# Presentation: 396285

## The Institute of Postal StudiesFirst Class Mail Summit

- February 28, 2006
- Alexandria, VA

**Notes:**
Good afternoon,

I appreciate the opportunity to address you on some of the work that is being accomplished by the Institute of Postal Studies of the EMA Foundation. I know some of you are familiar with what IPS does but I thought I would cover briefly what we do and then at the end of this presentation I will discuss what we have done.

## Background

- The Institute of Postal Studies is a postal research arm of the EMA Foundation for Paper Based Communication.
- The Foundation is the Education and Research arm of the Envelope Manufacturers Association.
- The Symposium was designed as a forum to gather ideas from key association and business leaders on First Class trends and new product ideas.
- The Symposium did not include postal employees.
- The Results of the Symposium was widely circulated.

**Notes:**
We were founded in 2003, part of EMA and our mission was to provide input to the President’s Commission on the Postal Service. Since that time we have branched out into research and education activities. Our Foundation supports the work of EMA and the mailing industry with education and research designed to explore different aspects of the Postal Service. I want to make sure that I point out that this Symposium was put on to gather input from inside the beltway but people who were very knowledgeable about the Postal Service, yet who were not Postal Employees. We wanted some candid assessments and we got those. We then put all of these assessments down in a paper and circulated those to everyone. It is the same process we follow for everything that we do.

## Companies and People Participating

- Paul Carlin, Former Postmaster General
- Mike Coughlin, Former Deputy Postmaster General
- John Nolan, Former Deputy Postmaster General
- Richard Porras, Former CFO, USPS
- American Express
- accenture
- Capital One
- Direct Marketing Association
- IBM
- New Postal Policy Council
- Pitney Bowes
- PostCom
- Stamps.com

**Notes:**
There were many people and organizations that you know at the summit. It was a very authoritative crowd.

## Total Mail Volume Trend Fiscal Year 2005

**Source: USPS Financial Presentation to BOG Dec 2005**

**Notes:**
You have seen much of this data before but just as a refresher. Here is a snap shot of mail volume for the last decade. You can see the peaks and troughs in the economy.

## USPS Financial Results 2005Volume Mail Mix Trend	

-   	             **  ****1999    2000   2001   2002    2003   2004    2005 **
**	**
- First Class           101.9   103.5   103.7   102.4  99.1    97.9     98.1
- Standard A          85.7     90.1     89.9    87.2    90.5    95.6   100.9
- Other 	     _14.0     14.3     13.9     13.2     12.7    12.6     12.7_
**Total             201.6    207.9    207.5  202.8   202.3   206.1  211.7**
**(Billions)**
**Source: USPS FY 2005 Annual Report**

**Notes:**
These are the financial results achieved by year by mail volume.

## Source: USPS 2005 Comprehensive Statement 

**Source: USPS 2005 Comprehensive Statement **

**Notes:**
So, as we look out at the future, we see that the mix of the mail is changing. More workshare, less single piece.

## USPS Financial Results 2005Volume Information

**Source: USPS FY 2005 Annual Report**

**98.1**

**100.9**

**Notes:**
And the mix of the classes are changing by volume.

## Mail Mix Comparison 

**Mail Mix Comparison **

**Source:**
** ****USPS 2005 Comprehensive Statement**

**  ****Up 12.1%**

**Down 5.9%**

-  **208** **Billion**

**212** **Billion**

**Down 11 %**

**Notes:**
Let’s look a this a slightly different way and over a five year period. We have seen a shift in first downward, and a shift upward in Standard A. 

## The Trend Is Not Surprising Over TimeFirst Class Trend versus Standard Mail Volume Trend1997-2005

*Annual*
*Reports*
*Plus*
*Transformation*
*Plan*

**Notes:**
Many Postal Service Annual Reports have predicted this change in mix. While they may have missed the cross over point, the crossover has always been understood.

## What Does the USPS Forecast Say?First Class Trend versus Standard Mail Volume Trend

*Transformation*
*Plan *
*Baseline*

**Notes:**
So here we are in 2006 and we are on our way to having a much more different Postal Service in our future. We will see a mail system more dominated by direct mail and that will bring about certain changes in the way we look at First-Class mail. We may look back and remember the days when First-Class mail was the cash cow. But how will we survive the future if we cannot keep more First-Class mail in the mix. That was the subject of our symposium.

## Economics of Electronic Bill Presentment and Payment

**Business**
- Cost per paper bill: $5
- Cost per ebill: $2
- Average cost savings per electronic bill: $3/month

**Household**
- Many companies now charge customers for paper bills:$0.99 - $2.95/month per bill
- $0.39 per stamp per bill

- Why is First-Class Mail still around?

**Notes:**
Source of business mailer costs: Gartner 2003 business survey. Customers are also being hit with additional costs for paper bills. American Express charges it’s Small Merchant customer $8 per month for paper bills. Many other companies, primarily smaller and newer telecommunications companies are charging their customers for receiving paper bills. This raises the issue. Why is there still FCM transactions volume?

## Amid Widespread Internet Adoption, Holdouts Remain

**64 percent of Americans use the Internet at home, up just 1 percent from last year.**

*Source: Parks Associates*

**Of those who had no Internet access, many were “vague” about why they didn’t have Internet at home or said they didn't have a reason.**
**5 percent of people said they would never get Internet access at home regardless of how cheap it was.**

- The City of San Francisco is completing a procurement with Internet providers which may provide free wireless access for all citizens.

**Notes:**
But in spite of what you hear, as many have said before in this room, the tail on the First-Class mail stream is a slow one and adoption grows slowly. The Internet has matured as a communications channel. The next big shift will come with a population shift in the next 10 to 15 years. As you and I retire, there will be fewer of us to sustain the mail system. Fewer pieces of mail make it more difficult to sustain the type of service and operations that you are used to. We need new ideas to prepare for this time. We need to think differently about the mail, and we asked some people that really know mail and mailing operations to do just that.

## Why Do Businesses Use First-Class Mail?

- Key to understanding the future of First-Class Mail is to understand the *“jobs that customers are trying to get done.”*
- Value of the mail depends on its meeting two types of requirements:
- Business (effectiveness of how mail is being used to perform required tasks)
- Operational (reliability, ease-of-use)

**Notes:**
As Dave Tregworthy of IBM noted, to understand First Class Mail you got to understand the job that needs to be done by it. Everyone’s value proposition is different. So we began with casting some value propositions about First-Class Mail. Two requirements determine its effectiveness: That it can perform tasks cost effectively and it is easy to use. 

## Bills, Statements, and Payments – First-Class Mail Jobs

| Customer | Business Requirements | Operational Requirements |
| --- | --- | --- |
| Treasurer/ CFO | Manage cash flow by taking float out of the system | Maintain timely and accurate delivery |
| Billing Manager | Operational efficiency
Reduction in paper and processing costs
Fulfillment | Maintain timely and accurate delivery
ROI |
| Marketing | Customer acquisition
Customer retention
Consistent messaging | Effective communication tool (reach, response rates)
FCM value proposition |
| Receiver | Manage household finances | Ease-of-use
Convenience
Security
Read it when they want |

**Most Likely to Prefer Paper Bills and Statements**

**Least Likely to Prefer Paper Bills and Statements**

**Notes:**
These are the requirements for the various customers of bills and FCM. The Marketing customer is one that offers a new focus for increasing FCM volume. We will examine how various trends are making mail either more or less attractive in the future. Key Questions that arise: Billing Manager Requirements: Has USPS reached a level of efficiency where it has maximized its ability to remove additional FCM costs from the system (e.g., workshare), or add value (e.g. tracking)? 
Treasurer/CFO: Can USPS help its customers manage their cash flows better?
Marketing: Can USPS assist marketing managers in determining the value of using the mail over or in conjunction with the Internet for acquiring and building customer relationships?
Receiver: Can USPS leverage its position as the most trusted government agency to keep consumers in the mail?

## Despite Security Threats, Online Bill Pay Grows Slowly But Steadily

| Annual Growth Rate | -- | 87% | 45% | 29% | 28% | 26% | 21% | 18% | 15% | 11% | 9% | 7% |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

**Actual**

**Forecast**

*Source: Forrester’s Consumer Technographics© 2005 North American Benchmark Study*

**Notes:**
The growth rate is steady, but slowing. Will it continue or reach a steady state?  This is an interesting question because classically we presume the steady state. Yet, what is happing is a bit different. In the future we may grow by stair steps rather than steady growth. What I mean by that is that we will be steady for a time and than price increases will accelerate divergence. As you know, it is always difficult to get the last 35 percent of the users of anything to do something different. We are a nation of procrastinators. But what motivates us to act? Where is the tipping point? We all strain our eyes to see if it will go beyond what we think it will be at this point. Regardless of our view of the future, you and I must work harder to retain what we have. We must put more value back into the mailstream. 

## Can The On Line Bill Paying Trend Be Reversed?

| Top 4 Reasons People Have Not Started Paying Online | Sustainability |
| --- | --- |
| Worried about security of my data | Technology improves, but mistrust and negative perceptions will linger |
| Concerned about privacy | Security breaches can always occur despite improvements in technology |
| Don't want to pay a monthly fee | Many banks offer online bill pay for free, more will most likely |
| Don't want money deducted before payment is due | Exact payment deduction date can be set, not sustainable |
| Top 3 Reasons People Pay Online | Sustainability
 |
| It’s convenient | Once they’ve started unlikely to revert back |
| It’s faster |  |
| I don’t have to buy stamps | Can USPS help customers avoid this? |

**Notes:**
Now let’s talk more about the receiver perspective. Eighty percent of Americans are “concerned” or “very concerned” about the threat to their privacy. Growth of spam, phishing, and virus trends threaten the security and value of messaging and transacting business via the Internet, email, and the Web. By making the competitive alternatives look worse, these threats increase the relative value of the mail as a channel for conducting business. Which reasons to stay in the mail are sustainable? Are there some reasons to pay online that USPS can reverse? How can USPS reinforce its competitive position by leveraging its high level of trust?

## So What About The Ideas?

**Notes:**
So let’s get to some of these ideas. Please note that some of you may have had these before but what we asked for was as clean a slate as you could give us, what would you want the USPS to do to do more for FCM.

## The Perspective of Major Mailers

**Businesses are under constant pressure to elevate their game and create more value for their stakeholders**
**Decreased cycle time**
**Decreased cost**
**Increased complexity**
**Greater Innovation**** **
**Pressures in industry compete significantly with these goals**
**Increased costs**
**Decreased capacity**
**Limited resources**** **
**As 50%-75% of the costs of a first class letter package is postage, there is opportunity to make a difference – “Foster Growth Through Customer Value”**** **

**Notes:**
One of our major mailers offered the following perspective. Keep in mind that the big cost for all of us is postage. In our industry we think it is 65 percent of the cost of a mailpiece. So we only have 35 percent to play with and 42 percent of that 35 percent is paper. But you can do a lot with a little in our business.

## De-Averaged First Class

_**Hypothesis**_**:  Allowing business rather than USPS to optimize their product makes the channel more efficient and increases demand**
**Today, we pay for all or nothing – First Class is perhaps more than I need, Standard Class is too little**** **
**De-average the cost of the First Class components (and potentially beyond) and offer a la carte pricing**
**Delivery time frame**
**Forwarding**
**UAA information**
**Planet Coding**

**Notes:**
We heard creating a business class for FCM over and over again at our meeting. The idea is let the mailer take what services they need via creation of a First Class lite package of services. These are a few of the components that were discussed. 

## Radius Based Pricing

- _Hypothesis_:  Basing pricing on distance transported from origin versus flat rate allows for industry to solve for USPS transportation costs
- Today, mail produced in Philadelphia costs the same whether it’s going to LA or Chicago – Can this be reconstructed?

**Notes:**
This was an interesting concept, charge on the basis of distance transported from origin versus a flat rate for all. We get at some of this through the various discount structures that we have but could we have a base price based on distance transported and speed to market?

## Imaging Services

- _Hypothesis_:  USPS foray into imaging could provide a value add service for customers and reduce USPS costs or increase it’s revenue
- Simplistically, image the outer envelope and send electronically to customer
- Remittance applications
- Similar to postmark promise for posting payment dates
- More complex, but powerful - open, extract and image
- Marketing and customer management applications
- Saves USPS transportation costs
- Decreases business cycle times

- The USPS – a mail company or information technology company?

**Notes:**
Can the USPS do more than just collect, sort and deliver. Are there other services that should be considered at this point in the game that makes First-Class mail a gateway to more features. After all, you get a wider seat and better meal in First-Class, at least on some airlines, but more are thinking about value added services. Could imaging services be part of our game plan.

## Better Leverage Outer Envelope Real Estate

- _Hypothesis_:  USPS requirements restrict the amount of space mailers have to utilize on an outer envelope – destroying potential value
- Co-Branded Stamps
- Co-Branded Indicia's
- No return address
- Reduced addressing requirements – Better use of barcodes
- Invisible inks

**Notes:**
This is one near and dear to our heart. Leverage more real estate and there are many more ideas in my slides about how to use the real estate. The envelope is really a terrific billboard for putting out messages. Some of our research shows that the more color, graphics, etc., that you use the more time you spend with the envelope.

## USPS Intelligent Mail Charter

_**Letters and Flats Example**_

- Make every mailpiece — letters, flats, and packages — unique and trackable
- Consolidate Postal barcodes and achieve the OneCodeTM Vision for each mail type

**Bulk Mailers migration to 4-State Customer Barcode (4-CB)**

**Meter / PC Postage Industry migration to IBI Lite**

**USPS Intelligent Mail Charter**

**Create end-to-end visibility into the mailstream**

**Notes:**
I have to put a plug in for intelligent mail because it is an example of adding value to the mail with additional information content.

## Use Intelligent Mail  - to create Intelligent Applications

**For Users**
**Date Certain Delivery**
**Customer Acquisition**
**Cancellation Prevention**
**Predictive Services**
**Auto Redirect**
**Within the Postal Service**
**Operational Excellence**
**Improved Service**

**Notes:**
There are also applications which go along with this new intelligence both for the customer and for the Postal Service. Some of these have already been discussed at MTAC.

## Increasing Awareness

**Business****Processes:**

**Marketing****Fulfillment****Statements****Billing****Customer****Service**

**Mailstream****software, hardware, &****services that manage****:**

**Data**
**> Analytics**
**> Cleanse**
**> Address**
**Process**
**> Create**
**> Produce**
**> Distribute**
**Technology**
**> Digital**
**> Metering****> Inserting**

**> Map**
**> Track ****> Secure**
**> Store**
**> Integrate**
**> Scanning**
**> Printing**

- Channels:

**Web**

**Mail / Carrier**

**Retail**

**Other**

**Mailstream Concept**

**Notes:**
Pitney Bowes offered a very interesting perspective of the mailstream as you look at it from functions to data to communication channel. The point is we have a host of paths to create more value in the mail of we are aware of more of the uses of the products which we develop and the downstream applications that occur as mail is created and the interplay between the recipient and the mail.

## Adding Value to the Statement through Advertising

**Notes:**
What are the implications for USPS current products? Is there a product between First-Class Mail and Standard that makes sense? Do the boundaries of First-Class Mail and Standard still make sense? How much control should USPS take in delineating those boundaries?

## Customized Postage

- Pitney Bowes partnership with Zazzle -- stampexpressions

**Notes:**
We had two of the vendors of customized or personalized postage at our summit and they talked about a variety of different ways to add more value to the mail.

## Range of immediate business applications for PhotoStamps

- Small       businesses

- Corporate marketing

- Mailers & service providers

- Corporate Branding – maintain corporate logo on all import mail
- CRM campaigns targeting important customer groups – “Elite Member Offer Inside”
- Corporate events, sales conferences – “2006 National Sales Conference”
- New product launches – “Introducing the 2006 model

- Branding – Business logos on a PhotoStamps to promote their business
- Announce special events – “Grand Opening!”
- Advertise special promotions – “March is Tulip Month”
- Traffic-driving offers – “Mention this Stamp for 10% off”

- Postage images coordinated with mailpiece design
- Premium Direct Mail pieces – “Open this First”
- No meter marks on high-end packaging
- Campaign Taglines on the Stamp – “Just Do It”
- Service provider messaging – “Advertise with ListCo.”

**Notes:**
I think stamp personalization came up quite a bit during our summit and we put a great number of interesting applications on charts for everyone to see.

## ...and create a wide range of new direct marketing applications

**Notes:**
Again, another interesting way to sell value and image.

## Customization and personalization have traditionally had a significant impact on response rates

**Personalization is critical to how consumers react to the mail**
**A recent EMA study indicates:**
**Women respond to personalization on envelopes more than men**
**66% will open the envelope if they believe the contents might be interesting**
**61% will open the envelope if they believe the contents will be of personal interest to them**

**Consumers view PhotoStamps as “unique and highly personal touch”**

**Notes:**
Our association has done some research that tells us more how people respond to personalization. Now I want to make sure that personalization can be in the form of an image as well as a name. Personalization can be in the form of specially chosen graphics to heighten interest and some list brokers are starting to create more preference type information that helps in choosing graphics.

## The USPS Has Already Done Quite A Few Things

**eReturn Receipt ****Repositionable Notes ****PFS ****Personalized Postage ****Vote by Mail ****NSA's ****Intelligent Mail/4 state bar codes ****Alternative Access for Postage **
**Postal One ****FedEx vs. commercial air ****More on surface ****Removing OCR's, AFCS image lift ****More DPS ****Address quality programs **

**Notes:**
Many things have been discussed as ideas that are already being accomplished or thought about by the USPS. This is just a short list of items.

## But We Can Never Stop Looking At the Value Proposition for FCM

- We need to continue to formulate, test and get ideas into the market quickly.
- How do we do that?
- We need to also understand that the value proposition changes over time.
- So we need to continually do research.
- This is only one summit, maybe we should have more on other classes of mail?

**Notes:**
Some Final Thoughts...

## Studies by the Institute of Postal Studies (IPS)

- A Resource Guide for Presidential Commissions and Task Forces.
- Commentary on Postal Reform for the President’s Commission.
- The Small Economic Model
- The Jobs and Mail Study
- Summits on Various Aspects of Postal Reform
- Summit on First Class Mail
- Paper on Scoring the Postal Reform Bill

**Notes:**
Here are several examples of the type of work that we have been doing over the past four years.

## How To Reach Us

**www.envelope.org/Foundation/IPS**

**703-739-2200**

**The Envelope Manufacturers Association**
**Foundation for Paper Based Communication**
**500 Montgomery Street, Suite 550**
**Alexandria, VA 22314**

**Notes:**
Thank You