It seems the pricing of parcels in today’s market is a lot like the story of Goldilocks and the three bears (with the U.S. Postal Service playing the role of Goldilocks): If USPS sets prices too high, it opens the door for the big retailers to come in and make their own deliveries. If it prices them too low, it loses money. It needs to price parcel delivery services just right.

Our recent white paper explains the outcomes of modeling research by renowned postal economist John Panzar, who notes that the parcel market is no longer just the dominion of established parcel delivery companies. The real threat to the parcel delivery companies is self-delivery by the large retailers. The Postal Service — and commercial delivery companies — just got a new competitor. Price your products accordingly.

In the past, if the Postal Service set prices below its competitors, it would most likely increase its parcel volume. In today’s evolved parcel market — where ecommerce is driving steady parcel growth and competitors are also customers — the postal price has to be higher than the cost of delivery, lower than competitors’ prices, and also low enough to discourage large retailers from self-delivery.

Our paper doesn’t say “you should charge X price.” But Panzar’s game theory analysis can guide USPS decision-makers on how to set pricing strategy. Many industries employ game theory in one way or another: Airlines model prices for different flights based on a number of factors, including seats on the flight, dates of travel, etc. And ticket resellers use models to raise or lower event prices depending on demand, date of the event, and prices on other sites.

A model can help organize all the assumptions about relevant factors in a consistent framework, one that can be adjusted with shifts in business realities. It should help decision-makers consider the impact of pricing on an ever-changing parcel market.

What do you think? What other threats does the Postal Service face in the future of package delivery?  Besides price, what other strategies does it need to focus on to maintain its market share? 

Comments (6)

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  • anon

    Price is important. However, USPS has a problem with many of its products which are price sensitive. As the price has increased junk mail, for instance, has decreased. There is also the problem of technological competition i.e. the internet. Ads, for instance, are cheaper on line. They can be targeted more effectively and go worldwide with the click of a mouse. Thus, USPS needs to be aware of these factors. Another important issue is that Amazon is driving the parcel market in terms of expectations. Second day delivery is the standard expectation. The amount of standard parcel volume is down substantively, replaced by priority parcels. Because parcels has a lower profit margin than letters, USPS has to control its costs. An example of the outmoded thinking USPS has is that grievance do not matter and are just lumped together in one coffer. Yet, there are so many repetitive grievances settlements violations from the same individual or individuals that cost just continue to soar. With no accountability for repetitive violations, they just pile up and costs continue to soar. Not a good way to control costs. Further, making up the cost of grievance payout by reducing staff just compounds the service and productivity problem. If USPS is to compete in the parcel market against the likes of Amazon, it has to make the process more user friendly, get serious about parcels by focusing on parcels instead of letters and flats, get a better handle on controllable costs and continually ask itself, "What is the customer hiring us to do?

    Jun 10, 2017
  • anon

    Please take action on this immediately. Filing a complaint locally does nothing

    Jun 08, 2017
  • anon

    Yes again the clerk at the Florin Road Post Office in Sacramento refuse to go in the back and check its web to see whether I had a package. She said she couldn't leave the counter to check even though there was no one in line and there were three Clark's she wanted me to go to another window this is an ongoing problem here at this post office. Talking to the inspector-general about this post office

    Jun 06, 2017
  • anon

    I don't know what it is but this is in all post office buildings. The atmosphere is dark, quiet, and employees are very intimidating. Their uniforms need a color along with the white envelopes that all appear exactly the same. Without a doubt every time I have been in waiting in line , cashier has to point from other side of counter explaining no over one, down one , to the right... (Delays time and productivity) and every time I follow watching the customer as it is frustration frustration but not at all their fault it's with many. In my opinion you don't need gifted boxes that are a high quality I'm sure. No body is going to buy in a world where DIY and creativity is shined upon. Especially, with kids. With over all appearance maybe select a color change in uniform (purple for Lupus) (pink cancer) (blue diabetes) have your envelopes white maybe logo of one of illnesses above. The problem is your not involved, your not communicating, and your avoiding cries for help on social media. Of course you want to crawl under a rock. Another problem we have here is our carrier puts our mail in small boxes together for all homes at bottom of our street. Everything doesn't fit , she has to come up whether one home or not to put at door. She is doing double the work , wasting time while we should all easily put our mailbox at curb where plenty of room for her to drive straight up without getting out of her vehicle at all and drop straight in our mailboxes which we all agree as residents. Our carrier does work hard and is super sweet , she is never late according to her daily schedule our mail is always ready to be picked up by 1:30 daily. I also noticed while she delivers residents have to cross a busy road to pick their mail up from across their homes. Not only unsafe but your not making it any easier for them to praise how wonderful you are either. It is about that time homeowners invest in a mailbox that fits their needs individuality. In an area carrier drives home to home , I can assure you up and down home to home mail delivered to each mailbox , less complaints and a little more hustling. For example kids are finishing school and this can happen year round. Get them involved. Separate mail. Walk over from local camps or school and reward them last 15 minutes of their stay with a stamp a piece of already made mailing card not high quality , folded white paper with your label, logo and allow them to mail to their favorite relative, animal whomever but it not only helped in mailroom which kids are not given enough credit by the the way. But they have gained so much as little people idolizing what has been forgotten and they are learning , working and just feeling above the world at that moment. Which is a wonderful gain for all children. Give it time and eventually it will all connect. Employees, wasted money, brighter atmospheres , getting personal on internet. I'm sure you understand but that's just what I do , study situations and hope to make it a positive better place. Thank you!

    Jun 06, 2017
  • anon

    No Comment, Everything is Awesome.

    Jun 06, 2017
  • anon

    Get a life moran. Costumers deserve better! Hiring your own fiends who has no brain, or aren't capable of handling problems and dealing with employees shouldn't be there. All that cause of salary?? Because of the costumers we have jobs and we should appreciate all their business and must look back to see what we did wrong and correct it. We DON'T hang up on costumers or say whatever cause we're Government employees. I'm an employee and former 204B.

    Jun 09, 2017

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