Why are SMEs so reluctant to switch postal operator?
Two years after the market for postal services was liberalised, it is not just the funding for the Mailing Preference Service which is under threat. Royal Mail is also starting to feel the impact. At the same time as mail volumes declined by 2 per cent in 2006/07, downstream access (DSA) licence holders accounted for 11.8 per cent of volume.
The effect of competition is disproportionate at this early stage – those DSA-mailed items accounted for 19 per cent of Royal Mail’s revenues. The reason why revenue share is higher than volume share can be found in the Business Customer Survey carried out by Postcomm in December 2007.
It found that among all mail users, 15 per cent were using multiple service providers. In the top segment, this figure was 35 per cent. Indeed, large business have been the quickest to switch, with 41 per cent using more than one mailing service provider.
Among SMEs, the picture is different. Postcomm found 21 per cent of medium-sized businesses were taking advantage of multiple mail providers, while only 17 per cent of small businesses were doing so.
This may explain why the IDMF in April will feature a Postal Switch Centre. Both DSA licence holders and overseas postal services will be grouped together in a specific area of the exhibition to try to encourage the mid-market to look at using rival postal services.
As Graham Cooper, managing director of OnePost, which is exhibiting in the switching centre, says: “There is a whole heap of activity in the mid-market company area and using an organisation like ours takes the pain out of it.”
His business is attracting 18 new clients per month and has passed the 10 million items monthly mark. “They are not all major direct mail users,” Cooper points out. Significantly for the opening up of the market, the DSA licence holders went for the big mailers first.
The early days of competition did bring with them anecdotal evidence of problems. Prime among these was a lack of logistical resources within the DSA operations. Two years on, investment has filled these gaps and mailing houses have learned to work across multiple providers efficiently.
End users are generally unaware of these problems. Instead, their focus has been principally on price and secondly on service and quality of service. For the mid-market, the answer in both of those areas is not that switching would lead to improvements.
Ben Allan is managing director of Tilt, an agency which publishes the collaborative marketing title Asrecommended. “We have looked at the postal services market from a cost perspective and no-one has got close to Royal Mail’s Mailsort 3,” he says.
With something like nine out of ten cold acquisition items being sent via this service, Royal Mail may have grounds for feeling secure in its market share. “The others are about 1p per item off,” says Allan.
He believes the significant account wins by rivals have been in other mailstreams. “Switchers appear to be those with time-sensitive items, like bills and statements. They are going to rivals which are competitive from a cost point of view. For direct mail prospect mailings, they are not competitive,” he says.
One service offered by DSA licence holders which has gained attention is the two-day delivery guarantee. Where a campaign is likely to trigger a high volume of calls, clients need to ensure they have the right resource in place. Knowing on what days a mailing will arrive is helpful and can lead to cost-savings.
But Allan argues that many acquisition campaigns do not need this: “The two-day drop is not useful to us. Mailsort 3 drops over a ten-day period which is more than sufficient.”
Alternative providers simply do not exist for national brands that want to use unaddressed mail. “No-one has got the coverage,” says Allan. “Free newspapers don’t work well for financial services. Consumers respond to them at one-fifth the rate of Royal Mail unaddressed, but the medium only costs half the
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