Industry Should Establish Pricing Policies
List owners raise their prices to remain competitive, but the increase is often forfeited because mailers will negotiate to maintain the old price.
In the past, no one would even consider asking for a net name arrangement on an order of fewer than 25,000 names. Today, net name requests are made on 5,000-name test orders. How does the mailer know what kind of pricing is needed if it does not have a test result to base it on? Often, selection charges are capped or waived. The next thing mailers will want is a guarantee that the rented lists will work, or they will not pay for them!
Business-to-business and Internet list owners have the right idea. Their lists were priced very high from the beginning. Publicized prices never go down, only up. Because the base is so high, the owners have a little more leverage to negotiate and still be in a winning situation. This is not the case with consumer files, which historically are priced much lower than hi-tech or business lists.
Where does this end? The industry is regulating itself on privacy issues, but it is all over the place with prices. Why not establish some basic, industrywide policies regarding pricing that would minimize negotiation and be equitable to everyone?
The general rule is that list managers receive a 10 percent commission on the base price, the broker gets 20 percent on the base and the list owner gets 70 percent on the base and 100 percent on selection charges. These percentages have not increased in a long time.
The rationale was that if the price of the list rose, the list owner's, manager's and broker's revenues also would increase. However, because pricing is heavily negotiated, base prices are down, not up. Also, because mailers are refining their selections so much, their universe of available names on a given list is shrinking, and many mailers are taking fewer names, not more.
It is time to re-evaluate the way the industry has been conducting business so everyone will benefit and everyone's time can be put to better use. There are several alternatives that would benefit everyone. The alternatives would become universally accepted, just as the 85 percent net-name policy on orders of 50,000 or more was. However, the list owner still would determine the discounts established within each alternative.
Volume discounts vs. tiered pricing. Many list owners determine pricing based on the volume of names a mailer commits to annually. The higher the volume, the greater the discount. Unfortunately, small-volume mailers would not benefit from this type of discount.
Basing your price or net name on a volume commitment can backfire. Suppose a mailer does not meet its commitment? Do you rebill for the difference? This would become an accounting nightmare and too difficult to enforce. The only thing to do would be to withdraw the discount after the mailer's commitment period ends or to review usage at midyear to determine the likelihood that the mailer will meet its commitment. If not, the reduced rate would be withdrawn.
A better alternative is tiered pricing. This would be based on volume shipped during a 12-month period or, for smaller mailers, during an 18-month period.
The difference between tiered pricing and volume discounts is that the mailer does not receive the discount until the mailer reaches the first tier. For example, a discount would not apply until a mailer mailed 100,000 names. Once the mailer has taken 100,000 names, the mailer qualifies for a 10 percent discount on the base price for subsequent orders placed. The discount would continue to apply on all orders placed until its cumulative volume reached the next tier, which may start at 250,000 names shipped.
At this point the discount would increase, for example, to 15 percent, and so forth. The discount also can extend to the net name, or the net would always remain at 85 percent and the discount would be solely on the base rate. Selection charges still would apply or could be capped at a special rate.
Do away with net names and offer a flat rate on the base price. This, too, has been addressed in the past and makes a lot of sense. But nothing ever happened. It is a variation on the above-mentioned alternative. If a mailer is entitled to an 85 percent net on 50,000 names and the base price of a list is $90 per thousand with $8 per thousand running charges on the net, this translates to $3,885, or $77.70 per thousand names. That is assuming that the mailer mails 42,500 names or fewer. If more names are mailed, the mailer pays on the quantity mailed.
Why can't the base price on 50,000 to 100,000 names be the cost per thousand after computing the 85 percent net, or in this case $77.70? As the volume that a mailer orders doubles, the price would be reduced accordingly. The rule of thumb would be that the volume always would have to double to go to the next price discount level. No computer verification would need to be provided, as the mailer would pay this price regardless of whether more names are mailed. However, absolutely no deductions would be allowed. The benefit would be faster and cleaner billing and faster payment to the list owner. Selections still would apply and would be capped at a negotiated rate.
Accounts receivable. Why does this business give so much liberty when it comes to paying for a product received?
Mailers should pay 30 days after names are shipped, not mailed. Does a department store expect payment 30 days after you have worn or used the item purchased? A department store bills you immediately and expects payment within 30 days. Otherwise, you have to pay a finance charge. Why does this industry operate so differently?