In the Spring of 2012, the United States Post Office will slow it’s next day delivery. The goal of course is to cut spending and shore up the red ink. This new measure is expected to save about $3 billion. However, cost cutting measure comes at a cost.

Let’s look at some of the costs in detail:

Big Mailers
Big brands such as Netflix DVD’s-by-mail will arrive later than usual, as well as some prescription drug delivery services.

Birthday Cards
1 to 3 day delivery will reduce to 2 to 3 day delivery.

USPS Employee’s
It’s estimated that between 250 to 500 mail processing centers across the country will shut their doors by March of next year. Combine this latest cost cutting measure, it’s expected that about 3,700 local post offices will be shut, with about 100,000 postal employee’s to lose their job.

Getting Your Favorite Magazine
Delivery of periodicals will be delivered in 2 to 9 days.

Delivery Time Change
First-class mail today – 42% is delivered the next day, 27% arrives in two days, about 31% in three days, and less than 1% is delivered in 4 to 5 days.
First-class mail next Spring – 51% of all first-class mail is expected to arrive in two days with the remainder delivered in three days.

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The U.S. Postal Service is considering any and all options to reduce its deficit to include dropping Saturday delivery.  The Postal Regulatory Commission (PRC) estimates an annual net savings of $1.7 billion if Saturday delivery was eliminated.  Though this is a great amount of savings, its full effect wouldn’t be fully realized for about 3 years.

The biggest problem with the 5 day delivery change is not only the time to implement the change, but also timing.  With unemployment rates as high as they’ve been, Congress is unlikely to pass such a change when so many public service jobs are being reduced.

Some feel the answer is for the USPS to understand its competencies and innovate.  At the most recent Postal Forum, Darryl Jackson, lead client service director at Deloitte LLP said, “This is the most difficult to do.  There are great ideas but regulatory oversight, costs, pricing, etc., keep the ideas from getting past the front door.  They [USPS] need to surmount these obstacles.”

Getting the USPS profitable again will definitely take innovation, but it will also require businesses to mail more and mail again.  They’ll do this when they can afford it, and when they see the ROI as a clear positive winner, as compared to all the new online mediums being created.  Dropping a day will cut some expenses but will also add to the grim jobless figures plaguing our struggling country.  A delivery day change essentially equates to ‘slapping’ our economic recovery at an economically sensitive time when many mailers are gauging their advertising dollars, and how much they can and should mail.

Dropping Saturday from the schedule isn’t a viable option at this time, no matter how much it saves the org, unless there’s a clear plan to relocate the jobless and put it put it ‘back-in-the-black’.

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Historically, the United States Postal Service has survived the rising cost of its services by hedging on the ever increasing number of postal delivery points.  Though more and more delivery stops mean higher overall costs, more businesses can mail to this universe audience.  Theoretically, this controls costs. The USPS managed this way for the years with success, but in the most recent years, this fiscal strategy has been a challenge.  With 2010 first quarter losses at over $2.5 billion, the USPS must take aggressive steps to change in cutting costs and improving efficiencies, and teach mailers how to mail smarter.

In a struggling economy, it’s easy to blame the internet. Many small businesses will test new advertising mediums to promote their business, especially if they can see a savings.  But the fact is, online advertising isn’t a proven better medium.  For every successful Google Adwords customer, there are many unsuccessful ones.  Just as in postal direct mail, the smaller, inexperienced advertisers are sold services, whether they will be successful or not.  And once the budget is used up, the business stops buying.  There is likely little left for a direct mail campaign.  And whether you’re a postal mail service provider or an online advertising service provider, you’ll promote, sell, and take money from any business in the market to test your medium, whether you know it will work or not.  This is churn. It’s an ugly, costly, and short-term profit focused strategy.

A lesson to learn

Online service providers (all businesses who offer online advertising services) will eventually face the same challenges that the USPS is now suffering.  If you don’t teach small businesses how to properly use this relatively new medium, you’ll eventually lose these customers forever.

To avoid “churning” customers, service providers must do two things.  First, they must say no to customers who simply will not have success in this form of advertising, no matter how well the campaign is planned.  As an example, if an author wants to attempt to sell his/her book via postal direct mail to potential readers, the service provider should explain that direct mail will never yield enough sales to make it a profitable investment.  The potential profit per new customer must be direct mail friendly. The higher the profit per customer, the lower the response breakeven point will be.  Selling advertising services to those businesses that will ultimately fail is churn, and a business model based on churn distracts the attention needed to properly serve ‘eligible’ customers.  And two, marketing service providers should intimately understand how to help those ‘eligible’ customers use their advertising.  Few businesses can stomach more than one poorly executed campaign.  Poor results will likely result in that business searching for a different provider or all together different medium.

If you’d like help is assessing if your business is worthy of a direct mail test, give us a call for a no obligation consultation.

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