PM_220208_p011 20/2/08 12:55 Page 11
February 22 2008 PrecisionMarketing 11
News Analysis
Competition is starting to have an impact in the postal services market, but small businesses are
dragging their heels when it comes to seeking alternatives to Royal Mail. Are they missing out?
Why are SMEs so reluctant to switch postal operator?
David Reed
operations. Two years on, Royal Mail
investment has filled these gaps Starting to feel the impact of the liberalised postal services market
Two years after the market for and mailing houses have
postal services was liberalised, learned to work across multiple
it is not just the funding for the providers efficiently.
Mailing Preference Service End users are generally
which is under threat. Royal unaware of these problems.
Mail is also starting to feel the Instead, their focus has been
impact. At the same time as principally on price and sec-
mail volumes declined by 2 per ondly on service and quality of
cent in 2006/07, downstream service. For the mid-market, the
access (DSA) licence holders answer in both of those areas is
accounted for 11.8 per cent of not that switching would lead to
volume. improvements.
The effect of competition is Ben Allan is managing direc-
disproportionate at this early tor of Tilt, an agency which pub-
stage – those DSA-mailed items lishes the collaborative
accounted for 19 per cent of marketing title Asrecom-
Royal Mail’s revenues. The rea- mended. “We have looked at the
son why revenue share is postal services market from a
higher than volume share can cost perspective and no-one has
be found in the Business Cus- got close to Royal Mail’s Mail-
tomer Survey carried out by sort 3,” he says.
Postcomm in December 2007. With something like nine out
It found that among all mail of ten cold acquisition items
users, 15 per cent were using being sent via this service, the difference between switch- Mail does not have to charge market needs to innovate to
multiple service providers. In Royal Mail may have grounds ing or not, but it may depend on tax on its services, whereas the encourage smaller companies
the top segment, this figure was for feeling secure in its market the service used. “For one rivals do. So they have been to switch.”
35 per cent. Indeed, large busi- share. “The others are about 1p client, we have switched to a claiming that they are at a 17.5 Some indicators can be
ness have been the quickest to per item off,” says Allan. DSA licence holder. That has per cent price disadvantage. found in the Postcomm study.
switch, with 41 per cent using He believes the significant been driven by cost savings – “One of the major stumbling Asked what the most important
more than one mailing service account wins by rivals have they were able to save £250,000. blocks for new carriers is VAT, quality of service issues are
provider. been in other mailstreams. Also, they are using a guaran- which has been particularly when considering different
Among SMEs, the picture is “Switchers appear to be those teed two-day service,” says problematic for sectors that postal operators, the leading
different. Postcomm found 21 with time-sensitive items, like Chris Arthur, managing direc- have trouble reclaiming it,” factors emerged as delivery to
per cent of medium-sized busi- bills and statements. They are tor of Perspektiv Marketing says Galpin. “The issue has the correct address (scored 9.6
nesses were taking advantage of going to rivals which are com- Group. recently been only partially out of 10) and delivery reliabil-
multiple mail providers, while petitive from a cost point of “There is not always a cost addressed, but if a comprehen- ity (9.3).
only 17 per cent of small busi- view. For direct mail prospect benefit – it depends on the serv- sive solution can be achieved it Combined with the rating of
nesses were doing so. mailings, they are not competi- ice you are using and the vol- will allow further changes and 9.2 for trustworthiness, this is
This may explain why the tive,” he says. ume,” he adds. For several opportunities in the deregu- good news for Royal Mail since
IDMF in April will feature a One service offered by DSA clients, there was no advantage lated market.” it is still responsible for the
Postal Switch Centre. Both DSA licence holders which has to be gained in switching. However, among the largest final mile. Collection issues
licence holders and overseas gained attention is the two-day The burden of switching is segment of the direct mail mar- were rated fourth and fifth,
postal services will be grouped delivery guarantee. Where a undeniably being felt by sup- ket, the price differential does while delivery time came
together in a specific area of the campaign is likely to trigger a pliers more than clients. not exist. Clients routinely cre- eighth and account manage-
exhibition to try to encourage high volume of calls, clients “For mailing houses like us, ate zero VAT-rated mailpacks ment 12th. That means rivals
the mid-market to look at using need to ensure they have the there is more work in using which means mailing costs are will need to find other ways
rival postal services. right resource in place. Know- more than one postal provider. not subject to any differential. to demonstrate a point of
As Graham Cooper, manag- ing on what days a mailing will Each one has different contract That means services and difference in the mid-stream
ing director of OnePost, which arrive is helpful and can lead to processes, logistics, collection quality of service are more processes.
is exhibiting in the switching cost-savings. times. There is a lot of learning likely to be drivers of switch- “It requires an end-to-end
centre, says: “There is a whole But Allan argues that many linked to that,” says Arthur. ing. Rivals have been able to provider to fire the starting pis-
heap of activity in the mid-mar- acquisition campaigns do not This may be one reason why exploit a well of dissatisfaction tol for true competition to
ket company area and using an need this: “The two-day drop is switching activity has cooled with Royal Mail. Royal Mail,” says DeCarteret.
organisation like ours takes the not useful to us. Mailsort 3 recently. “I feel that since the Jonathan DeCarteret, senior That still seems unlikely
pain out of it.” drops over a ten-day period initial spell, the pace of growth market analyst at Post-Switch, even though two operators
His business is attracting 18 which is more than sufficient.” has slowed. It is not yet a says that the movement is only have declared ambitions to set
new clients per month and has Alternative providers simply mature market,” says Paul one way. “Customers who up such networks. Only niche
passed the 10 million items do not exist for national brands Galpin, sales and marketing switch have an exceptionally services exist to take items
monthly mark. “They are not that want to use unaddressed director at DsiCMM Group. low attrition rate – once from collection to delivery via
all major direct mail users,” mail. “No-one has got the cover- “However, it is still growing switched, few return. Gener- private systems. It seems likely
Cooper points out. Significantly age,” says Allan. “Free newspa- and there are many more ally, customers feel they bene- that a decade of competition
for the opening up of the mar- pers don’t work well for opportunities yet to be pre- fit from improved performance, will be needed for rivals to gain
ket, the DSA licence holders financial services. Consumers sented. This is a long-term lower costs and greater visibil- sufficient revenues.
went for the big mailers first. respond to them at one-fifth the process that will evolve over ity on service,” he says. For now, switching is possi-
The early days of competition rate of Royal Mail unaddressed, the coming years.” “But most SMEs do not ble and often worthwhile,
did bring with them anecdotal but the medium only costs half In trying to take market understand how their cam- although by no means a fore-
evidence of problems. Prime the price, so it is 40 per cent less share from Royal Mail, the paigns are conveyed and how gone conclusion. Any company
among these was a lack of logis- efficient.” DSA operators have been cry- simple switching is, or even using direct mail should at the
tical resources within the DSA Volume of activity can make ing foul over VAT rules. Royal what the benefits are. The least look at the possibility.
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