VOL. 122 | NO. 65 | Monday, April 9, 2007
Trends & Analysis
Postal Rate Hike Has Some Rethinking Business Plans
By Eric Smith
FOREVER AND EVER: The U.S. Postal Service's new Forever Stamp eliminates the need to buy extra postage when the price of a stamp increases, as it will May 14. The Postal Service is printing 4 billion Forever Stamps, which go on sale Thursday. -- Image Courtesy Of U.S. Postal Service
As if a business' budget needed another hit, the U.S. Postal Service will raise postal rates May 14, leaving little more than five weeks to prepare for the increase.
But people like Chris Warner, founding partner of directFX Solutions - a Memphis-based mailing, marketing and printing company - have been bracing for new rates for almost a year.
Warner serves on the board of the Memphis Area Postal Customer Council, which according to its Web site aims to "foster and maintain a close working relationship between mailers and the U.S. Postal Service."
Council members are charged with alerting businesses to the coming changes, something they've been doing ever since last year when the post office began planning the price increase.
The council understands that a postage increase in mid-year could be problematic for companies who rely heavily on mailings - and who already had established their postage budgets for the year.
"They've got to figure out a way to extend their budgets," Warner said.
Keeping it operating
The postage increase is varied, starting with a 2-cent increase for First-Class, single-piece, one-ounce letters, which will cost 41 cents. Also, First-Class postcards will cost 26 cents.
For the complete price structure, including details on the new shape-based pricing, visit www.usps.com. This increase comes just 16 months after the last one, in January 2006. But, according to Beth Barnett, communications manager for the Postal Service's Tennessee district in Nashville, last year's increase was used to fund a $3.1 billion escrow account created under a 2003 federal law.
"We had to increase rates in order to cover that cost," she said. "It didn't go to paying our bills."
That's where this increase is different - it will go to pay expenses such as utilities, health care benefits and fuel.
"Essentially, the costs for the Postal Service to operate, just like any other business, continue to rise," Barnett said. "We receive no tax dollars for our operations. We rely solely on the sale of our products and services to cover all of our costs."
The Postal Service operates 260,000 delivery vehicles, and Barnett said when fuel costs rise by 1 cent, it results in an added expense of $8 million for the post office.
Barnett said the Postal Service estimates the average increase for a household or business will be about $4 a year.
"It's a small price to pay, we feel, to have a carrier visit your home or business six days a week," she said. "But, at the same time, we recognize the impact of the business side."
That impact is significant. DirectFX Solutions handles anywhere from 75 to 100 mailings per month for its customers, with each mailing ranging from 500 to 200,000 pieces. Warner noted that a 2-cent hike per piece on 200,000 pieces per month equals an additional $48,000 a year.
"It's thousands of dollars when you're talking about millions of mail pieces," he said.
That could signal some changes in the way companies manage their mailings, such as changing the geographic focus by sending mail within a smaller radius.
Or hiring a mailer to incorporate bar coding and ink jetting directly onto mail pieces. Or incorporating work-share programs, which means postage reduction if the companies bundle and deliver mail to the post office.
Or even looking into negotiated service agreements, whereby businesses - such as credit card companies - can negotiate their postage with the Postal Service based on the number of pieces they'll mail out each year.
No matter what, Warner said he suspects companies will continue to use the post office regardless of the new rates.
"Are people going to stop using mail because of a price increase? No, they're not," he said. "It's one of the most successful ways to touch your customer base. They're not going to get away from that."
Finding a better way
J. Mignonne Wright, publisher of Memphis-based Chicken Soup for the Soul Magazine and president of Modern Media LLC, can't get away entirely from the U.S. mail. After all, she has to send magazines bimonthly to 150,000 subscribers.
But since the post office hasn't released its new periodical postage rate yet - it goes into effect July 15, two months after the initial increase - she doesn't know exactly how much it will change her budget.
"It's definitely going to go up with this postage increase," she said. "Traditionally, in the publishing world, for every subscription you have, you spend $50 to get that subscription. You're going to send all kinds of direct-mail pieces. If you send out a million pieces and you get a 3 percent response rate, which is great, think of all the postage you've paid for those million pieces."
Instead of accepting the added costs, however, Wright's company is exploring different ways of doing business - ways that will avoid sending all those direct-mail pieces, bills and renewal notices for environmental and financial benefits.
"The postage increase has started some talk around the water cooler here of, 'There's got to be a better way,'" she said.
A better way for everybody - especially individual consumers - is the addition of the Forever Stamp. This new product applies to First-Class, single-piece, one-ounce mail. Once purchased, these stamps can be used, well, forever.
The post office implemented the stamp to reduce the inconvenience of buying 1- or 2-cent stamps to make up the difference of a rate increase.
"It means no more worrying about buying extra postage for your existing stamps when the rate changes," Barnett said.
The Forever Stamp goes on sale Thursday and will always be available at the current First-Class rate. Warner said he believes this marks a good public relations move by the post office in light of the price increase.
"I think it's a great idea," he said. "It costs you more in gas and time to drive to the post office for a 2-cent stamp."