Q1) 1. Threat of New Entry
For the US Express Mail industry, the overall threat of new entry is very low. The following list and explanation captures the difficulty an entrepreneur might face in trying to penetrate the express mail market: * High capital requirements: In order to establish an express mail operation, the start-up capital required is too big for an individual to obtain. For example, Federal Express’ Superhub in Memphis has 2.4 million square feet of floor space and can hold 147 planes. UPS’s new hub will cost approximately $860 million. In addition, a cargo plane sells for $90 million. * Economies of scale: newly established postal service will have tough time competing against majors since small operation translates into higher prices for consumers. * Strong brand identification of existing firms: Express mail is an important part of doing business for many individuals and firms. They will naturally favor the traditional postal service that has gone through the test of times and proven reliable. * Aggressive reaction of incumbents: Both the first-tier majors and second-tier minors will react to a new entry by a player and will apply pressure by using their cost advantages and superior managerial knowledge. * Product differentiation: It will be hard for the new postal service to differentiate the company’s service since the express mail service has become standardized due to investments in logistical research by the majors. However, a new postal service could try to penetrate a niche market such as urban inner-city only express mail where they promise to deliver time-sensitive mail within hours and minutes. 1. Threat of Substitutes
For the industry as a whole, the threat of substitutes is very low because the number of substitutes available is almost non-existent. Other than the majors and minors listed in the case study,