SPECIAL REPORT – PAPER AND ENVELOPES: This much we know

While the direct marketing industry has finally accepted that pricing in proportion is on its way, the paper and envelopes sector seems less clued up on the upcoming changes. Yet it is just as involved. Emma Rubach reports

At best, the current industry attitude toward Royal Mail's Pricing in Proportion (PIP) plans could be described as resigned. After five long years of consultations, briefings, and speculation about the potentially – if you believe the nay sayers – devastating effects of the new pricing scheme, a date has been set. August 21 2006 – already dubbed `Black Monday' – will see the direct marketing industry finally go head-to-head with PIP. The task for Royal Mail is now to communicate the possible outcomes of its controversial system.

Because of the vocal nature of some key players, everybody in the direct marketing industry pretty much knows what to expect – or do they? Agencies know they will have to redefine their pricings and liaise with their clients over the changes, and creatives know they will have to align their ideas with the demands of the new pricing structure. But does the supplier side of the industry know what is about to hit it?

At first glance, PIP's new regulations look like they might benefit the paper and envelopes industry – the forgotten player in this fraught debate. While PIP will make it slightly more expensive to send large, bulky packages, it is also raising the weight threshold for the basic letter format from 60g to 100g. Although Royal Mail has yet to release exact pricings, it is understood that it will cost more to send anything larger than a C5 envelope than it does now, but less to send a smaller envelope, even if the package is heavier. This has positive implications for paper manufacturers, as the industry sees demand for heavier, more expensive, paper.

As yet, however, it seems the paper industry is being slow to react to the opportunities that PIP may bring. Industry body The Confederation of Paper Industries has no formal guidance about PIP for its members. "Royal Mail has not contacted us about this," says a spokeswoman. Similarly, a spokeswoman for paper merchant Robert Horne said the group did not know about PIP either, adding that if a sudden surge in heavier paper orders was noted, it would not understand why.

As such, David Harris, co-founder and creative director of brand response agency Lida, warns that the paper industry needs to address the fact that it may see surges of interest in more bespoke, high- quality papers. "I would urge paper manufacturers to make exciting paper more available," he says. "Once, we were trying to use this beautiful paper, but the manufacturer told us it could only sell us a limited amount of sheets. I asked a representative if was because that was all it had, and they said no, it was just all it could sell us. It was like it was being rationed."

David Robottom, DMA (UK) director of industry development and postal affairs, says he is not surprised the paper industry knows little about PIP, as Royal Mail has not begun its formal drive to alert businesses to the changes. "People who are close to PIP are aware of it and have been briefed. But further down the supply chain, this does not seem to have filtered through yet. This is evidence that Royal Mail needs to ratchet up its communications plan," he says.

But a Royal Mail spokesman argues that the paper industry has been made fully aware of the situation: "We have been consulting for five years on this. The paper industry has been approached."

If this is the case, the paper industry is paying little heed. Consumer group Postwatch says this is likely to be the case across most of the affected industries. "You could say that everyone has been communicated with, but who in a company really takes any notice of all the bits of paper they receive?" asks a Postwatch spokeswoman. "There will be a big communications push from Royal Mail in the next three months, but to most people, the launch date is too far off for them to be interested."

When August 21 arrives, it is still hard to say what advantages or disadvantages PIP will bring to the paper world. Plunging prices, overcapacity in the industry and environmental disasters – like the recent hurricane in Finland, which left tree stocks decimated and unusable – have all contributed to paper producers' failing fortunes recently.

"Prices of paper have been artificially cheap for a long time because of overcapacity. Higher energy costs and environmental factors have placed upward pressure on manufacturers, and they are talking about price rises of 20 or 30 per cent in the next year," says David Laybourne, technical director of DPS Direct Mail. "Anyone buying paper now should buy on a contract basis, because when PIP comes into effect, prices will rise."

Meanwhile, experts are waking up to the creative doors that PIP will open. Harris says: "When Royal Mail talked through the changes, the reaction was very negative at first, because larger packs do tend to achieve doormat standout. But, now there is an opportunity to use exciting types of paper – for example, embossed or corrugated – and scope for more variety and standout, it is a positive thing."

But, postal costs aside, using heavier, more extravagant paper will still cost more overall. As EHS Brann Leeds creative director Andy Hair warns: "It's going to be a case of suck it and see. The weight gain might mean you can buy better, heavier stock, but better quality paper still costs more. In direct marketing, it's all down to cost per response. We have always had to balance formats – it's the same old battle, just different rules."

Roger Lipscombe, head of art at TDA, believes the changes will not affect paper weight, but, as feared, size. "We're going to see far more campaigns involving postcard formats – and a lot of these will be A6 or even smaller, as creatives start thinking in miniature," he says.

However, he does see a silver lining. He adds: "The fixed price for heavier items will open up the possibilities for sending quirky samples and gifts that might have been too expensive to post before."

But while the opportunity is there in theory, technical problems may deter creatives from choosing heavier paper stock. As Ian Sullivan, general manager of printing and mailing house SR Communications, explains: "Sheets up to 100g can be folded straight away, but anything over that risks the ink being cracked, unless it is put through a creasing machine, which adds to the price. Printing companies will have to be diligent and ensure they communicate such factors to customers."

The general consensus is that PIP will force a communications review within the industry, as creatives will have to work more tightly with producers from the start. This can only be a good thing. "From the perspective of planning, it is all about lead times. Make sure you are using effective planning and working methods with the production house," advises James Hewlings, executive director of The Lettershop Group. But, he cautions, a two-way conversation relies on the paper industry making its contribution: "Paper manufacturers tend to be reactive, not proactive. They don't market well to end users."

While the paper makers appear blissfully ignorant of the forthcoming changes, envelope manufacturers are all too aware of the potential problems PIP may present them with. "We face being left with surplus stocks as people move away from larger envelopes, because the increase in postage costs means consumers won't be using them. The industry is facing a loss," says Louis Demetriou, director of administration for the British Office Supplies & Services Federation.

Mike Dellar, director of the Envelope Makers' & Manufacturing Stationers' Association (EMMSA), agrees: "We are concerned PIP will adversely affect volumes. It is going to cost the consumer more money – it is as simple as that. And, when that happens, people start looking at other ways to contact customers."

Dellar's fears echo those across the industry, which believes rising mail prices will drive clients to turn to more cost-effective media, such as email and text. "The real concern is that people don't like change. As such, there will be a migration to other means of getting messages from A to B."

It seems envelope manufacturers are likely to come off worst from PIP – particularly those that make the larger sizes, which will be penalised under the new scheme. "We are faced with running down stock of our larger sizes," says Tim Kidner, director of Eagle Envelopes and chairman of EMMSA. "We anticipate a change of product as a result of PIP, which means we will have to invest in new machines that can cope with smaller sizes. Most franking machines will also be rendered useless."

It is clear the PIP battle has already been fought and, some would say, lost. "We have spent ten years fighting this. Now all we can do is ensure we make all our customers aware of what is going to happen," says Kidner.

The priority now is to look to the future and ensure that the complex new pricing structures are properly understood by everyone in the industry to ensure a minimum level of confusion next year. Of all the affected parties, it appears the paper industry is the least aware of the changes. But, as energy costs continue to soar, and natural disasters multiply on a seemingly monthly basis, it seems foolish to ignore the positive implications of PIP, however small they may be.

Copyright: Centaur Communications Ltd. and licensors