on May 22nd, 2009 in Pricing & Rates | 3 comments
 
Sale is not a word usually associated with the Postal Service, but there is a first time for everything. Mail volume has dropped significantly this year, and the Postal Service is proposing a “Summer Sale” to encourage mailers to send more Standard Mail. The Postal Service believes it can use its excess capacity to deliver the additional mail volume at a relatively low cost.

How will the proposed Summer Sale work? Qualifying mailers will receive a 30 percent rebate on any Standard Mail letters and flats sent from July 1 through September 30 this year above their individual threshold. Only mailers that sent at least 1 million Standard Mail letters and flats between October 1, 2007, and March 31, 2008 can participate, and mail service providers — companies that consolidate mail for others — are not eligible for the program. The threshold for each mailer will be based on the mailer’s previous summer volume and current volume trend. The Postal Service will also double check each participating mailer’s October 2009 volume against its trend. If it appears as though mailers shifted volume to the summer and mailed less in October, the Postal Service will reduce the rebates to account for the lost October volume.

The Summer Sale is designed to increase mail volume and help the Postal Service gain some knowledge about how to improve its data systems and become more efficient at developing and implementing new offerings in the future. The Postal Service believes the program will provide an incentive for profitable new mail and boost a key customer segment, while enhancing its financial position.

However, the Summer Sale is not without risks. If mailers simply shift volume to the summer months or switch advertising pieces they used to send as First-Class Mail to Standard Mail, the Postal Service will be giving discounts for mail volume that would have been sent anyway. Another potential risk is the administrative costs of the sale. The Postal Service expects these to be less than $1 million compared to potential revenue gains of $38 to $95 million; however, if its estimates prove inaccurate, it is possible the costs of the program could exceed the benefits.

The Postal Service notified the Postal Regulatory Commission about the program on May 1, 2009, and the case (Docket No. R2009-3) is currently pending. What do you think about the proposed Summer Sale? Will it succeed? Do you foresee any difficulties in administering the program?

This topic is hosted by the OIG's Cost, Revenue and Rates directorate.

3 Comments


A sale sounds like a good idea to me.

Question is.. How did they come up with 30% rebate (discount)? If contribution margin is negative after the rebate, it will eat up any positive CM from the existing volume. Would it eventually break-even?

The Postal Regulatory Commission's request for additional cost information and the Postal Service's response can be found in Docket R2009-3. See: www.prc.gov then follow the links to:

Docket R2009-3
Notice of Price Adjustment/Documents
Chairman's Information Request/Request No. 1

The Postal Service response is dated 5/15/09

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