• on Jan 26th, 2015 in Pricing & Rates | 2 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 Nov 3rd, 2014 in Delivery & Collection | 10 comments

    For the major express companies, preparation for the next holiday season started right after the last one ended. If you’re one of the many Americans whose packages arrived after Santa did last year, you are undoubtedly glad to hear this. In 2013, an unexpected surge in online orders, combined with winter storms and sparse airplane capacity, resulted in FedEx and UPS missing deliveries for Christmas.

    While online retailers certainly share some of the blame – they promised more than was reasonable – UPS and FedEx are investing heavily this year to avoid a repeat of last year. For the first time, UPS will operate a full domestic air and ground network on the day after Thanksgiving (not just its air network). It’s also adding 95,000 seasonal workers and 6,000 package delivery cars, plus increasing its available aircraft. FedEx recently announced a sharp increase in its number of seasonal workers.

    Retailers are also making some changes, including in-store pick-up options and better “distributive fulfillment” efforts, which lets them ship from their brick-and-mortar stores rather than distribution centers. These offerings reduce the distances packages travel.

    The U.S. Postal Service came out of last year’s holiday season smelling sweet. A Business Week article called the Postal Service’s performance stellar, noting that it made adjustments throughout December – including adding deliveries on three Sundays in the month – to accommodate package surges. Of course, the Postal Service doesn’t operate its own fleet of airplanes like UPS and FedEx. So it’s not necessarily the carrier of choice for overnight deliveries.

    Still, many pundits believe the Postal Service could win some new customers this holiday season due to its strong performance last year. The Postmaster General recently told USA Today the Postal Service expects an 8 percent increase in packages over last year. Further, the Postal Service’s recent lowering of commercial Priority Mail prices may have already convinced some companies to switch. However, unpredictable weather close to Christmas and increased volume could pose challenges similar to last year. Would a less-than-stellar holiday performance from the Postal Service hurt its potential in the coveted commercial package market? How can the Postal Service prepare for these potential challenges? Will the changes retailers are making help? 

  • 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? 

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