PRC Approves Summer Sale II

The Postal Regulatory Commission has approved the U.S. Postal Service’s plan to conduct a Standard Mail Pricing Initiative (also known as the “Summer Sale”) this summer. This is a followup to last summer’s inaugural program.

Here’s what the program looks like:

• Incentive period: July 1 to Sept. 30, 2010.

• Products: All Standard Mail letters and flats.

• Control months: June and October.

• Rebate amount: 30% off applicable rate above baseline.

• Baseline: Same Period Last Year (SPLY) + 5% (i.e. 105% of what you actually mailed in the July to Sept. 2009 period)

• Control: Downward adjustment if June or October volume is below baseline (prevents shifting of volume into incentive period)

• Qualification: Customers must have mailed more than 350,000 Standard Mail pieces in the baseline period of July 1 to Sept. 30, 2009. This covers about 3,525 customers, or 67% of Standard Mailers.

Mail service providers (the printers and preparers that physically execute mail and give it to the USPS) are not eligible to aggregate volume on behalf of their customers.

The USPS will offer qualifying mailers discounts of 30% on volume increases of more than 5% over summer 2009 Standard Mail letter and flat volumes. Some of the mail that would be eligible for the new discount is already failing to cover its direct costs.

The Postal Service is using a new technique for projecting mailer response to proposed discounts. Relying on this new technique, it estimates a range of possible outcomes from a loss of $3.5 million to a gain of $25.3 million.

The potential loss in contribution is counter-balanced by the initiative’s utility, according to the PRC’s ruling. This case provides an opportunity to observe participating Standard Mail users’ responses to short-term price changes, while simultaneously monitoring other nonparticipating mailer behavior.

Unlike a general rate change, the panel data that this initiative may generate has the ability to inform the Postal Service and the Commission on the effect on volume of short-term price changes. The data will also be useful in further refining the Postal Service’s trend analysis or the Commission’s elasticity analysis used to predict mailer response to price changes.

Hamilton Davison, executive director for the American Catalog Mailers Association, says his organization was concerned the PRC would either rule against the Summer Sale outright, based on the Public Representative’s testimony. Or the PRC might have excluded Standard Mail flats (catalogs) from the incentive, based on an argument filed by Valpak, a coupon mailer. Valpak contended that the USPS should exclude Standard Mail flats because they don’t cover their attributable cost.

According to the PRC’s ruling, “the inclusion of Standard Mail flats in the program is consistent with the intent to design a program encouraging volume growth, not only directly, but indirectly through additional mail resulting from discounted mail.

Davison says many ACMA members can’t make the program work for them, either because they don’t mail enough catalogs or can’t mail 5% more catalogs during the sale’s timeframe than they did last year. But if you fall into this category, he says, “you still should be pleased with this outcome, because it’s the beginning of better, farther-reaching mailing incentives to follow.”

For the complete PRC ruling, go to: http://prc.gov/Docs/67/67609/Order_No_439.pdf.

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