FedEx – a Case Study in the application of insight-driven marketing
The Business
Headquartered in Memphis, Tennessee, FedEx is one of the Worlds leading International Courier companies. Based around its network of companies spread across 220 countries it employs a quarter of a million staff and every day it delivers around 3.3 million packages. It runs 674 aircraft (the world’s second-largest fleet !) and has more than 70,000 other vehicles.
The challenge
Historically FedEx has chosen to serve only a section of UK geography – those businesses situated within a ‘direct served area (DSA) area identified by using UK Gross Domestic Product (GDP) data. Within this ‘footprint’ FedEx will pick up and deliver directly. Outside this area FedEx works with its partner Business Post.
In 2002 the MD of Marketing for Northern Europe was required to review the company’s strategic marketing plans in the UK with a view to expanding its direct served footprint in order to achieve some tough growth targets. This necessitated a detailed examination of all aspects of the business in the UK (airport hubs, depot location, courier routes, sales potential and sales territory allocation). FedEx realised that it needed to get a much clearer picture both of what the actual level of potential was, and where it was located – both inside and outside the DSA. This information would assist in identifying areas of strength, and weaknesses and identify opportunities for network growth and development – in short it would ensure that FedEx directed its strategic marketing resources where it would get maximum leverage.
Concurrently, Jeremy Elder the Marketing Communications Manager for Northern Europe had realised that the company was facing a major issue in its lead generation. The company was operating a wasteful, expensive and time consuming process to identify prospects with a requirement for international courier services – and then churning and burning in its campaigns.
Jeremy Elder says: “We were purchasing thousands of company names, selecting them using SIC codes and size, and then using a telemarketing bureau to find out whether or not they had a need for international courier services. Only ten per cent of them did, meaning that the work to date on ninety per cent of the leads was entirely wasted. Given that the data cost around £250 per thousand, and the telemarketing considerably more, this was a significant waste of resources.”
The Solution
FedEx hired Information Arts to tackle these problems and the company rapidly recognised that the two problems were aspects of the same issue. IA demonstrated that solving the prospect identification issue would be a vital component of addressing the strategic issues. Therefore IA asserted that FedEx needed to establish the true level and location of potential for its services in the UK – both inside and outside the DSA. Testing IA’s theory in this tactical manner would also ensure that the FedEx’s risk was managed.
In order to do this IA developed a Market Demand Model (MDM) for FedEx, using two years of transactional data from FedEx customers. This segmentation helped FedEx to understand the nature, current and potential value of its customers within the DSA. IA’s proprietary insight product GIC (Geo-demographic Industrial Classification) was the mechanism that allowed these calculations to be easily extrapolated to businesses in all locations outside the DSA – ie. where FedEx had no customer information.
The MDM allowed FedEx to understand which companies were likely to have a propensity to purchase thus quantifying the universe of useful prospects. This data, sitting alongside a cleansed and consolidated view of customers, provided the foundation of FedEx’s first UK prospect database. Elder comments: “In the past we’d used a US system, which wouldn’t hold address records in a format that was compatible with the UK postal service. In fact we were unable to deliver to around 25 per cent of the companies on it. So, every time we used it we had to pull it out, clean it and move it to a local database. Having our own UK database was an immediate advantage, as was the addition by Information Arts of a Persistent Unique Reference Number to each record. That eliminated all the duplication on our database and allowed us to keep on top of the maintenance.”
However, the most important outcome was that FedEx could now assess the true level of demand at a local level. Simon Lawrence, MD of Information Arts says: “The Model calculated the level of value and volume of demand at each postcode sector in the UK – at a product level. Predicting total UK potential therefore was then a straightforward calculation. We compared our prediction to published research and found that we were within 5% of its prediction. Critically however, our model allowed FedEx to see where the business was – thus becoming an extremely valuable planning tool”.
FedEx was left with around 75,000 companies to target. This was a much smaller prospect universe than it has previously estimated and so enabled the company to deliver its marketing communications in a much more focussed way. Elder reports: “If we think they are a potentially big account then we can arrange a site visit for a field representative straight away, where previously they might have had a telesales call once a quarter.”
Initially IA drip-fed the leads into the sales team and tuned the model based on the feedback from this. Eventually, in August 2003 it was used in a full scale marketing campaign for the first time.
The Results
Using the MDM FedEx found that an average of 68 % of its prospects had a need for international courier services, a 700% improvement in prospect identification rates.
Lawrence
explains the benefits this has brought the business: “First of all FedEx has been able to dispense with the services of the telemarketing bureau, saving it a great deal of money – and time. Secondly it spends less on the raw data, since it only needs to licence prospects that the model identifies as having a high propensity to buy. Thirdly, the sales pipeline has contracted. Whilst it used to take a long time for leads to be qualified, they can now be contacted immediately and revenue generated more rapidly. Finally, this has really improved the confidence and so the performance of the sales team – whose collective closing rate has improved.”
The programme also established that the old churn and burn approach was a waste of time and money. Now once the need has been established, prospects that don’t convert immediately go back into a relationship marketing programme that keeps the prospect warm until its contract renewal is due.
The methodology has been so successful that FedEx has rolled it out to other countries in Europe and has gone on to apply the model to those strategic issues that initiated the project – ie courier route optimisation, network development and sales performance management.