Setting the Best Postage Rates for Catalogs and Direct Mail

The direct marketing industry needs to focus on getting the USPS to set the smartest postage rates for catalogs, magazines, saturation mail for retailers and direct mail. It’s in the best interest of the USPS to respond to guidance from the mailing community because direct mail is a major source of profitable mail volume. The Post Office should be focused on increasing its profitable volume rather than ratcheting up postage rates again and having volume and profits dwindle as a result.

What's wrong with the proposed postage increase? The demand for First Class mail won’t change much when the price of a stamp goes up two cents. When the price goes up, First Class mail volume doesn’t fall off very much. So the USPS achieves an increase in revenue and profits. But direct mail volume is directly tied to costs; a price increase raises break-even points and volume inevitably falls. So the increase in price results in a decrease in volume.

Since direct mail is profitable, it's a big issue whether increasing postage and thereby decreasing volume yields an increase or decrease in profits. The Post Office needs to look back at the last two price increases to see what happened to its revenue and profits as a result. Certainly volume dropped as a direct result of the postage increases; the issue is whether the USPS’s profits also declined, and if so, by how much.

What should the Post Office do to maximize its own profitability in handling all kinds of bulk mail?

First, the USPS needs to study the cause-and-effect relationship between increasing postage, decreasing volume and profitability. If it's done any studies on previous postage increases, this information needs to be made available to direct marketers so that the industry can respond with some insight to this latest postage increase.

Second, the Post Office needs to examine ways to increase the proportion of carrier route mail because that's the easiest and most profitable mail for it to handle. Offering sortation discounts for carrier route mail has revolutionized the relationship between mailers, printers and the Post Office, and created an entire industry around the use of co-mail — allowing mailers to combine their mail with other mailers to achieve savings from maximizing carrier route and other sortation discounts. The Post Office should look to set rates that continue to push mailers to use co-mail and incentivize carrier route discounts.

Lastly, the Post Office needs to not only push existing mailers to take advantage of co-mail technology and delivery, but also find ways to bring in new mailers, especially web-only retailers. It must find ways to provide affordable postage for merchants who are using the web exclusively to engage customers and prospects.

The best way to build profitable bulk mail volume is to reduce rather than increase the postage for carrier route mail. If the Post Office sets the rates for carrier route mail lower and increases the incentive for mailers to join co-mail pools, the entire industry will push toward co-mail and the portion of the most profitable mail — carrier route, sorted mail — will increase.

How will the co-mail industry evolve? Co-mail really didn’t exist a decade ago. At first, mailers sought to find individual partners who had common sizes and mail schedules. Today, both printers and third-party consolidators offer regular co-mail pools.

The next step for co-mail is a bit of an unknown. Opportunities exist to grow co-mail by combining periodicals and catalogs in common pools, increasing the savings available to larger mailers. But if it makes economic sense to find more ways to bundle mail and achieve carrier-route discounts, printers and mailers will find ways to capture those savings.

What was right and wrong with the Post Office’s “Summer Sales”? Well, thanks to the lobbying efforts of the American Catalog Mailers Association, the Post Office actually crafted a response to the catalog industry. The first step to communication is listening. The good news is that the Post Office listened.

The “Summer Sale” wasn’t perfect — it only included catalogs that increased their prospecting circulation; it only applied to the summer rather than a global reduction in postage; among other things. But at least the Post Office showed a willingness to listen and work with direct marketers to create programs to help increase their mail volumes. Now it's up to the Post Office to listen again and come up with permanent solutions that serve to increase overall profitable mail volume.

I believe the Post Office must take the simple step of decreasing the cost for carrier route mail. Decreasing the cost of carrier route, sorted mail will actually increase volume and accelerate the growth of co-mailing and the technological solutions driving co-mail. Decreasing the cost of carrier route mail will inevitably increase mail volume. Such a gesture would show the direct marketing industry that the Post Office could be a business partner, resulting in not only greater volume but also greater profits for the USPS.

P.S. (because all good direct mail letters have a postscript): The Post Office needs to share its studies of the relationship between bulk mail costs and volume and Post Office profitability. Direct marketers know that as result of the last big postage increase in 2007, volume tanked because mailers simply read their break-even numbers and mailed less. What they don’t know is what happened to USPS profitability based on that diminished volume.

But I’d bet that a close examination of before and after the 2007 price increase would reveal that the Post Office was more profitable before. The reason? It had so much more volume. Imagine the stimulus it would be if the Post Office went back to the “good old days” when postage was 30 percent lower and direct marketers could mail bigger circulations profitably?