Don’t Take This Year’s Postal Increase Lightly

Earlier this month, catalogers and other businesses that rely so heavily on the USPS realized a “dream” more than a dozen years in the making. They were “treated” to their first postal rate adjustment under the new postal reform law. Under its new rate-making powers, giving it the freedom to set rates as long as they’re no greater than consumer price index (CPI) levels, the USPS announced the increase for noncarrier route flats, the key catalog category, would be less than 1 percent.

The worst news was that it would take effect this spring, just a year after the final postage increase under the old Postal Reorganization Act. Under that long-since-outdated system, which was created during a labor strike just before the Beatles broke up, catalogers suffered through the kinds of paralyzing rate increases that put many out of business. They got hammered at the end of the 1980s, two or three times in the ’90s and just last year.

Now, your rates are going up again — albeit less dramatically — and the question is, Do you find this encouraging for your business’ future or do you kick and scream? We posted a reader poll on this issue on our Web site beginning Feb. 19, which will remain there until we replace it with a new question on March 4. It asks, “The 0.86 percent increase for noncarrier route flats is a far cry from what the category saw with last year’s hike. What’s your reaction?”

As of this writing, your responses were decidedly mixed. Some checked off “relief,” contending that this increase won’t harm them at all; others said they found the increase an encouraging step in the right direction for the USPS. But the largest number of respondents said they were “outraged” and still hadn’t recovered from last year’s rate hike.

Enough has been said and written about last year’s punishing action that nailed some catalogers with an increase in excess of 40 percent. But talk is cheap (that includes my columns). The reality is catalogers continue to retreat on mailing quantities, all compounded by the looming recession.

What’s more, this increase isn’t necessarily so small for everyone. “While the ‘overall’ postal increase may appear to be nominal because it’s capped at the CPI under the new postal law, a closer look may reveal that the postal increase your company will experience is larger than the overall percentage,” cautions Catalog Success’ Understanding Postal columnist Kathy J. Siviter, president of Postal Consulting Services.

Siviter points out that for Standard mail flats, the category most catalogs are mailed at, those that don’t meet USPS automation compatibility requirements can experience postal rate increases well above the CPI cap. “Catalogers need to analyze their mailing lists to determine exactly what impact the increase will have on their mailings.”

Postal Thought Process
First, let’s address your whole mind-set about the postal rate situation, then get into some cost-saving ideas to help get you through 2008. Catalogers and multichannel mailers need to approach this increase with newer, longer-term thinking.

“For postal rate increases to remain at or below the CPI during the next several years, USPS revenues must keep pace with its labor and retiree cost obligations,” says Allen Abbott, executive vice president/COO for Paul Fredrick MenStyle, a men’s apparel cataloger. “And with first quarter flats volume down 13 percent, I’m not wholly confident that will be the case. The best case scenario is that the USPS will gain a better understanding of price elasticity in our industry, and start to weigh postage costs vs. anticipated revenue streams.”

Hamilton Davison, executive director of the American Catalog Mailers Association, a trade group formed last year to represent catalog/multichannel mailers in postal rate matters, believes the USPS “recognizes the economic distress” plaguing the catalog business. He says the smaller size of this rate hike is a good first step.

But “you don’t wipe out a 23 percent increase by a 1.5 percent increase,” he noted. “I’m hoping we’ll ultimately be successful in letting the Postal Service know about the carnage this is costing.”

Action Plans
As for ways to weather the forthcoming increase, some “inside-the-box” thinking is worth exploring first. “Strategies we’ve discussed in the past are still worth exploring — now, moreso than ever,” Siviter says. Co-mailing and co-palletization, she notes, are growing and becoming easier to do in the mailing industry. Many service providers are offering a wide range of techniques designed to help mailers achieve presort density and drop-ship discounts, which also help improve postal delivery service.

What’s more, don’t take your list hygiene and quality address management lightly. Continue to work hard on eliminating duplicates, reducing undeliverable-as-addressed (UAA) mail and other list-cleaning matters that are all under your control. “While some catalogers have redesigned their mail pieces to become automation compatible letters (slim jims),” Siviter says, “don’t take this step lightly.”

UAA mail should be high on any cataloger’s list. “Make certain that any mailing list you use, including your house list, is run against all the USPS list hygiene tools,” advises DMA Senior Vice President of Government Affairs Jerry Cerasale. “There’s a substantial amount of catalog UAA mail that costs mailers to produce with no potential for any return on investment. It also costs the USPS, and thus all mailers, by increasing the costs of running the USPS.” He points out that the use of the USPS Move Update file will become a requirement for Standard mail in November.

Beyond slim jims’ potentially negative impact on sales and response rates, the USPS also is in the process of changing the rules on these types of pieces and will finalize rules on them later this year. So until those rules are finalized, “catalogers should tread cautiously if redesigning pieces to letter-size dimensions,” Siviter suggests.

An Annual Event
Beginning with this May’s increase under the new postal law, catalogers should plan on annual postal rate hikes that theoretically will be considerably less than those that took place in 1989, 1995 and 2007, among other noteworthy increases. “While the overall increase will be capped at CPI each year,” Siviter says, “that doesn’t mean your company’s experience will be a CPI-capped increase.” The USPS has greater freedom now to provide discounts for the types of mail that cost it the least to process and deliver. It also has more freedom to increase rates for those types of pieces that are more costly for it to process and deliver, she points out.

That said, catalogers should optimize their presort, be able to drop-ship, design automation compatible pieces, adopt better list management practices and move toward using the Intelligent Mail Barcode (see Siviter’s Understanding Postal column in the March 2008 issue of Catalog Success, pg. 48), all as ways to keep postage costs manageable.

Common and Not-So-Common Options
In the case of cataloger Paul Fredrick, “we haven’t been completely dependent on catalog prospecting for quite some time,” Abbott says. “We’re also involved in print advertising, insert media, bind-ins and blow-ins, solo direct mail pieces, and a variety of online business-development activities. We went down this path because the men’s fashion apparel list universe is quite small, and growth wouldn’t be possible if we relied only on catalog prospecting. With the significant increase in flats postage last year, we’ve managed our customer acquisition mix to maintain optimal efficiency across all media. This includes larger increases in print advertising, insert media and online programs vs. catalog prospecting.”

That’s not to say catalogers like Paul Fredrick ought to pull the plug on catalog mailings altogether. “Of course, we continue to mail our catalog to our customer file, although we’ve made some adjustments based on a higher break-even point,” Abbott says. “Fortunately, our housefile has been growing consistently, so overall circulation hasn’t been reduced.”

Among other nontraditional ways catalogers can clear budget room for the postal increase, the DMA’s Cerasale advises them to consider offering customers mail-receipt options. “If a customer only shops during the holiday season,” he says, “that customer might want the option of receiving catalogs only during that season.” Acting upon such a request would “make the customer happier,” he points out, while reducing mailing costs.

What Effect FSS?
With the advent of the postal flats sequencing system (FSS), catalogers may well face address placement changes. As a result, they should immediately involve their creative teams so that nonproper FSS address placements won’t force their books into higher rate categories, Cerasale says.

In sum, as Joe Schick, director of postal affairs for printer Quad/Graphics, points out, if catalogers are doing all these things, “then you’re managing your cost per response, not the cost per thousand, maximizing the amount of mail that will qualify for automation discounts, and helping to improve the overall value and perception of the mail.”

Schick adds that production-related processes like co-mailing and co-palletization will continue to grow. “Co-mailing will become an absolute necessity in managing postal costs,” he says.

Finally, here’s something to ponder whether you print with Quebecor or not. Earlier this month, the Montreal-based catalog and magazine printer began offering mixed-class co-mailing that combines Standard and Periodical mail into a single, offline co-mail offering. This gives catalogers and magazine publishers greater flexibility of a mail pool and a quicker turnaround time. Quebecor World Logistics claims that mixed-class co-mailing in combination with additional mailing optimization programs can help mailers cut overall mailing costs while improving delivery times.