Analysis of the European express market in order to provide strategic
marketing options for TNT to become market leader in this market
ii
Gaining market share by delivering more
Analysis of the European express market in order to provide strategic
marketing options for TNT to become market leader in this market
by
Menno Worst
University of Groningen
Faculty of Management and Organization
March 2006
1st supervisor:
Mr. Wout Wijnbeek
2nd supervisor: Drs. Sebastiano Delre
Supervisor TNT: Viviane Reichert
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Table of content
List of figures and tables... v
Preface... vi
Executive Summary ... vii
1 Introduction and Background... 1
1.1 Chapter overview... 1 1.2 History of TNT ... 2 1.3 TNT’s divisions ... 3 1.3.1 TNT Mail... 4 1.3.2 TNT Express... 5 1.3.3 TNT logistics ... 6 2 Research set-up... 8 2.1 Problem description ... 8 2.2 Problem definition ... 8 2.3 Expected benefits ... 10 2.4 Definitions... 10 2.5 Conceptual model ... 12 2.6 Research method... 14 3 Theoretical framework ... 16 3.1 External analysis ... 16 3.1.1 Customer analysis... 16 3.1.2 Competitor analysis ... 18 3.1.3 Market analysis... 20 3.1.4 Environmental analysis... 22 3.2 Internal analysis ... 24 3.2.1 Financial performances... 24
3.2.2 Performances beyond profitability ... 25
3.2.3 Determinants of strategic options ... 26
3.3 SWOT analysis ... 27
3.4 Marketing strategies... 29
4 External analysis... 33
4.1 Customer analysis ... 33
4.1.1 The customers within the European express market ... 33
4.1.2 Segments... 33 4.1.3 Customer needs... 34 4.1.4 Conclusion... 35 4.2 Competitor analysis ... 35 4.2.1 Identity... 35 4.2.2 Financial performance ... 37 4.2.3 Image ... 39 4.2.4 Conclusion... 41 4.3 Market analysis ... 41 4.3.1 Size ... 41 4.3.2 Projected growth... 44 4.3.3 Profitability... 44 4.3.4 Entry barriers ... 44 4.3.5 Trends ... 45 4.3.6 Conclusion... 46
iv 4.4 Environmental analysis... 46 4.4.1 Technological events ... 46 4.4.2 Governmental ... 47 4.4.3 Economic... 48 4.4.4 Demographic ... 48 4.4.5 Conclusion... 49 4.5 Summary... 50 5 Internal analysis ... 51 5.1 Performances... 51 5.1.1 Financial Profitability... 51
5.1.2 Market share and sales... 51
5.1.3 Customer satisfaction ... 53
5.1.4 Network ... 54
5.1.5 Product quality... 56
5.1.6 Brand associations ... 61
5.1.7 Conclusion... 62
5.2 Determinants of strategic options ... 63
5.2.1 Past and current strategies ... 63
5.2.2 Strategic problems ... 64 5.2.3 Internal organization... 65 5.2.4 Financial resources ... 65 5.2.5 Conclusion... 66 5.3 Summary... 66 6 Strategic options ... 68 6.1 SWOT ... 68 6.2 SWOT matrix... 69 6.3 Strategic options... 70 6.4 Strategic choice... 71 6.4 Summary... 79
7 Implementation marketing strategy ... 80
7.1 Marketing mix... 80
7.2 Implementation and HRM ... 84
7.3 Summary... 85
8 Conclusions and Recommendations ... 87
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List of figures and tables
Figure 1.1 Research framework ... 2
Table 1.1 Overview of history of TNT (Express presentation 11-08-05) ... 3
Table 1.2 Mail operating revenues (annual report) ... 5
Table 1.3 Express operating revenues (annual report) ... 6
Table 1.4 Logistics operating revenues (annual report) ... 7
Figure 2.1 Conceptual model ... 13
Figure 3.1 Elements influencing competitors’ actions (Aaker, 2001)... 18
Figure 3.2 Ansoff’s directional matrix (Adcock, 2000) ... 30
Figure 3.3 McCarthy’s four Ps (1975) ... 31
Figure 3.4 Combined effects of strategy selection and implementation ... 32
Figure 4.1 Key stages of express delivery... 42
Figure 4.2 Market definition of the express market (CMI department) ... 43
Figure 4.3 Not available for public version...Error! Bookmark not defined. Figure 4.4 Not available for public version...Error! Bookmark not defined. Figure 4.5 Not available for public version...Error! Bookmark not defined. Figure 4.6 Not available for public version...Error! Bookmark not defined. Figure 4.7 Not available for public version...Error! Bookmark not defined. Figure 4.8 Not available for public version...Error! Bookmark not defined. Figure 4.9 Not available for public version...Error! Bookmark not defined. Figure 5.1 Market share per region (annalist meeting, December 2004) ... 52
Figure 5.2 TNT’s selling cycle... 52
Figure 5.3 TNT’s turnover by customers (Annalist meeting, December 2005)... 53
Figure 5.4 Not available for public version...Error! Bookmark not defined. Figure 5.5 TNT’s European road network (Annalist meeting, December 2004) ... 55
Figure 5.6 TNT’s European air network (internal data)... 55
Table 6.1 SWOT matrix ... 69
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Preface
This thesis is the outcome of an internship at the TNT Customer Market Intelligence (CMI) department. The thesis represents the finalizing of the study Business Administration at the University of Groningen. During the writing of this thesis, several people have made a significant contribution to this thesis.
First of all I would like to thank Viviane Reichert, director of the CMI department, who gave me the opportunity to carry out this research and the possibility to develop myself on a professional level within an international work environment. Furthermore, special thanks goes to Danielle de Kluijver, who was always there to provide feedback and share her insights, and of course all the other colleagues who contributed to this research and the interesting time I had at TNT.
Second of all, my gratitude goes to my supervisors at the University of Groningen. Mr. Wout Wijnbeek, my first supervisor, for his time and valuable remarks to this thesis. My second supervisor, Drs. Sebastiano Delre, for his support and constructive feedback.
Next, I would like to thank my family, in particular my mother for her support during my study, in good times and in bad times.
Finally, I would like to thank my friends for making my study-time at Groningen an unforgettable experience.
Menno Worst
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Executive Summary
Express and parcel delivery companies play an important role nowadays. They are not just delivering packages anymore; they are synchronizing global supply chains for companies large and small. This supply chaining is getting more and more important in our world. However, not every company can afford to develop and support a complex global supply chain. It is in this context that express and parcel delivery companies are rapidly growing by the fulfilling of this need. One of the largest players in this express and parcel delivery market is TNT. Currently TNT Express is the second largest express player in Europe. Their goal is to become the absolute number one. However, TNT’s understanding of the European express market was still limited. Based on this problem the following main research question was formulated:
What is the outcome of the strategic analysis (internal and external analysis) for TNT express within the European market? What strengths, weaknesses, opportunities and threats can be withdrawn from these analyses? What strategic marketing options does TNT have, to become the largest express player within Europe?
This research question can be split up in two parts. First of all of all what strengths, weaknesses,
opportunities and threats can be withdrawn from the internal and external analysis?
In the internal analysis TNT’s performances and determinants of strategic options were explored. The strengths and weaknesses based on their performances are the following:
TNT is market leader in its five biggest BU’s. However, a weakness is that in other European regions they have still limited market share. TNT’s high level of customer service compared to its competitors is also a strength. Besides that, TNT has the most dense road network in Europe. Nevertheless, TNT is not able to be the fastest or cheapest express player through out the world. Another weakness is the low brand awareness of TNT due to its name change and the low budget they spent on advertising. The specific strengths and weaknesses from the determinants of strategic options are:
A main strength for TNT is its personnel, more in particular the high level of employee satisfaction. Another strength is their good reputation by transparency and corporate sustainability. However, a weakness is the variety of strategic objectives.
The external analysis consists out of a customer, competitor, market and environmental analysis. An opportunity from the customer analysis is that the c2c market is currently neglected. A threat is the changing preferences of the customers. Due to globalization they demand faster and other services which are more expensive and harder to deliver.
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An opportunity which can be withdrawn from the competitor analysis is that there are only a few (three) integrators (DHL, FedEx and UPS) active in Europe besides TNT. However, a threat of these competitors is that they have large brand awareness. Next to that they are actively increasing their market share by acquiring other companies. Looking at the market analysis, an opportunity is that although the whole European express market is growing, the Eastern Europe region is growing more rapidly. Due to the high level of entry barriers other competitors will not easily be entering the European express market; this is of course also an opportunity. However, a threat concerning the market analysis is the consolidation of the market. An opportunity which can be withdrawn from the environmental analysis is that Europe is one of the most transparent regions. A threat are the governmental factors concerning restrictions regarding air noise management and other restrictions which make it harder for express companies to fulfill the high demand of its customers.
The second part of the research questions was articulated as follows: what strategic marketing options
does TNT have in order to become the largest express player?
In the second part of the research these swot’s were placed in a matrix in order to provide possible strategies. This resulted in twelve possible strategies. These possible strategies were narrowed down by looking at the short term options and the defining of umbrella options. By doing this seven strategic options rested. These options are: market penetration, product development, market development, diversification, withdrawing from certain regions, improvement of transit times and rates and improvement of brand awareness.
In order to evaluate these possible strategies they were tested on the level of suitability, feasibility and acceptability. This resulted in two best options, the option of market penetration and the option of the improvement of TNT’s brand awareness.
To implement these two strategic options successfully and placing it on an operational level the use of the four P’s is described. Next to that is the relation of Human Resource Management (HRM) and a successful implementation described.
Only by changing TNT’s current strategy into the options of market penetration and improving their brand awareness a hostile take over can be avoided.
Finally, recommendations concerning this research were given. The recommendations are an amplification on this research and should be seen in this way. It is recommended to investigate possible acquisition parties. Next to that, the possibilities for cooperating with or co-contracting for other parties should be explored. Another point which should be explored more in to detail is the possibility of entering the b2c and c2c market. Reviewing TNT’s strategic objectives and placing them on the level of priority should also be done according the author of this thesis.
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1
Introduction and Background
Express and parcel delivery companies play an important role in current globalization. According to Friedman (2005) this globalization even led to the flattening of the globe. In his groundbreaking book
The World is Flat he discusses the forces behind this flattening. One of these forces are the express
and parcel delivery companies. Express and parcel delivery companies are not just delivering packages anymore; they are synchronizing global supply chains for companies large and small. This supply chaining is getting more and more important in our globalized world. However, not every company, indeed very few companies, can afford to develop and support a complex global supply chain. It is in this context that express and parcel delivery companies are rapidly growing by the fulfilling of this need. One of the largest players in this express and parcel delivery market is TNT.
TNT is a global provider for express, logistic and mail services. This research is focussing on the express branch. Currently TNT Express is the second largest express player in Europe. Their goal is to become the absolute number one. However, TNT’s understanding of the European express market is still limited. It is in this context that this research is aiming to deliver a clear picture of the European express market in order to provide strategic marketing options for TNT to become number one in this market. In the first paragraph of this chapter the structure of the thesis will be outlined. In the second paragraph some background information about the history of TNT and their divisions will be given.
1.1 Chapter overview
In this paragraph the structure of the research will be outlined. As shown in figure 1.1 one element is placed outside the research framework. This element, the introduction, is not part of the research framework but gives a more thorough look at the company.
TNT suffered some name and brand changes within the last few years and in the second paragraph of this chapter a clear overview of their history will be presented. Next to that each division will shortly be discussed. In the second chapter the set-up of this research will be outlined. Not only will the problem be described and a clear research question will be formulated, also the sub-questions and benefits for TNT will be explored. To produce a clear view on the research question, a conceptual model will be shown. Finally, the method of how the data will be collected is shown. In the third chapter the theoretical framework will be explained in order to help answering the research question. Based on this chapter the real analyses will take place in the following chapters. The first part of the analyses, the external analysis, will take place in chapter four. In this external analysis the focus will be on a customer analysis, competitor analysis, market analysis and environmental analysis. Based on this analysis some opportunities and threats can be withdrawn. In chapter five the internal analysis of TNT will be outlined. There will be looked at TNT’s performances and its past and current strategies.
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Consequently TNT’s relative strengths and weaknesses can be withdrawn. These strengths, weaknesses, opportunities and threats (SWOT’s) will be combined with each other in chapter six.
Figure 1.1 Research framework
Based on this combination strategic options can be formulated. Testing these strategic options against the factors suitability, feasibility and acceptability will give a clear picture of the best strategic option(s). The implementation of these option(s) will take place in chapter seven. The use of the marketing mix will be discussed more into detail. Next to that the importance of human resource management (HRM) will be outlined for a successful implementation. Finally the main results and recommendations will be presented in chapter eight.
1.2 History of TNT
TNT is a global provider of mail, express and logistics services. The group employs over 161,000 people in 63 countries and serves over 200 countries. For 2004 the company reported sales of € 12.6 billion.
Introduction (chapter 1)
Problem definition (chapter 2)
Theoretical framework (chapter 3)
Internal analysis
(chapter 5) External analysis (chapter 4)
SWOT analysis and strategic options (chapter 6)
Implementation strategic options (chapter 7)
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TNT Limited was founded in 1946 in Sydney, Australia.
In December 1996, TNT Limited was acquired by KPN (Royal PTT Nederland NV)
KPN restructured its operations and created the TNT Post Group (TPG) in 1997
June 1998, TPG demerged from KPN and listed as a separate company. TPG created two brands - TNT and PTT Post (now TPG Post)
January 2005, TPG operates globally under the brand TNT for all its activities
Table 1.1 Overview of history of TNT (Express presentation 11-08-05)
TNT’s mission is to exceed customers’ expectations in the transfer of their goods and documents around the world and to deliver value to their customers by providing the most reliable and efficient solutions in distribution and logistics. In table 1.1 a brief overview of the history of TNT N.V. is shown.
1.3 TNT’s divisions
The group is composed of three segments: the mail division, the express division and the logistics division. TNT is a holding company and sets the agenda for the group and these three divisions. TNT provides a wide range of mail, express and logistics services worldwide. These services involve the collection, storage, sorting, transport and distribution of a wide variety of items for their customers within specific time-frames, and related data and documentation management services.
Although TNT has existed as an independent company only since 1998, their history in the mail, express and logistics businesses goes back over a much longer period of time. The roots of the mail division stretch back more than 200 years and are firmly embedded within the operations of Royal TPG Post B.V. The express business has been meeting the need for time-sensitive door-to-door delivery services for half a century, and the logistics division was a pioneer in the emerging logistics market during the mid 1980s.
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TNT has evolved from being the public postal company in the Netherlands into an international group providing mail, express and logistics services. As a result, they have broadened the range of their activities from mainly postal operations in the Netherlands to include world-wide express and logistics services. Their express and logistics divisions are not subject to regulations (such as price cap mechanisms) imposed on the mail division by the Dutch Postal Act and the postal regulations of other national jurisdictions. Other than for reserved postal services, which the mail division has the exclusive right to provide under the Dutch Postal Act, their mail division as well as their express and logistics divisions are subject to competition.
The State of the Netherlands is TNT’s largest shareholder. It retains a minority holding (approximately 10 percent) in TNT and the special share. The Dutch State has committed itself to exercising the rights attached to the special share only to safeguard the general interest in having an efficiently operating postal system in the Netherlands and also to protect its financial interest as a shareholder (www.tnt.com).
1.3.1 TNT Mail
The mail division provides services for collecting, sorting, transporting and distributing domestic and international mail including letters, printed matter and parcels, as well as for distributing addressed direct mail and unaddressed mail. They also provide a range of data and document management services, including direct marketing and interactive services, and services for managing physical and electronic information flows.
Their substantial and long experience in the mail industry has helped them to become one of the worlds leading postal operators. It also helps TNT anticipate and respond to their changing market. In addition to providing world class mail service, they continue to combine their expertise with technology to develop new mail related data and document management services that meet specific consumer and business needs.
TNT has long viewed their core competence not as merely moving physical mail from one location to another, but as intelligently managing both physical and electronic flows of information. This skill is central to their objective, which is to maintain their margins through the implementation of cost flexibility measures and to maintain market share in the Netherlands, and to achieve growth through the provision of mail related data and document management services and international expansion. The mail business is highly regulated. The Dutch Postal Act requires them to provide mandatory postal services and grants TNT exclusive right to provide certain mandatory postal services referred to as reserved postal services. Mandatory postal services are subject to price regulation. In the Netherlands traditional mail services are declining due to the size of the Dutch domestic mail market, growing competition and the substitution of methods of delivering information for mail. In other countries TNT may be able to grow their mail services, although substitution is a relevant factor that
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negatively influences the total size of all domestic mail markets. At the moment the potential growth in other countries is also negatively affected by regulatory barriers to entry.
Key elements of TNT’s mail strategy, particularly in the Netherlands, are to increase cost flexibility and to achieve growth through developing mail related data and document management services and international expansion. Due to the strong position in the Dutch market, mail activities have provided TNT with a relatively stable source of revenue and income. Dutch and EU regulations prohibit TNT from using the revenues from reserved postal services to cross subsidize other activities (annual report 2004).
Mail operating revenues
Year ended at 31 December
2004 2003 20021
US$ € € €
Mail Netherlands 3,601 2,660 2,698 2,795
Cross-border mail 746 551 602 650
European Mail Networks 643 475 409 358
Data and document management 290 214 206 202
Total operating revenues 5,280 3,900 3,915 4,005
(in millions)
To reflect a more accurate elimination of intra-divisional transactions, figures of 2002 have been adjusted
Table 1.2 Mail operating revenues (annual report)
1.3.2 TNT Express
The express division provides on-demand door-to-door express delivery services for customers sending documents, parcels and freight. TNT offers regional, national and world-wide express delivery services, primarily for business-to-business (b2b) customers. The express services they provide and the prices they charge to customers are in the main classified by transit times, distances to be covered and sizes and weights of consignments.
TNT Express is the world's leading business to business express delivery company. They deliver 3.4 million parcels, documents and pieces of freight a week to over 200 countries using our network of nearly 900 depots, hubs and sorting centers. TNT Express operates over 19,000 road vehicles and 42 aircraft and has the biggest door-to-door air and road express delivery infrastructure in Europe. TNT Express employs 45,000 staff worldwide and is the first ever organization to achieve global recognition as an Investor in People.
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TNT’s ambition is to be the leader in day-and time-certain, door-to-door transport for their business-to-business clients with the widest geographical coverage (annual report 2004).
Express operating revenues
Year ended at 31 December
2004 2003 20021
US$ € € €
Express Europe 5,163 3,814 3,455 3,402
Express Rest of the World 1,194 882 796 773
Total operating revenues 6,357 4,696 4,251 4,175
(in millions)
Figures for 2002 have been restated to reflect the transfer of Innight services from express to logistics.
Table 1.3 Express operating revenues (annual report)
1.3.3 TNT logistics
With operations in 39 countries, the logistics division provides services focused on supply chain management. TNT works to ensure that across the functions of procurement, manufacturing and distribution the right goods, in the right quantities and condition are available at the right place and time. One key aspect of this is reducing the time it takes to bring goods from suppliers to their customer by using the latest technology to increase their customers’ visibility to their goods in the supply chain.
Through a combination of targeted acquisitions and organic growth, TNT has built a truly global logistics business with significant operations in Europe, North and South America, Asia and Australia. Their acquisition strategy has focused on achieving critical mass in selected geographies and six industry sectors: automotive inbound, automotive outbound (spare parts and finished vehicles), tires, high-tech electronics, publishing and media and fast-moving consumer goods. With a few exceptions in certain sectors, TNT believes they have achieved critical mass in terms of market presence and customer base in every market they serve. They are continuing to develop their sector expertise in tandem with initiatives to manage key accounts. TNT is broadening their global service offering through the addition of freight management services, comprising primarily air and sea freight transportation. In general, freight management operators do not own assets to provide these transportation services and must acquire cargo space from airline and shipping firms. Combining cargo from a number of customers allows freight management operators to secure favorable rates from airlines and shipping companies, while at the same time matching the customer cargo with the shipping routes that yield the lowest price.
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Logistics operating revenues
Year ended at 31 December
2004 2003 20021
US$ € € €
Total operating revenues 5,525 4,081 3,735 3,610
(in millions)
Figures for 2002 have been restated to reflect the transfer of Innight services from express to logistics.
Table 1.4 Logistics operating revenues (annual report)
In the past, where TNT was asked to provide these services by their existing customers they subcontracted these services to external parties. TNT expects that the addition of their freight management capability and expertise will enable them to offer their knowledge, skills and value added activities to a larger potential customer base while at the same time offering existing customers a fuller service offering. This is particularly relevant for the automotive and high-tech electronics sectors (annual report 2004).
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2
Research set-up
In this chapter the set-up of this research will be outlined. Not only the problem will be described and a clear research question will be formulated, also the sub-questions and benefits for TNT will be explored. To produce a clear view on the research question, a conceptual model will be shown. Finally the method of how the data will be collected will be mentioned.
2.1 Problem description
TNT aims to become the leading provider of business-to- business delivery services in Europe. In addition TNT wants to create China as their second home market. Its strategic intent is to achieve return on sales (ROS) of 10% by 2007. In order to achieve this TNT needs to improve their understanding of the potential markets they want to operate in. By understanding their own strengths and weaknesses in the potential markets, they will get a more effective and efficient way of sales targeting.
However to determine what the European express market actually is and to become the largest player within this European express market, TNT should get a better insight in their own performances such as profitability, sales, product quality and brand associations. Next to that they should explore their determinants of strategic options, such as their past and current strategies. Another important factor for TNT is to get a better insight into their customers, such as the motivations, loyalty and unmet needs. Also, fully understanding of their market is very important. They should know the size, projected growth and trends. Furthermore it is quite important that TNT has an accurate picture of their competitors across Europe. Not only their identity, but also their performances and objectives. Finally TNT should consider their environment and than especially technological events, governmental factors such as relevant legislation and political risk, economic performance and demographic trends.
In other words TNT should analyze their internal and external environment. Further on we will call this the strategic analysis.
2.2 Problem definition
The outcome of this strategic analysis is the identification and selection of strategy (Aaker, 2001). This strategic analysis consists of an internal and an external analysis. When this strategic analysis is completed the strengths, weaknesses, opportunities and threats for TNT can be withdrawn. Based on this SWOT- analysis the strategic options can be identified and the most suitable will be selected in order to become the largest express player within Europe. In this thesis Europe is made of the EU members excluding Cyprus, Estonia, Greece, Latvia, Lithuania, Luxembourg, Malta, Slovakia and Slovenia. However, Switzerland and Turkey are included. It is in that context that the following objective of this research is set.
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Objective:
Getting insight in the current marketing strategy for TNT express for the European market in order to become the largest express player within Europe by optimizing their marketing strategy.
Based on the problem TNT is facing described in paragraph 2.1 and the above research objective, the following main research question was formulated.
Research question
What is the outcome of the strategic analysis (internal and external analysis) for TNT express within the European market? What strengths, weaknesses, opportunities and threats can be withdrawn from these analyses? What strategic marketing options does TNT have, to become the largest express player within Europe?
To answer this research question the following sub questions will be asked in this research:
1 What is a strategy?
- What is strategic marketing?
- What strategic marketing options are there?
2 What does the external environment look like?
- Who are the customers in the express market?
- In which segments can they be identified?
- What are the customers needs?
- Who are TNT’s main competitors in Europe?
- How are their financial performances?
- How strong is the competitors’ brand?
- What is the size of the European express market?
- What are the growth perspectives?
- What is the profitability of the market?
- What is the level of entry barriers?
- What are the main trends in the market?
- What technologic events occur outside which impact the business?
- What governmental factors influence the business?
- What are the economic performances of the European countries?
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3 What does the internal environment look like?
- How is TNT’s financial profitability?
- How is TNT’s sales organized?
- What customer service do their customers request and what does TNT offer them?
- How is TNT’s network organized?
- What products and services does TNT offer?
- What transit times and rates do they handle?
- What are TNT’s brand associations?
- What are TNT’s past and current strategies?
- Does TNT have any strategic problems?
- How is TNT’s policy regarding its human capital?
- What kind of company culture does TNT have?
- Are there any financial constraints?
4 What are the strengths, weaknesses, opportunities and threats of TNT express and their products?
5 What strategic options does TNT have in order to become the biggest express player within Europe?
2.3 Expected benefits
By answering the research question, and thereby developing an optimal marketing strategy, some benefits will be expected.
The benefits for TNT will be:
- A clear understanding of their internal environment, such as their performances and their
determinants of strategic options.
- A common, standardized understanding of TNT’s position in the industry.
- An accurate estimation of their market and market size by an extensive market analysis.
- A clear overview of their competitors across Europe.
- An identification of the possible threats by European legislation.
- A thorough SWOT-analysis to get insight in their strengths, weaknesses, opportunities and
threats.
- Identification of the optimal marketing strategy to become the largest express player within
Europe.
- Recommendations regarding a successful implementation of the chosen strategy.
2.4 Definitions
TNT Express
In this study TNT Express is defined as the global head office of TNT express, located in Hoofddorp in The Netherlands.
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Express market
The express market is divided into a broad market and a narrow market. The broad market is known by the following three limitations. First of all the maximum weight of the individual item is 2,500 kg. Second of all it is about all service levels. Finally, it is B2B, B2C and C2C. The narrow market on the other hand is known by the following limitations. First of all it is time certain; next or fastest day & TNT Economy comparable. Secondly, it is a scheduled network. Third, it has track and trace. Next to that it has often partial money back guarantee. And finally, it is only B2B.
European express market
Express market in EU member states excluding Cyprus, Estonia, Greece, Latvia, Lithuania, Luxembourg, Malta, Slovakia and Slovenia. However, Switzerland and Turkey are included.
B2B
B2B stands for business-to-business. The exchange of goods, services and information between companies.
B2C
B2C stands for business to consumers. The exchange of goods, services and information between companies and their consumers.
C2C
C2C stands for consumers to consumers. The exchange of goods, services and information between consumers.
GAM
GAM stands for Global Account Management. It is the department which actively supports TNT’s largest customers.
CEP
CEP stands for Courier, Express & Parcel.
Deferred
Literary it means post phoned, but in this context it is the part of the consignments where the delivery time is uncertain.
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CMI
CMI stands for customer market intelligence. It is the department which answers the following three strategic questions. First of all, where are the customers? Secondly, what do the customers want? And finally what is the competition doing?
2.5 Conceptual model
Models are disposable articles. They are systems that are used as a tool to study other systems. The way that researchers use them is because models are easier, more accessible and more manageable than the original system but will have sufficiently resemblances (de Leeuw, 1997: 70). A conceptual model will describe the global view, which is the basis for the research (de Leeuw, 1996: 56).
It is in this context that, besides the research framework, also the global view is presented. As shown in figure 2.1 there is one element which is not part of the research framework, but it is important to understand and place the research in a bigger context.
This element is the intention of TNT to become the largest express player within Europe. In this research an optimal marketing strategy is chosen to fulfill this intention. However, this will not be achieved directly by this optimal strategy and will take at least some years.
By analyzing the internal and external environment, the strengths, weaknesses, opportunities and threats can be withdrawn. After putting this SWOT’s in a confrontation matrix, the most important and relevant SWOT’s can be determined. Based on this a marketing strategy can be chosen.
The external analysis consists of a market analysis, customer analysis, competitor analysis and an environmental analysis. In the market analysis different subjects will be discussed such as the market size, growth perspectives, profitability and entry barriers.
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Figure 2.1 Conceptual model
The customer analysis exists mainly of the different segments and customers’ needs. Within the competitor analysis the different competitors will be described regarding their identity, performance and strong-ness of their brand. In the final analysis, the environmental analysis, the environmental
Level of customer segmentation Identification of customer needs Level of financial performance Strongness of the brand/ image Competitor analysis Customer analysis Current size of the market Growth perspectives Level of profitability Level of entry barriers Market analysis Level of technological. developments Level of govermental restraints Level of economic performance Demographic trends Environmental analysis Level of financial profitability Level of customer service Identification of network Level of product quality Strongness of the brand/ image
Past & current strategies Level of strategical problems Level of internal organization Level of financial constraints Performance analysis Determinants of strategic options In ter na l a na lys is E xte rn al a na lys is SWOT Strategic options - product-market investment strategies
- functional area strategies
-assets, competencies and synergies
Selected strategy
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elements will be described, in particular the technological events, the governmental factors and demographic variables.
The internal analysis consists of a performance analysis and the determinants of strategic options. Within this performance analysis different elements will be explored such as the profitability, level of customer service and product quality. Within the part of determinants of strategic options elements such as the current and past strategies, strategic problems, internal organization and financial constraints will be explored.
Some of these variables will be described such as the identity of the competitors. Others will be measured such as the product quality by analyzing the transit times and rates TNT and its competitors offer. However, to place these measurements in this conceptual model will not benefit the original goal of this model, namely to make it easier, more accessible and more manageable than the original system. In the chapters four and five, where all these variables will be discussed, the method of how these variables will be explored (described or measured) will be discussed.
2.6 Research method
In order to answer the research questions data has to be collected. According to Baarda en de Goede (1997) there are three ways to collect data. First of all to use existing information. Second of all to obtain data through observation and the last way to collect data is to obtain data through written or oral interview.
Based on the formulated research questions, a list of topics was compiled on which data needed to be found (see chapter three). For the exact method of answering the research questions, there will be explained per question which methods will be used.
1. What is a strategy?
To answer this sub question relevant literature will be used.
2. What does the external environment look like?
This sub question can be divided into four parts. The first part, about the customers, was answered by gathering existing information within TNT on its intranet, during an express meeting and by interviews. The second part, the competitor analysis, was answered by using the data that was collected within the CMI team for an extensive competitor analysis for Europe. This data were sales per country per company, amount of parcels sent per country and company, amount of vehicles, hubs and pick up points. Next to that the competitors’ annual reports and websites, press clippings and several other websites were used. The third part, about the European express market, was answered by using the data that was gathered during my 6 month internship when I was describing the competitive European landscape for TNT. Next to that internal data was provided by intranet and the CMI department, several websites and press clippings. The fourth and last part, the part about the environment, was mainly answered by press clippings, the company its website and several other websites (such as EU and Worldbank).
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3. What does the internal environment look like?
Within this sub question TNT’s financial performances will be reviewed, TNT’s market share, the customer service their customers request and how its network is organized. Furthermore, which products and services they offer, what transit times and rates they handle, what its brand associations are, what its past and current strategies are, their strategic problems, what their policy regarding its personnel is, what company culture they have and finally if there are any financial constraints?
To answer this question different methods have been used. First of all, information was gathered by TNT’s company website, annual report and intranet. Secondly, an interview and visit of the Liege air hub were held to explore the internal environment of TNT express. Additional information was gathered by websites of TNT’s competitors and other press clippings found on the internet.
4. What are the strengths, weaknesses, opportunities and threats of TNT express and their products?
In order to answer this sub question the data gathered by answering the above two questions were evaluated and by using a SWOT matrix the relevant strengths, weaknesses, opportunities and threats were shown. Based on this SWOT matrix possible strategies could be developed. By combining these possibilities a few strategic options rested.
5. What strategic marketing options does TNT have in order to become the biggest express player within Europe?
This sub question was answered by using the strategic options found by answering the previous question. Testing these options against the variables suitability, feasibility and acceptability made it possible to narrow down the options to the best one(s). Finally these option(s) were combined with the marketing mix options found in the literature.
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3
Theoretical framework
In the previous chapter the problem definition has been described and the research questions were formulated to deal with this problem. In this chapter the theoretical framework will be explained in order to answer the research question.
As shown in the previous chapter the research question will be answered by formulating and answering different sub questions. It is in this context that I started to read relevant literature in the topics of the different sub questions and finally narrowed them down to the topics external analysis, internal analysis, swot-analysis and marketing strategies. Of course these different topics will be split up in different subtopics such as customer analysis, competitor analysis etc.
3.1 External analysis
Strategy development or review logically starts with external analysis, an analysis of the factors external to a business that can affect strategy. According to Aaker (2001) the external analysis process should not be an end in itself. Rather it should be motivated throughout by a desire to affect strategy, to generate or evaluate strategic options. Aaker (2001) also suggests that an external analysis is an exercise in creative thinking. In fact, there is often too little effort devoted to developing new strategic options and too much effort directed to solving operational problems of the day.
3.1.1 Customer analysis
According to Aaker (2001) a customer analysis can be usefully portioned into an understanding of how the market segments, an analysis of customer motivations and an exploration of unmet needs.
Segmentation is often the key to developing a sustainable competitive advantage based on
differentiation, low cost or a focus strategy. In a strategic context, segmentation means the identification of customer groups that respond differently than other customer groups do to competitive strategies. To arrive at a meaningful determination of the attractiveness of existing segments, the most important stakeholders in each of the segments need to be identified and analyzed (Mühlbacher, 1999: 314). However, to identify and divide the market into different segments is difficult. It is possible to segment based on customer characteristics such as geographic, type of organization, size of firm, lifestyle, sex, age and occupation. Another approach is to segment customers on product related issues such as user type, usage, benefits sought, price sensitivity, application and brand loyalty (Aaker, 2001). Customer segments are the groups of customers that have similar value curves. Those customer groups can be identified by income level, geographical location, age, socio-psychometric attributes in consumer goods and service industries or by industry, size, purchasing behavior in b2b industries (Laserre, 2003: 45).
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After identifying customer segments the next step it to consider their motivations (Aaker, 2001). Motivation is commonly viewed as a force (drive) that directs individuals toward goals (Leeflang, 1995: 124). A customer motivation analysis starts with the task of identifying motivations for a given segment. Although a group of managers can identify motivations, a more valid list is usually obtained by getting customers to discuss the product or service in a systematic way. Customers can be accessed with group or individual interviews. According to Griffin and Hauser (Marketing Science, 1993) individual interviews are more cost-effective and the group processes did not generate enough extra information to warrant the added expense.
So, motivation is a force that directs individuals towards goals. These goals or needs can be divided into generic needs and product specific needs (Leeflang, 1995). However, these goals or needs will not always be fulfilled. An unmet need is a customer need that is not being met by the existing product offerings. Unmet needs are strategically important because they represent opportunities for firms to increase their market share, break into a market, or create and own new markets. Sometimes customers may not be aware of their unmet needs because they are so accustomed to the implicit limitations of existing equipment. According to Aaker (2001), unmet needs can be identified by projecting technologies, by accessing lead users and by systematic creative thinking.
Customers have functional but also emotional needs. According to Manuelli (Design Week, 29 July, 2004) emotional design is fundamental. Any good product should bring people pleasure and delight in using it. By understanding and meeting this emotional needs true customer satisfaction will be achieved according to Gustafson (Healthcare financial management, April 2003).
Laserre (2003: 220) divides the customer market into consumer markets and b2b markets. For each market there are several factors which shape the customer needs. In the consumer markets they are income, psychology, social habits, social status, climatic conditions and time availability. In the b2b markets the customer needs are shaped by industry type, usage, cost/benefit, technological requirements and time availability.
Mühlbacher (2001: 555) also makes the distinguishing between consumers and businesses as customers of the company. The primary distinguishing characteristics of business customers compared to consumers is that they purchase products for the purpose of creating other products. Like consumers, business customers buy to gain certain benefits. But for a professional buyer the benefit is less personal. It is mainly a solution to a business problem, a way to achieve a business objective, such as improving productivity on the shop floor, lowering costs by purchasing less expensive supplies, or acquiring new technology to produce a superior product.
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3.1.2 Competitor analysis
As mentioned earlier a competitor analysis is one part of the external analysis (Aaker, 2001). According to figure 3.1 competitor actions are influenced by eight elements.
The first of these reflects financial performance, as measured by size, growth and profitability. The level and growth of sales and market share provide indicators of the vitality of a business strategy. The maintenance of a strong market position or the achievement of rapid growth usually reflects a strong competitor and a successful strategy. After size and growth comes profitability. A profitable business will generally have access to capital for investment unless it has been designated by the parent to be milked. According to Eiteman (2001) one of the biggest problems financial managers are facing is to determine the proper measure of financial performance to use. Management has to struggle continuously to determine it is that the shareholders want (market share, EPS growth, changes in leverage, right-sizing, contribution margin, core competencies or other goal) in order for share prices to increase. There are a variety of measures, or metrics, of financial performance. The most widely recognized measures are return on sales (ROS), return on investment or assets (ROA) and return on equity (ROE).
Figure 3.1 Elements influencing competitors’ actions (Aaker, 2001)
The second element is the image and positioning of a competitor. In order to develop positioning alternatives, it is helpful to determine the image and brand personality of the major competitors. Weaknesses of competitors on relevant attributes or personality traits can be represent an opportunity to differentiate and develop advantage. Strengths of competitors on important dimensions may represent challenges to exceed them or to outflank them. In any case it is important to know the competitive profiles (Aaker, 2001). The image surrounding a company's brand is the principal source of its competitive advantage and is therefore a valuable strategic asset. A company should view its
Competitor Actions Image and Positioning Cost structure Current and past strategies Strengths and weaknesses Objectives and Commitment Organization and culture Size, growth and
profitability
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brand to be not just a product or service, but as an overall brand image that defines a company’s philosophies. A brand needs more than identity; it needs a personality (www.il.essortment.com). The third element is the competitor objectives and commitment. A knowledge of competitor objectives provides the potential to predict whether or not a company’s present performance is satisfactory or strategic changes are likely (Aaker, 2001). The financial objectives of the business unit can indicate the competitor’s willingness to invest in that business even if the payout is relatively long term (Mühlbacher, 2001).
The fourth element is the current and past strategies of competitors. In particular, past strategies that have failed should be noted, because such experiences can inhibit the competitor from trying similar strategies again (Aaker, 2001). Also, knowledge of a competitor’s pattern of new product or new market moves can help anticipate its future growth directions (Mühlbacher, 2001).
The fifth element is the organization and culture of the competitor. Knowledge about the background and experience of the competitor’s top management can provide insight into future actions. An organization’s culture, supported by its structure, systems, and people, often has a pervasive influence on strategy (Thomas, 2002).
The sixth element is the cost structure. Knowledge of a competitor’s cost structure, especially when the competitor is relying on low-cost strategy, can provide an indication of its likely future pricing strategy and its staying power. The goal should be to obtain a feel for both direct costs and fixed costs, which will determine breakeven levels (Aaker, 2001).
The seventh element is exit barriers. Exit barriers can be crucial to a firm’s ability to withdraw from a business area, and thus are indicators of commitment (Aaker, 2001).
The last element is the strengths and weaknesses of a competitor. Knowledge of the strengths and weaknesses provides insight that is key to a firm’s ability to pursue various strategies. It also offers important input into the process of identifying and selecting strategic alternatives. The assessment of a competitor’s strengths and weaknesses starts with an identification of relevant assets and competencies for the industry and then evaluates the competitor on the basis of those assets and competencies (Aaker, 2001).
According to Porter (Paul, 1996: 116) the features of the industry where an organization is active at are the main forces for the possibilities of a company. There are four characteristics which determine the competition in an industry. These characteristics are the power of the suppliers, threat of new entrants, power of the customers and threat by substitute products.
In order to analyze competition, the marketer has to decide on the definition of a relevant competitor. Competitors may vary depending on whether the product-market exists globally, regionally or locally. Other companies in the same industry may define their markets differently. However, the most competitors will be firms that supply similar goods. But relevant competitors may include not only domestic or international suppliers of similar goods. Marketers of substitute products, must be
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considered as potential competitors. Besides these existing competitors, there may be a threat of new upcoming competitors. New competitors may arise from the development of a new technology. But such competitors might also emerge from a change in customer behaviors (Mühlbacher, 2001: 319).
3.1.3 Market analysis
Market analysis builds on customer and competitor analyses to make some strategic judgments about a market (and submarket) and its dynamics. One of the primary objectives of a market analyses is to determine the attractiveness of a market (or submarket) to current and potential participants. A second objective of market analysis is to understand the dynamics of the market. According to Aaker (2001) the nature and content of an analysis of a market and its relevant product markets will depend on context, but will often include the following dimensions: actual and potential market size, market growth, market profitability, cost structure, distributions systems, trends and developments and key success factors.
According to Aaker (2001: 78) a basic starting point for the analysis of a market or submarket is the total sales level. Knowledge of the submarkets is often critical. Estimates of market size can be based on government sources or trade association findings. Besides this actual market size it is often useful to consider the potential market. A new use, new user group, or more frequent usage could dramatically change the size and prospects for the market. Sometimes an area becomes so topical and the need so apparent that potential growth seems assured. However, this potential can have a ghostlike quality caused by factors inhibiting or preventing its realization.
After analyzing the current market size it is important to know what the market size in the future will be. When referred to this market growth, some estimations should be made (Alsem, 2001).Historical data can be used to estimate the market growth, however trends can be caused by random fluctuations or by short term economic conditions. Therefore, sometimes leading indicators of market sales such as demographic data or sales of related equipment may help in forecasting and predicting turning points. One particularly important set of turning points in market sales occurs when the growth phase of the product life cycle changes to a flat maturity phase and when the maturity phase changes into a decline phase (Aaker, 2001: 79). This is the case within the postal market. Due to new technologies such as email the postal market has reached this decline phase. In this phase the volume will decrease even further and the possibilities of introducing other products or entering new markets should be explored (Alsem, 2001).
The market profitability is difficult to measure. However, according to Porter (Financial Analysis Journal, July-August 1980) five factors are influencing the profitability of an industry, a market or submarket. These factors are the intensity of competition among existing competitors, the existence of
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potential competitors who will enter if profits are high, substitute products that will attract customers if prices become high, the bargaining power of customers and the bargaining power of suppliers. The intensity of the competitors and the existence of potential competitors are already discussed in paragraph 3.1.2. Substitute products compete with less intensity than do the primary competitors. However, they are still relevant. Especially the developments in e-communication such as e-mail provide a threat for the express market. When customers have relatively more power than sellers, they can force prices down or demand more services, thereby affecting profitability (Aaker, 2001: 85).
An understanding of the cost structure of a market can provide insights into present and future key success factors. First of all an analysis of the value chain should be conducted to determine where value is added to the product. It is very important to anticipate changes in key success factors. One approach is to examine the changes in the relative importance of the value-added stages. Another market cost structure consideration is the extent to which experience curve strategies are feasible (Aaker, 2001: 86).
An analysis of distribution systems should focus on the three areas of what the alternative channels are, what the trends are and who has the power in the channel. Access to an effective and efficient distribution channel is often a key success factor. Sometimes the creation of a new channel of distribution can lead to a sustainable competitive advantage (Aaker, 2001: 87). According to Mühlbacher (2001: 661) a company must choose a distribution channel that will reach customers effectively and efficiently and take their characteristics into account. Communication and control systems must be established to enable all channel members to share information and understand how each member contributes to the entire distribution system’s success. However, it is also possible that by an integrated distribution system the company’s own employees generate sales, administer order and deliver products or services.
An important part of the market analysis is detecting the market trends. This detecting of the trends has two important attributes: it focuses on change and it tends to identify what is important. A discussion of market trends can serve as a useful summary of customer, competitor and market analysis. Missing or misinterpreting a trend can be disastrous. Next to that, it is crucial to distinguish between trends that will drive growth and reward those who develop differentiated strategies, and fads that will only last long enough to attract investment (Aaker, 2001: 88).
An important output of market analysis is the identification of key success factors for strategic groups in the market. The set of assets and competencies developed in a competitor analysis provides a base set from which key success factors can be identified. However it is not only important to identify key success factors, but also to project them into the future and in particular to identify emerging key
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success factors (Aaker, 2001: 89). When searching for success factors in a market, a company has to make a clear distinction between success factors and core factors. Core factors are the capabilities and resources a company needs to be considered as a relevant supplier by the customers and other important stakeholders in this market and to survive present and future threats from the macro environment. However, success factors are the capabilities and resources a company needs in a market to distinguish itself attractively from its competitors. To determine the key success factors in a market a company can rely on their past experience, consult experts or to identify the expectations and aspirations of customers and other stakeholders (Mühlbacher, 2001: 312)
3.1.4 Environmental analysis
Within the environmental analysis the focus changes from the market (above paragraph) into the environment surrounding the market. When conducting an environmental analysis it is very easy to get bogged down in an extensive, broad survey of trends. However, it is necessary to restrict the analysis to those areas relevant enough to have a significant impact on strategy. According to Šuštar (Journal of American Academy of Business, September 2005) global marketing decisions about product, price, promotion and distribution are no different from those made in the domestic context. However, the environment within these decisions are made is unique to each country. The more firms learn about local conditions in international markets, the more they are able to perceive the similarities, the more they are able to standardize the marketing mix among markets, and the better they perform.
An environmental analysis can be divided usefully into the five areas technological, governmental, economic, cultural and demographic (Aaker, 2001).
Technological trends or technological events occurring outside the market or industry that have the
potential to impact strategies is one area of the environmental analysis. They can represent opportunities to those in a position to capitalize. A new technology could also pose a significant threat. It is not that hard to compile a list of technologies in the wings, the hard part is sorting out the winners from the losers. Strategic success is more likely to come from creating technologies rather than simply forecasting them and then developing reactive plans. And it is important to distinguish between disruptive and sustaining technologies. It is quite important to manage the transition to a new technology. The appearance of a new technology, however, even a successful one, does not necessarily mean that businesses based on the prior technology will suddenly become unhealthy. Next to that, it is relatively difficult to predict the outcome of a new technology (Aaker, 2001: 99).
Governmental factors such as addition or removal of legislative or regulatory constraints and the
political system can pose major strategic threats and opportunities (Aaker: 2001, 99). Although many companies think of their economic activities as transcending national borders, the legal environment of international business is composed of over 200 different nations all of which have equal sovereignty
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under international law. International law contains unwritten, as well as more formal, understandings resulting from the repeated interactions among these nations (Thomas, 2002: 15).
Political systems are the structures and processes by which a nation integrates the part of society into a functioning unit. There are numerous varieties of political systems. However, they can be roughly classified along a continuum that represents the degree that citizens participate in decision making. The two extremes are the pure democracy at one end and totalitarianism at the other (Thomas, 2002: 17). The generally most important factor is the stability of the served country-markets political systems. Next to that the international trade policy of a country’s government needs to be closely analyzed (Mühlbacher, 2001: 166). In addition to understanding the probable nature of government’s involvement in business affairs, companies must be concerned with the likelihood that a government will undergo changes negatively affecting business activity: political risk. Factors contributing to the overall level of political risk in a country include the stability of government, the amount of internal and external conflict, the level of corruption, law and order and the role of religion and military in politics (Thomas, 2002: 18).
Making decisions on global bases requires an understanding of the economic strategies of countries in (or with) which one is conducting business. Economic systems are usually classified as market, command or mixed. The last two decades witnessed a decline in centrally planned economies in favor of more market based approaches with the implied economic freedom. The shift from centrally planned to market economies resulted in a number of countries which economic systems can be regarded as in transition. The steps in this transition typically involve deregulation, privatization and the creation of legal systems that protect property rights (Thomas, 2002: 11). According to Thomas (2002: 13) the economic performance of a country can be calculated by gross national product (GNP), gross domestic product (GDP) and per capita income calculations. Although per capita GNP is an important way of gauging the economic well-being of a country, two other measures can be of particular interest: indexes of purchasing power parity (PPP) and a measure of quality of life called the human development index (HDI).
According to Thomas (2002, 19) culture is important for three reasons. First, to a great extent, the above economic and governmental characteristics of a country are a manifestation of a nation’s culture. Second, unlike economic and governmental aspects of a country, which are observable, culture is largely invisible. That is, the influence of culture is difficult to detect and managers therefore often overlook it. Finally, the practice of management largely focuses on interpersonal interactions. One of the distinct characteristics of international management is that these interactions occur with individuals who are culturally different. Next to that, the cultural aspect of a country strongly influences customers’ needs, tastes and expectations (Mühlbacher, 2001: 278).
