Postal density charge plan attacked

Radical plans by Royal Mail to charge customers different rates according to the density of deliveries in each geographical area have been attacked by business.

The dominant postal operator is today launching its biggest price overhaul in decades, which will charge customers according to the size, thickness and weight of mail, rather than just weight alone.

But Royal Mail has also applied to Postcomm, the postal regulator, to extend zonal pricing to some bulk business mail from April, albeit with a six-month transition period.

The system is already used in some Royal Mail services, and would cut prices for delivering in densely populated areas and raise them for less dense zones.

It would not apply to stamped or frank consumer mail or erode the Royal Mail’s commitment to deliver to every address. But bulk mailers, in particular, would be affected.

Postcomm began to open up bulk mail to competition three years ago, with the entire market facing competition from the beginning of this year.

Although Royal Mail says neither the new weight-based pricing system nor the proposed zonal reforms are designed to grow overall revenue, it believes they will reflect more accurately the costs of sorting and delivering mail in a more competitive market. It estimates rivals will handle 3bn items – one in seven of all mail items – this year.

An estimated 20 per cent of business mail is likely to increase in price as a result of today’s new pricing stucture, called pricing in proportion. Bulky but light items, such as the A4 envelopes often used by financial services providers, will be most noticeably subject to price rises unless they can be folded into smaller envelopes. The remaining 80 per cent of business mail is predicted to fall in price or remain unchanged.

But given today’s changes, the Periodical Publishers’ Association, the trade body for magazines, including subscription titles sent in the post, has slated the proposed timetable for extending zoning.

Ian Locks, chief executive of the PPA, said: “It is too soon to have to cope with another change on top of PiP”.

Businesses in the UK direct-mail sector, which was worth Pounds 2.3bn last year according to the Advertising Association, are also concerned that zoning will make it unattractive to market to some areas.

Alan Halfacre, chairman of post and distribution affairs at the Direct Marketing Association, said that while zonal pricing would affect companies differently, it “could to lead to direct mail blackspots”.

Mr Halfacre said: “If you are aware of the difference between prices in zone ones and zone fives, you may decide to mail only to some zones.”

Stephen Bentley, chief executive of Granby Marketing Services, which runs pack promotions for Unilever and Kimberly-Clark, the consumer goods companies, said: “If you are running a response-based campaign, you can’t control where responses are going to come from and what zonal costs you incur.

“How can you set a mailing budget without knowing your costs beforehand?”

Alex Batchelor, Royal Mail’s marketing director, said the service would consult on its zonal proposals, but the pace of change was being forced by deregulation.

Mr Batchelor said: “If we weren’t in a competitive market, I would be delighted to wait.”