Experienced direct mailers and catalogers enter a new year with well-defined strategies and cutoffs for their house file and prospect mailings. In recent years, when predictable CPI-based rate increases were invoked, marketers could formulate ironclad plans for both types of mailings, even increasing mailings slightly if they realized improvements in modeling and circulation planning. But on January 28, when the exigent increase was added to the CPI cap to smack mailers with a 6% rate jump, plans on nearly all direct mail drawing boards called for significant decreases in prospect mailings. As the high price of exigency continues to exact a toll on direct mailers in ensuing years, their customer lists—and, in turn, their businesses—will grow smaller.
“Any increase of more than 3% or 4% has a significant impact on us,” says Dale Fujimoto, VP of marketing at AmeriMark, a general merchandise retailer with an e-commerce website and a catalog operation that mails some 250 million catalogs a year. “We’re P&L-oriented, so we’re going to take away the mailings that fall below our profit cutoffs. That means cutting out prospect mailings and that leads to a shrinkage in our 12-month file.”
During public hearings concerning exigency and postal reform, the Postal Service and the regulators and legislators that make rate policy for the monopoly have all based pricing decisions on the assumption that demand for its services are inelastic. Now their assumptions will be put to a free market test, and mailers believe that Postal officials will be surprised at how much the 6% increase will affect mail volumes. “I believe we’re much more elastic than they think we are,” says AmeriMark President Louis Giesler.
Most direct mailers use a simple one-to-one ratio for dealing with postal increases. If the rate goes up 1%, mailings go down 1%. But that simple rule went out the window with the passage of the first exigency increase, according to projections done by AmeriMark.
To hit its profit goals the company expects to decrease its catalog mailings by 8% in 2014, with the majority of the cuts coming in prospect mailings. As a result, its postage costs will decline by about 2%. In year two of the exigent increase, however, AmeriMark calculates it will mail 13.5% fewer catalogs than it did in 2013, because it will be able to plan for the rate and its house list will have shrunk by about 6% for lack of new customer acquisition. Order volume will also decline, translating into a 6% decrease in package delivery costs. USPS’s loss in revenue from AmeriMark in 2015 will rise to 7.8%.
A decrease in the customer base of catalogers like AmeriMark also foreshadows a decline in business-reply mail revenue for the Postal Service. Giesler says that one third of the orders his company receives still come via the mail, even from people who have shopped on the AmeriMark website. Like most big mailers who closely follow postal issues, he often wonders if USPS has a clue about the operations of its biggest customers.
“Everything they do in Washington is frustrating,” Giesler says. “They don’t run a business, they’re not struggling to make a payroll, they’re not forming banking relationships. They don’t deal in reality.”
