Fouad H Nader, president of Adrenale Corporation looks at the trends in the mailing industry to reveal optimism for postal strategies to stem the decline in transactional mail…
In recent months, the number of studies, press articles and statements from posts predicting the rapid decline of transactional mail has dramatically accelerated. But what are the actual trends that emerge from examining in detail the best information available from advanced postal markets?
National posts often attribute the decrease in mail volumes to substitution. However, a consensus has not yet emerged on what is meant by substitution: the terms diversion, rationalisation, structural changes in demand and market redistribution are used additionally and often interchangeably.
These terms often refer to a host of factors in addition to substitution, including cutbacks in business originated mail volumes due to economic pressures on key mailing industries such as the FIRE (Financial, Insurance, and Real Estate) sector; market share shifts due to emerging competition from liberalization; product substitution, such as from a premium to lower priced, lower service products; and general changes in the underlying drivers of transactional mail.
Developments in transactional mail in the US
USPS is one of the posts that collect sufficient information at a detailed enough level to be able to analyse transactional mail. Since peaking at 98bn pieces in 2006, First Class C&T (Correspondence and Transaction) volume has dropped 25%, to 74bn pieces in 2011. This decline in First Class Mail volume in the last five years has had a well publicised impact on USPS’ profitability and liquidity.
Some important insights can be derived from this data:
Business to household transactions, such as bills and statements, have remained relatively stable, with a slight decrease in recent years, mostly due to the decline of the FIRE industry. The financial crisis and subsequent credit crunch have resulted in a substantial consolidation and closure of consumer accounts, which in turn have caused a reduction in the average number of bills and statements received and sent by households.
Electronic diversion is driven by the decline in cheques. We observe that the decline in transactional mail attributable to electronic substitution appears to have occurred principally in the payments stream.
In hindsight, the decline in the number of paper cheques should have been expected, given the volume mailing of cheques is unique to North America. (Volume is currently estimated at 40bn in the mail and at point of sale.) Most countries have already phased out the use of cheques or are planning to do so in the near future, as electronic or direct funds transfers and cheque truncation have been perfected to the point where very few payments remain in the mail.
In North America, it is only in the last decade that the use of cheques in the mail has started to decline.
Product shifts to cheaper services have occurred. Most advanced posts have multiplied their product offerings and rate permutations, expanded work sharing opportunities, customised service arrangements, and improved the quality of service of their economy products. At the same time, business customers have gone through dramatic re-engineering efforts that have transformed their practices and processes, particularly in the supply chain. Mailers now have the ability to dynamically select the optimal product, class and price.
These developments have caused major mailers to begin shifting volumes away from premium mail streams into the downstream entry of economy, deferred and standard classes.
Pricing affected single piece demand. Traditional wisdom among postal econometric modelers and financial analysts is that the demand for C&T mail is relatively price inelastic. This has led most posts to continually increase rates for single piece C&T letters.
Some, like USPS, went even further by considerably hiking the rate of what they termed as non-machineable First Class items. For example, the increase in the price of flats affected demand so sharply that C&T flats have been declining at double digit percentage rates since shape based pricing was introduced. The negative marketplace reaction was most acute immediately following the price adjustment.
Generational effects can be overstated. Generations of youth appear to adopt any new technology by reallocating their time to the technology and medium most appropriate for each activity. Over time older technologies cease competing for time in activities where they do not possess functional advantages and specialise in certain activities. USPS’ Annual Household Diary data shows some minor variation within age groups over the period of the study with a long term stable trend over the last two decades.
In tracking generational cohorts as they moved from one age group to the next, we compared pre- and post-PC/Internet access groups. It is worth noting the results from cohort to cohort are remarkably similar. Although there is some variation in C&T mail usage between them, each cohort falls within a relatively consistent range across the age transitions for the past two decades.
The changing American demographic profile, with the population getting bigger, older and more diverse, may bode well for transactional mail since it is evident that age continues to have a positive effect on First Class letters, particularly on business to consumer transactional mail.
Developments in Europe
The trends in the US are even more applicable to the European Union, with the added complexities of a liberalising postal market, and a billing and payment environment where consumers have been conditioned to entrust their financial institutions with handling all their recurrent payments directly from their bank current accounts. In fact, in some countries, particularly in Scandinavia and Northern Europe, billers and financial companies even penalise customers that wish to conduct transactions in person at a branch or through paper bills and statements.
Additionally, consumers in Europe and Asia Pacific have adopted mobile payments and SMS/MMS based statement rendering and transactional payments faster than North American consumers.
Furthermore, posts, which in many cases operate a bank with a commanding market share of deposits, have themselves introduced electronic statement rendering and bill e-payment systems that have tended to cannibalise mailed transactions.
These market dynamics have hindered the development of transactional mail to a greater extent, and have resulted in a faster volume decrease, than that suffered by USPS.
Can growth return to transactional mail?
Given the growth of broadband penetration and the increase in viewing of electronic bills and statements, speculation has increased that customers will suppress paper bills and statements completely. The evidence challenges these assumptions.
A recent survey, for example, determined that while over 75% of consumers can view their bank accounts online, over 85% elect to continue receiving statements by mail. Consumers value their transactional mail and depend on it to help them to manage their lives.
The greatest factors favouring bills and statements in the mail and inhibiting complete electronic adoption include security, privacy, resistance to change, technology fears, the need for paper records, and the concern that printing and other costs are being transferred to consumers at home.
Consequently, we are optimistic that posts can develop strategies that will stem the recent decline of transactional mail. We anticipate that, in a world where consumers’ attention is becoming ever more elusive, transactional mail may become an essential method to carry a brand’s values directly to households.
Strategic Approaches: Pricing and Products
Despite the uncertainty that exists around the future evolution of market conditions and customer dynamics, postal operators cannot continue to raise the prices of transactional mail and somehow hope for a different future than the one they so direly project.
It has become evident that C&T mail is now behaving like other competitive postal products, where pricing and discounting actions, new product/service introductions, customer centric channel variations, and other promotional and marketing tactics, can result in sustained profitable growth.
Transactional mail is so critical to the health of any post that it is now imperative to react to serious challenges and imminent threats by developing customer centric strategies, for example:
Revised product and pricing strategies. Actively manage transactional mail and re-invigorate it through product introductions, enhanced pricing and discounting tactics, and tailored placement and promotion; as well as tailored change management and cost cutting, and customised channels by customer segment. For example, USPS’ recent ‘2nd ounce free’ price action recognises the Trans-Promo power of First Class C&T Mail and is, hopefully, just a first step that points to a sound underlying growth strategy.
Value chain extension. Posts can diversify the range of transactional services, including a cautious extension across the value chain: adding new up and downstream activities and complementing existing products with information technology services. Posts could manage this SEND (Streamlined End to End New Design) product line, catering to transactional mail from inception to delivery to response and payment handling. By the same token, ‘intelligent mail’ could also be made a part of the service.
Fouad H Nader is president and founder of Adrenale Corporation, a consultancy specializing in postal market, business and technology trends.
- This article has been abridged from the original that appears in the June 2012 edition of Post&Parcel’s sister title, the Mail & Express Review. For subscription details for the quarterly print magazine, click here »
Source: Mail & Express Review