The threat of financial doomsday scenarios at the US Postal Service, coupled with advancements that make customer communications possible in an instant, are forcing marketers to prepare for a day when the US Mail is a far smaller piece of their business plans.
Even after the Postal Regulatory Commission struck down the Postal Service’s recent attempt to raise rates far beyond the rate of inflation, marketers are planning for possible future rate increases, a drop in home delivery to five days per week and fewer Post Office branches, as well as the very real possibility that the USPS could run out of money next year. In a strategy that also helps them communicate with consumers more quickly, brands are increasing spending on digital platforms that are independent from the postal network.
Plow & Hearth, a multichannel retailer that launched in 1980 as a country store, began reducing its marketing dependence on USPS three years ago, after significant rate increases. The move was also driven by customers migrating to online retail, says David Hay, VP of marketing at the multichannel retailer, which has catalog, bricks-and-mortar retail and Internet sales arms.
“We are reappraising our reliance on catalogs as our main marketing vehicle, and we are developing a multi-year plan to reduce our spending on catalogs in relation to other media,” he says. “We see catalogs as still having relevance to our business, but being a smaller part of the mix than they are now. There are instances where catalogs will continue to be effective, but that proportion is growing smaller and smaller and every day, and that’s a big driver for our move. But we have no active plans to phase them out.”
Interview: Ruth Goldway
Ruth Goldway, chairman of the Postal Regulatory Commission, sheds light on USPS’s current challenges
The move to digital marketing platforms is not limited to catalogs. Although corporate promotion of online payment methods is nothing new, marketers are now enticing customers to move to e-payment with sweepstakes and other incentives. Verizon launched the “Great Paper Escape” sweepstakes and marketing campaign this year with the goal of convincing a quarter-million consumers to enroll in online billing. The telecommunications company also launched a mobile payment service in the US with m-commerce firm Danal this spring.
More dynamic customer service is mostly driving Verizon’s move to digital communications methods, but Internet payment also costs the company significantly less money than sending traditional paper bills to millions of consumers each month, says Mark Studness, director of e-commerce at Verizon.
“More and more, customers want to interact with us online, and people prefer to interact with us 24-7, where they can move at the pace they want and can browse information, get feedback and comparisons, watch video and testimonials. Our mission is to meet that demand,” he says. “Digital interactions are often more economical for us as well, so there is definitely a cost advantage for us to send paperless bills.”
If an “exigent” rate increase had been approved for 2011, Verizon would have adjusted its marketing and billing strategy appropriately, adds Studness, who declined to give specific percentages. In September, the Postal Regulatory Commission denied USPS its request for the exigent increase. The USPS said last month it plans to appeal the decision.
“Naturally, as with any of our suppliers, when the cost of doing business is increased, we look at it from a 360-degree perspective and analyze how we best handle price increases,” he says. “We would naturally do the cost-benefit analysis.”
Prompted by its precarious financial position ? the USPS is set to lose about $6 billion this year after losing $3.8 billion in FY 2009 ? the US Postal Service has proposed landmark changes to its bedrock services. It attempted to enact an exigent price increase, claiming that extreme circumstances forced its hand, which would have raised prices by 5.6% on average. Meanwhile, it has asked regulators and lawmakers for permission to move to a five-day home delivery schedule, chopping Saturday delivery to consumers from its list of services. Facing what it believes to be an unfair annual payment in the billions of dollars to its retiree pension funds, Postal Service officials have warned that the organization might not be able to meet its financial obligations for 2011 without significant structural changes.
Tracking the financial crisis
November 16, 2009
The Postal Service reports a FY 2009 loss of $3.8 billion. It also discloses a nearly 9.1% drop in operating revenue to $68.1 billion.
March 2, 2010
The USPS reveals its 10-year plan to return to financial stability, including five-day home delivery, a series of price increases and expanded services.
March 17, 2010
The USPS hires consultants to examine its pension-payment system after an investigation reveals it overpaid pension funds by $75 billion since 1972.
September 23, 2010
Sen. Thomas Carper (D-DE) introduces a bill that would allow the USPS to move to five-day home delivery, close sites and reform its pension system.
September 30, 2010
The Postal Regulatory Commission denies the USPS’ request to enact an “exigent” rate increase
Paul Vogel, who was named president of mailing and shipping services at the USPS in August, said that the organization’s financial situation would be greatly improved by legislative action to reform its retirement and pension payment requirements.
“If there was a reconciliation, and if we were re-compensated for the overfundings, we wouldn’t have had a problem,” he said, adding that the Postal Service works to reassure outside companies that it is a vibrant part of the trillion-dollar mailing industry and it is working to stay that way.
Vogel added that he believes consumer-targeting mail volumes will rebound as inboxes and social media messages become increasingly cluttered.
“There’s too much electronic messaging out there, and I think people will see greater value in personalized, focused messaging to me as an individual ? messaging that is relevant to me and that doesn’t clutter my electronic messages,” he says.
Yet, Postmaster General John Potter, said in a video message to employees in March that projected mail totals are “very sobering.” “Mail volume is not going to come back,” he said at the time, adding that if the
USPS does not make any changes, it would lose $33 billion in its 2020 fiscal year.
In response, marketers are anticipating a smaller and fundamentally different Postal Service to emerge from the organization that is now equipped to deliver hundreds of billions of pieces of mail annually.
“I think we will see a very different, but financially viable, entity. It will be much more competitive in parcels, have a much smaller workforce and a footprint with fewer distribution centers,” says Jerry Cera-sale, SVP of government affairs at the DMA. “Since it will have a much smaller workforce, it’s unlikely the days of delivery will be at six, but no one knows how many it will be. I don’t know how far down the days of delivery will go.”
Many marketers have said they would prefer a reduction in delivery days to a significant rate increase. Cerasale, though, says that the DMA’s membership is divided on five-day home delivery. Home entertainment company Netflix, which became a household name through the success of its DVD mail delivery service, supports the USPS’ 10-year plan for financial recovery in total, including the reduction in delivery and the now-dismissed rate increases.
“When we testified before Congress, we said that we don’t see a big effect. We used to only deliver five days a week. We think people will just adjust their behavior,” says Steve Swasey, VP of corporate communications at Netflix. “We don’t support five-day delivery in a vacuum; we know they need to make significant changes to the Post Office to be viable, and we think everyone should share that burden.”
Although Netflix supports USPS’ plan, it is also shifting more of its business model to platforms that stream content directly to consumers through computers and home entertainment systems.
“The cost is the same, but what we do is put the money for postage towards more streaming,” he says. “We will spend the money; we will just spend it differently ? and we’ll spend it so that consumers have more and more content to watch instantly, rather than spending it on postage.”
JCPenney is another household business name shifting its mail strategy. The company recently discontinued its traditional catalog business in favor of “look books” ? mailed books that refer consumers to the company’s e-commerce website. However, a year after the company also stopped distributing its “Big Book” catalogs, JCPenney spokespeople told media outlets the company would not stop mailing marketing materials to consumers. The company, once as well-known for its catalogs as its retail outlets, also heavily used social media and mobile components during this summer’s “Back to School” integrated marketing campaign. A company spokesperson did not return queries seeking comment.
“Getting out of the catalog business is not getting out of the mail business,” says Cerasale. “I don’t know how it is going to work, but it’s interesting that they didn’t abandon the mail, they just changed the way they use the mail. A lot of people are saying, ‘How do we change the mail to make it a complement to other channels?’”
The US Postal Service’s financial health is directly tied to its sales volume. Therefore, the USPS is making plans to adjust its finances for 10 years from now, when mail volumes may drop.
Although the Postal Service’s rate increase was ultimately rejected by the PRC, leaving the USPS to ponder whether to try again with another “exigent” case or enact an increase at the rate of inflation, it may have scared some businesses into reducing their use of the mail. Hamilton Davison, president and executive director of the American Catalog Mailers Association, contends that “even the threat of a postage increase can harm mail volumes.”
“From the time the increase is announced until the time it is accepted or rejected, mailers have to use the most recently available information in their forward planning. After the [Postal Accountability and Enhancement Act of 2006], mailers felt they could count on postage at or below the rate of inflation. Recent developments throw this to question,” he says. “To the extent executives feel they do not understand what is happening at the USPS or have no input or control over it, there is greater pressure to reduce mail dependency to mitigate further risk and put more resources to moving out of mail.”
Tom Heim, director of operations at Infocus Marketing, a list management firm, said that companies are “following the leader” to digital, adding that the lower cost of digital marketing has also attracted them. However, the recent exigent case, and the fear that the USPS could again turn to that option in the future, have lessened consumers’ confidence in the mail as a long-term marketing strategy, he says.
“There is still a mandate on the USPS in terms of universal home delivery to addresses. That’s what postal reform was about, and adding the predictability tied to the [rate increase cap] so that companies could budget for that,” he says. “I would say that a lot of the clients plan on an annual basis, or maybe two to three years out, so I would say as a service provider that the decision by the PRC was the first little bit of good news we’ve had in a while.”
With the Postal Service’s uncertain future in mind, even companies with mail in their long-term plans are diversifying their marketing mix further. Ed Perez, VP of marketing and sales operations at US Cellular, said his company is working on reaching customers with time-sensitive offers and campaigns through digital methods, but it still plans to incorporate direct mail outreach into its future marketing campaign strategies.
“The way things have trended, I would say we are investigating many other ways to market to consumers, such as QR codes and other methods new to our strategy in 2011,” he says. “But we still have our direct marketing pieces as something we acknowledge works well for us and that our associates find customers are comfortable with.”
He adds that US Cellular will reassess that strategy if a major rate price increase is enacted, or another factor drives up the cost of mail significantly.
“Like all companies, we are very conscious of being fiscally responsible, and we always have to make sure we are getting a good return on our investments,” he says. “So if there is a significant price increase and we aren’t able to raise the response rate, we would have to consider other ways to market to consumers.”
There is considerable debate among industry experts on what the USPS of the future should look like. A bill put forward by Sen. Thomas Carper (D-DE) would rectify the Postal Service’s perceived overpayment of its retiree funds ? as well as allow the USPS to reduce delivery to five days per week. However, many Washington experts are unsure whether this Congress will take action on the bill in a lame-duck session, or leave the issue for the next ? and possibly very ideologically different ? group of legislators to tackle.
Davison says he hopes to see considerable change in the near future at the USPS, adding, “The consequence of no change is death.”
“They must become much more customer-focused if they are to maintain and build volume,” he says. “The mail works ? it still works ? and works better than many alternatives. I think that if an intense customer focus becomes the norm, and the external forces undermining the long-term potential of the agency are corrected, there’s no reason we won’t have a vibrant Postal Service for generations.”