on Oct 5th, 2009 in Pricing & Rates | 23 comments
 
Stamp prices are traditionally in whole cent increments. That means it is difficult to target a particular percentage increase. For instance, a one-cent increase on the 42-cent stamp would have been 2.4 percent; while the two-cent increase was 4.8 percent.

Postal price increases are now limited by an inflation-based “cap” for each class of mail, and in First-Class Mail, the price of a stamp is a major component of the average revenue per piece for First-Class Mail. As such, the price change for the “stamp” plays a large role in the calculation of the average for the class. Other prices in First-Class Mail have to be set to bring the average back to the cap. This can make it difficult to meet many of the other pricing objectives in the class such as setting workshare discounts equal to the cost savings. It might be easier to meet the objectives if the stamp price were in a smaller increment.

In any event, how important is it that the stamp’s price is in whole-cent increments?

Since stamps are generally purchased in booklets or coils does it matter whether the individual price is rounded to a penny? Could increments larger than a penny be accommodated in the price cap environment? What other issues should be considered regarding the stamp price?

This blog is hosted by the OIG’s Risk Analysis Research Center (RARC).

23 Comments

Rounding up for purchasing small quantities of stamps would help (a little) to pay for the high cost of selling stamps in small quantities.

Aunt Minnie faces things that are 3 for a dollar at the grocery regularly. She can deal with stamps.

This is a good idea.

Ezra

The issue is never far from the revenue rate.
What exactly is the twixter business model of the USPS?

Does the Treasury issue the stamps. Or does the
GPO? We're rapidly approaching a Cost per byte
world. Simply consider the casino industry.
What is a coin machine (money tree)?
A player enters the casino, purchases a "players
card", and viola!, value is created!!!!
Value is then risked in a transaction of choice,
provided "buy" the House.

Soooooooooooooooooooooooooooooooooo......

Wouldn't the price of a First Class electronic transmission equal the price of a required postage
necessary to execute the same transaction?

How about a secure, encrypted transaction?

How about a return receipt transaction?

Well Mr. Big at the OIG???????????

Don't you guys down there at 475 L'Enfant Plaza have a slew of lawyers and actuaries, that have been tasked
with this already????

What do the Congressional Sub Committees at
Commerce think about it anyway?????

"Shirley" they've got a report somewhere?

Does the I-Phone have an APP for that???

Why is it the responsibility for the USPS to scan the contents of a package??? Is this integrated into the
cost of the transaction? I thought this was DHS's
ballywick? Don't they know where the packages are
in the Commerce System? Is there some privacy issue
like, To & From at Risk?

Some Civil Liberty must be getting violated when
I send a package of golf balls to Uncle Charlie
as a gift, and somewhere, somebody knows what the gift
is already, and who Uncle Charlie & I are?

Perhaps not....

Who charges the mailer for this service??

Looks like the Price of Meat is going up again!!!
In fractional increments, that is.

It's Action Jackson time Mr. FED-X & UPS.

The pundats on TV and radio would make the Postal Service a laughing stock if they priced the First Class stamp in half cent (or less) increments.

Stamps are for the basic American consumer. The Postal Service would rightly be a laughing stock if it broke stamps below the 1 cent increment.

I voted for whole cents but I wish I had voted for a nickel. I don't care what anyone says sending something from the east coast to the west coast for 44 cents is a bargin any way you look at it.

A simplified rate structure will increase demand for USPS products.

The postal service was onto something with flat rate boxes. It would be good to continue with the theme of simplifying rates.

I propose marketing books of stamps that reflect a postal rate table that has been simplified.

Some books of stamps have stamps that are prices to easily cover the postage of a First class mail.

There are a few types of books that cover Priority mail and there are a few types of book that cover parcel post mail.

Each book of stamps has a conveniently printed explaination for the rates associated with the particular class of mail.

The rate table can be a simple formula of a base rate plus a per unit additional weight charge, similar to what there is in first class mail.

For example, the first ounce may cost 44 cents and each additional ounce may cost 22 cents.

One first class mail book may include a combination of 44 cent stamps and 22 cent stamps.

You may also be able to purchase a first class mail book for higher weight first class mail.

This mail book may include stamps that are $1.32 and $2.42 which would cover 5 ounce pieces and 10 ounce pieces.

The computation could actually be simplified as (# ounces + 1)*($0.22).

The mail rate may also depend on a simple zone computation where a person would count up how many zones that the piece must travel.

The service expections would be clearly printed on the book of stamps and may depend on the number of zones through which the piece must travel.

This rate structure could also be applied to priority mail and package services.

For example the computation for priority mail could be something like (2 * # zones + # pounds + 3)*($1.03).

Some FAQs for mail acceptance rules may be also printed on the books for reference.

There can also be some simple instructions specifying some special services that may be purchased for the piece. See below**

The question may arise, what about PAEA and the rule that you can not increase mail rates at a rate faster than the CPI? This can easily be handled because only the average rate can not exceed the CPI. See below for a more detailed discussion.*

By simplifying the rate structures, people will be more likely to purchase stamps to have on hand for when they need to send something.

This removes the transactional costs for customers having to go to the post office.

When a customer wants to send something, they will just put a few stamps on it and leave it for their carrier to be picked up.

* Economists and lawyers may come to an agreement about how best to meet the requirements of PAEA.

I may propose a simple computation for computing rates for 2010.

Step 1: Take the 2006 (first year of PAEA) rate table, and multiply by the 2009 volumes for each of those rates.

Step 2: Multiply this number by the cumulation of CPIs from 2006 through 2009.

Step 3: For each class of (competitive) mail, solve for the base rate and additional unit rates so that the multiplication of the resultant rates times the volumes associated with these rate categories from 2009 does not exceed the value computed in step 2.

There is additional work required for setting reasonable rates when zones are involved as one wants to ensure at least that the additional long distance transportation costs are covered in delivering to these zones, but this should certainly be doable.

** The optical readers on the machines may read written information in addition to the destinating address.

Some data that it could collect includes self reported information such as weight and zone. This would help in verifying proper postage paid both by machine and by carrier.

Also it could collect data on special services. Perhaps a customer wants an email each time the piece passes through a processing facility.

Then they could write "email verify" and include their customer id from the website. They then just add the proper number of stamps for this service according to the back of the stamp book.

Thank you Mr. Stephen,

Since we're on the subject of fractional postage,
which is a derivative* of revenue, let's simply
apply the current USPS business model to the imminent 2010 U.S. Census.

Let's assume the following scenario:

1. Most Post Offices are currently monitored by recorded CCTV surveillance.
2. In general, every person in America uses the
USPS at some time during the Census 30 day Collection Period.(visits a branch or finance station)
3. In general, most people have a cell phone or other
PCD (personal communication device) so a local function could be easily added to the local area network (lan) with any number of tabulating Commercial Of the Shelf (COTS) functionality currently in use.

How many census cards and census hours would be required to accomplish this 2010 Census?
If a citizen could take the census litmus test while
"waiting in line" at the Post Office to execute a
postage transaction, could a localized receiver (or local kiosk) within the premisice sucessfully execute the Census while the Citizen waits? Thus, a fraction of the cost could be applied to the U.S. 2010 Census**, and a fraction the other organizations like the USPS for assisting in this service.

*derivative is a measure of how a function changes as its input changes.

**2010 Census is Different

The Census Bureau has changed the way it conducts the national count.

Goodbye Long Form

In the past, most households received a short-form questionnaire, while one household in six received a long form that contained additional questions and provided more detailed socioeconomic information about the population.

The 2010 Census will be a short-form only census and will count all residents living in the United States as well as ask for name, sex, age, date of birth, race, ethnicity, relationship and housing tenure – taking just minutes to complete.

It seems to me that OIG almost doesn't have enough to do.... Thoughts such as these, as well as the "silly rules" post, are the mark of an organization/group of people who don't have a REAL job... These types of things are a NIT in the scheme of real lives....

As for the commenters -- let's not Over-think this people; its just about stamps.... (Though I think the philatelic community would have a Great field day with fraction-ated stamps!)

USPS has tried to be innovative but gets squelched by congress and has become the cash cow of the federal government.

USPS tried to launch secure e-mail (E-com) in the 80's and 90's, it failed. Competition whined and special interests prevailed again.

The .44 sure is ia bargain. Why is everyone complaining????!?!

I think that the price of the stamps need to go down anyway!!

As I have seen with many companies, the USPS needs to be customer focused to make money.

I have three suggestions. 1) Simplify the rate structure. My biggest gripe is having to drive to the PO in this day and age just to weigh a letter because it might be heavier than an ounce or slightly outside certain "normal" dimensions. I would rather pay a penny or two more on the first ounce if I could just know it was flat fate for letters up to a certain much larger size (people have rulers. they tend not to have oz scales). 2) Partner with Hallmark and other card vendors to sell prepaid envelopes. I am not sure logistically how this could be done, but I am sure Hallmark could have a wall behind the cash register with colorful envelopes which match standard card sizes. This way, the consumer does not worry about weight and size, no stamps need to be printed, and the post office can set the price upfront with the card vendor to the extent of maybe even making the cost "included" in the card price. Once again, I do not have to expend extra effort to find and buy stamps. A lot of card stores already have PO boxes outside, but making sure that they do (maybe make sure they have it inside the store) would be great. 3) really market the personalized stamps. Once again, Hallmark and other card vendors could have in-store machines (no weights or packages--cards only) with SD/MMC, etc slots to read a digital image and print the postage. The machines could also print international postage.

Personal letters are becoming a thing of the past. Card stores and the USPS should partner together on this front since they have the same objective when it comes to personal mail.

Several years ago I purchased a halloween costume for my son. At the time I ordered, the company told me they could not mail my purchase with the USPS. When I received my package, I was extremely mad. I was charged double the shipping, (it came by UPS), and the company I ordered it from, put my son's costume in a FREE US Postal Service priority box. They had turned the box inside out and mailed it to me. My suggestion: the Postal Service needs to charge all customers (for example $3.00) for each box they want. WHen this customer returns to actually mail it, they will be given a $3.00 CREDIT towards mailing cost. The USPS is giving out free stuff with out and income. Just a suggestion. Thanks!

jkbeck,
I missed this post. CLASSIC DUDE!!!!!!!!!!!

This is almost as good as when I was sending the
pre-paid envelopes to my late brother, long ago.
I simply scratched out the adressee, and wrote his
on the pre-paid Credit Card Offer envelope!

I think I remember getting one back once with a snarkily note written on it...
"Next time try a stamp pal".

What I did was probably illegal. But, the point I was
attempting to prove was who was at work.

You see, over regulated, unlike banking, the postal system sadly is ripe for fraud and abuse.
However, give away programs, like "free" boxes, are designed to promote growth.

I personally believe that the USPS is finished.
Not that they're going out of business. But, that
the energy required to send personal packages
does not appear to fit our children's future.

To cite confirmation of this I merely point to
the recent Applications by two technology companies.

If you can read a book delivered to your wallet,
almost anywhere in the metropolitian world simply
imagine the capabilities.

If you want to send Aunt Molly in Houston a generic package of oranges from Florida, do you really think
that your personal cute little "future box" of citrus is going originate from the St John's River area?

Yeah sure, it might have been grown there. But, your
local distribution point is going to create the
wooden box, and bubble wrap. (my estimate within 300km.
EVERYTHING THAT USES ENERGY TO ACCOMPLISH IS GOING TO
CHANGE FORVER. AND LIKE IT OR NOT, CARBON CREDITS
AND CAP & TRADE WILL CRUSH THE CURRENT USPS STRUCTURE.
So I wouldn't worry too much about the ink on the boxes.

You must cut costs immediately! To do this:

Go to a five day work week.

Close the 25% of your worst performing Post Offices within five [5] miles of another.

It seems to me that major savings are available by dramatically increasing the mailing costs of bulk rate (junk mail, advertising, periodicals, etc). During a recent holiday, we put our home delivery on "vacation hold" for a week. Upon our return, we picked up the accumulation of mail at the post office. Well over 90% (by weight) was unsolicited junk mail that the postal carriers would have toted to our front door.

I believe that if the rates for this class of mail were raised substantially, many of these companies would move over to the internet (or other media) to advertise their products and services. This would result in less business for the USPS and this would probably be a good thing. First, as a result of less bulk, fewer carriers would be needed, carriers could probably cover larger routes, and carriers could probably deliver faster. Obviously if there was less bulk, fewer trucks would be needed to move it, less warehouse space would be needed, handling and processing would decrease, etc. Fewer trucks, less fuel, maitenance, etc. Oh by the way did I mention that the customer would be happy not to have to dispose of pounds of junk mail? Less in the landfill, etc.

If I understand correctly, junk mail isn't a big money maker for the PO. Eliminating, or significantly raising, bulk costs, can eliminate most junk mail. It also helps save paper.

Five-day delivery makes a lot of sense, but keep Saturday, eliminate Tuesday. Keep some POs open for 6 days.

Also, 50-cent stamps for letters to be hand-delivered anywhere in the US would still be a pretty good deal!

Increases in one penny at a time.

I remember the good old days of cheap postage, but I can keep in mind that the cost of inflation is why the prices keep going up. There should be some kind of cap on postage though, to keep customers coming back.

Whichever way you look at it postage is still relatively cheap for the service you get.

Much cheaper to send in the mail than to do it by hand.

Even with more increases, it is way cheaper to send by USPS.

Add new comment

This site provides a forum to discuss different aspects of the United States Postal Service and how it can be improved. We encourage you to share your comments, ideas, and concerns.

This is a moderated site—we will review all comments before posting them. We expect that participants will treat each other with respect. We will not post comments that contain vulgar language, personal attacks of any kind, or offensive terms that target specific individuals or groups. We will not post comments that are clearly off-topic or that promote services or products. Comments that make unsupported accusations will also not be posted.

We ask that reporters send questions to the USPS OIG Media Office through their normal channels and refrain from submitting questions here as comments. We will not post questions from reporters.

We recognize that the Web is a 24/7 medium, and your comments are welcome at any time. Given the need to manage Federal resources effectively, however, we will review comments and post them from 9:00 a.m—5:00 p.m Eastern Time, Monday through Friday. We will read and post comments submitted after hours, on weekends, or on holidays as early as possible the next business day.

To protect your own privacy, and the privacy of others, please do not include personal information or personally identifiable information such as names, addresses, phone numbers or e-mail addresses in the body of your comment.

Except when specifically noted, any views or opinions expressed on this forum (or any other forums available via an RSS feed) are those of the individual bloggers. The views and posted comments do not necessarily reflect those of the U.S. Postal Service Office of Inspector General, or the Federal government.

Thank you for taking the time to read this comment policy and disclaimer. We plan to blog weekly on as many emerging new media topics as possible. We encourage your participation in our discussion and look forward to an active exchange of ideas.