The U.S. Postal Service's Board of Governors approved a three-year Negotiated Service Agreement this week between the USPS and Capital One Services Inc., the postal service's fourth-biggest customer and its largest producer of First-Class mail.
NSAs provide pricing incentives based on increased mail volume and other productivity gains that can save the postal service money. The agreement with Capital One is the first NSA.
Capital One will get discounts of 3 cents to 6 cents per piece for the next three years if its annual First-Class bulk volume exceeds 1.225 billion pieces. The discounts rise as Capital One's volume increases.
As part of the deal, the USPS will not return undeliverable First-Class mail solicitations from Capital One. Instead, once certain volume levels are reached, Capital One will receive electronic address corrections for free, but not the returned mail pieces. The minimum volume needed is 750 million pieces. The postal service estimates that this will save it from having to return 80 million pieces each year to Capital One at a savings of 20 cents per piece.
But Capital One will be required to improve the address quality of its First-Class mail. For example, the mailer has committed to run NCOA address updates every 30 days on its customer mail files and every 60 days on its marketing mail files. The update requirement for other mailers is every 180 days. It also committed to use the electronic return information in future mailing campaigns.
Capital One said it does not expect to save any material amount of expenses from this agreement. However, it hopes to use the electronic return and forwarding information to improve the accuracy of mail solicitations.
The agreement begins Sept. 1. Capital One said it plans no significant changes to its marketing programs as a result of this agreement, nor any significant movement of its Standard mail to First-Class. Capital One expects to mail 1.2 billion First-Class pieces this year.
Some mailers have expressed concern that similar arrangements could unfairly benefit certain mailers. To address these fears, the USPS put a limit of $40.6 million on the discounts Capital One can receive.
“The [Postal Rate Commission] decided to set a limit on the aggregate discount total to ensure that demonstrated cost savings would pay for any discounts paid to Capital One,” company spokeswoman Diana Don said.
Other NSAs likely will follow.
“As we build toward the future, pricing innovations like NSAs will help the postal service preserve universal mail service,” said Stephen Kearney, USPS vice president, pricing and classification.
In addition, Kearney said that all postal customers benefit because NSAs will drive mail growth and increase efficiency.
