Roadway Express Inc.’s Strategic Management Coursework

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Threat of Substitute

There is no threat of substitution in LTL industry. The existence of substitute products increases the propensity of clients to use alternative products and services in response to increasing prices. Taking into account that less-than-truckload carriage is self-inclusive, the threat of alternative service does not exist. From this perspective, the LTL industry is invulnerable to price increases. The threat of substitute exists when there is buyer propensity to substitute, high level of product differentiation, low switching costs, and relative price performance of substitute. LTL services cannot be substituted because there are no other related services. Truck-load carriage and premium freight are not taken into account because they are not substitutes.

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The threat of the entry of new competitors

Prior to the Motor Carrier Act of 1980, the threat of the entry of new competitors was not significant for the LTL industry because the entry and prices were strictly regulated. However, since the 1980s, the restrictions on new carriers were eased raising the threat of the entry. The elimination of entry barriers gave small private trucking firms an opportunity to occupy market segments not served by large national carriers. A number of certified carriers (nonunion firms) who focused on specific local routes increased. However, the LTL carriers operating on national and international level do not feel the threat of the entry of new competitors for several reasons. First, the market leaders have years of experience, customers’ loyalty, and reputation. Second, the national carriers are able to make investments into trucks and facilities, while new competitors are not able to afford the same level of investment.

The intensity of competitive rivalry

The LTL industry is characterized by very high intensity of competitive rivalry. Customers tend to use services of carriers who offer lower price. Thus, the major aspect of competitive rivalry is related to low price. Such factors as transit time, reliability, and on-time delivery are taken for granted by customers and, therefore, are not considered among the factors shaping competitive rivalry. Customers tend to be price sensitive and switch from one carrier to another for a small price saving of less than one percent. Nevertheless, the availability of additional services and ability of the company to response to customers’ needs quickly determine the success in competitive rivalry. In particular, customers want to locate shipments on demand and verify that senders were shipping the required good.

The bargaining power of customers

The bargaining power of customers is significant for the LTL industry because customers are price sensitive. The switching costs are rather insignificant; however, even small savings might determine the choice of the carrier. From the other side, no customer accounted for more than 2 percent of total revenues and top largest customers account for less than 10 percent. It indicates that the bargaining power of buyers is significant because customers tend to use services that are cheaper paying less attention to the quality of service.

The bargaining power of suppliers

The bargaining power of suppliers does not shape the LTL industry. The major market leaders own the facilities (terminals, consolidation centers, and trucks), and, therefore, do not need services of suppliers. However, the LTL industry is vulnerable to the Human Resource suppliers (unions). In particular, the inflexible agreements with labor unions put LTL companies under pressure to raise wages which leads to increased costs and further intensifies the competition.

The main elements of Roadway’s industry are individualized approach to every client, opportunity to negotiate the discount, and professional employees. According to Roadway’s marketing strategy, the company aims at building stable, long-term relationships with customers. In particular, the company works with individual customers to identify possible efficiencies in serving a specific account where both the customer and the company could benefit. Personal approach to every customer is an advantage (helps to build long-term relationships) and a disadvantage (aggressive price competition) at the same time. First, customers tend to have low loyalty towards the specific company and are willing to switch to competitors. Second, price negotiation hurts profit margins while intense discounting might lead to significant losses.

Despite the negative side of discounting, the freight rates rose and company continues to offer or negotiate discounts with many customers on an account-by-account basis. In addition to the discounts, Roadway promoted a professional approach to serving its clients. As much as 75% of all employees are represented by unions. Roadway argues that cooperation with unions provides a number of advantages for the company, stable workforce, low turnover rate, experienced employees making fewer mistakes and being more efficient. This marketing approach results in one significant disadvantage – high labor costs and higher price of the services. Taking into account that customers are price sensitive while little attention is paid to the quality, Roadway is at risk of losing potential customers to competitors who have lower prices.

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Professional employees, on the contrary, helped the company to maintain outstanding safety record which led to greater reliability and less freight damage as well as claims from shippers. Roadway’s marketing strategy might help the company to retain the existing customers and build strong loyalty. Moreover, Roadway’s presence on the market since 1930s contributes to a positive image of the company as reliable and stable. Nevertheless, over-reliance on union employees gives non-union forms with lower cost an opportunity to increase their market share and attract current customers of Roadway.

Roadway has three strategic options: to decrease the price of the service and offer more discounts; to restructure the organization and decrease the number of consolidation centers; or to start cooperating with non-union workers who are paid less.

The price of the service can be further decreased and more discounts can be offered. Taking into account that customers are guided by the price in their decision to use the carrier’s service, Roadway should be able to offer lower prices if it wants to remain competitive. One of the ways to achieve lower prices is to cut fixed costs. Alternatively, management should evaluate the financial reports, conduct a market analysis on the competitor’s prices, and come up with the lowest possible price which still generates some income. The minimum possible price will encourage more customers and the company profits will increase accordingly.

The second option is to restructure the organization and decrease the number of consolidation centers. Compared to competitors, Roadway owns and leases the greatest number of consolidation centers and terminals. While competitors decrease the number of terminals by 30%, Roadway think about the decrease of only 5%. Consolidation centers and terminals consumer the major part of costs and add to the price of the service. While competitors use rail lines to transport the freight, reduce their fixed costs, and increase network utilization, Roadway stays ahead in price competition. Restructuring of organizational process (network refinements, better freight handing techniques, declined depreciation, and limited capital investment) might help the company to reduce the price.

The final option is cooperation with non-union workers. As the contract has expired, Roadway management can either reduce the number of union employees or sign a more flexible agreement with another union. New contract will help with cost decrease and give the management an opportunity to negotiate better terms of cooperation. Taking into account that Teamsters’ contract regulates wages and benefits of part-time workers, Roadway should hire more full-time employees, and, thus, free itself of the unprofitable contract.

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IvyPanda. (2022) 'Roadway Express Inc.'s Strategic Management'. 11 June.

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IvyPanda. 2022. "Roadway Express Inc.'s Strategic Management." June 11, 2022. https://ivypanda.com/essays/roadway-express-incs-strategic-management/.

1. IvyPanda. "Roadway Express Inc.'s Strategic Management." June 11, 2022. https://ivypanda.com/essays/roadway-express-incs-strategic-management/.


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IvyPanda. "Roadway Express Inc.'s Strategic Management." June 11, 2022. https://ivypanda.com/essays/roadway-express-incs-strategic-management/.

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