But how exactly are the rival operators differentiating their services, asks Holly Wright.
"It's very dull to bash Royal Mail. It's a very obvious and easy thing to do." So says Clara Avery, head of direct marketing and sales at Macmillan Cancer Support. Royal Mail-bashing is, indeed, a popular and well-practised tradition among direct marketers.
Pre-deregulation the postal operator was accused of being inflexible, inaccessible and overpriced and post-deregulation many believe that those criticisms still hold true. But Avery, whose charity sends out in the region of 15 million pieces of direct mail a year, has stuck with Royal Mail and remains unconvinced that, as yet, there is a viable alternative out there (see case study, page 40).
Many, however, would disagree, as nearly two years on from full deregulation, competition appears to be flourishing. According to Royal Mail's figures, rivals now handle about 25 per cent of bulk business mail. This year, those companies will have reached the sort of volumes that were originally predicted for 2010/2011.
Two of the biggest winners of deregulation have been TNT Post and UK Mail. TNT Post will handle in the region of 1.8 billion items this year and cites BT, Centrica and Orange among recent wins. UK Mail, meanwhile, works with Prudential and BBC and will handle just over one billion items this year.
Down stream access - where licensed operators collect and transport mail to Royal Mail centres for final delivery at a cost of 13p per item - is now well established in the market. But how are rival suppliers differentiating their services and what sort of product and service innovation can clients now take advantage of?
SMALL-SCALE INNOVATION
The degree to which innovation has flourished in the deregulated postal environment is a moot point. At Postcomm's fourth annual industry forum in June this year, chairman Nigel Stapleton said that "thus far, competition has been too much about price and too little about innovation to add value to mail as a communications medium".
The three mail competitors to Royal Mail are all similar in their offerings. TNT Post, DHL Global Mail and UK Mail all provide a day-definite service and a track-and-trace service that enables clients to see where their mailing is in the delivery chain. But these two developments alone are of value to direct mail clients, says Richard Moriarty, deputy chief executive at Postcomm. "Innovation doesn't have to be revolutionary, but can be smaller things such as real-time information for clients," he says.
Jonathan De Carteret, senior market analyst at Post-Switch, one of a new breed of impartial brokers in the deregulated postal market, would agree. The company's clients, which include charities such as Marie Curie Cancer Care, NSPCC and Network Rail, collectively mail out over three-and-a-half million items a month. All have enjoyed the service benefits of the new providers.
One such example is Smile Train, a charity for children with cleft lips and palates in developing countries. The charity launched its fundraising strategy in the UK at the end of last year, with a major press and direct mail campaign lasting six months.
MAXIMISE EFFICIENCIES
With more than eight million items being mailed out, the charity was keen to maximise efficiencies and had planned to use Royal Mail's Mailsort 3 service, which offers a seven to ten day delivery window. This, however, had an impact on call centre costs. "The charity wanted to limit the length of time the call centre was open to keep costs down. The next option was Mailsort 2 (a two to three day service offering), but this bumped up postage costs significantly," says De Carteret.
Working on behalf of Smile Train, Post-Switch negotiated a fixed rate for six months with a rival operator - to take out the risk of volatility in the postal market which might drive up prices - and took advantage of its day-definite service. The net benefit for Smile Train was guaranteed punctuality of the mailing. Call centre costs were minimised, and a saving of £227,000 on postal costs over the six-month period was achieved.
Smile Train's decision to use an alternative provider to Royal Mail was based on two factors - price and service. De Carteret maintains that nearly every time a campaign is reviewed, the competitors can shave about 10 per cent off Royal Mail's price. The frustration for Royal Mail is that there is no flexibility in its pricing model for core products as it is subject to price controls.
"What we're looking for is fairness," says Antony Miller, head of media development at Royal Mail. "The over riding factor when a company is making a decision about its postal operator is price. That is by far the biggest weight on the balance and prices controls take out our flexibility."
According to Postcomm's Moriarty, the regulator - which recently decided to leave access margins unchanged in response to Royal Mail's request to review aspects of the 2006-10 price control - agrees that cost-reflective pricing is appropriate. "We have always required Royal Mail to present a sound case. For this particular application we didn't feel this was the case, but many applications in the past, such as pricing in proportion, did pass the test and were supported," he says.
But while Royal Mail's lobbying for flexible business pricing is being thwarted, the firm is innovative in other areas, such as its carbon-neutral door-to-door programme and the launch this month of sensory mailing products, which incorporate smell, taste and sound into a mailing. "We're coming up with new ideas and striking some innovative partnerships," says Miller. "These are going down well with customers and particularly agencies, offering opportunities to apply new creative executions to mail."
It's these initiatives - all exclusive to Royal Mail - which should differentiate its service from its rivals. Meanwhile, TNT, DHL and UK Post are also keen to create their own USPs. Although their core offerings have been similar, each company has been busy in recent months launching new services (see box, page 39).
Among these are TNT Post's Economy Sort product, which competes with Mailsort 3 traffic for bulk mailings that are not time critical and TNT-it, its web-based product for small-volume business mailers. The service has been rolled out in the North of England and will be extended to the rest of the country in the coming months. UK Mail has a next-day mail delivery service, i-mail, which follows an agreement with Royal Mail to allow evening access to its mail centres for the first time.
While the first two years of deregulation have been characterised by firms establishing themselves as downstream access providers and building trust among clients, perhaps it will be innovation which defines the next two years.
POWER POINTS
- Mail rivals handle about 25 per cent of bulk business mail, according to Royal Mail.
- Competition has, until now, been focused on price over innovation.
NEED TO KNOW
What's new in UK postal delivery services
- UK Mail
UK Mail was the first company to secure a wholesale licence with Royal Mail and offer an unsorted mail service.
More recently it has launched a next-day mail delivery service, i-mail, with prices starting at less than the cost of a first-class stamp, including printing costs.
UK Mail says this makes it the first private organisation to provide an alternative next-day service to nationwide addresses in the history of the postal service. Customers will be able to gain free access to the i-mail service direct from their laptop or PC.
- TNT Post
This February, TNT Post announced the launch of a packets delivery service, PremierPacket, with customers benefiting from a two- to three-day service for packets of up to two kilograms.
It has launched its Allsort service for companies sending unsorted or non-machineable mail and more recently Economy Sort, which competes with Royal Mail's Mailsort 3. The company is also targeting the SME market, with the launch of a web-based service for small-volume business mailers.
- DHL Global Mail
In June this year, DHL was awarded a £12m contract as Tesco's preferred downstream mail services provider.
Last month the company unveiled ePost, which enables firms to assign all tasks related to the dispatch of their daily mail to DHL Global Mail in just a couple of mouse clicks. ePost takes care of printing the document, enveloping, franking and delivering it to the mail depot remotely. DHL expects to be using ePost to manage more than 100 million items by 2008.
- Royal Mail
It launched the industry's first carbon-neutral mailing programme, aimed at firms carrying out door-to-door mailings, to reduce and offset carbon footprint.
In the digital arena, Royal Mail has teamed up with Sony to offer Personalised Integrated Media, which enables companies to create a bespoke CD that is mailed to customers and contains information specific to their needs and interests.
And this month sees the launch of a sensory product where brand smells, tastes and associated sounds can be incorporated into the mail pack.
THE BIG ISSUE
Should Macmillan switch postal suppliers?
- The background
Macmillan Cancer Support has increased its direct mail spend in recent years to maintain donation levels. The charity sends out about 15 million pieces of mail a year - all of which are collected and distributed by Royal Mail.
- The challenge
Clara Avery, head of direct marketing and sales at the charity, says she isn't convinced any other supplier can provide a reliable and robust alternative. "The issue for us is that there is not enough competition among the alternative suppliers for that sort of product. There are some products emerging, but we don't feel they are yet proven."
Its annual DM activity consists of three major door-drop campaigns and three large donor recruitment mailing campaigns, as well as about 30 smaller campaigns that vary in size and channel mix. Most of these mailings (over 90 per cent) go through Royal Mail's Mailsort 3 service, which offers delivery within seven working days after the day of posting. Between five and seven per cent use Mailsort Light - a Mailsort 3 service for mailings of more than 40,000 which weigh less than 15g.
Avery meets regularly with the charity's account director to keep on top of what she describes as "the weird and wonderful mailing products that are by no means crystal clear". She adds: "Royal Mail's product portfolio is not user-focused, so we have to keep in contact to ensure we are using the most competitive and appropriate products."
- Next steps
There's no doubting Avery's willingness to test alternatives to Royal Mail should a rival firm tick all the boxes. "We've been upfront with Royal Mail and have a great relationship with our account manager," says Avery. "If we could be sure to get a more dedicated and proactive customer service, coupled with competitive bulk mailing discounts, then it would be hard to come up with a rationale not to test it. "
Avery adds that the charity wants cost effectiveness and stability. "My concern is that we may get the cost effectiveness, but will we get the stability?" she says.
WHAT THE EXPERTS THINK
- David Robottom, director, D&S Consultants
The problem Macmillan has is that there is no viable alternative to Mailsort 3 or Mailsort Light. The fact that Macmillan mails 15 million items means it has an attractive proposition to the big operators. It should speak with the operators to determine how a deal can be structured. There are operators who offer addressed and unaddressed mail services.
TOP TIPS
- By working with other providers on a potential trial, an option could be developed for a Mailsort 3 alternative and mailsort light.
- Macmillan could test trading up to a two- or three-day delivery window, to assess the impact on response and donations. This could be done easily with Mailsort 2.
- Only by working with alternatives can you ensure the development of reliable and robust alternatives.
- Derek Fairhurst, managing director, Postal Audits
Macmillan's challenge is to buy reliable mail services at an economy price. It is using Royal Mail's most cost-effective range of services and, assuming it is using customer address barcode formats, its unit costs net of all discounts and rebates will be competitive. With procurement negotiations, alternative operators in the postal market can offer Macmillan some benefit. Our figures suggest about 20 per cent of UK business mail is collected and distributed by rival operators, with Royal Mail providing the final delivery.
TOP TIPS
- Alternative operators have flexible contract terms and can include performance-related elements to their schedules.
- Their account management and reporting compare favourably with that of Royal Mail and they are willing to offer prices below Royal Mail's Mailsort 3 rates.
Comments