Take It To The Top
by Donna Hanbery
In August 2011, the Co-Chair of the Saturation Mailers Coalition Albert Braunfisch of MailSouth, and Executive Director Donna Hanbery, attended meetings with Postal Service officials to discuss ways the Postal Service could grow and maintain the business of saturation program mailers like free papers, shared mailers, and coupon magazine and envelope products. Gary Reblin, Vice President of Domestic Products for the United States Postal Service, and David Mastervich, Product Manager of Saturation Mail, took time to discuss current products and promotions, the competitive landscape, and what is – and is not – working with incentives. The meeting also presented an opportunity for Donna Hanbery to share the results of an SMC-member survey where mailers were asked to discuss what the Postal Service was doing right, wrong, and the percentage of revenues that mailers were spending on postal distribution with the USPS.
Albert and Donna were mindful that the Postal Service has been posting losses and will be seeking a rate adjustment in the fall. Forefront on their minds was making the point that the rates for saturation program mail are already too high. Saturation flats have a cost mark-up of approximately 250% one of the highest mark-ups in the system. Co-Chair Albert Braunfisch repeatedly made the point that mailers could do more business with the Postal Service, and could add circulation or increase frequency in under-served markets, if postal rates were lower.
Gary and David were both interested in the market response to Postal Service incentives. Gary Reblin commented that the Postal Service was looking for more leverage to increase frequency and wanted to spark growth. Reblin was encouraged about the recent bar code promotion. “We want to show there are ways to make the mail more valuable.” Reblin pointed out that the bar code promotion made it possible for the mail to be used to complete a transaction. With a quick response code, a shopper could interact with the mail and use a smart phone to do impulse shopping while looking at a mail piece.
SMC’s representatives made these comments about Postal Service promotions:
Our members universally like and are using the bar code promotion. Any time a mailer has an opportunity to save 3%, it will jump at it. Most mailers are using the bar code to send consumers to their own sites. More lead time would allow mailers to present the bar code to existing or potential advertising customers and use the program as a way to stimulate creative advertising or opportunities for unique customer promotions.
The saturation volume incentives of the past two years were helpful, but they did not help enough. Albert explained that growing new programs or adding frequency required 24-36 months to “ramp up.” A one-year promotion ends just as advertiser contracts are coming to an end. This makes the mailer vulnerable to competition from newspapers and private delivery carriers at the worst possible time. Reblin and Mastervich both commented that they heard more lead time and a longer promotion period for adding circulation and frequency might be important.
The SMC representatives and postal officials both agreed that some of the incentive programs were too complex and required many hours of time to determine if a mailer qualified and to compute threshold numbers and rebates. One of the Postal Service officials that has been working on the saturation/high density incentive program commented that his office spent many hours performing calculations that only produced a $70 rebate for one mailer. This equation of staff time for new business does not make sense for the Postal Service.
The SMC representatives commented that the adoption of simplified addressing for city routes had produced some savings for mailers that helped hold the line on prices.
Much of the meeting was spent discussing the competitive environment that mailers and the Postal Service are facing. It appeared that the Postal Service believed that declines in circulation for traditional newspapers and print media would send more retailers and advertisers to the mail and bring business to SMC programs. Albert Braunfisch made it clear that the Postal Service and mailers could not assume they will be able to capture traditional print business or FSIs leaving daily newspapers. Albert explained that advertisers were working with various agencies to seek alternatives to traditional daily newspapers. Although the mail had an opportunity to compete for this business, there were other networks and agencies that were bundling retail and grocery circulars to seek the lowest cost option. Albert stressed that the Postal Service and mailers faced a number of competitive problems when vying for FSI business against private carriers. The number one problem was the additional postal rate charges required for weight. Private carriers can offer advertisers a fixed price based upon frequency. Many retailers are doing heavier pieces, or even multiple pieces, in the 4th quarter. They want a fixed price for their advertising all year. A mailer needs to charge more for heavier pieces because of the pound rate charges. The mail cannot currently compete with daily newspapers or private delivery when it came to heavier-piece promotions. Although mailers need to match competitive conditions and give retailers more favorable rates for frequency, mailers get no price break with the Postal Service.
We also discussed the desire of many retailers to have a sale that breaks on Saturday or Sunday. The Postal Service is already at a competitive disadvantage with the absence of Sunday delivery. Discussions of moving to 5-day, and the potential loss of Saturday for advertisers, is another action the Postal Service is pursuing that will help private carrier delivery, PCD, companies compete against the mail.
It was clear to SMC representatives that the Postal Service was not aware of the growth of PCD companies and the opportunities for advertisers to choose another print distribution media besides mail or daily newspapers.
Gary Reblin and David Mastervich both commented that the Postal Service might be able to work with the industry on weight. They commented that the Postal Service currently collects approximately $200M a year in revenue on pieces weighing 3.3 - 3.5 oz. It would be difficult for the Postal Service to raise the breakpoint, or lower the pound rate, without finding another way to get this revenue. Donna commented that our members are already paying too much for mail distribution. Pointing to the survey results she delivered to the Postal Service, SMC members already pay the USPS anywhere from 25-50% of every dollar collected from advertising customers in postage. The Postal Service might make more money, and increase its volumes and revenues, with a pricing policy that does a better job of rewarding its loyal, regular customers.
Other topics covered at the meeting included the Postal Service announcement of a structural change that would allow it to charge two separate rates for the detached address label (DAL). The Postal Service commented that there was an automation processing cost associated in handing DALs and that it appeared some mailers were able to use the DAL like a separate postcard piece. They commented: “We don’t want to hurt mailers that need to use the DAL for addressing, but we’d like a way of getting more money from a DAL if the mailer is able to sell it like a separate piece.”
The SMC survey revealed that the DAL was still important to many mailers both for addressing and for revenue. One free paper publisher wrote that his company had drastically reduced circulation in recent years due to high postage costs and the economy. He said:
We have competitors that are distributing in mail tubes attached under the mailbox. Their costs are half of our postage. Without the DAL we could not compete and remain in the mail. It is a proven vehicle for customers because it works. It covers a substantial portion of our postage. Any change in the DAL surcharge would be the straw that forces us out of the mail.
This sentiment was echoed by several SMC members that publish mailed free papers or offer shared mail programs.
Albert urged the Postal Service to look at the DAL in a holistic manner. It gives shared mailers and free papers another product to offer customers. It can be a gateway product that helps mailers persuade advertisers to test the mail. If the advertiser is pleased with the response, it is likely to graduate into a shared mail program or do an insert or ROP ad with a free paper.
Last but not least, we discussed ideas for the Postal Service and mailers to reach under-served market areas. MailSouth has expertise in mail markets that serve more rural areas where a monthly shared mail program is offered. Albert explained that there are areas of the country where there are no shared mail programs or newspapers offering a total market coverage option. Many advertisers would like to reach consumers in these areas, or to have a more frequent (weekly) advertising vehicle. Certainly the Postal Service has capacity in many areas where its carriers must still serve a route with few pieces. We encouraged the Postal Service to develop an approach to pricing that would stimulate and encourage mail volume in these under-utilized markets.
As the meeting came to a close, Donna and Albert stressed the efforts of SMC and its members to improve the postal partnership. Albert challenged the Postal Service officials to think about ways to grow incremental revenue and appreciate the challenges that mailers face with stiff competition from newspapers and private delivery in the areas of pricing and their ability to control delivery dates.
Albert stressed that our members were serving as the Postal Service’s sales force and need ways to bring retailers, large and small, to our programs and the mail. Albert commented that our members spent a lot of time nurturing small business and creating mail advertising that would work for them. He said, “We found Chinese restaurants to be a fast-growing category. Even if your language is Mandarin, you understand math.” If the Postal Service can help get the price right, and give us the delivery windows we need, we can grow our businesses and bring more advertisers and consumers together in the mail.
Donna E. Hanbery,
Executive Director
Saturation Mailers Coalition
33 South Sixth Street, Suite 4160
Minneapolis, MN 55402
(612) 340-9350 Direct Line
(612) 340-9446 Fax
Hanbery@hnclaw.com
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