Opportunity knocks

Robert Donderwinkel, managing director of the European Envelope Manufacturers’ Association, believes concentrating on the opportunity is about fitness for purpose. The European postal industry has been under significant pressure since 2000 when volume growth in physical mail began to level off and then slowly started to decline through 2007 and 2008. While many postal operators have been able to maintain positive EBITs (Earnings Before Interest and Taxes) in their mail divisions,, a recent study completed by the European Envelope Manufacturers’ Association concluded that letter mail volumes in Europe could fall by as much as 23% across Europe by 2014.

In light of such a serious threat to their financial stability, we, as industry stakeholders, support the European postal operators in looking at opportunities to add new revenues to their business. However, we are increasingly concerned that these operators are exploring too many external or non-core business options and ignoring the significant potential that can be developed in the existing core mail business.

Most industry commentators tend to focus on the 20-30% forecast decline in mail volumes. Yet the most important ‘take home’ message for the postal industry from our study is that 77% of mail volumes are still likely to remain in 2014. We strongly believe that it is this latter figure on which we should concentrate as it is by effectively managing the 77% that we will ultimately control our own future.

Every communication channel has it advantages and disadvantages. While competition for market share exists at the periphery, the main physical mail volume for each channel is unlikely to be touched. The reason is because it works and works very well.

A case study on the continuing power of direct mail

For direct mail, this point was made very clearly in a presentation to the Association’s recent annual congress. The speaker was able to offer some observations of her experience in the US during the last Presidential election. She started by highlighting the fact that the Obama campaign spent an unprecedented $56m on direct marketing.

The campaign’s strategy was to employ all available direct marketing tools to ensure that consistent messages were heard and understood by all Americans. Without going into too much detail, the campaign team used SMS to ensure supporters were the first to know; Internet to offer an ongoing social dialogue; and telephone for ongoing donations (once contact had been made).

Importantly, the campaign team also made extensive use of direct mail in order to sell the Barack Obama message, to seek first time donations and to sign up new supporters (remember that direct mail is still opt out in most industrialised countries).

Perhaps surprisingly, the team also used the medium of the physical letter to set out Obama’s arguments, knowing that the recipient would read a well personalised letter in a quiet place without competing comments.

The presentation concluded that, within a well constructed direct marketing campaign, direct mail and even a personalised letter will attract people and will deliver the message. The underlying point the presenter was also making was that advertising and marketing is all about message delivery. To maximise the impact, creators must first develop a campaign and then consider the right media channels to use. It is all about fitness for purpose, nothing less.

Need to focus on the core

The European Envelope Manufacturers’ Association believes that business related letter mail has a strong future. The medium can still add more value to its customers’ businesses. It is imperative therefore that European postal operators review their business models (as we all must) but this should be done with a focus on developing the core mail business so that they can defend their market share in communications. Effectively, we need to protect the 77% of volumes that will remain in 2014.

As part of this defence, postal operators must also challenge some of the outdated industry standards and norms that are no longer relevant. It is imperative that they start to ask some serious consumer facing questions:

What about the possibility of lowering tariffs on addressed mail to stimulate business or offering the same tariffs for different shape products to take advantage of creativity in the business, which we believe will drive future mail volumes?

What about raising the possibility of a domestic rate for sending a letter from France to the UK (internalised via the Kahala Group) or from the UK to the Netherlands (internalised via TNT networks)?

What about offering no tariffs for pensioners or school children?  After all, everyone keeps telling us that they send nothing now so what can really be lost.

Postal operators must also look at exploiting opportunities where physical communication channels offer users significant benefits over their digital rivals. For example, a study undertaken by InfoTrends in selected European markets confirmed that the opening rates of invoices mailed in Europe range between 98-99% (2009). Other studies in France and the UK suggest that both consumers and businesses view receiving letter mail as a more professional means of communication.

Integrated physical and digital strategies can add value, but not always

It is not the intention of this article to suggest that postal operators avoid developing digital solutions for their businesses. Numerous studies clearly highlight the accelerated response from mixing the two channels (physical + digital). Also, a full service offering is likely to provide a strong business case to attract new clients. Nevertheless, we believe that, posts should first extract the maximum value from their core physical business. In doing so, we believe that postal operators will be in a much stronger position to develop a parallel digital solution that will add real value to their business, and not destroy it.

This point was clearly emphasised by Ulisse del Gallo of Accenture Global Postal Industry who wrote in a recent edition of Mail and Express Review that ‘the general approach …to digital communications…. tends to be managed as a defensive response to the drop in physical mail volumes rather than a comprehensive strategy to integrate traditional and innovative services. Often this puts postal operators in direct competition with service providers that already operate in the digital mail space. While those postal operators that have started document management businesses report double digit growth in that area, growth is seldom sufficient to make up for the rapidly decreasing volumes of physical mail.” (Mail and Express Review November 2009)

Final Thoughts

The European postal industry appears to suffer from a lack of confidence in its own ability to meet the needs of its clients. This is despite the fact that it not only has a great product but it also has a network that services almost 100% of domiciled Europeans. This is a fact that is often overlooked despite the fact that no other written medium achieves this level of penetration.

This industry has a window of opportunity and a strong value added proposition. Let us take the time now to explore its many business opportunities.

This article was published in March 2010’s Mail & Express Review.  To subscribe to the industry’s leading quarterly publication, please click here.