Having recently completed a series of seminars on the interrelated topics of Move Update and Compliance, I find myself disbelieving the lack of understanding, if not outright ignorance, that prevails on the matter in the direct mail community.
For the record, five years ago the U.S. Postal Service instituted a regulation to combat the growing phenomenon of undeliverable-as-addressed mail. At that time, the UAA problem had burgeoned to more than 5 billion pieces annually at a cost of $1.5 billion to the USPS.
Little known (then and now) is the dark side of the regulation, Compliance. This authorizes the USPS to reclaim postage discounts given upfront if the mail is found not to have earned its discount through specific work-share efforts.
Many in the mailing community understand that Move Update has something to do with keeping First-Class databases up to date to earn postage discounts. However, when asked what it takes to be in compliance, all too frequently an oversimplified definition is given.
Specifically, ill-informed mailers and mail service providers state compliance to be the use of an approved database update process such as NCOA or ancillary envelope endorsements (yellow stickies) within the prescribed 180-day frequency.
This misconception underscores the educational and communication problem that persists five years into the life of the regulation and less than 18 months before the Move Update regulation’s planned expansion to include Periodicals and Standard class mail.
o The act of applying the update information to one’s database from whichever acceptable Move Update service is chosen.
o Keeping on file proof of service used and applied to the database.
In the case of returned mail resulting from use of ancillary endorsements, this means keeping copies of the returned information (yellow stickies) to show the newly furnished address replaced the old address in the database should an audit take place. Simply using an approved method does not satisfy the rule of compliance, and it’s shocking how many fail to know or choose to ignore this distinction.
Compliance’s upside. No sooner had the Federal Register announced the postal service’s intent to expand Move Update to Periodical and Standard class mail than did an uproar begin claiming Big Brother’s heavy hand to small mailers. Nothing could be further from the truth. Cleaning one’s database, large or small, provides two net gains: immediate cost savings and greater responses.
To illustrate this, imagine what gain is realized when applying conservative factors to a hypothetical 100,000-record file processed through NCOA. With only a 4.5 percent new address improvement rate and 1.75 percent elimination of probable undeliverable addresses, a sum of 6,250 record changes (6.25 percent) is made to a fairly well maintained file. If the mail piece is valued at 41 cents, of which 21 cents is postage, the gross savings are $2,562. Extracting a $175 cost of service, the net savings in postage and materials is $2,387, or a 5.8 percent reduction in the budget.
A further review identifies that for every dollar spent updating the file ($175) $13 was saved ($2,387), a 13:1 return on investment.
There’s more benefit when the response factor is considered. That 4.5 percent match rate translates to 4,500 new addresses that will now receive the mailing. Were the addresses not updated, the mailing would have been discarded since it was mailed Standard class.
So, those 4,500 recipients yield a response rate equal to all other recipients, and in this example we’re applying 2 percent, which translates to 90 recaptured orders. Assuming a revenue value of $55, and discounting the gross revenue amount by the mail cost to reach the 4,500 recipients, the program gained net revenue $3,105 above what would have been realized.
Combining the front-end savings and back-end revenue lift, the $175 cost to update the file yielded a net value lift of $5,492.
Note: Though Move Update presently is a First-Class issue, this example uses Standard postage to illustrate the upside to other mail classes that will fall under the Move Update umbrella in the months to come. And again, compliance to the regulation means updating internal and external (i.e., prospect) databases. In return, the USPS extends a work-share postage discount.
Compliance’s downside. As stated earlier, if a postal service audit finds that the change information provided by the service selected wasn’t implemented, the front-end work-share discount must be refunded.
In the example presented, the mailer budgeted postage at the Standard rate less a work-share discount of 6 cents per piece. (Note: though the example uses Standard instead of First Class, the per-piece work-share principle holds and the discount would be essentially the same for a First-Class mailing.) So, with a 6-cent per-piece value, a $6,000 postage discount was taken upfront, and that’s the amount at risk in this case.
And the risk exposure may be greater based on present interpretation of the regulation. For instance, one convention is to limit reimbursement to the mailing in question while other schools of thought extend the reclamation period back six or even 12 months. This means one audit might have reimbursement ramifications for all mailings over a six- or 12-month period. Debate has begun to clarify the extent to which reimbursement is required.
Communication void. This recent spate of seminars left no doubt in my mind for the need to raise the direct mail community’s collective consciousness of the Move Update issue and its effect on all mailers.
The postal service is challenged to improve its outreach efforts, and first steps have been taken. USPS Suncoast District (Tampa, FL) helped me create a PowerPoint presentation on this topic. This is a matter every Postal Customer Council should share with members. The presentation is available at no cost. Direct your e-mail requests to me at [email protected].