• on Aug 17th, 2009 in Pricing & Rates | 24 comments
    Since the earliest days of the Post Office there has been a public policy goal of promoting the dissemination of information throughout the country. This goal was also part of all 14 of the rate cases conducted under the Postal Reorganization Act. By law, rates had to consider “the educational, cultural, scientific, and informational value to the recipient of mail matter.” This provision generally tempered the increases for Periodicals, or at least kept the “institutional cost burden” for Periodicals to a minimum. In fact, in the final rate case in 2006 before the new price cap system of the Postal Accountability and Enhancement Act took effect, the “markup” on Periodicals was only 0.2 percent. Periodicals prices were set so that revenue was only 0.2 percent above attributable costs. The average for all mail was 79.3 percent.

    The two price adjustments since that final rate case have been capped by inflation. Under the old rate case process, the increases would have likely been greater so that the prices covered the Postal Service’s costs for handling Periodicals. In fiscal year (FY) 2008, Periodicals revenue did not cover costs. In fact, the cost coverage (the ratio of revenue to attributable costs) was only 84 percent. (In rate cases, the recommended prices had to be at least 100 percent of costs.) The new law includes the price cap as an incentive for cost containment, but also says products should cover their costs.

    So what do you think? Should the Postal Service try to increase Periodicals prices beyond the cap? What role do Periodicals play in the mailstream? What takes precedence: the cap or a requirement that products cover cost? Should the price for a flat that happens to be a magazine be significantly lower than the exact same flat that happens to be a catalog?

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

  • on Aug 10th, 2009 in Post Offices & Retail Network | 42 comments
    The Postal Service has a long and proud history in public service. It has always been viewed as part of the federal government, yet has also been told to “act like a business” and to be self-sufficient. These distinctions can lead to interesting real-world implications, such as the degree to which retail associates should “upsell” or otherwise assist customers as they transact postal business. On one extreme, some claim that retail associates should do everything to find the lowest price for the customer. On the other extreme, some believe that retail associates should maximize the revenue from each transaction, and if that means selling more than a customer “needs,” then so be it. Of course, there is a wide area between these two extremes, and the Postal Service is challenged to meet these sometimes conflicting goals of providing public service and maximizing profit. But are these goals really conflicting? What balance should the Postal Service strike between finding the best value for the customer and maximizing revenue? What factors should be considered in striking this balance – transaction time (keeping the line moving), customer satisfaction (the customer feels good about the transaction), ease of use (keeping the transaction and choices simple), public service (an obligation to find the best deal for the customer), standardization of retail experience (providing routine guidance to retail associates), or other factors? There are a wide variety of transactions, so striking the right balance is difficult. Nonetheless, by looking at specific examples, one can see the implicit tradeoffs. For instance, if a customer is mailing a rather heavy box that the retail associate presumes may contain books, should the retail associate ask the customer if it is solely books and offer the reduced Media Mail price? Or should the retail associate encourage the use of Express Mail or Priority Mail, and suggest additional special services? What are your thoughts about how the Postal Service should serve customers while generating revenue? This topic is hosted by the OIG’s Risk Analysis Research Center (RARC).
  • on Aug 3rd, 2009 in Strategy & Public Policy | 18 comments
    It wasn’t too long ago that digital audio players such as iPods and MP3s revolutionized the music industry. Now, almost a decade later, the same sort of revolution is occurring in the publishing industry with the introduction of electronic reading devices such as the Amazon Kindle and Sony Reader. Electronic reading devices allow users to download digital versions of books, newspapers, and magazines. The devices are mobile, and some offer wireless capabilities. Now, newspaper and magazine publishers have another option besides the Postal Service to reach customers. Will electronic reader technology become a more effective method to deliver newspapers and magazines? Will this technology be the answer for the survival of newspaper and magazine publishers or the demise of the mail house and printing industry? A recent study stated the number of business to business publications offering digital editions and total subscriptions have increased over 300 percent from 2006 to 2007. In addition, consumer publications offering digital editions and total subscriptions have increased over 200 percent from 2005 to 2007. However, Periodicals mail volume has steadily declined since 2000, and for the past few years, the Postal Service’s Periodicals class revenue has failed to cover its costs. The electronic reader option offers newspaper and magazine publishers a less expensive way to reach readers. In addition to the thousands of digital books available for download, today electronic reader users can buy monthly subscriptions to The Washington Post, The Wall Street Journal, and other major newspapers all for around $10 a month. These publications can be downloaded automatically to the electronic reader overnight, so at breakfast, it's available to read. Some electronic readers require synching and downloading using a personal computer, while others offer wireless downloads. Electronic reader technology also provides the ability to cut, paste, and email articles, and to clarify words through built-in dictionaries, which makes the electronic reader more compelling as a news delivery mechanism. The technology is still being developed but in the future could possibly include color and touch screen interaction. The technology also saves paper, although it consumes electricity. Right now, the only drawback is the price; electronic readers sell for about $299 to $500. So what do you think?
    1. Do you think the Postal Service’s Periodicals mail volume will be further reduced by electronic reader technology? What about other types of publications such as catalogs?
    2. At the current prices, would you purchase one of the electronic readers?
    3. If you own an electronic reader, do you subscribe to a newspaper or magazine?
    4. Would you subscribe to a newspaper or magazine if you owned an electronic reader?
    5. Is there a way the Postal Service can use electronic reader devices to its benefit to increase revenue?

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

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