30-A Silver Competitor Follows the Wrong Strategy
Deutsche Post AG is surrendering in the battle for the ground shipments, the U.S. market for express delivery. Over the last few years, Deutsche Post has purchased both DHL and Airborne in order to compete in the U.S. market. These two competitors were numbers 4 and 3 respectively in the industry. Deutsche Post plans to transfer DHL’s North American Air parcel deliveries to UPS and reduce its U.S. capacity for ground shipments by a third in order to cut losses.
Deutsche Post planned to become one of the top two leaders in the industry, taking market share from UPS and FedEx. This strategy rarely works for a Silver competitor. Deutsche Post’s strategy racked up huge losses, so it has now surrendered.
We define a Silver competitor as a company ranked number three or lower in an industry. There are many examples of successful Silver competitors (see “Rare Mettle: Gold and Silver Strategies to Success in Hostile Markets” in the StrategyStreet/Tools/Perspectives section). These successful competitors follow very carefully planned strategies to avoid the industry’s leading companies, where the industry leading companies are performing well. Two important tenets of a successful Silver strategy: First, seek the Large, second tier, customers in the marketplace and also woo service-oriented Medium sized customers, and avoid threatening the leading competitors in the marketplace by going after the first tier, Very Large, customers. Second, beat the standards of service for the customers in the marketplace.
DHL violated both of these two tenets. It sought out the largest customers in the marketplace in order to win significant market share. This strategy failed when neither UPS nor FedEx “failed” these Very Large customers in order to open these relationships to DHL’s offerings. DHL also failed on its service levels. Deutsche Post combined DHL and Airborne hubs in one location in 2005. This combination proved rocky for customers. Deliveries were delayed and many customers abandoned DHL. DHL lost 10% of its total revenues as these customers left it because of its “failure”. These customers belong to someone else now and DHL will have to wait for that someone else to fail before they are likely to have a shot at gaining that business back.
Statista 2021 data shows that the top three express delivery companies, FedEx, UPS and USPS each had customer service ratings in the mid-70s. These ratings have fallen off a bit over the last five years. They indicate a market with limited rates of “failure” among competitors. Furthermore, the differences in failure rates among competitors is marginal.
The DHL company ended domestic pickup and delivery service in the United States in 2009. In 2018, DHL launched a new same day and next day delivery service for online retailers in major cities in the US, reentering the US market. Industry analysts report that FedEx courier services are cheaper for domestic US shipments while DHL is cheaper for international shipments. DHL has a large and successful international business. The company is the market leader for parcel services in Europe. It remains a subsidiary of Deutsche Post.
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