Broker Roundtable: What effect is the U.S. Postal Service’s upcoming rate hike likely to have on business?

This week’s question: What effect is the U.S. Postal Service’s upcoming rate hike likely to have on business? Our current panel features Tom Colwell of Conrad Direct, Don Eaker of Wave Direct, Ed Krug of True North List Marketing, Michael Peterman of Veradata, Stefanie Pont of Pont Media Direct, Harold Pratt of Pratt Direct Inc., Kathy Tribel of Lawrence Direct Marketing Inc. and Michelle Volpe of Media Source Solutions. Would you like to be considered to be a member of our roundtable? Contact Larry Riggs at [email protected].)

Thomas Colwell., vice president, Conrad Direct Inc.:
The upcoming postal rate hike makes me nervous because of the state of the economy. If our economy was better, I think it would have less of an effect. My core market is in the nonprofit sector and there are discounts available that make it cheaper to mail than in the commercial market, but any increase will hit the bottom line. Political action committees, like commercial mailers, are turning more to the Internet to avoid the full cost of postage. The increase is going to have an overall impact on everyone’s business (mailers, list owners, printers, service bureaus, etc) because across-the-board mail volume will be less.

Don Eaker, national sales director, Wave Direct:
I feel it is going to negatively affect standard mailers, and that this is not the answer for USPS’s survival. This will only further the exodus to more green/less expensive options like e-mail and Web marketing. Someone needs to take an enlightened look at the overall situation, and realize that to increase direct mail usage and volume, rates need to come down rather than go up. Reduced rates could very possibly kindle a dramatic increase in overall mail volume and revenue. The death spiral of decreased mail usage/raising rates has to be addressed in the short term. On the other hand, this will also have the effect of making mailers work smarter rather than harder, and really tighten their focus on their desired audience.

Ed Krug, vice president, True North List Marketing:
The impending rate hike will add pressure to many direct mail businesses to maintain profitability. On the vendor side, list managers and list owners will be pressured to lower list costs in order to maintain continuation usage, generate new tests and maintain revenue levels. Printers will experience pricing pressure in order to maintain the business, hence resulting in lower margins. Service bureaus may see fewer or smaller campaigns and the US postal service may see less revenue due to fewer campaigns along with a shift from offline to online channels.
Mailers will reevaluate all costs associated with direct mail. The postage increase will cause mailers to drop their marginal lists or asked list owners/list managers to lower prices in order to continue.

Michael Peterman, chief executive officer, VeraData:
The upcoming rate hike, while potentially necessary, is certainly going to impact mail volumes. Of course, some will be hit harder than others, but even on average, the rates are going up to such a degree that it will render a fairly large amount of mail unprofitable and thus it will be cut from mail marketing budgets, and in many cases replaced with predominantly Internet spending and analytic services to mail smarter. The immediate beneficiaries of this rate hike are analytic service providers, online marketing agencies, search engines and related companies. However, there is a tremendous opportunity being presented for both advertisers and service providers to be smarter about what is mailed, to learn new digital disciplines and to craft more relevant messaging to the recipients of the mail. As much as I dislike price increases, the fact is, this is one more step toward maturing the direct mail industry and forcing us to be smarter.

Stefanie Pont, managing partner, Pont Media Direct
Any hike at this point is chilling, both in financial reality and psychologically on the business. In some cases it can force mailers to find more innovative mail pieces that can mail for less (postcard vs. number 10 envelope, for example), but for the large majority of mailers it will mean exploring alternative channels. And by alternative I mean anything that’s NOT the USPS. This is not necessarily a bad thing for marketers – being forced to look at new channels can open up new worlds. It just requires testing and some trial and error, which many organizations may not have the stomach to tolerate in the current environment. But, in the short term, it can also mean less prospecting, affecting sales and available list rental universes. This is a downward spiral unless significant steps are taken to fix the USPS and the way it does business.

Harold Pratt, chief executive officer, Pratt Direct Inc.

A few clients whose economics are already marginal are likely to be casualties after the postal increase. Other clients are expected to exert more pressure on suppliers to find ways to mail smarter and cheaper and expand online marketing efforts.

Kathy Tribel, List Broker/Manager, Lawrence Direct Marketing, Inc.:

Hopefully the petition that was filed by the Affordable Mail Alliance will be approved or otherwise we will see a shift to Internet. (In late July, the Affordable Mail Alliance, a coalition of large and small mailers, called on the Postal Regulatory Commission to dismiss the U.S. Postal Service’s “exigent” rate hike proposal. Click for more http://directmag.com/mail/news/mail-alliance-usps-rate-hike-0727/index.html). As stated by the Alliance “the Postal Service’s most fundamental problem is not the Internet, or the recession, but a lack of effective cost control.”

Michele Volpe, vice president of sales and marketing, Media Source Solutions:

We’ve had rate hikes before and we’ll have them again. Each time we say it’s never been more expensive to be in the mail and it’s true. But somehow we manage to survive and it’s due to mailing smart, not necessarily less. When was the last time your client had a best customer profile done? Are you simply measuring your response rate based on the control piece vs. the test panels? Have you lost touch with who your customer is? If so, how can you survive a rate hike when you are mailing to a prospect who used to be your best customer?