COMMENTS OF AISOP AND SBLC TO

**PRESIDENT'S COMMISSION ON THE UNITED STATES POSTAL SERVICE**

# SMALL BUSINESS NEEDS AFFORDABLE ADVERTISING MAIL TO SURVIVE

John Haas survived the Holocaust, escaped to the United States, and
lived the American dream. He worked his way up from selling Lazy Boy
chairs to owning his own independent furniture store in Daly City,
California. Haas saw eight independent furniture stores in his market
area close because they could not afford to advertise. Haas found a way
to reach customers near his store with geographically targeted
advertising sent in a saturation, shared mail package. In 1983, to
resist pressure within the Postal Service, and from Postal Service
competitors, to greatly increase his postal rates, he formed the
Alliance of Independent Store Owners and Professionals (AISOP) to
persuade postal leaders to understand that affordable rates are
essential to the survival of small business.

Haas saw his postal rates increase three times in the 1980s. Haas
survived the Holocaust, but his business could not survive ever rising
postal rates. His store closed in 1991.

AISOP represents small business retailers, service providers,
professionals, tradespersons, and home-based businesses that rely on
locally delivered print advertising to reach customers. The Small
Business Legislative Council (SBLC) is an independent permanent
coalition of over 70 small business trade and professional associations
that share a common concern for the future of small business. For
additional information on how AISOP and other small business coalitions
and associations have been involved with postal issues, see Appendix 1.

# EXECUTIVE SUMMARY

We ask the Commission to take our views into account in its
recommendations as follows:

> **1. Mail advertising is essential to the survival of small business.
> Small businesses rely disproportionately on saturation mail
> advertising to reach customers.**
>
> Affordable saturation mail is essential to the growth and survival of
> America's small retail, service, and neighborhood businesses. The
> Postal Service, and the mailers that provide saturation shared mail
> services to small business, should be free to develop contract rates,
> negotiated service agreements, and volume discounts to make this
> essential advertising service more affordable to the businesses that
> do not have the choices big stores have of using print or electronic
> media.

2.  **Mail advertising is read and welcomed by consumers.**

Advertising mail, the kind found in free papers, coupon envelopes,
shared mail packages, and preprint circulars, is not considered "junk
mail" or unwanted by businesses that send it or the vast majority of
consumers who receive it. The term "junk mail" was coined by newspaper
editorials that benefit by keeping retailers' ad businesses in or
between the pages of daily papers. Consumers and businesses like and
value general interest advertising. Opinion polls and reader response
rates show that consumers (a) use this information to do comparison
shopping and save money, (b) like hearing from local businesses, and (c)
respond.

> **3. Postal Service competitors, or coalitions supported by Postal
> Service competitors, may argue that the "first class mailer," the
> "little guy," or "small mailer," needs the Postal Service to be
> tightly regulated and restricted to protect them from the monopolistic
> Postal Service and to stop the Postal Service from making "sweetheart
> deals" with "big mailers." This is not the voice of small business.**
>
> The Commission's report should recognize that Postal Service
> competitors now have a say in setting postal rates, and in turn set
> prices to give them a competitive advantage. As long as Postal Service
> prices are market-based and competitive, and cover their own costs,
> Postal Service competitors should not have the standing to argue for a
> higher mark-up or margin to give them price protection.
>
> There is a longstanding history of Postal Service competitors
> appearing before Congress, and in regulatory proceedings, claiming to
> represent views that are "good for the little guy." AISOP members pay
> premium prices for such interventions.
>
> Most small businesses and advertisers depend on the services of a mail
> advertising supplier. Thousands of free papers, coupon envelope
> programs, and shared mail suppliers in this country give local
> businesses service and efficiencies, like the extension of credit,
> graphics and marketing design services, and customer services, that
> the Postal Service cannot provide and is frequently not available to
> our members from other advertising media. Marketing and competitive
> efficiencies that help "large mailers"[^1] will also benefit America's
> smallest businesses.

## SMALL BUSINESSES RELY MORE ON THE POSTAL SERVICE

##  [TO ADVERTISE THAN BIG BUSINESS]{.underline}

AISOP was pleased to see so many Commissioners with a background in
marketing or advertising. At the risk of preaching to the choir, AISOP
would like to share the "how to succeed in the retail business" mantra
taught by AISOP's founder, John Haas: "Early to bed, early to rise, work
like hell, and advertise."

To cost-effectively advertise a mass media product or service, small
businesses face obstacles not shared by their big business competitors.
Most print media, like daily newspapers or magazines, and electronic
media, cost too much and reach too many people to be cost-effective for
a small business. For these businesses to succeed, advertising is not
optional or discretionary; they must find a way to cost-effectively
advertise.[^2]

For any business, a cost-effective advertising program is one that
reaches the largest number of potential customers (with a compelling
message) at a reasonable cost. The small business message is often more
compelling, than that of large stores. Through creativity, by buying
local, and simply working harder, longer hours, America's small
businesses can compete effectively with big business in terms of price,
quality, and service. It is very difficult, however, to communicate "the
message" (to advertise) to potential customers at a reasonable cost. An
AISOP member opening a new business said, "I knew I had built a better
mousetrap, but how can I show that to potential customers?"

Regional and national businesses use many advertising media -- national
and local television, radio, billboards, newspapers, magazines, and
direct mail. They have the resources, and can switch media as they see
fit. Big businesses can negotiate volume discounts, contract rates, and
placement.

Small businesses do not have these choices. For most, the marketing area
is within a few miles of a single store or location. National or
regional advertising through radio, television, or magazines is cost
prohibitive and is not a meaningful option. Local radio and TV may be
within the small firm's budget, but they still require advertisers to
pay to reach people outside their market. In other words, the advertiser
is buying too much coverage.

The Postal Service can help small businesses level the playing field.
The mail can help a small business advertiser overcome the problem of
too much, or too little, coverage. Because the mail can be targeted to a
specific geographic area, or a mailing list, small business advertising
dollars are spent on potential customers.

For retailers and service providers offering product or service like
groceries, restaurants, auto repair, or personal services, every nearby
consumer is a potential customer. Advertising mail, particularly
saturation mailings sent in a free paper, shared mail package, or coupon
envelope, can help multiple advertisers share the cost of postal
delivery, but even this type of advertising costs small businesses a
much higher percentage of their overall budget than their big
competitors. Some examples show how small businesses pay more, but get
less, for their mass media ad spending:

**Buttercup Dairy.** Buttercup Dairy is a neighborhood, full service
grocery store in Terryville, Long Island. A third generation family
business, it competes with chain grocers in the Suffolk County-Long
Island area. Buttercup Dairy does a weekly half-page ad, with two
colors, delivered in a mailed shopper to zip codes near the store. The
store's advertising and promotion budget is a little more than 1% of the
store's gross operating profits. The store's competitors include 50
Walbaum's groceries in the same county. What does Walbaum's get for a 1%
advertising budget? The Walbaum's ad campaign is a weekly six to eight
page full color ad inserted in the local paper and an extensive,
professionally produced TV and radio advertising campaign. Although
Buttercup Dairy is spending proportionately more, and getting less, in
terms of media splash, it is able to attract customers with its weekly
specials and by offering locally purchased, fresh foods and values that
are competitive with the Walbaum's products.

**Pizza.** Sal's Pizza Gallery is an attractive sit down, delivery, and
take out pizza and Italian restaurant located in a dying shopping mall.
Owner Sal Carannante cannot depend on foot traffic to stay in business;
his sales are coupon driven. Sal, like other AISOP members, will tell
you, "When the coupons go out, our phones ring." An independent pizza
store owner will spend 10% to 12% of gross sales on advertising to
afford a once a month coupon mailing. National franchises or chains
average 6% of gross sales for advertising. Because of their multiple
locations and bigger buying power, their 6% ad budget buys a four page
glossy insert each week in the paper as well as direct mail, TV, and
radio. Independents like Sal's Pizza Gallery survive against the majors
by offering their customers greater variety, personalized service, and
by holding down other costs.

For many small businesses, advertising frequently ranks third, following
only payroll and rent, as a top business expense. Although mail may be
cost-effective, it is not cheap. AISOP believes that the prices
currently charged by the Postal Service for the saturation mail services
used by our members are higher than they need to be. In markets where
there are private carrier businesses or free papers delivered by private
carrier, the cost of delivery of an advertising piece to the home is
well below current Postal Service rates.[^3] Audited reports comparing
mail receivership with private carrier show there is no meaningful
statistical difference in the reliability of Postal Service delivery
with private carrier delivery.[^4]

The Postal Service is losing volume. America's small businesses need a
way to cost-effectively reach customers. Thousands of companies are
prepared to provide saturation mail advertising services that link the
Postal Service's delivery network to the needs of local businesses.
Whether in the form of a free paper, a coupon envelope, a shared mail
package, or coupon booklet, there should be a way that the Postal
Service and mailers can more cost-effectively meet the needs of
America's small business. Millions of consumers and businesses are
abandoning the mail for the internet, while millions of small businesses
would like to use the mail, and the services of saturation mailers, to
help their businesses grow and survive.

AISOP asks that the Commission's report recognize that affordable
saturation mail is essential to America's small businesses and recommend
that the Postal Service be given more freedom to develop contract rates,
negotiated service agreements, and volume discounts that would make this
advertising more affordable.

**[CONSUMERS LIKE AND VALUE GENERAL INTEREST ADVERTISING]{.underline}**

The type of mass media, general interest advertising done by small
business retailers, service providers, professionals, trades people, and
home-based business is liked and valued by consumers. Here are some of
the reasons why:

-   It is free. Consumers do not have to pay to get shopping and service
    information from stores and individuals near their homes. Low income
    households, single parents, seniors, and consumers who do not
    subscribe to a local paper, get shopping information.

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-   Consumers use advertising mail to save money and plan their
    shopping. In the grocery business, and for other commodity products
    like paper goods, hardware, and home improvement items, that are
    regularly purchased by consumers, advertising circulars can help
    consumers shop wisely.

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-   Because saturation advertising mail is geographically targeted, it
    reflects the diversity and tastes of each community. Many offer
    bilingual ads to reflect the language and background of the
    neighborhood.

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-   Advertising mail from local business is often the consumer's best
    source for information on home repair and improvement services.

-   Most consumers like to spend their money at locally owned stores.
    They like to give the little guy a chance. But even the most
    community conscious consumer does not want to pay more or get less.
    Using the information in advertising mail to compare the services
    and prices of local stores against the big store ads on TV or in the
    newspaper, help consumers get value for their dollar.

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-   Free papers or shoppers, whether privately delivered or mailed, are
    a kind of flea market. Want to sell your unused Nordic Track
    machine? Looking for Festival dishware? How about a free kitten?
    Consumer or reader ads are often given reduced rates by publishers,
    or offered free for low ticket items. They help publishers stimulate
    readership and provide a cheap and fun way to exchange goods and
    services. There are over 3,000 free papers in this country:
    Approximately 45% is mailed.

**BUSINESSES OF ALL SIZES WILL BENEFIT IF THE POSTAL SERVICE**

**IS ALLOWED TO MANAGE ITS PRODUCTS, SERVICES, AND**

**[PRICES IN A MORE BUSINESSLIKE, COMPETITIVE MANNER]{.underline}**

Postal Service competitors or their funded coalitions will argue that
the "small mailer" or little business needs protection and "fairness"
from the Postal Service. They will ask that the Commission take steps to
make sure "big mailers" do not get better prices than "small mailers."
They do not speak for our members. All mailers, large and small, benefit
from a strong, efficient Postal Service. That is not on the competitors'
agenda. The Postal Service should be free to set contract rates and
offer volume discounts, like most businesses.

In 1989 and 1990, AISOP and a coalition of 37 other small business
associations, supported postal classification changes that resulted in a
separate rate category for saturation mail and drop ship discounts for
locally entered mail. Many mailers and Postal Service competitors
opposed those changes as "giving away the store" to a few big mailers,
arguing that little mailers, and small businesses, would pay higher
rates to make up for the discounts. A dozen years later, these
worksharing discounts are widely used by businesses and mailers of all
sizes. An entire industry of consolidators, data logicians, and other
mail advertising service providers has grown up to help businesses
capture these savings. The Postal Service attributes its ability to
contain costs, reduce man hours, and provide lower prices to
[all]{.underline} mailers, as a byproduct of worksharing.

In short, no consumer or business, big or small, benefits if the Postal
Service is handling its pricing, products, customer relations,
management, or labor issues, in ways that are out of step with other
business offering similar products and services. Likewise, any business
that cannot adjust to market conditions and demand cannot do a good job
of serving its customers. Postal Service competitors may have a right to
be heard, but they may not be the most credible source for the concerns
of the little guy.

Most small businesses and advertisers depend on the services of a mail
advertising supplier. Thousands of free papers, coupon envelope
programs, and shared mail suppliers in this country give local
businesses service and efficiencies that the Postal Service cannot
provide and is not available from other media. Negotiated service
agreements, contract rates, and volume discounts would provide direct
benefits to America's smallest businesses.[^5] Postal Service
competitors should not be able to defeat or prevent these standard
approaches to market-based pricing absent a showing that Postal Service
prices are not market-based and are not covering Postal Service costs.

Thank you for this opportunity to comment on the important work being
done by this Commission.

Respectfully submitted,

Donna E. Hanbery

Executive Director and Counsel

Alliance of Independent Store Owners

and Professionals

33 South 6^th^ Street, Suite 3725

Minneapolis, MN 55402

\(612\) 340-9350

hanbery@hnclaw.com

**[APPENDIX 1]{.underline}**

Historically, AISOP has worked with SBLC and other small business
coalitions and associations, like NFIB (National Federation of
Independent Business) and NSBU (National Small Business United), to
raise awareness that small business depends on the Postal Service, and
advertising mail, to a far greater degree than big business. AISOP and
the mailers that serve its members have worked hard for 20 years to keep
our postal rates affordable. We formally requested the appointment of a
Presidential Commission, and welcome the President's decision.

Some examples of activities over the last 20 years:

-   AISOP has participated in every postal rate case and major
    reclassification proceeding since 1984.

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-   AISOP, individually and with support from SBLC, NFIB, the National
    Chamber of Commerce, and NSBU, has appeared as a witness on behalf
    of Postal Service management in five separate labor arbitration
    cases to testify on the importance of cost containment and
    affordable postal rates to small business.

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-   AISOP has opposed legislation that could increase postal costs and
    is currently supporting legislation to correct the overfunding of
    retiree pensions.

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-   In 1989 and 1990, AISOP was instrumental in mobilizing 37 small
    business associations with more than 5,000,000 small business
    members to work in supporting a postal platform that persuaded the
    Postal Service to adopt worksharing discounts. A local rate and a
    saturation rate were subsequently approved by the Postal Rate
    Commission.

[^1]: The constant references to "large mailers" or "big mailers"
    throughout these comments is done in quotes, and tongue in cheek,
    because this is the pejorative phrase so often used in these debates
    in Washington. AISOP believes the Commission, lawmakers, and the
    Postal Service could recommend laws or regulations that would allow
    negotiated service agreements, contract rates, and volume discounts
    that are nondiscriminatory and could be used by big and small
    mailers. As discussed later, the initial proposals for worksharing
    discounts were denounced by Postal Service competitors and mailers
    alike as only favoring "big" mailers. It is AISOP's belief that with
    greater flexibility, mailers of all sizes could achieve more
    predictable and competitive rates. Under the present, highly
    litigious ratemaking environment, only the largest mailer can afford
    to contemplate pursuing a negotiated service agreement with the
    Postal Service.

[^2]: The inability to cost-effectively advertise, or stimulate demand,
    is consistently named as one of the top reasons for small business
    failure. Studies conducted by the NFIB Education Foundation and
    surveys conducted for the Postal Service by the Millard Brown Group
    reflect these salient statistics:

    > In surveys of issues of importance to small business retailers,
    > the inability to cost-effectively advertising is frequently named
    > as a priority issue.
    >
    > 52% of small business owners said they spend the bulk of their
    > time trying to attract customers.
    >
    > The inability to draw prospective clients is the number one reason
    > for small business failure. 59% acknowledged it is simply too
    > costly to attract new customers.

[^3]: The Circulation Verification Council (CVC) audits circulation
    figures for individual free papers and for associations within the
    free paper industry. Its audits include readership, receivership,
    and response studies and analysis of delivery costs. In audits that
    included 348 papers reporting private delivery cost data, the lowest
    delivery cost per copy was 3.5 cents, the highest was 10 cents, and
    the average was 5.2 cents. The lowest available Postal Service rate
    for saturation flats weighing 3.3 ounces or less is 12 cents.

[^4]: ^?^ As of August, 2002, CVC had completed 21,767,688 audited
    circulation with 42% delivered by the Postal Service and 44%
    delivered by private carrier. The average receivership score for
    Postal Service delivery was 97.7% with a score of 97.1% for private
    carrier delivery. There was virtually no statistical difference in
    the reliability of the Postal Service delivery from that of private
    carrier.

[^5]: An example of how big and small mailers work with small businesses
    is seen in the coupon envelope franchise business. Val-Pak, Money
    Mailer, and SuperCoups® are all examples of coupon envelope
    franchises where an independent franchisee or dealer, usually a
    small, local business, sells coupons in an envelope advertising
    services to local businesses with the assistance and support of a
    big "big mailer"/national franchise. Frank and Linda Johnston are
    owners of Money Mailer of Delmarva. Together, with their family
    members, they provide targeted advertising services to zones of
    10,000 homes each. Their business mission is to "help businesses get
    and keep more customers and help consumers save money every day." In
    testimony submitted by Linda Johnston to the arbitrator in the
    Postal Service-APWU labor negotiation hearings in October, 2001,
    Linda made these points to the arbitrator about the impact of postal
    rates on her business, how small business advertisers have reached
    the breaking point when it comes to postal costs, and what the
    Postal Service must do to remain viable. "Between 1994 and today, my
    postal rates have increased three times. I have not -- let me repeat
    this loud and clear -- I have **[not]{.underline}** been able to
    pass on these cost increases to my customers. The average price my
    Money Mailer business has been able to charge for a coupon between
    1994 and today has decreased by over 14%. . . The Postal Service and
    its employees need to do what other businesses in this country are
    doing. Everyone wants more money. If you have unlimited demand for
    your product, you can probably make more money by raising prices to
    your customers. If demand is falling, you have to cut costs,
    increase productivity, and do whatever you can to remain
    competitive."