• on Jun 9th, 2014 in Ideas Worth Exploring | 4 comments

    Dim weight. Sounds like something you might call your not-so-smart cousin. It’s actually a way to price parcels based primarily on how much space they take up during transport and delivery.

    FedEx is the first major carrier to announce plans to charge prices based on the dimensional weight of all its ground shipments. Retailers and other shippers are bracing for a nasty hike in shipping costs come January 2015, when the FedEx changes take effect.

    Shipping costs are heavily influenced by how much cubic volume a parcel takes up in the back of a truck or plane. If parcels are roughly uniform in density (weight in relation to size), then charging by weight makes sense. But if parcels are light yet bulky, such as shoes, diapers, and many other goods ordered online, then weight-based pricing doesn’t reflect costs. Dim weight pricing will let FedEx charge more for these light yet bulky packages – for example up to 30 percent higher on a 32-pack of toilet paper – that take up more space in the truck.

    Analysts say FedEx’s change will result in the most dramatic rate spike the parcel shipping industry has seen in decades. And these increases will affect either online shoppers or retailers, or both. As the Wall Street Journal recently noted: “Someone will have to swallow the estimated hundreds of millions of dollars in extra shipping costs.” Could free shipping for consumers become a casualty of this pricing change?

    Analysts expect UPS to follow suit with a similar pricing strategy. If so, the Postal Service and small regional carriers could see an uptick in volume – albeit higher-cost and lower-yield volume – as shippers look for ways to reduce the expected sticker shock from dim weight pricing. The move also could accelerate Amazon’s reported plan to launch its own fleet of trucks and drivers for local deliveries.

    Do you think FedEx’s change in its pricing structure will benefit the Postal Service? Or is it likely to primarily shift less-profitable packages to the Postal Service? Should the Postal Service consider a move to dim weight pricing for its ground services as well? Or would it hurt the Postal Service’s standing as the lowest-priced competitor?

     

  • on Jun 2nd, 2014 in Products & Services | 1 comment

    If your favorite catalog looks more like the Sports Illustrated swimsuit edition or even an issue of Life magazine, there’s a good reason. These high-end photo displays and glossy spreads help retailers sell products online. Retailers are pouring more money into catalog design, including expensive photo shoots, because they find this drives online and in-store sales. Catalogs and other hard copy advertising act as bait to lure the customer into online or brick-and-mortar shopping.

    So it would seem that physical stores and hard-copy ads are not dead; they are evolving to complement a retailer’s digital presence. As a Wall Street Journal article noted, the catalog is like “a store window display, and a source of inspiration, the way roaming through store aisles can be.” Bonobos, a menswear store that advertises better-fitting pants, started to dabble in catalog mailings and found they had a significant impact on sales. The company found that 20 percent of its new customers had received a catalog, and those that do get catalogs spend 1.5 times as much as new shoppers who don’t receive a catalog.

    But the convergence of digital and physical shopping goes beyond the continuing popularity of catalogs. Retailers can no longer view online sales and sales at physical stores in isolation. Customers are browsing and shopping using both mediums jointly. These days many consumers use online research before they make a purchase in a physical store, what is known as webrooming. They also browse physical merchandise in stores before buying an item online, a practice called showrooming. According a report by Accenture, 78 percent of survey respondents have used webrooming and 72 percent of respondents have used showrooming.

    Clearly, the Postal Service benefits from more catalogs in the mail and ensuing parcel fulfillment. But it would also benefit from a surge in advertising directed at both the physical and online presence simultaneously. For example, at the most recent PostalVision 2020 conference, retailers showed how they are embedding digital advertising into physical objects. Marks and Spencer is producing a catalog that customers can scan and go directly to the company’s online catalog where they can make purchases. Ikea has a catalog that allows customers to see what furniture would look like in their house. Advertisers could embed digital coupons into advertisements that allow recipients either to use the coupon in the physical store or scan it and go directly to the website with the discount code activated.

    What do you think? Will embedding digital advertising into physical mail help to maintain or stem the decline in advertising mail? What other opportunities could the Postal Service benefit from related to the convergence of digital and physical shopping?

  • on May 26th, 2014 in Labor | 7 comments

    Offering workplace benefits such as health and retirement programs and paid vacations is a well established way to attract and retain talented workers. But the structure of these offerings has been changing in the public and private sectors over the past 20 to 30 years for several reasons, including rising pension debts; a more mobile workforce; and a move towards simplified administration of benefits.

    Employers have been looking to shed excessive pension expenses and give workers more control over their own retirement programs. Increasingly, private, local, and state employers are moving away from defined benefits plans that generally pay a guaranteed sum based on wages and years of service. They are increasingly favoring defined contribution plans, such as the 401(k) plan, a pretax fund built on employee and employer contributions. Meanwhile, retirement benefits plans for federal workers, including postal employees, have generally remained unchanged since the Federal Employees Retirement System was enacted in 1987.

    Similarly, the U.S. Postal Service’s leave benefits have stayed primarily the same for decades. Days off are organized into categories – annual, personal, sick, military (if applicable), and federal holiday – and the rate of leave accrual depends on the category. When taking leave, a postal employee has to indicate which category the leave falls into. But many companies are moving toward fewer categories, such as just vacation days and sick days. This simplified approach cuts down on administrative costs.

    As the Postal Service looks for ways to tighten its belt, it is considering changes in benefits, such as a new retirement program for future workers. But it is in a bit of a Catch-22. It is required to offer compensation and benefits that are comparable to those in the private sector, but it cannot change its benefits programs unilaterally, due to legal requirements and union agreements.

    At the request of the Postal Service, we issued two white papers that benchmarked its benefit programs against those of several comparable organizations. Specifically, we looked at retirement benefits and leave policies. We found many similarities in benefit offerings, but key differences, too. For example, retirement expenses make up a larger portion of total benefits for the Postal Service than for the other organizations we studied. Also, postal employees can carry over 55 or more days of annual leave each leave year and an unlimited number of sick days. But the other organizations had far more restrictive leave carryover.

    Share your thoughts or experiences on leave programs that consolidate all days off into one comprehensive plan. Might such a program for postal employees offer flexible benefits while reducing costs? Or does the current system work well? What changes, if any, are needed to the Postal Service’s retirement plans? 

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