Potter: Good Chance for Postal Reform

At this month's Mailers Technical Advisory Committee meeting, DM News sat down with postmaster general John E. Potter. The following are highlights from the conversation.

Do you believe there will be postal reform in 2004

John E. Potter: I think we have a great chance because everybody is active. The entire Hill has become aware of postal issues, and we do have to deal with the Civil Service Retirement System legislation that created an escrow account and also changed the military aspect of who pays for what.

People are very much aware of the postal service, very much aware of what the President's Commission report said, and we've seen a number of hearings on that. In terms of activity level, it's the highest I've ever seen. I would say our chances are better than they've ever been in terms of getting legislative reform.

I think the postal service needs legislative reform. The fact of the matter is we are competing with the Internet when it comes to bills and payments and other traditional First-Class correspondence. That is the major source of revenue to cover our fixed costs plus our universal service obligation costs, and the contribution from First-Class mail is significant compared to other classes of mail.

If First-Class mail continues to decline, then there are just a number of options. We either have to figure out how to be more productive, which we are doing very aggressively; we have to figure out how to get more people involved in the mail, and we have a growth strategy targeted to do that; or we're going to be in a position where we are going to have to raise our prices on products that don't have a big margin today to get more margin out of them.

We are working very hard to try to make sure that we keep the value — in terms of price and service — exactly where it is for all of our products. To do that, we need flexibility to control the infrastructure that we operate in. We need to have pricing flexibility so that we can attract new customers and also retain those customers that we have and incent people to move to higher levels of service, from Standard mail to First-Class mail, and if we have pricing tools that would be another opportunity for us to do that. We need to have the flexibility to manage this place.

Can you say, hypothetically, what the perfect postal reform bill would include?

Potter: Perfect postal reform would start with the elimination of the escrow account, because people are confident that our plan is a good plan and because we want to be responsive to what Congress' needs are in terms of understanding where our business is going.

It would have the military obligation shift from the postal service back to the Treasury [Department]. It would have pricing reform such that we would accept the notion of a regulator to hold us more accountable, but give us the flexibility to go out and use pricing as a tool to grow the business. It would enable us to adjust our infrastructure of plants and post offices such that we meet the needs of the community.

And it would deal with some of the basics we have around labor, workers compensation. I personally believe that we shouldn't change benefits for current employees or retirees, but certainly going forward we should be looking at putting everything on the collective bargaining table so that we can respond as other businesses can respond to changes in society.

I believe if we stepped up and got those things dealt with, we'd be in good posture moving forward. We have the tools that are necessary to change the business such that we can continue to provide universal service for all Americans for a long time to come.

What are some of the things you are doing to give Standard mailers an incentive to move to First Class?

Potter: A lot of customers are very cognizant of the postage on the letter, and they recognize First-Class postage and know that it's something important.

Our first Negotiated Service Agreement was an agreement that incented Capital One to move mail from Standard mail to First-Class mail. The reason why they were interested in it was because after 9/11 and anthrax, they knew that people were somewhat skeptical about opening their mail, and they moved their advertising to First Class. They had a firsthand experience that taught them the value of First-Class mail, and we are trying to work with others to see if we can't do the same thing. There are other “like” institutions that are working with us on similar Negotiated Service Agreements.

At this month's MTAC meeting, [vice president of pricing and classification] Steve Kearney brought up the idea of consistency and that the postal service is keeping track of First-Class mailers who have been mailing Standard and switching them over to First Class. Can you comment on this?

Potter: There are rules and regulations about what is First-Class mail. A bill is First-Class mail, and if a letter has a certain amount of personal content it is considered to be a First-Class letter. Over the course of time, the distinction between what's First Class and what is Standard mail has blurred. And what we are trying to do is create a bright line so everybody understands where that line of demarcation is.

There have been some people who have tested the boundaries and have been disappointed when they weren't able to mail certain content as Standard mail, and that issue had come up more frequently in the last couple of years because of the economic pressure on everybody to lower their costs.

So this is not tied to revenue generation?

Potter: No, not at all. It's not our strategy to make people who are mailing Standard Mail mail at First Class, but there have been people who have taken what has traditionally been mailed First Class and attempted to mail it as Standard.

Are you concerned that some of these people may end up leaving the postal service or maybe switching to e-mail?

Potter: One of our roles as a government entity is to treat people equitably. So do we allow one entity to gain a competitive advantage over another because we blurred the line between what's First Class and Standard? They have a fiduciary obligation to try and pay as little as possible. But we have an ethical and moral obligation to create a level playing field so that everyone understands what the rules are, and they make choices based on those rules.

Where does the postal service fit in the e-mail, Web or e-commerce space?

Potter: Any business is going to be in that space. We have one of the best Web sites in America. We are constantly getting awards [for it]. We want to make it as easy as possible for people to conduct business with the postal service, whether that's a large mailer who will send us billing statements and information electronically or John Q. Public who wants to mail a piece of Priority Mail. We want them to be able to access postage, access our systems, access information about all of our products online to make it easier for them to do business.

Are more companies sending direct mail today?

Potter: As people look at building customer relationships, there's this need to stay in touch with your customer. In this job you get exposed to a lot of different things, and I was recently exposed to a mailer that had been in the coupon business. They would give [their customers] a coupon book for [their] mortgage payments. [Customers] would get a little sticker that [they] could pull off and put on the envelope and that was the address. And then they'd give [the customer] a little coupon, and [the customer would] put [their] payment in [the envelope].

They've moved from 90 percent coupons to 90 percent monthly billing statements. And the reason they've done that is because the people who are the recipients of those monthly billing statements want a reminder to make their payments so there is a reduction in late payments, and that gives greater customer satisfaction. Two, they are made aware of changes in the bills that might have occurred and there is an explanation for it. And, three, they are made aware of additional services that might be offered by that company.

So, this notion of “How do you reach out to your customers, and how do you keep them?” — mail has a way of doing that. It is very direct, and it has a positive impact on customer retention. And we all know it is a lot cheaper to keep a customer than it is to get a new one. Mail is a vehicle to help do that, and it's one that we believe more and more people will take advantage of. And that's a use for First-Class mail. As you have new offerings, you can use Standard mail to get out and reach out to new customers.

Mail is extremely valuable, but we do face diminution of volume through the Internet so we have to offset that, and that's the challenge as we go forward as an industry — to figure out what are those markets that we haven't really penetrated, what are the uses of mail that we haven't really thought about and what are some of the ways that we may package mail.

A good example of that is our prepaid Priority Mail envelopes. There are some customers who we've never thought of as potential users. We had one customer ask for 34,000 envelopes. Our concept with that was we were going to prepackage them at five to a pack or 10 to a pack and target small businesses. We never realized that added a level of ease of use to larger businesses.

Do you think that since rates are not going to increase until 2006, people will mail more this year and next but that there will be a slowdown in 2006?

Potter: I hope there is no slowdown in 2006. It's not the goal of the postal service to raise prices in 2006. Our goal is to keep prices as moderate as we possibly can going forward. We made a commitment we wouldn't raise prices in 2004 and 2005. We hope that all of our customers go back and look at the analysis that they do when they look at the return on mail, and they factor in that there is no inflation for postage.

There's going to be inflation for other means that they might use to advertise or to deal with customers. Certainly, given the fact that we are going to have this rate stability, people need to go back every year and take a look at the value of mail and the benefit to them in terms of the use of mail versus other mediums or other suppliers.

Given that the postal service is not focusing on a rate case this year, is it doing anything differently with its time?

Potter: We are moving the mail. Contrary to what anyone believes, we spend very little of our time focused on rates. We spend the bulk of our time focused on service, making sure that mail gets from point A to point B in as timely a fashion as it can, and we are very proud of the service improvements that we've had.

We are a little concerned about the weather, but we know once we bounce back it's not a problem. We are also concerned about costs, and we are continuing to drive costs out. In the first quarter, we dropped some 8,500 employees. … We use part of the RIF [Reduction in Force] program that allows folks to leave early. We are not laying people off, but we are taking advantage of early outs for folks.

We are also very much focused on trying to grow the business and making sure that people understand what the postal service can do for them. So, for example, [Parcel] Return [Service], a new product, we are out there messaging, and we hit the 1 million package mark. We have Customized Market Mail. We think that's a great tool, but it's only going to be for certain mailers.

And we have [Carrier Pickup]. We have a labor force out there of over 200,000 city letter carriers who are beloved by people, and that worker has been focused on productivity or service, and we haven't looked as strongly on the customer services aspects of what they can bring to the business.

So this year, in association with the NALC, the National Association of Letter Carriers, the union, we are going out with the [Carrier Pickup] program, which, simply stated, lets customers know that “I'm coming by your door every day. If you have a package return, I'll be glad to pick it up.” Or if you are a small business and you have something that you regularly walk to your post office to deposit or you might use a competitor, “Hey, I'm going by your door, I'd be happy to do that.”

We link that up with Click-N-Ship, so people can prepare labels and pay postage online; we think we have a service that we can offer people — one that should have been obvious to us all along. It's just a matter of making ourselves accessible to the American public and provide that little extra service and make it part of people's jobs.

Will the USPS be doing more of its own direct marketing this year?

Potter: I don't know the exact numbers, but we have decided that we are in the mail business, and we've shifted more of our advertising budget to direct mail than we have in the past. I believe it's important to be on television for brand identification, but when it comes to getting results and getting responses from customers, we are going to the mail, and we are starting to use that in much greater percentages than we have in the past.

Do you have anything to say about this ricin issue?

Potter: We moved very quickly to close our V Street annex once we got word that there might be something at the Senate. We didn't wait for the outcome of tests over at the Senate; we began to immediately test the facility. We got our results back and were very grateful that they were negative. And then we opened our building … a little ahead of the Senate. We have a little more experience than they do with this stuff, so we were able to react quickly.

People are starting to recognize that, unfortunately, we've become somewhat of an expert at how to deal with these situations. And we have a lot that we can bring to different communities on issues in general. And we are working very closely, by the way, with the Department of Homeland Security and the Department of Health and Human Services to constantly refine the process of how we deal with these issues.

One of the ideas that I was kicking around was to do a coordinated effort from a national level such that if [a chemical test proves positive] maybe there is a team that goes in from a national level that has the expertise so we are not trying to replicate [the process] all over the country. We're trying to figure out whether or not we can do that.

What is the biggest challenge facing the postal service this year?

Potter: The biggest challenge the postal service faces is growth, and the notion of how it can generate revenue to offset what we know are going to be losses going forward from diversion of First-Class mail to electronic medium. That is the biggest challenge that the postal service has, and we need to step up to that challenge early so we can get a good handle on what the potential is there.

Now is the time to do it. We do have stable rates. We are performing at the highest level of service we ever had in our history, and we believe we have a good product to offer, and we want to be out in the marketplace sharing that news and making people aware of how we can serve them.

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