In May and June 2009, the Saturation Mailers Coalition (SMC) sent a 22 question survey to its members.  The survey was designed to collect data that describes SMC’s members’ volumes, distribution choices, and marketplace conditions.  The survey was also designed to identify the priorities and preferences of saturation mailers, including free paper publishers, shared mail programs, and magazine and letter shaped coupon programs. The survey data was tabulated by SMC’s economic advisor, Toni Crowder of Eagle Analytics.  It is being used by SMC’s Steering Committee to shape the association’s advocacy platform and priorities for purposes of meetings with Postal Service management and planning for years to come.

The survey responses reflect the breadth and diversity of SMC’s membership.  The respondents that provided volume figures were responsible for more than five billion saturation mail pieces on an annual basis.  This is a substantial portion of the USPS commercial flat mail, nearly 44%.

The majority of survey answers came from free papers and shoppers.  Approximately 30% of the respondents sent open-sided mail packages and 20% came from coupon publications using a magazine or envelope format.  Surveys covered all regions of the country, with most respondents covering a relatively local market.  Two-thirds of the responses came from mailers with a weekly program.

Although most of the respondents had weekday in-home dates, one-third had an in-home date that included Saturday.

The majority of survey respondents offered address suppression to customers that did not want to receive their piece.  The number of do-not-mail requests was very small; in most cases substantially less than one percent of all circulation.

The survey asked responders to comment on competitive conditions in their market, to identify major competitors and competitive challenges.  The vast majority of survey respondents identified newspapers as primary competitors.  The competition included other mailers, magazines, TV, and the Internet.  The biggest competitive challenge to competing with newspapers was the inability of program mailers to competitively price their inserting and delivery costs for pre-print FSIs because of the high pound rate.  Some interesting comments on competitive conditions, the challenges posed by postal rates, and how mailers struggle to keep advertisers’ business included the following:

It is very difficult with our delivery costs being such a big part of our costs structure  . . . non-mailed newspapers or TMCs can deliver a two ounce pre-print for the same price as a single sheet.  We generally have much lower margins which can make us somewhat competitive, but that only goes so far.

Competitive pricing is rampant with remnant and fire sale prices almost the norm.  We continue to stress value and service and try not to compete solely on price but in today’s market, money talks.

Our rate structure allows inserting of FSIs and single sheets down to the carrier route level.  No one in this market does this . . .   we are extremely flexible with the FSI delivery deadlines.  In some cases special arrangements are made to receive the inserts hours before it is scheduled to be inserted.

Nearly all of the survey respondents commented on private delivery with more than one-third of the respondents using private delivery for a portion of their circulation or actively testing it.  Responders provided cost data on their private delivery distribution costs.  Private delivery costs ranged from 8 to 11 cents per piece.  Many responders commented that private delivery was desirable because it had no weight related charges.  In addition to setting up or testing a private carrier force, several respondents were using mailer or newspaper alliances and TMCs to reduce distribution costs.  Other respondents were testing or using in-store counters or news racks for demand distribution.

Nearly all mailers commented on poor economic conditions in their market, decreased sales and revenues, and how that impacted their plans to reduce, maintain, or increase circulation.  Most respondents stated their advertisers were light weighting or cutting back on their promotions.  Many mailers commented that they had reduced prices or were holding on price increases to retain business.

Many respondents were uncertain about their future volumes and circulation plans.  Approximately half of the respondents indicated they expected their volume to stay “about the same.”  More mailers were planning to decrease volumes than mailers announcing an intention to expand.  Planned increases were generally associated with application for the Saturation Volume Incentive Program or increased demand in specific markets.  Most program reductions or decreases were blamed on high postal rates, postal operation requirements, and the poor economy.  When responses to volume plans were evaluated based on the circulation volumes represented in each response, the SMC survey suggests that saturation mail volumes will likely remain stagnate, or perhaps decline somewhat, over the next 12 months.

Many mailers commented on the Saturation Volume Incentive Program.  Some thought it would help them expand circulation or frequency.  Approximately two-thirds of all respondents commented that they applied or intended to apply for the program.  But only a few of these were certain they would be able to use the program in their market.  Many applied “just in case” or to show support for this USPS marketing effort.

The survey sought SMC members’ opinions and comments on postal rate, operations, and policy issues.  To help quantify these preferences, respondents were asked to rate the importance of 9 separate issues in order of importance.

This rating showed one common theme for all respondents.  All respondents indicated that a reduction in Postal Service rates, at either the piece rates or the pound rate, were the top 1 and 2 issues of importance to all SMC members.  In tabulating the responses, and looking at individual comments, economic analyst, Toni Crowder, had this to say “The general impression from these responses, in combination with responses to some of the other survey questions, is that the overall saturation rate level is too high and both the piece and pound rates are therefore too high.  Any movement to stimulating the permanent saturation volume increase will likely require an overall rate level reduction.”

Mailers gave varying reasons for their preference of a piece rate reduction over a pound rate reduction.  Mailers favoring the piece rate reduction noted:

It would benefit all pieces mailed regardless of weight.

It would lower costs to compete with newspapers.

All mail has to pay the piece rate.  Any savings at the piece rate will help the mailers’ overall program.

Mailers preferring a pound rate reduction often explained the competitive difficulties they face going after pre-print/inserts that can be in other media like newspapers or private delivered programs.

Several free paper publishers pointed out that the pound rate was a high deterrent to continued use of the mail or success with a mailed program.  For lightweight pieces, a mailed piece may be roughly competitive with newspapers or private delivery options.  As pieces get heavier (more successful) the additional cost of pound rate postage makes private delivery or newspaper distribution more attractive.

A number of publishers commented on their practice of using multiple distribution methods. Lightweight papers or shared mail packages in new markets may be sent by mail.  As the product matures, and increases the package weight the mailer or publisher is less willing to give the USPS a big cut of the revenues and is more likely to switch to private carrier distribution.

Several mailers commented on how high postal rates, and related distribution costs and requirements, are forcing them to cut back on markets, reduce business deliveries or marginal circulation, or double up with other mailers to combine mail programs to save distribution costs.

The next top issues on SMC members’ wish lists were the adoption of simplified addressing as an option on city routes or an increase in the high density/saturation mail rate differential.  Mailers with smaller volume, were most likely to rank simplified addressing as a top priority.  For larger mailers, and mailers in competitive markets with many advertising choices, an increase in the high density/saturation mail rate differential was the number three ranked choice.

Comments on the subject of simplified, were similar to the business case SMC has been making to the Postal Service on its “simplified but certified” proposal for years.  Comments include:

“I don’t see any reason why we [must] send our newspaper to every home in a zip code with a label on each newspaper or a DAL for the city routes.  It would be savings that goes right to the bottom line that would make us more profitable and able to expand into new markets” to allow simplified.

There are certainly internal cost advantages to moving toward simplified.  We would reduce inkjet costs by $15,000 annually and would see a five percent productivity improvement.  The product would be in better shape when it went out the door.

From a mailer that is in the process of setting up its own private delivery network “simplified addressing would keep our current levels of mailing consistent.  At this point we are converting from mail to our own carriers to get away from the surcharge of the DAL, the costs of printing them, the man hours to address them, etc.”

For mailers wishing for an increase in the differential between high density and saturation rates, the ability of newspapers to beat mailer’s pricing when going after desirable retail pre-prints, such as big box stores, major retailers, grocers, or drugs, was a constant theme.  Mailers noted that the ability of newspapers to blend their private carrier rate, ROP rate, and postage costs into TMC rates, made it easy for papers to undercut the ad prices offered by a 100% mailed delivered product.  “We can’t compete for heavier pieces.”  Other advantages of newspapers included the shorter lead times, and a daily delivery platform that includes Sundays.  Although declining newspaper readership and circulation is making advertisers rethink their media buy, the current pricing of the USPS makes it difficult for 100% shared mailed programs to attract much of this business.

SMC members were also asked to comment on, and rank the importance, of preserving the DAL, retaining service and in-home dates, retaining 6-day delivery, maintaining good public relations and fighting do-not-mail initiatives, and continuing the Saturation Volume Incentive Program.  In their rankings, and comments of mailers on these topics, the importance of mailers maintaining reliable in-home dates was stressed.  Although many mailers are currently doing programs with a Saturday in-home date, the loss of Saturday delivery was significantly less important to members than achieving reductions in postal rates and maintaining reliable service and in-home dates.

Several responders saw the elimination of Saturday delivery as a scheduling and production dilemma for free papers that use outside printers and vendors, and as a competitive boost, for newspapers.  Interesting comments included the following:

“This will cause tremendous problems for our printers who already have full schedules and do not have the empty press space to just move us to a different day for printing!”

“Saturday is our mailing day.  This would definitely affect our whole workflow.  Our deadlines for the advertisers would have to be moved earlier.  Our production flow would have to change and we would definitely move faster to convert to our own delivery system to continue weekend delivery to our readers.”

We would need to adjust our entire production schedule to ensure delivery in time to guarantee Thursday/Friday delivery.  We could not allow for any Monday delivery.

Paid newspapers may pick-up FSIs if direct mail is not delivered on Saturday.  It gives the competition and newspapers an effective weekend monopoly.

Although preserving the DAL was not rated as a top priority for a large number of mailers, the use of the DAL remains essential for some program mailers.  A few responders noted that DAL revenue helped them survive in tough times.  Some commented that they could offer their advertisers a more targeted, versioned DAL product than their saturation program product that might cover a larger circulation.

The value of the Saturation Mail Volume Incentive was also very important to the business of some mailers.  A few responders commented “If it were not for the incentive we would be unable to expand at this time.”  Another mailer noted that the incentive was minimizing its need to eliminate marginal areas and cut back on frequency.  “We are participating in the program and it is allowing us the time needed to stabilize new markets and increase frequency in existing markets . . .  it is early in the game but we hope for may be five to 10 million increase monthly by the end of the program.”  Many mailers commented that they were still evaluating the Saturation Volume Incentive Program and appreciated the opportunity to apply for it on a market by market basis.

At the end of the day, the survey information will be used by SMC’s Steering Committee to develop a consensus platform for coalition leaders to take to USPS executives.  The Postal Service desperately needs to retain and build its mail volumes.  The survey gave our members an opportunity to identify impediments to doing business with the Postal Service and to identify steps the USPS could take to encourage the growth of program mail.  By far the strongest consensus message the survey produced for SMC’s leadership was the resounding response that USPS rates for saturation program mailers are too high.  The Postal Service is taking too big a bite for mail distribution from the business of our members.  If the USPS wants to permanently grow its volumes, business and market share with saturation program mailers “lower postal rates” suggestions like the following were seen repeatedly in survey comments:

Reduce rates for saturation program mailers by 10 to 30%.

To consider any major expansion we need a permanent 10 to 15% discount for all saturation mail.  Postage has become too high a percentage of our cost base to justify further expansion with our current model.

Allow saturation letter mailers to send heavier letters without charging us as flats until the 5 ounce weight limit is met.  This meets the tolerances of most automation equipment.

Realize that we need to be profitable to expand into new markets.  If the Postal Service would permanently lower our rates, we could launch an additional one to two papers per year and expand frequency.

SMC leadership has scheduled a meeting with Deputy PMG Patrick Donahoe, Robert Bernstock, President Mailing Services, Stephen Kearney, Senior Vice President of Customer Relations and Maura Robinson, Vice President Pricing, for the end of September.  SMC’s leadership will do everything it can to aggressively represent the views of our industry at that time.