Competitive Products Pricing Best Practices
Objective
The Postal Accountability and Enhancement Act of 2006 (PAEA) divided postal products into two categories: market-dominant and competitive. The PAEA established rate-setting policies and procedures for both products. Competitive products are defined as a category of postal products and services for which similar products and services are offered by private sector carriers. The Postal Service has more flexibility in pricing competitive products. Specifically, competitive products must cover their attributable costs, are not subsidized by market dominant products, and make an appropriate contribution to institutional costs. Pricing changes generally occur annually and are subject to a regulatory review process.
Our objective was to identify opportunities for increased efficiencies in pricing processes and initiatives for competitive products using industry best practices.
What the OIG Found
The Postal Service has a pricing management system based on procedures and methodologies that were developed over 20 years ago. The Postal Service’s primary sources for developing and analyzing prices comes from statistical analysis and reports that are generated on a quarterly and annual basis. These systems are not integrated; thus, it is difficult for the Postal Service to use this information to be nimble in its pricing strategy.
In recent years, pricing management systems have seen significant technological advancement, including the use of readily available pricing software to help integrate customer and organizational data, and to facilitate price setting.
Modernizing its pricing management system for competitive products could reduce manual data inputs, and support customized pricing to allow for a more agile price-setting process. A modern pricing management system could also allow for real-time cost data, market-based price information, and cloud-based data for modeling and maximizing price changes. Additionally, a modern pricing management system would better support consistent and stable general rate increases. Currently, Postal Service competitive products do not always have consistent and stable general rate increases. Inconsistency in general rate increases can create uncertainty and difficulty in future planning for Postal Service customers.
In addition to annual general rate increases, others in the industry have controlled the growth in general rate increases by using various fees, such as peak season add-on fees, with rate increases. Further, the Postal Service could look at current operations to identify additional revenue opportunities, such as hold mail pricing and increased product offerings. A modern pricing system could help identify and justify the decision to pursue appropriate strategies to increase revenue.
What the OIG Recommended
We recommended management evaluate available options to modernize the pricing management system.
