. Consultants and Co believes that these challenges can be overcome using the right tools. Understanding the customer is the most important piece for FEC. As seen in Appendix 1 Table 3, Courier Pak is used by a variety of customers from Manufacturing to Banking and Services. While manufacturing accounts for the largest percentage of Courier Pak used per month (17.1%), it is interesting to note that manufacturing firms use less Courier Paks per account than advertising or office equipment. This shows a weakness that can be converted into an opportunity for growth. Consultants and Co recommends that FEC segment the market of Courier Pak users and focus major marketing and advertising efforts towards the high potential market in the service industry and small parts. FEC should recognize that a next day delivery service that promise door-to-door convenience but costs more than USPS might not be useful to many customers. In fact, Courier Pak does not fit the needs of the majority of the customers shipping in general. However, it will meet the needs of executives who need to transport sensitive documents or parts quickly across the country and are willing to pay for the privilege of not standing in line at the post office but having the envelopes easily accessible at their offices. FEC should position Courier Pak as the service of choice for executives who value time and a peace of mind. FEC should appeal to people whose time is more valuable than having to think about the shipping process. The target market for Courier Pak would be advertising agencies who might need to send ad copy quickly to get business or an insurance agent who is trying to beat an agent from another firm. Xerox could send instruction manuals, service agreements, or small replacement parts using FECs service. Of course, such a focus on high value clients will shrink the total market size in 1976 to below 16,704 pieces per day using the current numbers. However, Consultants and Co is assuming that an advertising push to raise awareness in the right circles and an in person relationship building approach with the companies will result in the current low numbers of subscribers to Courier Pak in the service industry category to increase ten-fold. This would result in monthly Courier Pak use of around 300,000 pieces per month or $3.7 M in revenue per month from this service.

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APPENDIX 1 Growth of Courier Pak (Based on Exhibit 4)

Year 1974 1975 1976

Avg Volume 426.83 713.58 1222.80

% Change

67.18% 71.36%

Rush Shipping Market Size (Based on Exhibit 6) % of Total 7.81% 26.34% 65.85% 100.00% Avg Charge per Piece $12.50 $6.00 $50.00

Service Courier Pak Express Mail Airline TOTAL

Pieces/Day 1304 4400 11000 16704

Sample Profile of Courier Pak Customers (Based on Exibit 5) # of CPs used per Category Account per Month Manufacturing 7.73 Advertising 16.32 Printing and Publishing 19.47 Office and Business Equip 46.54 Marketing Research 14.52 Mortgage and I-Banking 7.47 Computer Service 13.72 Electronic Parts 8.93 Communications 18.55 Law Firms 6.36

Page 4 of 4 Insurance Companies 14.94