ANALYSIS: Is the PO getting it sorted?

Post Office plans to review the tariffs for direct mail indicate a change of heart. But has the move come too late, asks Neil Denny

Post Office plans to review the tariffs for direct mail indicate a

change of heart. But has the move come too late, asks Neil Denny



The Post Office must have been making deliveries along the road to

Damascus because it appears to have had a revelation.



Chief executive John Roberts told a meeting of senior marketers at a

conference in Jersey earlier this month that the PO was considering

changing its rates for direct mail marketers.



Such a move would almost certainly make direct-mail campaigns cheaper

and the medium more attractive to advertisers.



‘Our traditional position has been that prices can only be discounted if

our costs are avoided by extra work undertaken by the customer, such as

pre-sorting,’ said Roberts.



‘But life and business has moved on. That approach is restraining us,

and you. We must find a better one, a more commercial one,’ he told the

audience.



So, after years of lobbying by the direct marking industry, it appears

the message has finally got through to the Post Office: it needs to

start behaving like a major media owner and cater for its business

users.



Part of the timing of this announcement of intent is explained by the

industrial action gripping the Royal Mail. Roberts knows it is costing

him business and customer confidence.



He says that, in the event of a three-month suspension of the Royal Mail

monopoly, he would not be able to maintain the business tariff/public

tariff link - and he would not be able to reimpose it if the monopoly

was restored.



Such a change would mean an entirely new rate card being worked out for

direct-mail campaigns, which for the most part would make mailings

cheaper.



John Tew, Royal Mail director and general manager in charge of business

mailings, says: ‘It’s cheaper for me to deliver in towns and cities. In

theory, some areas of high density might, for the sake of argument, get

a 40% discount and rural areas a 15% discount.’ This tiered pricing

structure will only affect direct-mail advertising campaigns. It would

not apply to business post, such as bank statements or bills.



Such a pricing structure would be in contrast to current costing of

campaigns where there is a crude discount scheme of 32% worked out for

any mailing of more than one million.



Mark Elwes, director of postal affairs at the Direct Marketing

Association, believes that breaking the pricing link with the public

tariff would have ‘a very profound effect, boosting business

tremendously’.



He estimates that for every 1% increase in discounts, volume will rise

by 1% as more investment is placed in direct mail.



The Post Office would then be talking about additional revenues running

into millions of pounds and the direct mail market would see the

potential for a massive influx of advertising spend.



But is it too little too late? Simon Hall, managing director of

Barraclough Hall Woolston Gray, says: ‘It is such bad timing because of

the strike. They should have been doing this ages ago; it’s a wonderful

piece of inappropriate timing. They only change things when their balls

are about to be chopped off.’



Tony Coad, development director at the Daily Telegraph (one of the

country’s top ten mailers), thinks the Post Office is unprepared for

media ownership and competition.



‘It has a very significant cultural problem. It is a monopoly and it

focuses on operational, not customer, issues - and it still thinks of

itself as part of the Civil Service.’



The comparison he draws is with the pre-privatisation British Steel and

British Airways: first-class top managers but indifferent middle

management and hostile, unionised mass workforces.



The media ownership position, backed by promises of increased support,

has partly been forced on the Post Office by the strike, and partly by

the fast-gathering competition.



Within mailing the lifting of the monopoly has raised the prospect of

serious competition, with profitable areas cherry-picked by nimble

rivals. Already TNT has announced a trial service in the West Midlands,

undercutting the first class rate.



Perhaps more serious are threats from other media. Coad says, ‘Ad

revenue for the national press is going through the roof - perhaps we

are seeing a shift from the post to direct response through the press.’



Most serious is the emergence of electronic media. Alex Letts, chairman

of new technology agency SMI, explains: ‘In the US traditional mail is

declining and e-mail is increasing. The cost of electronic interaction

is a damn sight cheaper than the cost of snail-mail.’



Home banking and the growth of the Internet will start eroding the

traditional post within five years.



How will the Post Office fare against these threats? Roberts says: ‘Real

competition would focus everybody on one key thing: you have to get it

right to survive. You can’t replicate that in the public sector.’



Neil Denny is editor of Marketing Direct



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