Postal Services: Now size matters

Last month, Royal Mail introduced its postal cost plan, Pricing in Proportion. How have businesses shaped up to the challenge? asks Suzanne Bidlake.

When David Dale sat down, there was silence. Royal Mail's programme director for its new Pricing in Proportion (PiP) initiative had just delivered a speech on its implications to business. Any questions? Not a squeak.

This audience in Leeds was clearly ready for its introduction. But that was July. Now, PiP is in force and, since August 21, size has been important to postal costs as well as weight.

How many companies were ready for the change? How many had put in months of preparatory testing and re-testing? How many others are now in a tail-spin, awaiting their first Royal Mail invoice under PiP and wishing they'd taken more notice earlier?

Few will admit to being in the latter camp, inevitably. Abacus, the mail order data pool supplier, says 80 per cent of its Alliance members claimed last summer that they would be ready by now. Mail order firms are among those set to benefit most, since they can now send heavier catalogues at no extra cost. Some 70 per cent of Abacus Alliance members believe it will mean good news for them, and 31 per cent are planning to increase their circulations as a result.

Nevertheless, admits Roger Williams, Abacus' marketing director, the reality is that smaller companies "have not thought about the implications and it's suddenly upon us".

More worryingly, an online survey conducted by mailing equipment company Neopost found that 75 per cent of 1,000 businesses sampled had done nothing about PiP by June this year.

"There are still some businesses singing songs so they don't hear the noise, but the fact is that they have to embrace the change or they will lose out to the competition," warns Alex Walsh, head of postal affairs at the Direct Marketing Association (DMA). He is well-placed to comment – the DMA has been conducting a comprehensive tour of PiP workshops over the past 18 months.

Many businesses are under the impression that they spend a minimal amount on postage and need not pay heed to the change, says Walsh. "Actually, if they added up their postal costs, they would be shocked." Neopost estimates postage accounts, on average, for 30% of the cost of a typical direct mail campaign.

"The impact of PiP will be huge – probably more than people realise," notes Walsh. "More than 50 years of rules and knowledge have, to a large part, been thrown out of the window." Undoubtedly, he notes, "there are some people who are panicking."

His view is echoed by Graham Cooper, managing director of postal consultancy Postal Choices, which trades as Onepost. He identifies four groups of businesses which have reacted in different ways.

First are those which are "switched on" and are gleefully reaping the benefits of either being able to send heavier mailings or reducing their costs. Second are those which are aware of the change but don't want to rethink, and will accept the increased charges. These include, for example, solicitors or insurance brokers who might prefer to retain the presentation values of an A4 document.

Next are those which are "aware but totally confused". Staggeringly, admits Cooper, these include some of the bigger organisations. Last are those who had not heard of PiP before August. "A surprising number look at you blankly," says Cooper.

Royal Mail's Dale is confident that "virtually all direct mailers" were ready for the August switch after many years' consultation with the industry and the regulator, Postcomm. "It's my honest belief," he says. "This has not been done lightly and we haven't rushed into it. It's hard to move around in the DM sphere and not be aware of it."

For those organisations still at sea over what PiP will mean for them, Royal Mail has developed a website (www.royalmail.com/size) and its first-ever interactive digital TV (iDTV) site. Both were created by Proximity London and are part of Royal Mail's £10m multi-channel push this summer to raise PiP consciousness among businesses and consumers.

Using Flash interactive demonstrations incorporating illustrations and movement, the website aims to give engaging, practical guidance.

Agencies such as Tullo Marshall Warren (TMW) have already leaned on Royal Mail to analyse their direct mail packs and suggest solutions. Belinda Yeadon, TMW's senior production manager, suspects any panic among businesses at this stage is purely due to "poor planning and inflexible pack design".

Many DM agencies have run seminars for clients, some of whom had not seriously considered the implications of PiP. It was only when WDMP held a clinic that a major client realised the price of one of its monthly mailings to 100,000-plus people would soar.

Many businesses are examining the options provided by postal carriers that provide an alternative to Royal Mail in the newly deregulated market (see box, p56). But the impact of PiP is not as clear-cut as it may seem.

Many observers assume mail order companies have rushed to produce heavier catalogues incorporating more products. Yet, as Elaine Greenwood, marketing director of kitchenware home-shopping business Lakeland, points out, "putting more products in front of people doesn't mean you make more money". Carrying a larger stock involves its own cost calculations.

"I wouldn't change the way we do our marketing activity on the basis of something like PiP," says Greenwood. "We operate on what's right for our customers. We already have a large, 96-page A4 catalogue and we are not making any changes."

If alterations to mailings have had to be made, then the key is to test.

Testing is, of course, at the heart of direct marketing and something in which the best practitioners are constantly engaged.

"But PiP has forced companies to go back to the start again to build up their best pack scenarios afresh," points out James Timberlake, head of direct marketing at Billington Cartmell, which he joined from Royal Mail two years ago. This adds to the marketing cost. "If your best pack was in 3-D, you have had to throw it away because you have to put new metrics in place with different costings now."

Robert Mayes, group communications director at WWAV Rapp Collins, believes some organisations will be forced to turn their backs on direct mail as a marketing channel – and that a standardisation of packs will put consumers off, too. He cites a charity as one mailer that faces a difficult decision.

If it keeps sending out its "highly successful" C4 mailer, it will rack up a 23 per cent bigger postage bill. But when WWAV tested the same creative in a C5 format, it "significantly underperformed".

Online marketing could be a beneficiary of any eschewing of direct mail.

But, points out Declan Bermingham, marketing manager at Neopost, it can cost four times as much to generate a lead by email as it does by direct mail.

Dale claims Royal Mail is "very confident" in the face of email, which he says is merely "another tool in the armoury.

"We don't feel PiP will alter the basic attractiveness of direct marketing," he says. "Clearly, (operating under PiP) is all about exploiting a set of parameters." And, he points out, "direct marketers always operate under different pressures – of budget, branding, legal constraints and the brief.

It's just about using creativity to get the most out of it." Any questions?

– See box, p56

RAPID CATCH-UP TIPS

If you have done nothing so far:

– Check out the PiP web site (www.royalmail.com/pip). Get advice from the DMA, a postal consultancy or a local business association as quickly as possible.

– Look at the cost implications for your business.

– Look across different departments in the company. The costs might increase in outbound mail but decrease in fulfilment.

– If you need to redesign mailings, test and test again.

– Cut testing time via real-time online research, suggests David Cole, marketing director of NDL International.

– Explore different carriers (see box, p56).

PiP CHECKLIST

What should you have already thought of?

– If businesses do nothing, Royal Mail says 20 per cent of all mail could be subject to increased costs.

– Can you cut costs by folding A4 documents? Or would your mailings achieve better stand-out if they remained A4?

– Consider presentation vs cost. A4 tends to work better for retailers, for example. Would a star-shaped mailer achieve better stand-out? Will additional production costs be outweighed by the fact it leaps off the doormat?

– If you mail product samples, is the packaging and its shape part of your brand identity and not to be interfered with?

– Could you add weight to your mailings by including more marketing information, bigger product shots etc. However, says Walsh, even Royal Mail admits with the letter width restriction, "you'd have to send a sheet of lead to make up the weight".

– Test mailing materials of different weights.

– Think about the cost of processing your mail before you even hand it to Royal Mail. New PiP-ready machines from Neopost cost between £6,000 and £25,000. Royal Mail also sells plastic templates for £25.

– Are previously marginal lists now worth targeting?

– How clean is your data?

– Is it worth moving more of your DM online?

– Consider alternative mail carriers (see box, p56).

CASE STUDY: HOTEL CHOCOLAT

When Hotel Chocolat realised how PiP would transform postage costs, it set about exploring how it could work to its advantage.

The company is an upmarket mail order and online retailer of high quality chocolate products priced between £10.95 and £85. Its target customers are ABC1 women, aged 30 to 60.

"Although a larger catalogue (containing a bigger product range) would increase production costs to some extent, the launch of PiP would see our postage costs remaining constant up to the 100g mark," says marketing manager Richard Kent. The maximum weight allowed in the first price band under PiP is 100g, compared with 60g previously.

Since postage accounts for around 50 per cent of Hotel Chocolat's campaign costs, the potential benefits were obvious.

The decision was made to mail 200,000 copies of an expanded C5 catalogue containing an extended product range in advance of Christmas last year.

A personalised letter encouraging the purchase of gifts and a business reply envelope were sent with the catalogue.

Loyal customers who were members of Hotel Chocolat's "Chocolate Tasting Club" were offered 10 per cent discount on all orders. The company also prompted purchase with emails sent out one week after the catalogue.

The result was an increase in return on investment of three per cent. The campaign elicited similar responses to previous Christmas mailings. But the additional products featured brought in a small increase in average order value, without any increase in postal costs.

"For us, PiP is a great opportunity to increase sales by making more customers aware about more product ranges," says Kent.

"No longer will our product development and testing opportunities be restricted, because the effect on postage costs of a heavier catalogue is going to be non-existent."

RE-THINK ROUND-UP

Where PiP has forced organisations (some of which wish to remain anonymous) to test and invest …

– The drinks company which tried to re-engineer its bottle to secure lower postage costs when mailing samples. The experiment failed because consumers didn't respond to the change in shape.

– The pharmaceutical mail order company whose recruitment costs were set to go through the roof but whose fulfilment costs are reduced: should it move budgets between departments?

– The home shopping firm which nearly ditched its catalogues in favour of a sole web strategy. It found people actually preferred to browse through a book and then order online.

– Charities which regularly send out free pens with mailings are testing flat versions.

– Corporate Mailing Matters says it has saved one client £70,000 a year by investing in a machine that folds magazines prior to mailing.

– The Direct Marketing Association has redesigned brochures for its 80 annual events to fit a C5 envelope, but will keep those for membership at A4. "It's a bullet we'll have to bite," says head of postal affairs Alex Walsh.

WHO CAN YOU TRUST?

A guide to alternative postal carriers

Mail is big business. The UK addressed mail market was worth £6.5bn in 2004-2005, according to Royal Mail, with business sending 87 per cent of this.

Royal Mail, which handles 22 billion items of mail each year, or 84 million each day, has lost 5 per cent of its market share since its monopoly began to be eroded in February 2004.

Most companies are watching progress of its competitors to ascertain whether or when a switch would make sense. Currently, few rivals have full geographical coverage and most still rely on Royal Mail for the "final mile".

But things are set to change: witness the acquisition in July of DX Services and Secure Mail Services by Candover Partners, creating a £175m-turnover group under Mail Acquisitions Ltd (MAL).

– ANC (trading as ANC Express) Contact: 0800 262123 www.anc.co.uk – Challenger Security Services (Admin) Contact: 020 7538 0141 www.challengersec.co.uk – Citipost AMP (formerly Alternative Mail and Parcels) Contact: 01753 722000 www.ampww.com – CMS (trading name of Royale Research) Contact: 020 7732 2000 www.cmsnetwork.com – DHL Global Mail (trading name of Deutsche Post Global Mail (UK)) Contact: 08081 007678 www.dhlglobalmail.co.uk – DHL Global Mail (trading name of Speedmail International) Contact: 020 7394 9494 www.dhlglobalmail.co.uk – DX Network Services Contact: 01753 630630 www.thedx.co.uk – Intercity Communications Contact: 020 8981 2828 www.icityc.co.uk – Lynx Mail (trading name of Red Star Parcels) Contact: 02476 586685 www.lynx.co.uk – Mail Plus Contact: 0116 250 1632 www.mailplus.com – Racer Consultancy Management Services Contact: 020 8893 8833 www.racer.co.uk – Royal Mail Contact: 08457 740740 www.royalmail.com – Secure Mail Services (formerly Special Mail Services) Contact: 0870 950 6917 www.securemail.co.uk – Secured Mail Contact: 0870 4141 600 www.securedmail.co.uk – Target Express Parcels Contact: 07702 313423 www.targetexpress.co.uk – TNT Post UK Ltd (formerly TNT Mail UK) Contact: 01628 771232 www.tntpost.co.uk – UK Mail Contact: 08452 305050 www.ukmail.biz Source: Postcomm