US mail discount move spurs flurry of inquiries
The price break that the Postal Rate Commission has recommended for Capital One Financial Corp. could pave the way for other issuers to trim costs on the billions of credit card solicitations they mail every year.
The commission recommended May 15 that the Postal Service’s board of governors grant a special volume-based discount for Capital One. The governors are to vote June 2.
News of the commission’s action, the first of its kind, spread fast. “We’ve heard from every credit card company we can think of,” said Mike Plunkett, the Postal Service’s manager of pricing strategy.
New mail would actually be generated by the discount, since Capital One could apply the savings to sending out even more card offers, Mr. Plunkett said. Lower prices at the margin would make it “profitable to target new tiers of customers,” he said. “It’s a pricing model that works for many industries.”
The discounts would be on a sliding, per-item scale. At the high end, if Capital One, the seventh-largest U.S. card issuer, mailed more than 1.6 billion pieces it would receive 6 cents off each.
But the savings would not be unlimited. The commission ex-pressed concern that the discount would apply to mail that would have gone through the Postal Service anyway, Mr. Plunkett said.
The panel recommended that the discount be capped at $40.6 million, figuring that the Postal Service would save $42 million over three years from Capital One’s agreeing that letters with undeliverable addresses be returned electronically, he said.
Any similar agreements with mass mailers would have to include the same
provision, Mr. Plunkett said.
Discounts are negotiated individually. A spokesman for Bank One Corp., the second-largest U.S. card issuer, said it has been in talks with the Postal Service “for some time.”
Spokesmen for FedEx Corp. and United Parcel Service Inc. said their companies have long offered volume-based discounts. FedEx’s services, its spokesman said, are ideal for elite card offers and new card delivery. FedEx is the carrier for American Express Co.’s small-business Open product, he said.
Copyright 2003 Thomson Media Inc. All Rights Reserved. http:/ /www.thomsonmedia.com http://www.americanbanker.com
Copyright (c) 2003 American Banker
