It has been two years since the UK postal market was fully liberalised, and since then mail service providers have been falling over themselves to attract custom from companies. Understanding why is a no-brainer; business post accounts for 87 per cent of the total mail market in the UK, which is worth £6.8 billion, and when Royal Mail was finally divested of its complete control over the mail market in January 2006, its competitors were given the green light to take a chunk of its market share.
But things aren’t that black and white when you consider that mail volumes are in decline, that Royal Mail is still responsible for 99 per cent of all doorstep deliveries and that confidence in the medium has been shaken to its core following a year in which strike action has dominated the mail sector’s news agenda.
Parts of the mail market have changed dramatically in the past two years; for example mail service company TNT Post reports that the number of items it sends has grown from 300,000 in 2005 to 1.8 billion this year. But the fact that Royal Mail still has a virtual monopoly over delivery of letters to the doorstep – referred to as the ‘final mile’ – also suggests that change is actually happening quite slowly. In the UK, final mile deliveries by competitors equates to just two letters in every thousand. You might argue that we’re only two years into a new regime, but to put this last fact into context, in Germany, the national operator Deutsche Post has lost nearly 10 per cent of end-to-end volume to competition. In the Netherlands, the corresponding figure for its national operator TPG Post is 12.5 per cent, yet both of these markets are not yet completely liberalised.
It all makes for a confusing picture and begs the question – what are the Royal Mail’s competitors doing to take a bigger chunk of the market? The simplest way to answer this question is to look at three key focuses for mail service providers; mail modernisation, mail delivery services and the SME market.
Mail in the modern world
There is little question that the popularity of direct mail is under threat from its faster and cheaper rival; email. Last year, the DMA announced that email had overtaken direct mail in terms of volume for the first time. This hasn’t gone unnoticed by mail service providers, and several are working on launches of products that integrate email and direct mail products. According to postal services regulator Postcomm, UK Mail – one of the largest independent express delivery companies in the United Kingdom – is in the final stages of putting together a product called iMail, a ‘hybrid mail’ service that will see companies able to design their direct mail campaigns online and send them offsite to be printed and posted by UK Mail. Although most details are still sketchy, it is understood to be striking an access deal with Royal Mail and plans to launch in the new year.
This type of product, says Postcomm, will play a major part in the future of direct mail. “In an era in which physical letters are challenged by the Internet, email, and periods of industrial action, it is imperative for all operators to grasp innovation and add value to their products,” says Postcomm’s chief press officer, David Whitely. Marketing innovation to businesses is key to an operator’s success, says Whitely, because evidence suggests that companies are demanding more and more variety and flexibility in what’s on offer. “Companies are turning to [Royal Mail] competitors who can offer things like later pick up times and specific delivery times. One business customer told us he’d had a text from his provider to tell him that his mail had been injected into the Royal Mail’s system for its final mile delivery – things like that really impress a customer,” he says.
Of course Royal Mail is only too aware that its rivals are keen to market themselves on their expertise in modern technology, particularly in light of very public calls for the incumbent to modernise. But according to its head of media development, Antony Miller, competitors are more interested in playing out a bidding war in order to attract business, leaving Royal Mail to focus its efforts on marketing itself as the most innovative brand, whilst showing itself to be acting on the call to modernise.
“Our key word is innovation,” he says, “which we don’t see the competition being as interested in as they are in gaining market share by playing on price points. There is a big difference in price points between competitors, which seems to be their main focus.”
Royal Mail’s latest marketing push involves the launch of its sensory mail product, a concept that it says brings the five senses to direct mail in order to build brand (see page 8 for more details). “The product is about achieving breakthrough and finding new ways for brands to engage with their customers, in a way that email often can’t,” explains Miller. The launch follows Royal Mail’s launch in March of Personalised Integrated Media; a mail solution that fuses traditional post with digital media and more recently its ‘Integrated Approach’ research, which demonstrates the benefits of integrating digital advertising with direct mail campaigns.
Delivering the goods
Modernising the way mail is produced isn’t the only marketing spin on mail operators’ agendas; some mail service providers want to be able to go the extra mile for their customers. Whilst Royal Mail will dominate final mile deliveries for the foreseeable future, gradual change is on the horizon. TNT Post is one of the loudest supporters of opening up this section of the market to competition, and as CEO Nick Wells explains, it hopes to have its own ‘orange branded’ postmen in the street within the next few years. “Our aim is to be seen as a major alternative for deliveries”, he says. At the time of going to press, TNT Post was reportedly building its capacity in a number of ways so that it can trial a full end-to-end service. It was due to announce the locations before the end of the year.
Not every Royal Mail competitor agrees though that competing for final mile deliveries will benefit themself or their customers. At the moment, competitors buy their delivery function from Royal Mail under ‘access’ agreements, then seek to undercut them on the price they charge their end users.
Guy Buswell, CEO of UK Mail, believes that it wouldn’t be economically viable for competitors to set up their own final mile delivery services, let alone be kind to the environment. “Royal Mail provides a good final delivery service and there are other parts of the marketplace which have more value [for the competition],” he claims. Postcomm says it doesn’t expect Royal Mail’s dominance over the final mile in the fully liberalised UK market to reduce much in the medium term anyway, because it says new operators find it difficult to compete against its economies of scale, and its unique privilege of VAT exemption.
Impressing SMEs?
What Postcomm says it has identified is a trend in the type of businesses that are benefiting from the increase in competition. Until recently, it was mainly larger mailers (think BT, Barclays or Sky) that were getting the attention from alternative mail operators. It’s easy to understand why; larger businesses are more profitable wins because they send mail in bulk. But, says Postcomm, the benefits are beginning to filter down now to the SME market, and this finding is reflected in some of the work mail operators are currently doing to attract new business from this sector. Buswell reports that UK Mail is doing more business than ever with smaller companies, and TNT Post launched a recent campaign sending mobile posters, attached to vans, around UK industrial estates, which typically hold large clusters of small enterprises (see boxout). But, warns Postcomm, more progress is needed and mail operators need to continue to pursue “greater innovation”. Which brings the argument back around to the fact that one of the strongest ways to gain market share in the newly liberalised market is to offer new and better services.
The UK’s SME pressure group the Federation of Small Businesses (FSB) is very clear on what SMEs want, and in fact, says its spokesman Matthew Knowles, disagrees strongly with Postcomm’s findings that these types of business are beginning to benefit from the changing mail landscape. “We laugh in the face of Postcomm’s suggestion that the SME sector is benefiting already,” he says. “We still feel that there is no money in the SME sector to incentivise mail operators to target it. All but around six per cent of the UK SME market use Royal Mail. If competitors want the business, it’s here. But SMEs want specific things, we’re campaigning for better delivery and collection times. In some rural areas, final collections are made as early as 9am and first post deliveries arrive after midday.” Evidence, then, that there is huge potential for mail providers to market themselves to an audience actively seeking alternative providers.
The race is on
There is an overriding sense that change in the mail market is happening at a gradual pace, and depending on who you speak to, is happening more slowly than expected. The results of Postcomm’s latest business customer survey suggests one in five small and medium mailers and more than a third of large mailers are now using more than one mail provider. It also found that one in five respondents have explored alternatives to mail and have moved some of their mail to other media in the past 12 months. Businesses want the use of reliable services that are using technology to constantly modernise and improve and whilst the Royal Mail’s competitors – and indeed the organisation itself – seek to exploit that need, there is still much work to be done.
There is no argument over whether Royal Mail will remain the UK’s dominant provider; that accolade will rest firmly with it for the foreseeable future. Even in light of this year’s strike action, its rivals still have a way to go to catch up, particularly for final mile deliveries. But they are off the starting blocks and the race for new business is on. Expect to see a wave of marketing campaigns directed at businesses from postal service operators in 2008, because they’ve got ambitious plans to grow their share of this market. The competition will be fierce.
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