COVER ALL THE BASES
Across the board postage increases between .2 and .3 cents took effect July 1, 2001.
By Patty Taylor, President, First Class Direct
In a very rare decision, the Postal Board of Governors overruled the Postal Rate Commission and raised rates July 1, 2001 to make up for revenues the PRC denied in the last rate case. This has only happened once before, way back in 1981.
This rate increase also created the first occasion that mailers faced two rate increases in the same year. We had grown spoiled. During Postmaster General Marvin Runyon's term, rate increase intervals stretched to three and four years apart. We knew it couldn't last forever. Cost pressures continue to dog the Postal Service. A partial listing includes:
- Fuel costs -- every penny increase in gasoline costs the USPS millions/year.
- Wage increases - about 80% of postal revenues go toward labor costs which increase about 6% per year and all labor negotiations recently have been decided by binding arbitration, delivering unrealistic increases in postal salaries in spite of a slowing economy. The labor situation also makes it difficult for the USPS to capture automation and labor hour savings because, unlike private enterprise, the USPS cannot downsize at will.
- Bureaucracy -- when the USPS tries to close a redundant facility, local citizens and political officials often join forces to keep the facility open.
- Diminishing first class volumes -- electronic commerce has had its biggest impact on first class letters-the most profitable USPS product.
- Increasing service area -- each new home is a new delivery stop, constantly increasing the number of addresses receiving mail.
- Constitutionally mandated universal delivery - means that the USPS can't use zoned rates for letter mail delivery: mailing letters from Colorado to Puerto Rico is priced the same as mailing from Colorado to Wyoming, although clearly the costs to the USPS differ immensely.
The current increase sent the mailing industry scurrying to pressure their Congressional Representatives to address postal reform which would allow the USPS more freedom in the rate setting process (which now takes about 18 months). The Direct Marketing Association and the Mailing and Fulfillment Service Association both support reform. We'll probably see some legislative attention to postal reform in the fall session.
From the perspective of direct mail advertisers, the latest increase will probably not have a big impact on mail volumes. Direct mail still provides enviable benefits to its users at a price that makes getting a positive ROI attainable. And compared to rates around the world, the USPS delivers more for WAY less.
As a media the mailbox is still the least crowded venue, with USPS customers receiving slightly less than three advertisements per day, on average. Because databases make targeting our best prospects easy, there are fewer ad dollars wasted by direct mailers on uninterested bystanders. Direct mail is scalable which makes it affordable for small businesses to use. And because results can be easily measured, advertisers who use direct mail have a clear idea of their return on investment each time they hit the mail.
What direct mail advertisers need to keep an eye on is the continued decline of first class mail volumes. Because first class mail provides about 67% of postal revenue, decreases in first class volume will inevitably make ad mail postage increase. First class volume growth has been essentially flat for the last couple of years, and so far this year there is a slight decrease in volume.
In addition, because raising first class letter rates is a political "hot potato," ad mailers and publications mailers (2nd class) see disproportionately large increases in each new rate case. Talk of raising first class letter rates by 10% in the next rate case is starting to surface. For ad mailers this is a mixed blessing, because such large increases are likely to encourage first class mailers to look for alternatives to the USPS, further shrinking first class volumes. I think we would all call this a "rock and a hard place" scenario.
At least in Colorado among my colleagues (in my own straw poll), the January rate increase and the latest increase of July 1, have had little or no impact on volumes of advertising mail. Colorado tends to lag the national economy so if we're lucky we'll see an improvement in the national economy before we feel it here in the Rocky Mountains. The tiny July 1 increase is unlikely to discourage successful direct mailers from using their advertising strategy of choice.
Patty Taylor is President of First class Direct, a full service direct marketing agency and production service bureau in Fort Collins, CO. Taylor is also currently President of the Rocky Mountain Direct Marketing Association. She may be reached at 970-224-5066.
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