Marketing Audit of ARAMEX company - Research Paper Example

?Table of contents Executive summary 2 0 Introduction 3 2 Company’s shareholding 4 2.0 Environmental context analysis 5 2 Political factors 6 2.2 Economic factors 6 2.3 Sociological factors 7 2.4 Technological factors 7 2.5 Environmental factors 7 2.6 Legal factors 8 2.7 Demographic factors 8 3.0 Competitive analysis 8 3.1 Analysis of competitive strategy 9 3.2 Competitive advantage analysis 9 3.3Collaborators and complementer analysis 9 3.4 Direct competitors 10 4.0 Porter’s five forces model 10 5.0 SWOT analysis 12 6.0 Market research 14 7.0Customer analysis 14 7.1 Segmentation 15 8.0 Positioning strategy 16 9.0 Product strategy 17 10.0Pricing strategy 17 11.0Distribution strategies 18 12.0 Promotion strategy 19 13.0Conclusion 20 References 21 Fig 1 Aramex shareholders 5 Fig 2 Market segmentation structure for Aramex 16 Table 1 Porter’s five forces model 11 Table 2 SWOT analysis for Aramex 12 Executive summary The report has been designed to carry out a marketing audit for Aramex Company which operates in the freight and logistics sector. The company is based in the United Arab Emirates and it uses a unique business strategy where it relies on other company’s vehicles and aircraft to carry out its business. This business model is in stark contrast to other companies which invest heavily in procuring assets such as aircraft and fleets of vehicles. This strategy of differentiation has significantly contributed to the success of the company in its business since it has a strong customer base. Though there are positive signs of growth of the company, it has been noted that it should take certain measures into consideration in order to improve its business. Therefore, it has been recommended that the company should ensure that it adequately trains the managers so that they can cope with the new demands of managing new business acquisitions. It has also been recommended that the company should invest in infrastructural development such as building warehouses given that this segment of business is the most profitable compared to other segments. 1.0 Introduction This paper is designed to carry out a marketing audit for Aramex Company which operates in the transport and logistics sector. The paper is divided into various sections and it starts by outlining the historical background of the company. The main part of the paper will analyse the environmental factors that impact on the operations of the company in this sector of the industry which is characterised by stiff competition. The paper will also outline and discuss the strategies used by the company in order to gain a competitive advantage in its operations. The last part of the paper will outline suggested recommendations that should be implemented by the company in order for it to sustain its operations in a competitive manner. 1.1 Background information about Aramex “Aramex is a leading global provider of comprehensive logistics and transportation solutions and it was established in 1982 as an express operator. The company also rapidly evolved into a global brand recognized for its customized services and innovative multi-product offering,” (Aramex, 2012). It currently employs more than 12,300 people in over 353 locations across 60 countries, and has a strong presence across the whole globe. According to Awan (2008), Aramex specialises in six different categories of business outlined below. International express delivery This service is meant for retail and wholesale delivery and this segment includes companies, banks as well as other retail stores. The packages delivered range up to 50 Kg and the customers can track their consignment through the company’s website. Freight Forwarding These services include air, land and sea transport and the route mainly involves all major cities. . Logistics These services include warehousing, inventory management as well as supply chain management and they are offered in the Middle East and North Africa regions Awan (2008). These services can still be tracked using the company website. Domestic express delivery This service is mainly intended for banks as well as pharmaceutical organizations and they include small parcels in major cities. Aramex also provides payments collection services. Document management This service includes document storage and digital archiving. Mailbox, shopping and magazine distribution Other services provided by Aramex include a mailbox service in the UK and US (Awan, 2008). Customers can have their mail delivered directly to them through this company. Some customers prefer to have newspapers as well as magazines delivered to their doorsteps by this company. 1.2 Company’s shareholding Aramex went public in June 2005 on the Dubai Financial Market (DFM) as Arab International Logistics (Aramex) with its shares traded under ARMX. Aramex has a 49% foreign shareholding and the outstanding shares of 59.10 % are held by the public (Awan, 2008). The chart below shows the shareholding structure of the company. Fig 1 Aramex shareholders 1. General public 59.10% 2. Institutional Investors in UAE 12.25% 3. Foreign Institutions 12.40% 4. 58 other investors 16.25% Institutional Source: Zawya cited in http://www.tni.ae/ir/Equity%20Research/TNI_ARMX_Initiation_22Jan07.pdf 2008. 2.0 Environmental context analysis According to Lancaster & Reynolds (1999), organisations operate in environments that are characterised by external factors and these companies have little control over them. An attempt to investigate these factors is commonly referred to as marketing audit and PESTEL analysis is mainly used as a strategic tool by many organisations to scan the environments in which they operate. Basically, PESTEL stands for factors which may affect the operations of business and these include the following: political, economic, social, technological, environmental as well as legal factors (Lancaster & Reynolds 1999). In this case, demographic factors will also be evaluated in order to investigate the extent to which they shape the operations of Aramex. 2.1 Political factors Since Aramex operates in different countries, it can be noted that the political factors obtaining in these countries have a bearing on its business. For instance, trends in world politics have significantly impacted on the operations of the company in many areas. For instance, different companies have signed bilateral agreements which promote free trade and this has positively contributed to the growth of the company. Awan (2008) posits to the effect that volume of international trade has grown by 6.7 % per year during the recent years owing to globalisation. 2.2 Economic factors Aramex is listed on the stock market and the stock prices are controlled by the economic forces prevailing in the United Arab Emirates (Aramex, 2008). Another important economic factor that can affect the operations of Aramex can be experienced if there has been a deceleration of economic growth in the Middle East region. For instance, economic growth in this region has been aided by rising cost of oil which is linked to business growth since it is driven by this precious commodity. If this growth stagnates, Aramex can also experience viability problems. The other important factor is related to currency risk since the company is present in many countries. For instance, the base currency of the company is the UAE Dirham but it can be seen that it also gets a steady flow of revenue from other countries. This entails that if the UAE Dirham appreciates against major currencies such as the US dollar and the Euro, it can experience a drop in revenue. 2.3 Sociological factors The company’s operations are shaped by various social aspects such as the needs of the stakeholders as well as the ordinary people in different environments it operates in. For instance, the company has realized that it has to be accountable to its stakeholders through citizenship and championing community development (Aramex, 2012). As a way of showing appreciation for human capital, the company supports education, youth empowerment as well as entrepreneurial activities. 2.4 Technological factors The company is affected by various technological developments and it has to adapt to these changes in order to operate viably. For instance, the company is compelled to adopt the computerised reservation system since all business is done online in this sector. Therefore, it can be safely said that the company is impacted in many ways by technological changes that may take place in the environment in which it operates. 2.5 Environmental factors Like any other organization, Aramex is affected by various environmental issues. Each country has laws that compel all companies to ensure that they reduce the levels of carbon footprint emission through their operations. This is detrimental to the environment and it can be noted that Aramex strives to uphold this principle since most of its business is done electronically. 2.6 Legal factors The respective government in each country where Aramex operates has the responsibility of regulating the freight and logistics industry. For instance, in UAE it can be noted that 100% foreign ownership is allowed while in other countries the company is expected to cede a certain percentage to other shareholders. The company is also expected to comply with international information security standards. For instance, the Transported Asset Protection Association (TAPA) is one of the industry’s key security regulatory agencies, and it has put in place rigorous guidelines and assessment criteria to ensure that every company meets a specified level of security throughout the supply chain (Aramex, 2012). Therefore, it can be seen that Aramex has already received TAPA certifications for facilities in Bahrain, Riyadh, Dammam, Beirut, Amman, Amsterdam, and Jebel Ali Free Zone in Dubai and intends to certify the rest of its facilities in its network. The company has also been accredited with a certificate for Authorized Economic Operators (AEO) in the Netherlands and Ireland and is intending to acquire certification for all European countries where it operates from. 2.7 Demographic factors Aramex is oriented towards fulfilling the needs of all people regardless of their age, gender, creed or belief. The company believes that quality people produce consistently excellent service, and continuously innovate to meet customer needs and this is the cornerstone of its business (Aramex, 2012). Therefore, the company strives to attract the best talent while nurturing them so that they can be innovative. 3.0 Competitive situation analysis The freight and logistics sector is characterised by intense competition since there are many players. Some companies are big and they have invested heavily in terms of assets. These companies operate in different markets ranging from domestic to international destination. There are also different categories of tasks that are performed by these companies in the freight and logistics sector. 3.1 Analysis of the competitive strategy Aramex uses a unique business model that is different from all other players in this sector. Whilst other players invest heavily in this kind of business in assets such as fleets of vehicles as well as airlines, Aramex uses the strategy of using other companies’ aircraft in carrying out its business. This has significantly helped it to build a strong financial base and it is not susceptible to threats of debts like other companies which invest heavily in terms of assets. 3.2 Competitive advantage analysis The differentiation strategy used by Aramex has greatly helped it to gain a competitive advantage over other players in this sector. The model of business used by this company is quite unique and it makes the company visible in the market. According to Porter (1985), the differentiation strategy is very effective if carefully implemented since it gives the company involved a competitive advantage over other players. Essentially, the aim of every business is to attract as many customers as possible which give it a competitive advantage over other players in the same industry. 3.3 Collaborators and complementers analysis Since the company does not have its own fleet of vehicles or airlines, it mainly relies on the services that are offered by other collaborators and complementers. These are the company’s partners in business and they significantly contribute to its triumph. The company has managed to establish a good rapport with these collaborators and this is the main reason why it has managed to gains a competitive advantage over other players. 3.4 Direct and indirect competitors According to Awan (2008), the transportation sector index in the UAE mainly consists of three companies namely: Gulf Navigation, Air Arabia and Aramex. Basically, this means that Gulf Navigation and Air Arabia are the two major competitors in this sector in UAE. However, Aramex is at the bottom in terms of stock price. There are also multinationals operating in this industry and these include FedEx, DHL and UPS. These competitors offer a real threat to Aramex given that they are already established in the market and they operate in different countries across the globe. 4.0 Porter’s five forces model McCarthy & Perreault (1996) describe Porter’s Five Forces Model as a business strategy tool that is mainly used by business people to scan the environment in order to establish its attractiveness as well as competitiveness with regards to the aspect of setting up new business. There are five elements in this model which are used to determine the level of competitiveness of the industry and these include the following: entry of competitors, threat of substitute, bargaining powers of buyers, bargaining powers of suppliers and rivalry among existing players. This section of the paper analyses how each of these factors affect the operations of Aramex in this industry that is dominated by big companies with their own assets. The table below summarises Porter’s five forces model in relation to the freight industry. Table 1: Porter’s five forces model Market forces Current situation Barriers to entry Medium/high Bargaining powers of suppliers Low Bargaining powers of buyers Low Threat of substitute Low Rivalry among existing companies High Barriers to entry (medium) Aramex active in quite a number of logistic services but not all of them pose strong barriers to entry in this sector (Awan, 2008). This company has distinctive features such as non asset based business model since it does not need to invest in any fleet of vehicles or warehouses. However, it can be noted that new entrants to this industry are likely to face some barriers to entry given that the logistics industry is comprised of more than 900 airlines. Barriers such as high capital investment, regulation and infrastructural constraints are some of the barriers that can affect other companies intending to venture into this business. Aramex’s business strategy gives it a competitive advantage over other players in this sector. Bargaining power of suppliers (low) Since Aramex mainly relies on different airlines to carry its goods to different destinations, it can be noted that the organization is not bound by any contractual obligation since it is flexible to choose any carrier from the ones available. Bargaining power of customers (low) Aramex has a strong customer base of about 50,000 and the company uses a strategy of targeting small to medium customers in its operations. Its clientele base is evenly distributed across various major industries. Threat of substitutes (low) Aramex is present in all sectors of logistics business ranging from freight to warehouses. There is limited threat of substitutes to this particular company since the mode of transport is not limited to air, land or sea. The company is well represented in all these categories. Rivalry among existing players As noted above, there are many players in this particular sector and this entails that the level of competition is quite high. Companies involved in this business need to implement effective strategies in order to gain a competitive advantage like the differentiation method used by Aramex. The organization intends to be the fifth largest logistics company in the world in terms of coverage (Aramex official website, 2008). 5.0 SWOT analysis Basically, SWOT analysis is a management tool that attempts to define the relationship between the internal and external environmental factors that can affect an organisation in its operations (Robinson, 1997). SWOT is an acronym for strengths, weaknesses which represent the internal environment of the firm while opportunities and threats are external environmental factors. The major objective of this analysis is to use the strategic pointers in order to utilize the existing business strengths to exploit as well as create new opportunities that can be used to counteract threats and repair the weaknesses that may exist (Robinson, 1997). As such, the following table below outlines the internal as well as external factors affecting the operations of Aramex in the freight and logistics sector. Table 2: SWOT analysis for Aramex Strengths Aramex is comprised of a dedicated team which helps it to grow Aramex follows a non asset based business model and it avoids fixed assets which protects the company from accruing a lot of debts. Aramex also enjoys flexibility in terms of suppliers since it relies on their aircraft for transportation. This also entails that it has minimum maintenance costs The company has a strong cash position given that it has a diverse base for revenue since it operates in six different sectors. Weaknesses The company is expanding at a faster rate in terms of acquisition and this can impact on the management’s capacity to cope with this change. Opportunities The Middle East is one of the fastest growing markets in world logistics and Aramex is poised to benefit significantly from this growth. Its presence in the global market is a major opportunity Threats The logistics industry is comprised of asset heavy companies which invest in their transportation equipment. This poses a major threat to Aramex since the level of competition in this particular sector is quite intense. A close analysis of the internal as well as the external environmental factors that affect the operations of Aramex shows that the company’s strategy gives it a competitive advantage in its business since this particular sector is characterised by stiff competition. The strengths and opportunities of the company outweigh the threats and weaknesses which is one major advantage for the company. The company has successfully managed to differentiate itself in the market. It can also be seen that the company is strategically poised for growth since it is present in different global markets. 6.0 Market research According to Awan (2008), “organic growth is as important for Aramex as external growth. Over the last few years, the former has been going hand in hand with systematic acquisitions.” The company would first conduct a research to establish a lucrative market where it can set business. This has seen the company penetrating geographical regions like Europe and Asia and it seeks to expand further into Asia given that there are strong emerging economies like China. The company conducts a research in order to ensure that all acquisitions are properly planned so that any negative impacts can be offset by this organic growth. Though the company conducts some research in terms of acquisitions, the company should strive to gather as much information as possible in order to establish the worthiness of such initiatives. The company can risk acquiring organizations that may end up being liabilities instead of contributing to the growth of the company. The other problem with this approach to business is that a lot of acquisitions can potentially lead to a capacity issue because the company might not have the resources to manage a lot of subsidiaries (Awan, 2008). Therefore it is recommended that the company should ensure that it has the capacity to properly manage the fast expanding business. 7.0 Customer analysis The company’s presence in a global market entails that it deals with diverse groups of customers. The company is driven by the need to satisfy the needs and interests of its customers. All decision making processes are influenced by the companies endeavour to satisfy the interests of the customers in a bid to create loyalty among them. As indicated above, the company has a customer base of about 50, 000 people and it strives to attract more people through offering valuable services. 7.1 Segmentation Basically, Aramex uses geo-demographic segmentation in order to divide its market into smaller segments that are manageable. Strydom (2000), defines market segmentation as the process of dividing a heterogeneous market into fairly homogeneous groups of customers who have similar interests and are likely to respond in a similar way to a specific market offering. Demography deals with issues such as age, gender as well as lifestyle that characterise the behaviour of people in a particular area. Therefore, Nelson (2001), sums up geo-demographic segmentation as the overall process or attempt to identify groups of small areas that have people with similar demographic characteristics. The approach is concerned with concerned with identifying geographical locations which are comprised of people who share similar needs. In this regard, it can be noted that Aramex segments its market on the basis of the following factors: international express, freight forwarding, domestic express, logistics and other smaller segments. The segmentation strategy used by the company is shown in the figure below. Fig 2: Market segmentation structure of Aramex 1. International express 54.46 % 2. Freight forwarding 26.98% 3. Domestic express 71.64% 4. Logistics 76.64% 5. Others 57.19% Source: http://www.tni.ae/ir/Equity%20Research/TNI_ARMX_Initiation_22Jan07.pdf A close analysis of the figure above shows that the logistics segment is the most profitable since it has an average revenue income of 71.64%. This can be attributed to the fact that it requires warehousing and storage. On the other hand, the freight segment is the least profitable as a result of the growth of the international express segment. 8.0 Positioning strategy Aramex currently operates 304 offices in 192 cities around the world and there are also many areas in Asian markets that still need to be tapped (Awan, 2008). The company strategically positions itself in different markets where it operates so that it can closely link with its business partners who supply transport facilities since it does not have its own fleet of vehicles as well as aircraft. In terms of logistics, the company offers services like warehousing, inventory and supply chain management and these services are positioned in the Middle East and North Africa regions. 9.0 Product strategy Aramex specialises in offering services in six categories namely: international express delivery, freight forwarding, logistics, domestic express delivery, document management and mailbox and magazine delivery. The company has a unique strategy it uses it uses when offering its services to different customers. According to Awan (2008), Aramex has a twofold approach when it decides to enter into a new geographical market: for instance it may try to compete with an already existing logistic company or it may strive to create a unique niche in competitive markets that are characterized by high entry barriers. The company also caters for the needs of the customers since it is comprised of a complaints department that handles all customer queries. The company is comprised of a dedicated team of employees and it strives to empower them to make meaningful decisions in their operations. The company promotes creativity and they listen to ideas from customers in order to achieve the highest level of consumer satisfaction. The company also leverages on its unique branding strategy which makes it more visible in the highly competitive market. 10.0 Pricing strategy Aramex uses a pricing strategy that is designed to satisfy the needs of as many stakeholders as possible. There are various factors that determine its pricing regime and these are taken into consideration when it sets its prices. The pricing strategy is mainly concerned with satisfying the needs of the shareholders as well as the other customers in general. As noted above, Aramex is listed on the stock exchange in UAE and it has a 49% foreign shareholding and the outstanding shares of 59.10 % are held by the public. Since the freight market in the Middle East has been growing at an average of 15% since 1995, the revenues and operating profit for Aramex have also been growing at a rate of 28 % and 40 % respectively from about 2000- 2008 (Awan, 2008). However, the company has underscored to capitalise on this development through setting favourable prices that would appeal to the interests of many people. For instance, the company uses an underpriced rating in terms of its stocks offered on the stock market. The main objective of this strategy is to attract many people to buy shares in the company. It can be noted that the company’s based target price has been AED3.93 but it has been offering a price of AED2.96 as of 2008 which shows that it is using an underpriced rating of 32.7% in order to attract many shareholders. One notable aspect about the pricing strategy that is used by Aramex is that it is flexible since it is determined by market trends prevailing at that particular time. The company also serves both small and large companies and its prices are determined by the market factors. However, Aramex strives to lower its prices in order to attract many people. Another important aspect about the pricing strategy used by Aramex is that it uses a value based approach when it is setting its prices. The company does not incur a lot of costs in terms of maintenance of aircraft as well as vehicles so it is mainly concerned with maintaining valuable services to the clients. 11.0 Distribution strategies According to Kottler & Armstrong (2004), the aspect of distribution in a marketing mix mainly deals with the aspect of moving one product to the other using different channels. Since Aramex does not have its own fleet of vehicles or aircraft, it relies on the transport services offered by other companies. It distributes various products to the customers through different channels such as road, sea as well as air. Its main objective is to strive to ensure that the customers get their products in tact since it is concerned with creating a long lasting relationship with them. The company also distributes various products through its warehouses. The company uses a well defined communication network supported by the internet to link with its suppliers as well as customers. The customers can easily track their products being delivered to them through the use of the internet. 12.0 Promotion strategy Various promotional incentives are used as a strategy to ensure the success of Aramex. The main promotional objective is to appeal to the interests of as many people as possible so that they can use the services offered by the company. The message is tailored in such a way that it portrays the company as a unique entity in the freight and logistics industry. By virtue of using a unique business model, the company leverages on this strategy to attract many people. The company also uses a mixed promotional strategy which includes advertising, personal selling, public relations as well as sales promotion. The company mainly uses the internet to advertise its services to different people and it also uses the press to conduct different public relations campaigns. The most notable strategy that is used by the company involves the aspect of lowering prices. As noted, the company’s stock prices are undervalued in order to attract many people. This is a pull strategy that is designed to attract people to the organization. Du Plessis (2005) suggests that the strategy of lowering prices is very effective in attracting more customers to a particular offering in the market. 13.0 Conclusion Over and above, it has been observed that Aramex uses a unique business model that is different from all other players in this sector. Some players in this industry invest heavily in this business through buying assets such as fleets of vehicles as well as airlines but Aramex uses the strategy of using other companies’ aircraft in carrying out its business. This has significantly helped it to build a strong financial base and it is not susceptible to threats of debts like other companies which invest heavily in terms of assets. Thus, this differentiation strategy used by Aramex has greatly helped it to gain a competitive advantage over other players in this sector. The model of business used by this company is quite unique and it makes the company visible in the market. Though the company appears to be viable in the market, there are certain factors that should be taken into consideration so that it can continue to grow from strength to strength. Therefore, the following recommendations have been suggested. Recommendation 1: the company should ensure that it adequately trains the managers so that they can cope with the new demands of managing new business acquisitions. Measures should be put in place to ensure that the management has the capacity to drive the company into prosperity. It is also recommended that the company should invest in infrastructural development such as building warehouses since it has been observed that this is the most profitable business segment in the analysis carried above. References Aramex[Official website, 2012]. Viewed from: . Awan, H. (January 22, 2008). Aramex: One of a kind. UAE. Viewed from: . Belch, G.E. & Belch, M.A., (2008). Advertising and Promotion: An Integrated Marketing Communications Perspective. Boston: McGraw-Hill. Berry, T. & Wilson, D. (2001). On Target: The Book of Marketing plans. How to develop and implement a successful marketing Plan. NY: Palo Alto Software. Duplessis, F. (2005). Integrated Marketing communication.2nd Edition. CT. 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