The Postal Service is an independent establishment in the executive branch. The Postmaster General, Deputy Postmaster General, and nine presidentially appointed members of the Postal Board of Governors direct the operations of the Postal Service. The Postal Service is to operate in a businesslike manner and is to break even in the long term. An independent Postal Rate Commission was established to, among other things, regulate the Postal Service’s adherence to ratemaking standards and to ensure that it does not take advantage of its monopoly on the delivery of letter mail. Since the creation of the General Post Office in 1775, the core business of the U.S. Postal Service has been the collection and delivery of letters and packages to the households and businesses of the nation. Today, however, the Service sees its core business threatened by the advent of the electronic age. The Service believes that its role as provider of universal postal service at uniform rates faces competition significantly more challenging than the competition from past eras—most notably the telegraph and the telephone. In 1997, former Postmaster General Marvin Runyon, in testimony before your Subcommittee, said the electronic rival the Postal Service currently faces goes far beyond anything faced before. He stated that computers, telephones, television, and electronic funds transfers are being brought together with a rapidly evolving communications network, and this network promises one day to link nearly every home and business in the nation with the capability to rapidly trade messages, money, and multimedia content. According to the Postal Service, this new communications network—e.g., the Internet and its World Wide Web, e-mail, electronic commerce, and electronic data exchange—is fundamentally altering consumers’ choices and expectations. More importantly, because of these new choices, the Service is concerned that future First-Class Mail revenues will decline due to the electronic diversion of mail. In fact, the former Postmaster General was so concerned about this prospect that he testified before the Subcommittee that if a significant amount of First-Class Mail gravitates to alternative sources of delivery, this could jeopardize the Service’s core business, which is the financial bedrock of universal service. It is against this backdrop that the Postal Service began, in the mid-1990s, focusing resources on the aggressive development and introduction of new products—primarily nonpostal products. This move, however, has created controversy. Some Members of Congress and some private sector companies have said that the Postal Service is unfairly expanding its product line to compete in nonpostal-related markets, and they have manifested their concerns in various forms. For example: Representative Hunter introduced a bill (H.R. 3690) on June 20, 1996, to prohibit the Service from making available to the public any commercial nonpostal service that it did not have available on January 1, 1994. H.R 3690 was not enacted and was reintroduced as H.R. 198 on January 7, 1997. H.R. 198 was referred to the Committee on Government Reform and Oversight with no further legislative action. Representative Northup sought to stop the Postal Service from expanding one of its international mail services—Global Package Link—through an amendment to the Fiscal Year 1998 Treasury, Postal Service, and General Government Appropriations bill. Although the proposed amendment did not become part of the Fiscal Year 1998 Appropriations Act, the conferees agreed to study the issue. Additionally, the Conference Report accompanying the act included a request that the Postal Service report on its nonpostal activities. New products originate from several different sources within the Postal Service organization, and various review and approval processes are used for the introduction of new products—the source and type of approval process used generally being related to the type of product. New products typically fall into one of the following major groups—capital, philatelic, postal, and nonpostal products. To identify the statutory and regulatory authorities and constraints covering all groups of new products, we researched and analyzed applicable sections of the U.S. Code, Postal Service regulations, PRC regulations, and relevant court and administrative opinions and decisions. Additionally, we reviewed H.R. 22 and the Postal Service’s proposed reform legislation to determine how existing statutory and regulatory authorities and constraints governing new products may be affected by enactment of either of these legislative proposals. To document the Marketing Department’s CustomerPerfect! new product development process, we interviewed marketing and finance managers responsible for the development and oversight of the process. To track the flow of three judgmentally selected products through the process, we worked primarily with the program managers responsible for those products. In all cases, we obtained, where possible, documentation to corroborate oral statements. This documentation included, for example, copies of draft and approved Business Proposition Statements, copies of draft and approved Business Plans, documents provided to top management and the Postal Service’s Board of Governors, financial information about the three new products, and summary information about contracts and contractors. We did not independently verify the accuracy of the financial data provided or validate the Service’s claim as to how much of its annual revenues were at risk to electronic diversion. We gathered pertinent information from the Service’s Finance Department to develop profiles, including financial data, on the remaining new products the Service marketed and/or had under development during fiscal years 1995, 1996, and 1997 and that had been publicly announced as of November 1997. Included in the information we gathered were Business Proposition Statements, Business Plans, documents provided top management and the Board of Governors, and financial information about each new product. We reviewed and analyzed the information gathered and summarized the results of that work in appendix III. Clarification questions were addressed either by Finance officials or the program manager responsible for a particular product. As with the three products we reviewed in detail, we did not independently verify the accuracy of the financial data provided on the remaining products in appendix III. The inventory of products in appendix III is limited to products marketed and products under development that have been publicly announced by the Service. It does not include products under development that have not been publicly announced because of the proprietary nature of the Service’s research and development effort. To help ensure that all new products were identified, we researched the Service’s electronic database of press releases, speeches, and testimonies to identify announcements concerning products under development. We conducted our review at Postal Service Headquarters in Washington, D.C., between November 1997 and July 1998 in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Postal Service, and the Service’s comments are discussed at the end of this letter. The Postal Service has broad statutory authority to develop, test, approve, and market a variety of new products, including new capital, philatelic, domestic and international postal, and nonpostal products. However, our analysis shows that the Service is subject to at least three constraints. First, since it is the underlying statutory mission of the Postal Service to provide postal services to bind the nation together, the Service needs to be able to explain how any new product it develops will further that mission. Second, under its statutory authority, before marketing (including test marketing) a new domestic postal product, which necessarily involves classification of mail, the Service must request a recommended decision from PRC regarding the propriety of the Service’s proposed classification, rates, or fees for the new product. Prior to issuing its recommended decision, PRC is required to hold hearings on the Service’s proposal. The Governors of the Postal Service may approve, allow under protest, reject, or modify PRC decisions as provided for in statute. Finally, the Service’s ability to market new products can be constrained or influenced by congressional oversight, restrictions imposed during the appropriations process, or other legislative actions. Adoption of H.R. 22 or legislative changes offered by the Postal Service would amend the Service’s current statutory authority to develop, test, approve, and market new products. H.R. 22 would place new restrictions on the introduction of new, nonpostal products and international postal products. For example, the Service would be restricted to introducing new, nonpostal products through a for-profit corporation created and owned by the Postal Service. However, H.R. 22 would provide the Service with broader latitude to test market experimental postal products. For example, market tests of new postal products could be conducted for as long as 2 years and generate $10 million in revenues per year without prior PRC approval and could be extended to a third year with PRC’s approval. The Postal Service’s proposed legislative changes would also provide the Service with broader latitude to test market experimental postal products. Under the Service’s proposed changes, it would be able to test market experimental domestic postal products without having them reviewed by PRC first. The Postal Reorganization Act of 1970 provides the Postal Service with broad statutory authority to develop, test, approve, and market new products. With respect to the Postal Service’s general duties, the act directs the Service to plan, develop, promote, and provide adequate and efficient postal services at fair and reasonable rates and fees. In addition, it specifies that it is the Service’s general duty to “receive, transmit, and deliver . . . written and printed matter, parcels, and like materials and provide such other services incidental thereto as it finds appropriate to its functions and in the public interest.” In more specific terms, the act also provides the Postal Service authority to develop a variety of new products. With regard to new capital products, the Service has authority under the act to determine the need for post offices, postal and training facilities, and equipment and to provide such offices, facilities, and equipment as it determines are needed. The act also provides the Service with the specific power to provide philatelic services. With regard to new international products, the act has been interpreted by the courts as providing the Service, with the consent of the president, the authority to establish international products. Finally, with regard to nonpostal products, the act provides the Service with the specific power to “provide, establish, change, or abolish special nonpostal or similar services.” These provisions do not contain any specific limitations or constraints on the Postal Service’s authority to develop, test, approve, and market these products except for the requirement to obtain presidential consent with regard to international products. Nevertheless, our analysis shows that the Postal Service is subject to at least three constraints that affect postal operations, including the development and marketing of new products. First, the act sets forth the mission of the Service to provide “postal services to bind the Nation together through the personal, educational, literary, and business correspondence of the people.” In addition, it directs the Service to provide postal services in a prompt, reliable, and efficient manner, at reasonable rates, and to all communities and patrons. Therefore, when the Service develops any new product, it needs to be able to explain how that new product will further its underlying statutory mission. For example, in response to recent questions from Congress regarding its marketing of new retail products with postal themes, such as neckties, T-shirts, greeting cards, and other gift items, Postal officials justified these nonpostal products as being needed to help provide the necessary revenues to operate its basic functions and obligations.However, more recently, the Postal Service acknowledged growing concerns in Congress and in the private sector about its marketing of these retail products, and it decided to end the sales of apparel merchandise at post offices. Second, under its statutory authority, before marketing a new domestic postal product, which necessarily involves classification of mail, the Service must request a recommended decision from PRC regarding the propriety of the Service’s proposed classification, rates, or fees for the new product. The requirement to request a recommended decision from PRC before marketing a new product applies, however, only to new domestic postal products. Therefore, the Service may introduce new capital, philatelic, international, and nonpostal products without first requesting a recommended decision from PRC. Although there is no statutory definition of a postal product, court and administrative decisions have held that a product is considered to be postal in nature if it involves an aspect of the posting, handling, or delivery of mail. With regard to new domestic postal products, the act also requires that PRC provide an opportunity for a hearing on the record for the Service, mail users, and a PRC officer representing the interests of the general public prior to PRC issuing its recommended decision. Under its regulations, PRC provides general rules of practice for these proceedings and special rules and expedited proceedings for recommended decisions, such as decisions on (1) experimental products, (2) market tests of new products, and (3) new products that are to be marketed for only a limited amount of time. The Postal Service’s Board of Governors may approve, allow under protest, reject, or modify PRC decisions as provided for in statute. Third, the Postal Service’s ability to market new products can be constrained or influenced by congressional oversight and other congressional action. The act provides for congressional oversight of the Postal Service. This oversight responsibility resides primarily with the Senate Committee on Governmental Affairs and its Subcommittee on International Security, Proliferation and Federal Services; and with the House Committee on Government Reform and Oversight and its Subcommittee on the Postal Service. These Committees and Subcommittees periodically hold oversight hearings on postal operations, at which time the Postal Service may be asked to justify any new product being developed or marketed. Additionally, other congressional action, including restrictions imposed during the appropriations process and other types of legislative action, can constrain or influence the Postal Service’s new product activities. On January 7, 1997, the Chairman, Subcommittee on the Postal Service, introduced H.R. 22 in the 105th Congress to reform the laws that govern the Postal Service. H.R. 22 followed up on a similar bill (H.R. 3717, 104th Congress (1996)) introduced by the Chairman in the 104th Congress. The most recent version of H.R. 22 was agreed to by the Subcommittee on the Postal Service on September 24, 1998. H.R. 22—currently entitled the Postal Modernization Act of 1998—would amend the Service’s current statutory authority to develop, test, approve, and market new products in a number of ways. First, H.R. 22 would provide, for the first time, statutory definitions for the terms postal products and nonpostal products. A postal product would be specifically defined as “any service that provides for the physical delivery of letters, printed matter, or packages weighing up to 70 pounds, including physical acceptance, collection, sorting, or transportation services ancillary thereto.” A nonpostal product would be defined as “any product or service offered by the Postal Service (or that could have been offered by the Postal Service under section 404(a)(6), as last in effect before the date of enactment of the Postal Modernization Act of 1998) that is not a postal product.” Having specifically distinguished between postal and nonpostal products, H.R. 22 would place additional constraints on the introduction of new, nonpostal products. Under H.R. 22, the Service would be restricted to introducing new, nonpostal products through a private, for-profit corporation funded through revenues derived from the Service’s competitive products and loans obtained on the credit of the corporation itself. The corporation would be owned by, but separate from, the Postal Service and would be subject to the same corporate laws as any other similar private company. Furthermore, nonpostal products that the Service first offered to the public between January 1, 1994, and the date of enactment of H.R. 22 would be transitioned into the private corporation, following a schedule and procedures established by PRC. Nonpostal products first offered to the public prior to January 1, 1994, could continue to be produced or discontinued by the Service directly (but not established or changed). PRC would not, as under current law, be involved in reviewing the establishment of new nonpostal products. Under H.R. 22, for the first time postal products would be specifically divided into separate “competitive” and “noncompetitive” categories. Competitive products would include those postal products facing full competition within the marketplace. As specified in H.R. 22, competitive activities would be, to the maximum possible extent, on the same terms and conditions as those faced by private sector competitors. After establishment of initial rates (referred to in H.R. 22 as baseline rates) based on a recommended decision by PRC, the Postal Service would have discretion to set prices for competitive products as it deems appropriate, as long as (1) each of these products was priced to cover its own costs, and (2) the competitive products collectively made a specified contribution to the overhead of the Postal Service. PRC would do annual audit reviews of competitive products to ensure that prices were set in accordance with the law. Noncompetitive products would include those products such as First-Class Mail and other classes of mail for which there are few practical or legal alternatives to the Postal Service. After establishment of baseline rates based on a recommended decision by PRC, rates for noncompetitive products would be established using a price “cap” regimen, based on the consumer price index less a “productivity offset,” which PRC will determine every 5 years. Once the cap is established, the Postal Service may adjust prices on an annual basis within specified limits. International postal products would be grouped into the competitive or noncompetitive categories, as appropriate, and would, for the first time, be treated the same as any other postal product with regard to PRC involvement and oversight. H.R. 22 would provide the Service with broader latitude to test market experimental postal products. Under H.R. 22, experimental postal products could be tested in the marketplace without having to meet the specific price cap/competitive category requirements the bill would impose. Specifically, the proposal would authorize market tests of experimental noncompetitive and competitive postal products for as long as 2 years and for $10 million in revenues per year without prior PRC approval. Market tests could be extended to a third year with PRC’s approval. Larger scale market tests, generating up to $100 million in annual revenues, would also be permitted under rules adopted by PRC. The Postal Service would be required to provide to PRC (1) notice prior to the initiation of any market tests; and (2) annually, information regarding costs, revenues, and quality of service on its market tests of new products. PRC would have the authority to review market tests through annual audit, to review market tests upon complaint, or to stop market tests that do not meet established criteria. After completion of the market tests, the Service would be required to either discontinue the test or follow the requirements for its permanent placement in either the competitive or noncompetitive postal product categories. In response to the introduction of the original version of H.R. 22, the Postal Service presented to the Subcommittee on the Postal Service its own legislative proposal for postal reform on May 7, 1997. The proposal, referred to as the Postal Pricing Reform Act of 1997, would allow the Postal Service to test market experimental domestic postal products without having them reviewed by PRC first. The Postal Service believes that the existing system is unduly inhibiting, potentially too lengthy, and inadequate to accommodate the needs of a modern Postal Service. The proposal provides for the Postal Service to test market experimental, domestic postal products without first requesting a recommended decision from PRC on product classification and rates or fees. After an experimental product has been in existence for 3 years or has actually generated $100 million of annual revenue, the Postal Service could either discontinue the experiment or request a recommended decision from PRC. The Service could continue to offer experimental products while PRC was conducting hearings. Under the Service’s proposal, the Service could continue to develop, test, approve, and market new capital, philatelic, international, and nonpostal products without having them reviewed by PRC. Finally, the proposal does not appear to affect current distinctions between postal and nonpostal products set forth in administrative and court decisions. The Service’s Marketing Department is one of the primary players in the introduction of new products. Since June 1996, the Marketing Department has relied on a formalized review and approval process to govern the introduction of its new products. The process, referred to as the CustomerPerfect! new product development process, is based on the Malcolm Baldrige Award criteria and incorporates many aspects of the Service’s review and approval process for capital projects. As part of our overall review of the Marketing Department’s new product development process, we traced the movement of three products through that process, and we found that they generally followed the tenets of the CustomerPerfect! new product development process. During the early 1990s, Postal management recognized that the Postal Service was facing a future of growing competition across many of its product lines. In particular, managers believed that the emerging electronic communications industry had the potential to seriously erode the Service’s First-Class Mail base—the financial bedrock of universal service. Faced with this perspective, management developed the corporate goal of initiating and growing new businesses, particularly in the electronic communications arena, in order to ensure its commercial viability as a service provider for the worldwide movement of messages, merchandise, and money. To carry out its goal of initiating and growing new businesses, the Service turned primarily to its Marketing Department, which began developing concepts for new products. To oversee this work, Marketing established a New Business Initiatives and Products Group. Additionally, to facilitate the process of developing and introducing new products and to ensure effective management control, the Service developed a formalized system of checks and balances that requires top management buy-in at critical stages of the development process. This system of checks and balances, adopted in June 1996, is known as the CustomerPerfect! new product development process. This process is also used to review the performance of products and terminate those that do not perform to Postal Service expectations. As an additional check to ensure that the new product development process is followed, top management established a Business Evaluation Group in the Finance Department. In addition to helping the Marketing Department oversee the process, the Business Evaluation Group is to validate the financial feasibility of new products and provide the Board of Governors with an independent financial assessment of each new product. The Business Evaluation Group reports directly to the Chief Financial Officer/Senior Vice President. Under the new product development process, new products initiated by the Marketing Department’s New Business Initiatives and Products Group go through four distinct stages: the (1) concept stage, (2) business plan stage, (3) test stage, and (4) implementation stage. During each stage, there are specific review and decision points for top management. Additionally, the Board of Governors must approve the Business Plan, product testing and results, and product implementation (rollout). The purpose of the concept stage is to generate ideas for new products that are consistent with the Service’s strategic plan and CustomerPerfect!. The Marketing Department prepares a Business Proposition Statement during this stage that outlines such things as the business objective for the new product, the market situation, and a revenue forecast. If the Chief Marketing Officer approves the Business Proposition Statement, then the new product proposal advances to stage 2—the business plan stage. In the business plan stage, a preliminary Business Plan is prepared that includes detailed sections on customer requirements, the target market and strategy for entering that market, the organization and management structure for the business, financial projections, and critical success factors and measures of success. In developing the preliminary Business Plan, a cross-functional team is assembled to achieve consensus on the product assumptions needed to build the preliminary Business Plan. Team members, selected on the basis of skills needed, are drawn from various postal headquarters departments, such as Marketing, Finance, Legal, and Purchasing; and Field Operations. Any issues the cross-functional team cannot resolve by consensus are settled by the Chief Marketing Officer. After the preliminary Business Plan is developed, the Chief Marketing Officer solicits feedback from individual members of the Management Committee, which comprises the Postmaster General, Deputy Postmaster General, Chief Operating Officer, Chief Financial Officer, and Chief Marketing Officer. Following review and approval by the Management Committee, the Marketing Department conducts a proof of concept operations test with a vendor to validate the new product concept. If the operations test indicates that the new product concept is valid and ready for market testing, then the Chief Marketing Officer presents the preliminary Business Plan to the Strategic Planning Committee of the Board of Governors for review. With the Strategic Planning Committee’s approval, the Chief Marketing Officer presents the preliminary Business Plan to the Board of Governors. If the Board approves the preliminary Business Plan, then the proposed new product moves to stage 3—the test stage. The purpose of the test stage is to test and evaluate the new product in the marketplace. Postal field operations participate with cross-functional team representatives to establish the scope of a limited market test and the measures of success. Following the limited market test, the Chief Marketing Officer reviews the test results and determines the need for an expanded test. If the Chief Marketing Officer determines that an expanded test is warranted, then a proposal for a major market test is prepared. That proposal is then to be reviewed and approved by the Management Committee, Strategic Planning Committee of the Board of Governors, and the Board of Governors. Following Board approval, the new product is tested in a major market. After the major market test, the process requires a thorough review of the results by the cross-functional team and Chief Marketing Officer. If this review determines that the established measures of success have been met, the new product proceeds to stage 4—the implementation stage. The first step in the implementation stage is for the Marketing Department to update and finalize the Business Plan on the basis of the results of the major market test and feedback from the individual members of the Management Committee. After a final review and approval of the market test results and Business Plan by the Management Committee, Strategic Planning Committee of the Board, and the Board of Governors, the new product is rolled out to the target market, which, in most cases, is the nation. After a new product is rolled out, it is to be tracked continuously against the Business Plan and subjected to annual performance reviews by the Marketing Department. On the basis of the results of the annual performance reviews, the Marketing Department is to make improvements to the new product as indicated. Appendix I lists the major events during each of the four stages of the new product development process. As part of our overall review of the Marketing Department’s new product development process, we traced the movement of three products—FIRSTCLASS PHONECARDTM, REMITCO, and Electronic PostmarkTM System—through that process, primarily to determine how closely they followed prescribed steps. The Postal Service had partially developed all three products before the CustomerPerfect! new product development process was implemented in June 1996. Prior to that date, the products followed developmental steps similar to and later incorporated into the new product development process. FIRSTCLASS PHONECARDTM is the name of the Postal Service’s prepaid phone card, which can be purchased at postal retail outlets and from postal vending machines. REMITCO is the Postal Service’s remittance processing business. REMITCO extends the Postal Service’s business of delivering payments, such as credit card and utility payments, to the actual processing of checks being mailed from customers to businesses. Electronic PostmarkTM is the Postal Service’s electronic version of its traditional postmark. The Electronic PostmarkTM System applies the digital signature of the Postal Service to an electronic transaction, states the time and date it is applied, and displays notification to the recipient if the transaction has been tampered with. Although all three products were moved into the new product development process in June 1996, the products entered different stages of the new process and progressed at different rates. FIRSTCLASS PHONECARDTM entered the new process at the test stage and has since progressed to the implementation stage. At the end of fiscal year 1997, FIRSTCLASS PHONECARDTM was the only product to have achieved national rollout under this process. REMITCO and Electronic PostmarkTM System entered the new process at the business plan stage, although REMITCO is the only one of the two that has progressed to the test stage. In general, we found that each of the three products followed the tenets of the new process. However, proof of concept operations tests were not done for FIRSTCLASS PHONECARDTM and REMITCO, although the process called for these tests. According to Postal officials, such tests were unnecessary because the product concepts had already been validated by various private sector companies. Appendix II contains a more detailed discussion of each product, including information on the origin and development of the product; the short- and long-term goals for the product; and our assessment of how closely the product followed the new product development process, as well as the Postal Service’s rationale for any deviations from the new process. Appendix III contains an inventory and summary information about each publicly announced new product the Postal Service marketed and/or had under development during fiscal years 1995, 1996, and 1997—excluding capital and philatelic products. Table 1 summarizes the financial performance of each new product and the 19 products in total, from product inception through fiscal year 1997, and for the first 3 quarters of fiscal year 1998. The information displayed in appendix III provides (1) a description of each product, (2) a history of each product, (3) financial data from inception of product through fiscal year 1997, and (4) fiscal year 1998 financial data—through quarter 3—for each product. Highlighted below are some of our observations concerning the inventory listing. Of the 19 new products listed, 11 were at least partially developed under the Marketing Department’s CustomerPerfect! new product development process and 8 were not. Three products—FIRSTCLASS PHONECARDTM, Dinero Seguro, and Unisite Antennas—involved strategic alliances with other entities. Of the 19 new products listed, 5 had been discontinued as of July 1998, and the Service was considering discontinuing 1 more—Customer Initiated Payment System (CIPS). Additionally, the Service was awaiting a decision from its Board of Governors on whether or not to proceed with its Provisional Packaging Service (formerly known as pack-and-send). Of the 19 new products listed, 10 were started before fiscal year 1996, 6 were started in fiscal year 1996, and 3 were started in fiscal year 1997. From date of product inception through fiscal year 1997, only one product reported making a profit—retail merchandise. Total revenues and expenses reported for the 19 products, through fiscal year 1997, were $148.8 million and $233.5 million, respectively, resulting in a net loss of $84.7 million. In this regard, it may not be reasonable to expect all new products to become profitable in their early years, because new products generally take several years to become established and recover their start-up costs. During the first 3 quarters of fiscal year 1998, 13 of the 19 products listed had financial activity. Four of the 13 reported net profits, and 9 reported net losses for the period. Total revenues and expenses for the 13 products during the first 3 quarters of fiscal year 1998 were $117.8 million and $121.5 million, respectively, resulting in a reported net loss of $3.7 million. We requested comments from the Postmaster General on a draft of this report. On October 27, 1998, the Postal Service’s Chief Marketing Officer/Senior Vice President provided comments on the draft report. He said that the Service was in agreement with the information presented. He provided some technical updates, which we incorporated into the report where appropriate. We are sending copies of this report to the Ranking Minority Member of your Subcommittee; the Chairman and Ranking Minority Member of the Subcommittee on International Security, Proliferation and Federal Services, Senate Committee on Governmental Affairs; the Postmaster General; and other interested parties. Copies will also be made available to others upon request. Major contributors to this report are listed in appendix IV. If you have any questions about the report, please call me on (202) 512-8387. Generate an idea for new product that is consistent with the Service’s strategic plan and CustomerPerfect!. Prepare a Business Proposition Statement for the new product idea. Present the Business Proposition Statement to the Chief Marketing Officer for Review and Approval. Move the new product idea to the business plan stage following the Chief Marketing Officer’s approval. Prepare a preliminary Business Plan for the new product and solicit feedback from the individual members of the Management Committee. Present the preliminary Business Plan to the Management Committee for review and approval to proceed with an operations test. Conduct a proof of concept operations test to validate the new product concept and its readiness for market testing. Provide operations test results to the Chief Marketing Officer for review and approval. Present the preliminary Business Plan, including operations test results, to the Board of Governors’ Strategic Planning Committee and then to the Board of Governors for their sequential review and approval. Move the new product to the test stage following approval by the Board’s Strategic Planning Committee and the Board of Governors. Perform a limited-scope market test of the new product. Evaluate limited-scope market test results and present results to the Chief Marketing Officer for review and decision on whether to proceed with a major market test. Present a proposal for a major market test to the Management Committee, the Board’s Strategic Planning Committee, and the Board of Governors for their sequential review and approval to proceed with the major market test. Conduct the major market test and evaluate the results against measures of success. Submit results for the Chief Marketing Officer’s review. Move to the implementation stage following determination by the Chief Marketing Officer that measures of success for the major market test were met. Implementation Stage Finalize the Business Plan on the basis of major market test results and feedback from individual members of the Management Committee. Present the finalized Business Plan and results of the major market test to the Management Committee, the Board’s Strategic Planning Committee, and the Board of Governors for their sequential review and approval. Roll out new product to target market following review and approval of the major market test results and Business Plan by the Management Committee, the Board’s Strategic Planning Committee, and the Board of Governors. Track the new product continuously against the Business Plan, perform annual reviews, and improve the product as indicated. As part of our overall review of the Marketing Department’s new product development process, we traced the movement of three products—FIRSTCLASS PHONECARDTM, REMITCO, and Electronic PostmarkTM System—through that process, primarily to determine how closely those products followed prescribed steps. Our discussion of each product includes information on the origin and development of the product; the short- and long-term goals for the product; and our assessment of how closely the product followed the new product development process, as well as the Postal Service’s rationale for any deviations from the process. In general, we found that each of these three products followed the tenets of the CustomerPerfect! new product development process. FIRSTCLASS PHONECARDTM is the exclusive brand name of a phone card offered through a strategic alliance between the U.S. Postal Service and SmarTalk Teleservices, Inc. Phone cards are a way of paying for telephone service in advance by establishing a prepaid account with a card issuer. Phone cards provide customers with a convenient way of making calls when away from the home or office. The Postal Service entered the phone card business about 3 years ago as a way of increasing revenues and providing customers with a convenient, reliable, and trusted means for purchasing and using phone cards. The Service’s short-term goal for the FIRSTCLASS PHONECARDTM is to provide a reliable service and make the business profitable. Its long-term goal is to become a leading retailer in the phone card industry. The FIRSTCLASS PHONECARDTM initiative has generally followed the CustomerPerfect! new product development process. An electronic postmark is an unmodifiable time and date stamp attached to an electronic communication—such as e-mail. In the case of a Postal Service-applied electronic postmark, the associated communication is digitally signed. The digital signature enables the Service to determine if there has been any unauthorized access or modification to the electronic message after it was postmarked. The Electronic PostmarkTM System was developed under the Postal Service’s electronic commerce services research initiative. The electronic commerce services research initiative was discontinued at the end of fiscal year 1997 following the development of the Electronic PostmarkTM System and the Certificate Authority System. The Postal Service continues work on both the Electronic PostmarkTM System and the Certificate Authority System. The Service’s short-term goal for its Electronic PostmarkTM System is to refine the product through operations testing and begin marketing. The Service’s long-term goal is to elevate the public’s acceptance of the Electronic PostmarkTM System to the same level as the postmark for traditional mail. Prior to June 1996, activities associated with developing the Service’s Electronic PostmarkTM System were approved under the capital projects review and approval process. Since June 1996, Electronic PostmarkTM System activities have been under the Service’s CustomerPerfect! new product development process. The Postal Service’s Electronic PostmarkTM System prototype originated from a research initiative known as electronic commerce services. That research effort began in fiscal year 1993 and was discontinued at the end of fiscal year 1997. According to Postal officials, the electronic commerce services research initiative was discontinued after it met its objectives, i.e, the successful development of two new electronic capabilities—the Electronic PostmarkTM System and the Certificate Authority System. The electronic commerce services research initiative was the Service’s first endeavor in the electronic commerce arena. The Postal Service views its entry into the electronic commerce market as an extension of its core business—the delivery of traditional mail. According to Service officials, electronic mail has the same attributes as traditional mail, but because of security concerns, electronic mail has not gained wide acceptance in the legal and business community—especially for legal and financial transactions. The Service believes that its Electronic PostmarkTM System will help bring the level of acceptability of electronic mail up to that of First-Class Mail. The Service recognizes that some private companies are already marketing electronic postmarking services. However, the Service believes it is in the best position to serve the public’s need for an independent, third-party agent offering secure electronic mail. According to the Postal Service, the public has trusted the Service with the security of its traditional mail for over 200 years. Postal officials believe that with Postal-backed electronic services, the public will have the same high level of trust and confidence in the security of the Service’s electronic mail that it does with the Service’s traditional mail. The Service’s short-term goal for its Electronic PostmarkTM System is to complete operational testing, make refinements to the product as called for by the operations tests, and build a solid case for a substantial investment to build and deploy an Electronic PostmarkTM production system. The Service expects to begin wide-scale marketing of its Electronic PostmarkTM System within the next 2 years. Additionally, the Service plans to explore the feasibility of licensing private companies to use its Electronic PostmarkTM System. The Service’s long-term goal is to elevate the level of acceptance of its Electronic PostmarkTM System to the same level as its traditional postmark. No specific time frames have been established for this goal. According to Postal officials, the speed at which this occurs will be dictated not only by advancements in electronic technology but also by the courts, which must decide issues relating to the legal acceptability of digitally signed electronic documents in lieu of traditional “hard-copy” documents. As noted above, the Service’s Electronic PostmarkTM System was initiated under the umbrella of its electronic commerce services research initiative. The concept of electronic commerce services was conceived in 1993, about 3 years before the CustomerPerfect! new product development process was implemented. During that period, the electronic commerce services research initiative was under the capital projects review and approval process—a process used to monitor the development of capital projects, such as the upgrading of postal equipment and the construction and renovation of postal facilities. According to Postal officials, there are many similarities between the new product development process and the capital projects review and approval process. Consequently, the electronic commerce services research initiative, between 1993 and 1996, went through stages similar to the concept stage and business plan stage of the new product development process. For example, a capital projects decision analysis report was prepared for the electronic commerce services research initiative, which is very similar to the preliminary Business Plan required during the business plan stage of the new product development process. Also, the Board of Governors approved the electronic commerce services research initiative, just as the Board must approve new products under the new product development process. According to Postal officials, when the initiative was discontinued at the end of fiscal year 1997, the Service had spent $20.3 million on electronic commerce services. Of that amount, $3.2 million was spent on the Electronic PostmarkTM System. With the implementation of the new product development process in June 1996, the electronic commerce services research initiative was moved from the capital projects review and approval process to the business plan stage of the new product development process. It remained at that stage until it was discontinued in September 1997. According to Postal officials, the Electronic PostmarkTM System is to be moved under the auspices of another Postal Service initiative, PostOffice Online, after some limited market testing later in 1998 under Postal Electronic Courier Service (PostECS), a joint project involving the U.S. Postal Service, Canada Post, and LaPoste (France). PostECS is an electronic service designed to replace traditional international faxes and overnight courier services. The U.S. Postal Service joined the PostECS project with Canada Post and LaPoste in early 1998. After successfully testing its Electronic PostmarkTM System capability under PostECS, the Service plans additional testing under its PostOffice Online initiative. PostOffice Online, currently in the test stage of the new product development process, is a service designed to help small businesses move money and messages and sell merchandise conveniently and securely over the Internet. PostOffice Online began market testing in March 1998. A classification case was filed on July 15, 1998, with PRC for Mailing Online Services—a component of PostOffice Online. A more detailed description of PostOffice Online can be found in appendix III. Prepaid telecommunications card. The FIRSTCLASS PHONECARDTM is the brand name of a prepaid phone card available to the public through a strategic alliance between the Postal Service and SmarTalk Teleservices, Inc. The FIRSTCLASS PHONECARDTM can be purchased at postal retail units and from postal vending machines throughout the U.S. At the end of 1997, the FIRSTCLASS PHONECARDTM was available in $10, $20, and $50 denominations, and the per-minute rate for domestic calls was 39 cents. In April 1998, the Service lowered its per-minute rate and added a $100 phone card. The new per-minute rate ranged from 25 cents for the $100 card to 33 cents for the $10 and $20 cards. International rates varied by country. In July 1995, American Express Telecom, Inc., approached the Postal Service about forming a strategic alliance to market phone cards. In August 1995, the Postal Service and American Express entered into an agreement to test market phone cards. Following the market test, the FIRSTCLASS PHONECARDTM was made available nationwide. At the end of 1997, the FIRSTCLASS PHONECARDTM was being sold in about 11,700 postal retail units and in about 2,000 postal vending machines. At the end of 1997, SmarTalk Teleservices, Inc., acquired American Express Telecom, Inc., including the FIRSTCLASS PHONECARDTM business, for $34 million and formed a new strategic alliance with the Postal Service for continuing the business. The $34 million from the sale of the business was split equally between the Postal Service and American Express. The FIRSTCLASS PHONECARDTM business is sponsored by the New Businesses Marketing Group and has been monitored under the CustomerPerfect! new product development process since adoption of that process in June 1996. At the end of 1997, this was the only product to have achieved national rollout under the new product development process. Expenses (millions) Profit (loss) (millions) Revenue goal for FY 1998(millions) Revenue (millions) Expenses (millions) Profit (loss) (millions) ($3.0) (continued) Remittance processing. REMITCO is a Postal Service business managed by the REMITCO Management Corp. REMITCO extends the Service’s role beyond mail delivery to the processing of remittance documents. Remittance processing involves opening return envelopes and extracting bill payments, processing the checks and depositing them into business recipients’ bank accounts, and electronically transmitting remittance records to the business recipients. In 1995, American Express decided to outsource its in-house remittance processing operation located on Staten Island in New York City. The Postal Service was the successful bidder on this project and in December 1996 signed a contract with American Express. In turn, the Postal Service contracted with REMITCO Management Corp. to manage and operate the Staten Island facility. As potential REMITCO customers, the Service is targeting businesses that receive 10 million remittances or more annually and do their own remittance processing. Examples include credit card companies, utilities, communications companies, mortgage companies, insurance companies, and large retailers. The Postal Service assumed the lease on the Staten Island facility from American Express on July 15, 1997, and has spent approximately $2 million on improvements. The facility is owned by the New York Port Authority. REMITCO began processing American Express remittances on May 15, 1997. Since then it has started processing remittances for Public Service Electric and Gas of Metro Park, NJ; and Mellon Bank Credit Card of Wilmington, DE. Ultimately, the Service hopes to have a nationwide network of about 10 other similar processing facilities. REMITCO is sponsored by the Service’s New Businesses Marketing Group and has been monitored under the CustomerPerfect! new product development process since adoption of that process in June 1996. Expenses (millions) Profit (loss) (millions) Revenue goal for FY 1998(millions) Revenue (millions) Expenses (millions) Profit (loss) (millions) ($6.1) ($6.3) (continued) The initial research under the electronic commerce services initiative began in FY 1993. With the development of two new electronic systems—the Electronic PostmarkTM System and the Certificate Authority System—this research initiative was completed. Plans are to integrate these two new systems into Postal Service products and possibly commercial vendor products for testing during 1998. Value added services for electronic transmissions. The electronic commerce services initiative was a research effort initiated by the Postal Service to develop value added services for electronic transmissions. Through this research, electronic commerce services developed two new electronic commerce systems—the Electronic PostmarkTM System and a Certificate Authority System. The Electronic PostmarkTM System applies an electronic time and date stamp and the digital signature of the Postal Service to an entire electronic transaction, and displays notification to the recipient if the transaction has been tampered with. The Certificate Authority System authenticates or certifies the identity of customers sending and receiving electronic messages. The Postal Service was to begin testing its Electronic PostmarkTM System in October 1998. The first tests are to be done under PostECS (Postal Electronic Courier Service), a joint project involving the U.S. Postal Service, Canada Post, and LaPoste (France). PostECS is an electronic service designed to replace international faxes and overnight courier services. The U.S Postal Service joined PostECS in early 1998. The principal sponsor of the electronic commerce services initiative was the Service’s Technology Applications Group. The initiative began about 3 years before adoption of the CustomerPerfect! new product development process. Funding for the initiative was approved under the capital projects review and approval process. Future activities associated with the Electronic PostmarkTM System and Certificate Authority System are to be governed by the new product development process. Expedited international delivery service for documents, correspondence, and merchandise. Conceptually, Global Priority Mail is the Service’s domestic priority mail service elevated to an international level. Priority Mail is First-Class Mail that receives special handling for a premium price. Global Priority Mail is available for mail sent from the U.S. to any 1 of 33 destinations. Global Priority Mail evolved from an earlier pilot program launched in March 1995 known as WorldPost Priority Letter Service. WorldPost Priority Letter Service officially became Global Priority Mail in March 1996. Global Priority Mail is an expedited international service for documents, correspondence, and merchandise being sent to designated countries. The service features a 4-business-day delivery standard to designated countries for a premium price. Global Priority Mail is sponsored by the Service’s International Business Unit and is not under the purview of the CustomerPerfect! new product development process. Expenses (millions) Profit (loss) (millions) Revenue goal for FY 1998(millions) Revenue (millions) Expenses (millions) Profit (loss) (millions) ($20.3) ($5.4) ($0.6) (continued) Global Package LinkExpedited international package delivery service for high-volume U.S. mailers. Global Package Link is an expedited international parcel delivery service offered by the Postal Service to U.S. mailers who send at least 10,000 parcels per year to 1 or more destinations covered by the program. To participate in the program, U.S. mailers must agree to link their information systems with those of the Postal Service so the customer and the Service can generate reciprocal data concerning the parcels, meet certain shipping preparation requirements, and designate the Postal Service as the carrier of choice for each country to which the Global Package Link parcels are being sent. Global Package Link evolved from an earlier pilot program launched in November 1994 known as International Package Consignment Service. International Package Consignment Service officially became Global Package Link in November 1995. The initial work on the program began in FY 1995. According to Service officials, Global Package Link was designed as a parcel delivery service that would make it easier and more economical for direct marketers to export bulk shipments of merchandise internationally. In 1998, Global Package Link service was available to 11 destinations. Global Package Link parcels are generally scheduled for delivery in 3 to 10 business days, depending on the destination. Global Package Link is sponsored by the Service’s International Business Unit and is not under the purview of the CustomerPerfect! new product development process. Marketing merchandise displaying stamp images or Postal Service symbols. Retail merchandise marketed by the Service contains either a stamp image, heritage logo, or the logo of a core service—e.g., Priority Mail. Examples of retail merchandise marketed by the Service include T-shirts, beverage mugs, neckties, greeting cards, and stationery. As of July 1998, such merchandise was being sold in all 500 postal storesand in about 25,000 of the Service’s 33,000 traditional retail units. Merchandise may also be ordered from a Postal Service catalog or through the Service’s Web site. However, in June 1998, the Service announced plans to curtail its retail merchandising activity. The Service will no longer sell apparel merchandise in post offices, although such merchandise will still be available at the Postmark America Store in the Mall of America and through catalog and web site programs and special events. Stationery, greeting cards, packaging products, and a limited line of collectables will continue to be sold at retail units. The Service’s centralized retail merchandise program started in early FY 1997 with the emphasis primarily on postal stores. According to Postal officials, the program quickly expanded to the traditional postal retail units because of the positive feedback from customers. Prior to FY 1997, merchandise was marketed on a decentralized basis. According to Postal officials, merchandise marketed in this manner was generally associated with a special event, such as the unveiling of a new stamp. Under the decentralized program, each postmaster could decide what merchandise, if any, to market. Retail merchandising is sponsored by the Service’s Retail Group and is not under the purview of the CustomerPerfect! new product development process. However, retail merchandise does follow a modified retail product development process. Expenses (millions) Profit (loss) (millions) Revenue goal for FY 1998(millions) Revenue (millions) Expenses (millions) Profit (loss) (millions) ($1.1) ($0.2) (continued) Internet-based postal services. PostOffice Online is a service designed to help small businesses move money, messages, and merchandise conveniently and securely over the Internet. Conceptually, PostOffice Online customers will be able to (1) pay for their mailings and print postage using their personal computers; (2) buy mailing products and supplies on-line; and (3) contact the Postal Service and request parcel pickup service, or check to see if a particular package has been delivered. Customers will also be able to design their own newsletters or advertisements and send them to the Postal Service electronically. At that point, the Service will assume responsibility for printing the documents and delivering them to the addresses the customer chooses. Also, as part of PostOffice Online, the Service will test its Electronic PostmarkTM System. However, the Service does not plan to conduct these tests until after the Electronic PostmarkTM System has been successfully tested under PostECS—Postal Electronic Courier Service. PostECS is a joint project involving the U.S. Postal Service, Canada Post, and LaPoste (France). PostECS is designed to replace international faxes and overnight courier services. (The Electronic PostmarkTM System is discussed in detail on pages 35-38 and in summary form in this appendix under “Electronic Commerce Services.”) The PostOffice Online project began in July 1997. It is an umbrella electronic initiative that combines some of the Service’s new ideas with some of its prior research work in the electronic arena. For example, the ability to send newsletters and advertisements electronically to the Service for preparation and delivery began as a research and development project known as NetPost, and the Electronic PostmarkTM System began as part of a research initiative known as electronic commerce services. (See discussion on pages 35-38.) Market testing of PostOffice Online began in March 1998 with 50 customers in Tampa, FL. In May 1998, the test was expanded to include about 50 customers in Hartford, CT. An updated version of PostOffice Online has been developed based on experience from these tests. The Electronic PostmarkTM System portion of the test is not scheduled to begin until later in 1998—following its initial test under PostECS. On July 15, 1998 the Service filed a classification case with PRC for a component of PostOffice Online—Mailing Online Services. PostOffice Online is sponsored by the New Businesses Marketing Group and has always been monitored under the CustomerPerfect! new product development process. Internet-based information on government services and products. WINGS was designed to provide one-stop shopping for federal, state, and local government information and services. Conceptually, using a portable computer connected to the Internet or a public kiosk located in high-traffic areas, such as post office lobbies, libraries, shopping malls, and grocery stores, the public could (1) locate needed government information and services, and (2) transact government business. Examples of the types of information and services that were to be available under WINGS included (1) motor vehicle registration, (2) tax forms and answers, and (3) change of address notices. Anticipated revenues were to come from fees paid by the agencies participating in WINGS. The Postal Service began a 6 month operations test of WINGS in May 1996 in North Carolina. No fees were charged participating agencies during the operations test. WINGS was discontinued at the end of its operations test because of (1) lower-than-anticipated public demand for the service, (2) agencies’ reluctance to participate in a consolidated interagency information program, and (3) a new direction for electronic commerce services. WINGS was sponsored by the New Businesses Marketing Group and was monitored under the CustomerPerfect! new product development process following adoption of that process in June 1996. Expenses (millions) Profit (loss) (millions) Revenue goal for FY 1998(millions) Revenue (millions) Expenses (millions) Profit (loss) (millions) ($0.8) ($4.5) ($4.0) ($1.1) (continued) Interactive catalog shopping through kiosks. Conceptually, through kiosks connected to the Internet, customers could have electronically ordered stamps, postal-related retail merchandise, and U.S. Mint collectible coins and have the merchandise delivered by the Postal Service to the address(es) of their choice. Plans were to expand available merchandise, after an initial test period, to include sportswear, business supplies, and housewares. The project, however, was discontinued before any tests were conducted. The idea for the Deliver America kiosks originated in FY 1995. The project was put “on-hold” for several months due to the reassignment of resources. No market tests were conducted. The Deliver America initiative was subsequently discontinued in June 1997. Deliver America was sponsored by the New Businesses Marketing Group and was monitored under the CustomerPerfect! new product development process following adoption of that process in June 1996. Electronic Postage Using Personal Computers. To print electronic postage using a personal computer, a customer purchases postage on-line through an established account with the Postal Service. The value of the postage is then downloaded and secured in an electronic vault that is connected to the personal computer. With the required software, indicias can then be printed directly on a mailstrip or the mailpiece, and the amount of the postage is automatically deducted from the electronic vault. Each indicia produced in this manner contains a digital signature that makes counterfeiting, without detection, difficult. On August 25, 1998, the Service announced that it had approved, for market testing, a system for printing electronic postage that would not require a vault attached to the customer’s computer. The initial research for the project began in FY 1996, following our report on weaknesses in the Service’s postage meter program. In May 1994, we reported that the Service incurred revenue losses stemming from criminal tampering with postage meters, counterfeiting of indicia, and criminal use of lost and stolen meters to produce meter indicia for which postage was not paid. In response to that report and its own investigation, the Service initiated the Information Based Indicia Program to enhance its postage metering revenue security. After successfully meeting laboratory conditions for secure postage, the Postal Service began market testing products to print Information Based Indicia in March 1998. On March 31, 1998, at the National Postal Museum in Washington, D.C., the first letter bearing approved personal computer-generated postage was produced. In April 1998, this service was available, only on a test basis, in the Washington, D.C., metropolitan area. The Postal Service expects to expand this service to other geographic locations during the latter part of 1998. The Information Based Indicia Program is sponsored by the Service’s Retail Group, which manages all postage metering. Although this product is not sponsored by the New Businesses Marketing Group, it has followed the CustomerPerfect! new product development process since adoption of that process in June 1996. Payment alternative for recurring bills. CIPS is another way for consumers to pay recurring bills. Conceptually, under CIPS, consumers who choose to participate in the program will receive a prebarcoded post card with a unique identification number—instead of a courtesy reply envelope—along with their monthly statements from participating companies. Consumers drop their prebarcoded cards in the mail, and the Postal Service initiates the payment. Financial institutions are then electronically instructed via the automated clearinghouse network to debit the customer’s account and credit the invoicer’s account—thus paying the bill. The research work on CIPS began in FY 1996. At the end of 1997, no customer tests had been conducted on CIPS. The Postal Service had been unsuccessful in its efforts to convince large private sector companies to participate in the program. The Postal Service is considering terminating this program because of difficulty in getting a major company to participate in the program. CIPS is sponsored by the New Businesses Marketing Group and has been monitored under the CustomerPerfect! new product development process since adoption of that process in June 1996. Expenses (millions) Profit (loss) (millions) Revenue goal for FY 1998(millions) Revenue (millions) Expenses (millions) Profit (loss) (millions) ($3.2) ($3.1) ($1.8) ($1.3) (continued) Wireless communication towers on postal property. Through a strategic alliance between the Postal Service and Unisite Incorporated, 150 communication towers are to be built on postal property and then leased to wireless carriers. Under the strategic alliance agreement, the Postal Service contributes the land and Unisite Incorporated contributes its construction and marketing services. Revenues and expenses are to be essentially shared equally between the two parties. The first antenna constructed under the Unisite Antenna Program became operational in June 1996. Constructing antennas on postal sites led to unexpected public criticism of the program. Because of this, the Postal Service put its plans on hold to expand the program beyond the original 150 sites. At the end of 1997, 15 antenna sites were operational. The Unisite Antenna Program is sponsored by the Service’s Facilities Group and is not under the purview of the CustomerPerfect! new product development process. The approval for the program was granted under the rules governing the Service’s contracting authority. Stored-value card. LibertyCash is a Postal Service stored-value card that can be used to pay for all postal products and services. The card can be filled in amounts of $5 to $300 at the retail unit or over the telephone. The card is replaceable if lost or damaged. The customer selects his/her own personal identification number. Market test locations include about 2,800 post offices in Indiana, Colorado, Wyoming, Florida, Nevada, Northern California, and Minneapolis/St. Paul, MN. Exploratory work on the LibertyCash card began in FY 1995. Following an operations test in late 1996, the Service began market testing the card in 1,222 postal retail units in May 1997. In August 1998, the Service expanded its market test to include an additional 1,600 retail units, bringing the total to about 2,800 post offices. LibertyCash is sponsored by the New Businesses Marketing Group and has been monitored under the CustomerPerfect! new product development process since adoption of that process in June 1996. Expenses (millions) Profit (loss) (millions) Revenue goal for FY 1998(millions) Revenue (millions) Expenses (millions) Profit (loss) (millions) ($1.6) ($6.4) ($1.9) (continued) Electronic money transfers from the U.S. to Mexico. Dinero Seguro, which means “safe money,” is an electronic version of a Money Order that can be used to transfer money from designated U.S. locations to Mexico. At the end of 1997, Dinero Seguro was available at about 870 postal retail units in California, Texas, and Illinois. As part of a Dinero Seguro transaction, the customer is given a confirmation number and a prepaid phone card good for one 3-minute call to Mexico. The customer can then use the phone card to inform the person in Mexico that the money has been sent and pass along the confirmation number. The transferred funds can then be picked up from any one of the more than 1,300 Bancomer Bank branches in Mexico. This service is provided through a strategic alliance between the U.S. Postal Service and Bancomer Bank. The idea for Dinero Seguro originated in 1989. However, it was not until FY 1996 that the Service began an earnest effort to market Dinero Seguro. According to Postal officials, the Service thought it was inappropriate to enter this market before 1996 because of the ailing financial condition of the market leader. According to Postal officials, the Service did not want to be perceived as contributing to the market leader’s financial woes. The Service decided to move forward with Dinero Seguro in 1996 following the market leader’s financial recovery. In May 1996, the Service began an operations test and shortly thereafter began test marketing Dinero Seguro in three states with significant Mexican-origin populations. Plans to further expand Dinero Seguro have been put on hold pending further review by the Service. Dinero Seguro is part of an umbrella initiative known as Money Mover. Money Mover covers the Service’s international and domestic money order business and its new electronic money-by-wire service—Sure Money. Dinero Seguro is sponsored by the New Businesses Marketing Group and has been monitored under the CustomerPerfect! new product development process since adoption of that process in June 1996. Electronic money transfers from the U.S to El Salvador, the Philippines, and the Dominican Republic. This service was not available at the end of 1997. Rather, it was awaiting the results of the Dinero Seguro tests. Sure Money provides the same service as Dinero Seguro, except in this case, the money is transferred to El Salvador, the Dominican Republic, or the Philippines. Sure Money was designated a potential Postal Service product in FY 1997. Assuming favorable outcome of the Dinero Seguro tests, Postal officials expect to test market Sure Money in early FY 1999. This schedule may be affected, however, by the outcome of the Postal Service’s review of its Dinero Seguro program. A domestic version of this money-by-wire service is also planned. The domestic version will allow immediate money transfers between post offices, stations, and branches within the United States. Plans call for testing to begin in 1999. Sure Money is part of an umbrella initiative known as Money Mover. Money Mover covers the Service’s international and domestic money order business and its planned domestic electronic money-by-wire service. Sure Money is sponsored by the New Businesses Marketing Group and has been monitored under the CustomerPerfect! new product development process since adoption of that process in June 1996. Revenue goal for FY 1998(millions) Expenses (millions) Profit (loss) (millions) Revenue (millions) Expenses (millions) Profit (loss) (millions) ($10.5) ($5.4) ($0.5) ($0.5) (continued) Tracking mail as it moves through the mailstream and notifying shippers upon delivery. This service is designed to provide the date of delivery or attempted delivery for Express Mail, Priority Mail, and Standard Mail (B)—parcels, bound printed matter, and library mail. This service was included in the rate filing approved by the Board of Governors in July 1998. It is designed to meet expedited and package shippers’ need for delivery status information. To support this service, a new data acquisition and communications infrastructure is being implemented. A major component of this implementation is the deployment of hand-held scanners to all delivery employees. This deployment is expected to be completed by February 1999. To help ensure that a high level of service is provided to customers who purchase the service when it becomes available, a national delivery confirmation operations test was started in late 1997. The revenues to date are associated with the test customers. The Postal Service began offering a limited delivery confirmation service for Express Mail in 1991. In February 1996, the Board of Governors approved $60.5 million for track-and-trace research and development testing, and in May 1997, it approved $704.3 million to implement the delivery confirmation system infrastructure. Delivery Confirmation was initially sponsored by the Postal Service’s Comprehensive Interactive Information System Management Group, which is now the Information Systems Group in Expedited/Package Services. Delivery Confirmation is not subject to the CustomerPerfect! new product development process. Project funding, however, was approved under the Service’s capital projects approval process—a process similar to the new product development process. Packaging service. Under this proposed service, the Postal Service will, for a fee, prepare customers’ packages for shipment and enter them directly into the mailstream. In April 1998, PRC approved a 2-year test of this service; and as of July 1998, the Service was awaiting a decision from its Board of Governors on whether or not to proceed with its packaging service. Following an initial test in 1993, the Postal Service expanded testing in 1996 to about 20 Post Office Express units located in supermarkets and other high customer traffic locations. The packaging service was suspended following a PRC decision in February 1997 that the service was subject to PRC classification and rate-setting procedures. On July 30, 1997, the Postal Service filed a request with PRC to offer a provisional packaging service. PRC approved a 2-year test, but it encouraged the Board of Governors to reconsider the public interest before marketing this service. In particular, it asked the Governors to consider “the financial consequences of entering into competition with the thousands of existing owner-operated small businesses that currently provide packaging services, and to consider what measures the Postal Service might implement to mitigate the potential harm to individual private businesses.” As of October 1998, Provisional Packaging Service was on hold pending further evaluation. Provisional Packaging Service is sponsored by the Service’s Marketing Systems Group and is not under the purview of the CustomerPerfect! new product development process. Expenses (millions) Profit (loss) (millions) Revenue goal for FY 1998(millions) Revenue (millions) Expenses (millions) Profit (loss) (millions) ($2.9) ($2.6) (continued) Overnight package delivery service in selected metropolitan areas. Fastnet was an overnight delivery service available in selected geographic locations for parcels originating and destinating within the same area. Fastnet service was available in Austin, TX; Baltimore, MD; Buffalo, NY; Columbus, OH; Hackensack, NJ; Indianapolis, IN; Jacksonville, FL; Las Vegas, NV; Miami, FL; Minneapolis/St. Paul, MN; Orlando, FL; San Diego, CA; and Tampa, FL. Beginning in 1995, the Service test marketed Fastnet in 13 selected geographic locations. At the conclusion of the test in early 1996, the Service discontinued Fastnet because the results fell short of expectations. Fastnet was sponsored by the Service’s New Businesses Marketing Group and was discontinued before the Group adopted the CustomerPerfect! new product development process. International E-mail to hard copy delivery system. Under the Global e-Post concept, a mailer would prepare data and transmit it to the Postal Service, which would then route the electronic transmission to a partner postal administration in the destination country. At the destination foreign postal facility, the transmission would be matched with stored templates, printed, placed in envelopes, and delivered through the foreign postal system. In April 1996, the Postal Service conducted an operations test of Global e-Post in Anaheim, CA. In that test, Xerox Corporation electronically sent, through the U.S. Postal Service, a letter to the German Postal Administration that was downloaded, printed, and delivered to more than 10,000 business addresses in Germany. The project was discontinued later in 1996 so available staff could be devoted to higher priority projects. Global e-Post was sponsored by the Service’s New Businesses Marketing Group. Global e-Post began before adoption of the CustomerPerfect! new product development process. However, the project was discontinued under the CustomerPerfect! new product development process. Expenses (millions) Profit (loss) (millions) Revenue goal for FY 1998(millions) Revenue (millions) Expenses (millions) Profit (loss) (millions) ($11.7) ($3.5) N/A means not applicable. Retail merchandising was the subject of a Postal Service report prepared in response to a House Appropriations Committee request on this activity. The report, dated February 27, 1998, was addressed to the Chairman of the House Committee on Appropriations. Additional information concerning the Postal Service’s Unisite Antenna Program can be found in a report prepared by the Postal Service’s Office of Inspector General—(CAG-AR-98-001, Apr. 1998). Revenues from market tests conducted prior to 1997 could not be collected because there was no dedicated account identifier code in place. Closely associated with Global e-Post was International Data Post, which was a consortium of several European countries and the U.S. Postal Service to establish a network among various postal administrations to make it possible to e-mail personal correspondence to foreign postal administrations that, in turn, would deliver hard copies of the correspondence to the intended recipient. That concept has not yet materialized. Jill P. Sayre, Senior Attorney The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. 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Summary: Pursuant to a congressional request, GAO reviewed the Postal Service's (USPS) development and marketing of new products and provided information on the expense and revenues associated with the products, focusing on: (1) the statutory and regulatory authorities and constraints covering all major groups of new products; (2) the potential impact that enactment of H.R. 22 and USPS' proposed reform legislation could have on new products; (3) providing information on USPS Marketing Department's new product development process and determining, for three selected products, how closely that process was followed; and (4) providing information, including financial data, on all new postal and nonpostal products USPS marketed or had under development during fiscal years (FY) 1995, 1996, and 1997. GAO noted that: (1) the statutory and regulatory authorities governing USPS provide USPS broad latitude to develop and market a wide variety of new products; (2) GAO's analysis shows that USPS is subject to at least three constraints in developing and marketing new products; (3) since it is the underlying statutory mission of USPS to provide postal services to bind the nation together, USPS needs to be able to explain how any new product it develops will further that mission; (4) under its statutory authority, before marketing a new domestic postal product, USPS must request a recommended decision from the Postal Rate Commission (PRC) regarding the propriety of USPS' proposed classification, rates, or fees for the new product; (5) prior to issuing its recommended decision, PRC is required to hold hearings on USPS' proposal; (6) the Postal Board of Governors may reject or modify PRC's recommended decision; (7) USPS is not required to request a recommended decision from PRC in the case of nonpostal products; (8) USPS' ability to market new products can be constrained by congressional oversight, restrictions imposed during the appropriations process, or other legislative actions; (9) adoption of either H.R. 22 or legislative changes offered by USPS would amend USPS' current statutory authority to develop, test, approve, and market new products; (10) H.R. 22 should place new restrictions on the introduction of new, nonpostal products and international postal products; (11) however, H.R. 22 would provide USPS with broader latitude to test market experimental postal products; (12) USPS' Marketing Department established the New Business Initiatives and Products Group, which implemented a new product development process, CustomerPerfect!; (13) it is intended to ensure effective management control through a formalized system of checks and balances that require top management buy-in at four critical stages: (a) concept; (b) business plan; (c) test; and (d) implementation; (14) three judgmentally selected products showed that in developing these products, the Marketing Department's New Business Initiatives and Products Group generally followed the CustomerPerfect! new product development process; (15) information and financial data show that during fiscal years 1995, 1996, and 1997, USPS marketed, or had under development, 19 new products that had been publicly announced; and (16) total revenues and expenses for the 19 products, from inception through FY 1997 were $148.8 million and $233.5 million.