• on Jan 26th, 2015 in Pricing & Rates | 4 comments

    Steve Jobs was famous for the ingenious simplicity of his designs. And, of course, his single button iPhone, now the standard in smart phoning, is a great testament to the value of simplicity.

    As in design, simplicity in pricing, and a related simplicity of choices, are appealing to consumers. There is even empirical evidence that consumers will buy more when they aren’t overwhelmed with too much clutter and too many choices.

    The U.S. Postal Service has enjoyed some success with simple pricing. The best example is the Flat Rate Box. The combination of uncomplicated messaging – “If it fits, it ships” – and ease of use – a handful of shape offerings, each with a single price attached to it – have made the Flat Rate Box a critical piece of the Postal Service’s growing package business.

    And so far, the Postal Service is sticking primarily with weight-based pricing for packages, and not introducing any further dimensional (DIM) weight package rates. FedEx and UPS both just moved to the more-difficult-to-calculate DIM weight pricing scheme on ground shipments.

    Still, most Postal Service pricing is far from simple. There were 8,779 different package prices alone in fiscal year 2014, up 22 percent from two years earlier. Of that total, a quarter are retail prices and three-quarters are commercial prices. Furthermore, nearly 1,100 Parcel Select prices are not used, and 5,840 prices for packages weighing more than 20 pounds are never or rarely used. We recently looked at package pricing at the Postal Service and found its complexity might intimidate customers. We urged the organization to consider eliminating prices that are rarely or never used. We also suggested periodic evaluation of market demand to see if it makes sense to introduce other Flat Rate products.

    But, it’s also worth considering whether pricing can be too simple, at least for commercial customers. While individuals welcome pricing that’s easy to calculate, businesses that ship large volumes can benefit from a range of options, which gets them closer to customized pricing. It also helps them shave off every possible penny of shipping expenses. And, of course, some degree of complexity is necessary so prices appropriately reflect costs. Such is the case with zoned rates for Priority Mail, because packages traveling across regions or zones cost more to deliver than those moving within a zone.

    So, turns out pricing simplicity may not be quite that simple.

    Do the Postal Service’s pricing options meet your shipping needs? Do you find pricing too complex? Or, do you wish there were more options? Should the Postal Service introduce more Flat Rate Box or other specialty packaging items? 

  • on Jan 5th, 2015 in OIG | 17 comments

    The year 2014 was certainly historic on the postal and logistics front. Alibaba entered the U.S. market with a bang, setting a record with the largest ever U.S. initial public offering. For the first time ever, non-mail revenues exceeded mail revenues for postal administrations around the world. Shippers braced for the full effect of dimensional weight pricing. And the U.S. Postal Service added its name to the growing list of agencies and companies to suffer a data breach.

    All in all, quite an eventful year. OIG staff sifted through the news and put together a top 10 list of postal stories, in reverse order of impact. Share your thoughts and take our poll to vote for your top story.

    10. Staples Taps Out – Under pressure from labor groups, Staples and the Postal Service ended a pilot program to set up mini-post offices in stores. Instead, the 82 Staples pilot locations transitioned into the Postal Service’s long-established Approved Shipper Program, which offers some postal products alongside those of other carriers.

    9. Open Sesame! – China’s biggest e-commerce company Alibaba set a record for the largest U.S. initial public offering ever, raising $25 billion. Alibaba’s CEO said the company plans “aggressive expansion” in the U.S. With any luck, the Postal Service will figure out how to partner with Alibaba too.

    8. Dim Weighting on Shippers – FedEx and UPS announced plans to price all ground parcels based on how much space they take up during transport, a concept known as dimensional weight, or dim weight, pricing. Analysts predict this change will result in the most dramatic rate-spike for shippers in decades. Meanwhile, the Postal Service bucked the trend and lowered most commercial Priority Mail prices in 2014, a move aimed at gaining commercial customers.

    7. A Capital Idea – For the first time in years, the Postal Service has funds to invest in capital projects. Helped by the exigent price increase in January 2014, the Postal Service ended the fiscal year with $1.4 billion in “controllable” income and said it has about $2 billion for capital investment.  

    6. Postal Banking Gets Fresh Look – A raft of media coverage of an OIG paper on postal financial services energizes a lively public policy debate, including a slew of conferences, and puts the idea of postal banking on the menu of possible reforms.

    5. Invasion of the Last Mile – Last mile delivery has gotten crowded with retail giants, such as Walmart and Nordstrom, trying their hands at same-day delivery and/or experimenting with crowdshipping. And smaller players are providing niche delivery services, such as Peapod for grocery delivery or Deliv that shuttles goods from shopping malls to customers.

    4. Amazon Eyes World Domination – The giant e-commerce provider is moving into all aspects of the supply chain and beyond, opening warehouses and distribution centers, offering same-day delivery, testing drones, using bikes, providing cloud services, and after-sales support services. Amazon is also a valuable partner of the Postal Service, collaborating on Sunday delivery and the new grocery delivery test.

    3. New Champion of the World – Non-mail revenues now exceed mail revenues for postal organizations around the world, according to Accenture’s annual report on high-performing posts. This shift indicates how important parcels and other diversified products - representing 52 percent of posts' total revenues - have become to posts.

    2. Madame Postmaster General – Postal Service Chief Operating Officer Megan Brennan is named to succeed retiring Postmaster General Patrick Donahoe. Brennan will be the first female PMG in the Postal Service’s 240-year history.

    1. Hack Attack – The Postal Service joins the growing list of government agencies and corporations to experience a data breach and the repercussions that come with it, including a congressional hearing, customer and employee concern, and some corporate soul-searching. There were almost 61,000 cyber attacks and security breaches across the entire federal government last year, according to a recent White House report. 

  • on Jul 14th, 2014 in Pricing & Rates | 7 comments

    No one can accuse the U.S. Postal Service of following the pack. It not only dismissed the strategy of pricing packages based on size as well as weight (referred to as dim weight pricing); it actually plans to lower prices for a good portion of its flagship Priority Mail products.

    Few were surprised when UPS recently followed rival FedEx’s lead and announced it would price parcels based primarily on how much space they take up during transport. The new pricing scheme is expected to generate significant revenue for the two integrators. Industry observers were curious to see if the Postal Service would jump on the dim weight bandwagon, or if the agency saw a better opportunity in trying to poach customers with its simpler pricing scheme. Few predicted the Postal Service would lower prices.

    Not all Priority Mail prices are going down, however. Retail prices on Priority Mail flat-rate boxes will in fact increase by 1.7 percent on average, if the Postal Regulatory Commission approves the Postal Service plan. For example, the small flat-rate box would increase 35 cents to $5.95 on September 7, if approved.

    Still, small mailers could save by printing their own labels either from the Postal Service’s Click-N-Ship online offering, or from PC Postage products, permit imprints, or digital mailing systems. Using an online option moves customers into Commercial Base pricing, where they will get lower prices, on average, under the Postal Service proposal. The biggest price cuts – about 2.3 percent on average – would come in Commercial Plus prices, which require a commitment of 50,000 pieces in a year.

    The Postal Service’s Priority Mail has seen solid growth over the past 3 years (25 percent in revenue). But postal officials have indicated they want to capture more business shippers and this price cut is one initiative meant to attract those commercial customers. Some observers think that, even without the proposed price break, the Postal Service would have won customers from UPS and FedEx once their prices increased. But others suggest the reduced rates might entice even more business customers to try the Postal Service.

    Should the Postal Service lower its Priority Mail prices, keep them the same, or raise them slightly given an expected migration from UPS and FedEx?