2006 is certain to be the pivotal year in the history of the postal service in the UK, with a series of highly significant changes having fundamental impacts on the way in which we send mail. In particular, direct mail; and even more specifically B2B direct mail.
The changes began in January with the final tranchÈ of market liberalisation, continued in February with the unveiling of Royal Mail’s new price control regulations, which are to be followed in turn in April with the announcement of new Pricing in Proportion related costs for mail, which will come into force in August.
If you find all this confusing, you’re not the only one, according to the Direct Marketing Association (DMA). ìThere are lots of changes that are happening at the moment, and a large degree of uncertainty and confusion surrounding them,î comments Alex Walsh, head of postal affairs at the DMA.
So what do all these upheavals mean for B2B direct mailers, and what impact will they have both now and in the future? And perhaps more pertinently, after 350 years of a Royal Mail monopoly on the post, why have they all come along at once?
In fairness, January’s liberalisation milestone is part of a much wider programme, which has been ongoing since 2004, and on the political agenda for much longer. The obvious objectives have been to improve postal services and reduce costs by enabling greater competition, and a number of new entrants have duly arrived with a view to taking advantage of opportunities.
Royal Mail has been gradually divested of its monopoly over the last two years, with new players allowed to compete for selected services ñ prior to 2006 this was mostly related to bulk and pre-sorted services. January marked the removal of the final monopolistic restrictions, which demanded mailers sending less than 4000 items in each mailshot or pick-up use Royal Mail, preventing low-volume mailers from accessing potentially innovative new services. Bearing in mind the limited size of the business universe, and consequently the size of its mailings, this final step is potentially of much bigger benefit to the B2B market, particularly for smaller and medium-sized companies.
Yet despite potential benefits, reaction from mailers has been lukewarm, with comparatively few mailers in this bracket seeking to switch suppliers. DHL Global Mail has been building a network of distribution centres in major metropolitan areas, with the aim of taking on Royal Mail head-to-head with a complete end-to-end service. Andy Barrett, director of marketing at DHL Global Mail says that whilst overall volumes have picked up since January, interest from B2B mailers has been ìpatchy.î He continues: ìThere has been more interest from industries with a particular reliance on post, such as magazine publishers. If post is key to their businesses, then they wake up. Other sectors have been slower to take up the opportunities.î
Other new entrants, meanwhile, play down the significance of this final round of liberalisation. Unlike DHL Global Mail, UK Mail (part of Business Post) has no intention of establishing a distribution network to provide a full door-to-door delivery service.
Instead, like most other new entrants, it has based its services on using Royal Mail’s delivery infrastructure for the ‘final mile’, and is focusing its attention on improving mail pick-up services and other innovations.
Business Post can compete most economically on volume mail, and consequently it’s of little surprise that this is where it’s focusing its activities. ìWe are a bulk mail operator, and have no plans for an end-to-end service,î explains Steve Patrick, MD of Business Post. ì1 January meant very little to us.î
This is not to say that the company does not regard direct marketers as a key part of its audience; Patrick claims it has sought to drive innovation in areas such as item tracking and more accurate delivery prediction, with the direct marketing sector specifically in mind. These services enable closer integration of marketing media, and potentially results; but neither were impacted on by January’s final stage of the liberalisation process.
So whilst the significance of January 2006 should be seen in a wider context, the broader question regarding the impact that new entrants are having on the mail services is still valid. Opinions vary.
ìThe pace of change in terms of innovation has been disappointing,î says Walsh of the DMA. ìMost of it has been led by Royal Mail. The market is finding it hard to deliver genuine innovation.î
Richard Moriarty, deputy CEO of Postcomm, is quick to disagree. ìI don’t believe that the new entrants have not been innovative. Royal Mail has huge advantages: the new entrants need to have different value propositions. They have encouraged Royal Mail to raise its game ñ I’ve seen more energy and innovation from Royal Mail in the last year than I’d seen in the previous five.î
To a great extent, an individual’s perspective on the level of market innovation will depend on their perspective. Andy Barrett of DHL Global Mail, for one, believes that there will certainly be a lot more innovation to come, which in turn will drive competition. He points out that Royal Mail has been delivering post for 350 years, whilst the new entrants have had less than two years to hone their offerings. ìThis is a marathon, not a sprint,î he points out.
As an explanation for the slow pace of uptake of new operators’ services, he adds that the novelty of having more than one option for mail services may be holding some mailers back from switching. ìCompanies have never had a choice before. Until now, budgets were the biggest decisions they had to make. Suddenly they have lots more decisions. It’s only natural that they’ve been a bit cautious.î
Just as the effects of liberalisation are only just starting to be felt, so are those of Pricing in Proportion (PiP), which comes into force in August. PiP is arguably the biggest ever shake-up of Royal Mail’s approach to pricing, and will result in the cost of sending mail being based on size and shape as well as weight (see box-out).
The potential repercussions of PiP for business mailers of all sizes and in all sectors are significant. As a result, Postcomm insisted that Royal Mail provide a year’s notice of its intentions, and promote them widely. A £10 million advertising, direct marketing and PR campaign was announced in December and kicked-off in January, aimed at communicating what was happening when, and what the repercussions would be for mailers.
Despite this massive budget, reaction to the campaign and its effectiveness has been very mixed. ìWe are not sure that the message has got through to enough companies,î says Walsh of the DMA. ìThere have been concerns about who the DM campaign has been targeting, and whether it’s been reaching the right people. In many cases mailers have gone to the mailroom operator, whereas they should be going to the senior marketing person or even the finance director.î
Declan Bermingham, marketing manager at mailroom equipment supplier Neopost, adds, ìmany marketers don’t have a clue about PiP. The big companies do understand it from a mail production point of view, but I don’t believe many smaller companies are aware.î
This is echoed by Moriarty of Postcomm. ìRoyal Mail may need to communicate more forcefully with the SME community,î he says. ìThe campaign has not done a bad job to date, but the proof of the pudding is in the eating, and I hope we don’t get lots of bad feedback when PiP goes live.î
The clarity of the message cannot have been helped by its close proximity to an entirely separate campaign in January to promote changes to Royal Mail’s pricing hierarchy, in line with Postcomm’s overall price control structure. A mailer was sent to 400,000 business recipients in January outlining the changes, although David Dale, programme director for PiP at Royal Mail, claims the postal operator had no choice in the timing of this change and, hence, the need to communicate it. ìThere is a separate time-track for this, and the previous agreement had expired,î he says.
Royal Mail claims that PiP will result in a fairer system, which is more reflective of the task of distributing mail. It also claims that the cost of mailing most items will fall. Most, but not all. The name of the game appears to be to encourage the standardisation of sizes that will enable greater automation. As a result, the cost of mailing items that do not fit Royal Mail’s standard sizes will increase.
This relates in particular to light but bulky or unusually-shaped items, such as those rolled in a tube to prevent damage, or flat but larger than A4 in rigid cardboard envelopes. Such unusually shaped items are often sent in B2B DM campaigns targeting senior business decision makers, aimed at generating cut-through for brands or products.
Another type of item that will be negatively impacted by PiP are lightweight A4 packages. As Royal Mail’s fact sheet explains: ìA tip to ensure you do not pay more than you need to: if you are sending an A4 letter, fold it in half to fit into a C5 envelope.î This will present companies sending light-weight A4 catalogues or brochures (or similarly proportioned mailers) to business audiences with a stark choice: either fold it into a C5 envelope or factor in a potential price increase. Neither will be popular and the former has implication for design and impact of the mailer.
This potential impact on creativity is a major area of concern for direct marketers. Predictably, it has been seized upon by some of Royal Mail’s competitors. ìPiP will raise the cost of creative,î comments Andy Barrett of DHL Global Mail. ìCompanies will literally have to minimise the creative work in order to maintain ROI. As a result, mailers will start looking very similar.î
Yet Walsh of the DMA says whilst there may be compromises that will have to be made, nothing is insurmountable. ìEvery marketer works within constraints. These can include logos, product warnings and timescales. PiP is just another set of rules, and creative people will find their way around them.î
Meanwhile, Bermingham of Neopost points out that along with the compromises PiP also throws up some opportunities. ìA first class letter can currently weigh up to 60g. From August it will be able weigh up to 100g. This provides mailers with an extra 40g of space ñ they could include lots of other messages in the mailer. It is an opportunity to increase the amount of information that companies are sending to their customers.î He acknowledges that this extra content will have to be folded, but adds: ìThis is an opportunity for imaginative people to work within the system.î
Perhaps predictably, David Dale of Royal Mail goes further. ìPiP will be of huge benefit to B2B mailers because there will be less emphasis on weight. It will enable them to stretch their mailings further, and be more lavish with their use of print, using bigger printed areas.î
It seems likely that the biggest changes for the mail system have yet to come, as the repercussions of what has already happened or planned, filter through, and as new entrants hone their propositions. Consequently, to what extent these impact on business marketers, positively or negatively, remains to be seen. But one thing is for certain: companies must make a point of finding out for themselves what the threats and opportunities are, and how they are likely to be affected. As Moriarty of Postcomm points out: ìOur message to marketers is that post has changed; you can no longer afford to treat post as a utility. You must treat it like any other service that you procure for.î If nothing else, PiP will be effective in focusing the minds of business mailers on who is servicing them.
Another development that business mailers can expect for the future is that, with liberalisation, change will become more, not less, common. And it will come from old and new mail service providers alike. ìWe are determined not to rest on our laurels,î says Dale at Royal Mail. He explains that the programme to reorganise and reinvigorate the company has come a long way, but has a long way to go. ìIt is dangerous for us to relax.î And if this is how Royal Mail is thinking, imagine how determined the new entrants are? Apathy is no longer on the agenda ñ at least from the mail service providers’ perspective. The postal service, it seems, has changed forever, if not for good. ì Royal Mail’s PiP campaign has not done a bad job to date, but the proof of the pudding is in the eating, and I hope we don’t get lots of bad feedback when [PiP] goes liveî Richard Moriarty, Deputy CEO, Postcomm
Pricing in Proportion is Royal Mail’s new pricing structure, which is designed to make the price of sending mail of all types better reflect the cost of collecting, sorting and delivering it. The current pricing methodology is rooted in the coach-drawn delivery system of the 18th century, and has not evolved to take account of new technology, mail types or distribution mechanisms. Royal Mail claims that 80 per cent of mail sent will not be affected by PiP, and that half of mail affected will now be cheaper as a consequence. From 21 August it will categorise all mail sent into one of three groups: letters (up to 240x165x5mm and 100g), large letters (up to 250x353x25mm and 750g) and everything else (over 250x353x25mm). According to the Royal Mail fact sheet: ìLight but bulky items such as poster tubes will cost more to send. Compact but heavy items… will cost less.î It lists six different kinds of letter or package, of which the price of mailing declines for five out of six. However, the price list does not provide an example of the cost change for A4 packages weighing significantly less than 750g. These would include B2B catalogues, which make up a significant proportion of the B2B mailers in the UK and will rise in price. It is unlikely that such packages were ignored from the price list on purpose, but it does serve to position PiP in a significantly more positive light.
