Not so long ago, the biggest consideration for those using business post was ensuring that the franking machine was set correctly. But since postal services were deregulated in January 2006, removing Royal Mail's monopoly, companies have a lot more to think about, with a range of mail handlers to choose from.
Major players such as TNT Post, UK Mail and DHL have picked up a significant amount of business from firms that send bulk mailings, which sees them collect, sort and deliver the post to Royal Mail centres for 'final mile' delivery. According to Royal Mail, these so-called 'access deliveries' account for 25% of the bulk-mail category, and 12% of the £4.7bn overall postal market. Chief executive Adam Crozier has reportedly said that Royal Mail will have lost 40% of its corporate business by the end of the year.
The big advertisers have realised that they can make hefty savings on mailing costs, be they regular transactional mailings, such as bank statements, or one-off direct marketing campaigns. 'Competition in the postal market has helped put mail on the agenda. It's often a very big cost to an organisation and, typically, has had little attention paid to it,' says Derek Fairhurst, managing director of PostalAudits, an independent agency that works with some of the UK's biggest mailers, including Tesco and Yell.
The private sector has been quick off the mark. Royal Bank of Scotland is believed to be saving £5m a year as the result of moving responsibility for the 200m items it sends annually to UK Mail, while BT has shifted its £30m account, covering 170m items of transactional mail, to TNT Post. Even Whitehall has woken up to the potential savings. Late last year the National Audit Office estimated that the public sector, which sends out 2.5bn items of addressed mail a year, could save £31m by more efficient use of post. The Department for Work and Pensions shaved £1.7m off its annual £70m mailing bill by moving a third of its postal business to UK Mail.
Price has played a major role in the success of Royal Mail's competitors. However, none of the parties involved is willing to attribute the shift in the balance of power solely to costs. Better service in terms of flexibility in collections, deliveries, tracking and account management are cited as factors too.
Royal Mail's director of sector marketing, Thierry Saada, admits that the pace of change has been surprising. 'Quite a significant share of the market has gone over to the competition and has been gaining momentum, much quicker than our regulator (Postcomm) and we thought it would,' he says.
Saada attributes this to the ability of Royal Mail's competitors to pick and choose business and clients, while Royal Mail must deliver all mail, both business and social. 'They have been targeting the easiest parts of the business. The regulatory environment doesn't help us,' he adds.
Last July, Royal Mail attempted to redress this by asking Postcomm to allow it to introduce zonal pricing, which would enable it to cut charges for bulk deliveries to city centres, while raising those for less accessible delivery destinations, such as rural areas and central London. Royal Mail argues that this system would better reflect the cost of delivering mail, but the proposal, which could be introduced next year, faces opposition from a number of groups, including private mailers, magazine publishers and mail-order companies.
'Royal Mail is finding it difficult to respond to competition and is trying to frustrate rather than compete,' says Steve Patrick, managing director of UK Mail, who believes that zonal pricing would be complicated and confusing.
To date, most of the bulk-mail business lost by Royal Mail has been in the form of transactional mailings such as bank statements, which, because they are big and regular, are easier for rivals to service. Now, however, some brands are using these companies to handle direct mail campaigns too.
The speed with which Royal Mail's rivals are able to deal with the logistics of delivering a campaign is aiding their push for new business; typically it is a one- or two-day window. It is an area in which marketers have been calling for tighter delivery dates for years, so that their direct mail activity is better able to link in with TV, print and poster campaigns.
'Most direct mail is generally linked to a call to action, such as contacting a call centre, which can gear up for the response,' says TNT Post chief executive Nick Wells. 'We are doing a lot of direct mail activity for clients such as BT, Centrica, BSkyB and Npower.'
Flexibility is a key selling point. 'Mail users can find working with new service providers such as DHL, TNT and UK Mail a breath of fresh air,' says Fairhurst. 'They can offer real flexibility and are often considered more commercial than Royal Mail in the way in which they respond.'
This flexibility extends to payment terms, collection times and the relationship side of account management. 'They are willing to come up with bespoke arrangements that Royal Mail is often unwilling or unable to adopt,' adds Fairhurst. 'It has a reputation for being rigid in its approach, saying "if we did it for you, we'd have to do it for everyone else".'
It isn't all bad news for Royal Mail. Despite the legacy gripes, it is generally agreed that it has raised its game in response to the competition. Saada says the organisation has improved account management and, as a result of customer surveys, is giving clients contacts at an operational level to deal with problems. It is also set to introduce new products.
A Postcomm survey, conducted last autumn, supports this view; 34% of respondents said the quality of Royal Mail's service has improved, and, since deregulation, one in five business customers says mailing prices have reduced significantly. If Royal Mail can maintain and build on such improvements, it could yet tempt many of its former clients back to the fold.
- 2.5bn items of addressed mail are sent out by the public sector each year.