UK Post Office: Life in the old dog yet

The Post Office's move into new product areas is designed to appeal to a younger market as well as retain its older customers. By Robert Lester

The Post Office has been forced to broaden its horizons in recent years. Having branched out of its traditional sector, it now puts as much energy into competing against the likes of Barclays and BT as it does into sorting and delivering mail.

Following its expansion into travel and financial services, the Post Office is looking to become a major player in the telecoms sector, launching its own directory enquiries service earlier this month to complement its fixed-line offering Homephone.

Post Office head of marketing Simon Carter said last week that further product launches, which could include mobile phone, broadband or voice over internet protocol services, could follow (MW last week). The company has just completed a six-month review of its advertising and sales promotion accounts, reappointing Publicis and Joshua and adding Triangle to the below-the-line roster.

The Post Office has the largest retail network in Europe with 14,500 branches and 28 million customers a week. But the business is still losing more than #100m a year, exacerbated by the fact that pensions and child benefits are now paid directly into bank accounts. In the past, the transactions accounted for 40% of Post Office revenue.

Although last week Post Office parent company Royal Mail was handed a record #11.7m fine for 14.6 million items that were lost or stolen last year, it is estimated that now just 25% of the Post Office's business is handling mail. The rest is made up of travel products, government services, financial services and telecoms.

Carter says 94% of the UK population lives within one mile of a Post Office and that 98% visit a Post Office branch at least once a year. He adds: "The Post Office is a brand people trust and we've taken that into new products. The simplicity of those products sets us apart from our competitors."

The company will be going up against BT and The Number 118 118 in the directory enquiries market but is attempting to undercut them by charging a flat rate of 40p for each call.

Carter believes Homephone is on the way to achieving its target of 1 million customers in its first five years, and says the service is attracting 4,000 new customers each day.

But Gartner analyst Katya Ruud is sceptical about its chances of becoming a major player. She says: "The Post Office doesn't have the same knowledge of its customer base as the likes of Asda and Sainsbury's, which also sell 'voice' services. There is a certain [consumer] group with which it will have a lasting relationship, but in my view that's an ageing portion of the population. The Post Office will struggle to gain traction with the younger generation."

Talk of a move into the mobile sector – possibly as a mobile virtual network operator (MVNO) – has also raised eyebrows. Strategy Analytics analyst Sara Harris says: "There are so many players in the market but there is very little differentiation and I think the Post Office will struggle. I can see why it is diversifying but I can't see how it differs from others."

Harris thinks the Post Office is a "grannies' brand" but says it could use that to its advantage by launching an MVNO for older people. "We've been saying for a long time that there is a gap in the market for a service for older people," she adds.

Carter says the Post Office has worked hard to attract young people to the brand and adds: "We've started to introduce products that are more appealing to the younger generation like mobile phone e-top ups. Ebay has also been a massive growth opportunity for Royal Mail and the Post Office as lots of young people use Ebay."

The Post Office should use its heritage to its advantage, according to Interbrand chief operating officer John Allert. He says: "The Post Office doesn't have the appeal of a brand such as Skype for instance, but it does have credibility. I don't think its dusty heritage will necessarily impede expansion. The younger generation is more pragmatic than that."

It is not just the Post Office's proposition that is undergoing change. Sales and marketing director Gordon Steele left last month and sources have linked his departure to a reorganisation of marketing across all of Royal Mail's businesses, overseen by marketing director Alex Batchelor. Managing director David Mills will be replaced by Alan Cook next month.

The Post Office faces some of its biggest challenges as it seeks new revenue streams in crowded markets. It expanded its retail offering last year when it announced a revamp of its branches and began selling books, DVD players and other electrical goods, but whether consumers will ditch the likes of Vodafone for the Post Office remains to be seen.