Wednesday, December 17, 2014

Legal Trick Means No Postage Increase -- For Now

With some parliamentary maneuvering, the U.S. Postal Service Board of Governors has apparently avoided the need to raise postage rates sooner than it wanted.

A key deadline for the rumored hurry-up rate hikes passed today when the Consumer Price Index numbers for November were announced.

As the board drew close to losing its quorum last week (because of -- what else? -- Congressional inaction) there was talk the governors were preparing rate hikes that would be announced this week and implemented in the spring. (See USPS May Seek a Rate Hike After All.) That appeared to be the last chance for the governors to raise rates until Congress got around to approving new governors.

But a Federal Register filing published yesterday revealed that the governors came up with another plan: While they still had a quorum, they passed a resolution naming the remaining members to a Temporary Emergency Committee that will "will exercise those reserved Board powers necessary for operational continuity until such time as sufficient members are available to enable a quorum of the Board to convene."

Assuming the resolution withstands any legal challenges, it means Congressional deadlock won't prevent USPS from increasing rates when it chooses. That appears likely to be in a few months, after an appeals court rules whether the 4.3% "exigency" surcharge on most postage should be increased or extended.

A rate hike approved before the board lost its quorum would have to have been filed prior to today's CPI release, which caused a recalculation of the inflation-based cap on rate increases.

The Postal Regulatory Commission now calculates that an increase based on the change in CPI during the past 12 months would be capped at 1.685%. But the Alliance of Nonprofit Mailers puts the true cap at 1.965%, because there hasn't been a CPI-based increase for 15 months. And it projects that, despite plummeting gasoline prices, the inflation-based cap is likely to keep inching up for the next few months.

Tuesday, December 16, 2014

Sales of Printed Books Are Growing? Impossible!

Amazon's current #1 book
For years, the pundits have been telling us that all forms of print media would steadily shrink and shrivel as consumers switch to digital media. But here are two recent indications from the U.S. book industry that reality will be a bit more complicated than the soothsayers would have us believe:

1) Unit sales of printed books are on track to increase this year.

2) During the third quarter of 2014, print books actually took market share from ebooks.

“The industry is poised to post its first increase in print sales since 2008,” Publishers Weekly reported last month, citing BookScan data showing a 2% sales bump so far this year.  That report was followed by two consecutive weeks of sales that were up 5% versus last year.

When I wrote in 2012 that U.S. sales of ebooks had apparently plateaued, I was chastised as some kind of Luddite even though I was merely reporting on industry figures. Booming iPad sales surely meant that more people would switch from print to digital for their book reading, meaning more e-books and the continuing decline of printed books, I was told.

“This is the second inning of a long ball game,” my cyber-friend BoSacks commented. “Digital will win and it won’t need extra innings.” He was not alone in thinking that printed books would soon become a niche format.

“Given the explosive growth of ebook sales since the launch of the Kindle in 2007, with increases in the triple digits for several years, many expected the paper book industry to remain in retreat for the foreseeable future,” Claire Fallon of the Huffington Post noted a couple of months ago. “Recently, however, ebook gains seem to have stabilized with hardcover and paperback books still comfortably dominant. In 2013, sales growth for ebooks slowed to single digits.” (Editor’s note: Industry data don’t always capture sales of self-published ebooks.)

Where's the fat lady?
“In mature markets, we are seeing solid growth in digital while print book sales are proving resilient,” says Jonathan Nowell, president of Nielsen Book.  (Note to BoSacks: Better call the bullpen. The starting pitchers are running out of gas, and the fat lady ain't ready to sing.)

So why did the Ebook Revolution that was supposed to have thoroughly disrupted (hate that word!) the traditional book industry apparently peter out with a U.S. market share of barely 20%? There are several reasons, with lessons for other media that are undergoing digital transformations. (Take note, fellow magazine publishers):
  • Low-hanging fruit: For the first few years after the Kindle was introduced in 2007, ebook growth was explosive but also narrowly focused on certain categories. The ebook format became most popular in genres that are read from first page to last, such as novels and biographies, but is barely a blip in photography and some types of reference books. Once most of the book-a-week romance and suspense buyers bought an e-reader or tablet, further growth of ebooks had to be based on grabbing harder-to-reach fruit. 
  • Legacy publishers adapt: The pundits tend to assume that decades-old publishers will lumber along like dinosaurs, oblivious to the digital meteor strike that will soon lead to their extinction. But book publishers didn’t just sit back and watch while ebooks lowered the barriers to entry and raised the chances of success for a new wave of self-publishers. Self-published ebooks became the new slush pile, where the big book publishers went looking for authors worth signing. The big players have also studied the most entrepreneurial self- and non-traditional publishers, adapting their methods to selling both print and ebooks. It's a bit like the magazine industry (um, magazine media industry), where the Internet Revolution has led not led to destruction of the savvy but rather their transformation into multi-media ventures. 
  • On demand: Printing technology hasn’t stood still, either. In the past couple of years, the equipment and infrastructure for print on demand have blossomed – to the detriment of traditional book printers but to the benefit of book publishers. The ability to print one book at a time economically on an as-needed basis has enabled the industry to slash its inventory costs and reduce the risks of book launches. Backlist titles that were out of print for years are suddenly available again. Using POD, self-published ebook authors can easily create print editions with virtually no upfront costs. 
  • Consumers didn’t take sides: Some proponents see ebooks in terms of a holy war that is liberating authors from the shackles of Big Print (traditional book publishers). They assumed that once people “converted,” they would never go back to print. But readers didn’t get the message; few book readers have given up print entirely. They expect ebooks when they want ebooks and print when they want print. They buy e-books to read to their children, then shell out for print editions of the kids’ favorites. The same executive who furtively read Fifty Shades of Gray on her Kindle while flying to a business meeting will proudly peruse her print edition of The Great Gatsby on the flight home. 
  • Digital is not the enemy of print: Where is it written that people will buy only a fixed number of books, so that every ebook sold means the sale of one less printed book? Ebooks have drastically lowered the barriers to entry for new titles and new authors; the best usually find their way into print. That means more choices for consumers, which tends to increase overall sales. 
What of the future? Though some of my fellow print geeks see ebooks as a passing fad that will eventually lose out to "real" books, I’m not so sure.

What happens if ebook technology becomes more suited to sharing, highlighting, Post-It Noting, attractive photo spreads, and reading on smart phones? Will Amazon uses its market power to bolster ebooks at the expense of print? What happens if Barnes & Noble collapses? (Indie bookstores will pick up all the slack? Really?) Will ebook subscription services be a game changer?

I can offer only two predictions: Anyone who blithely projects that recent trends will continue unabated into the next decade will be proven wrong. And, as Jonathan Nowell of Nielsen Book says: “For the foreseeable future, we will operate in a hybrid print and digital world.”

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Monday, December 8, 2014

USPS May Seek a Rate Hike After All

Please see the update to this article, Legal Trick Means No Postage Increase -- For Now.

Barely two months after deciding to skip the usual January price increases, the U.S. Postal Service appears close to announcing that prices will rise in the spring. As usual, the do-nothing Congress is to blame.

The Association for Postal Commerce (aka PostCom), a multi-industry trade group for business mailers, reports that USPS is readying itself for the next postal price change to be effective April 26, 2015." PostCom's "heard it through the grapevine" reports on Postal Service doings are usually right on the mark.

Rates could rise nearly 1.7% for the "market-dominant" mail classes, such as First-Class, Standard, and Periodicals. That could mean a one-cent increase in the price of Forever Stamps, to an even 50 cents.

What's driving the agency's change of plans, according to PostCom, is that Congress has failed to act on five nominations to USPS's Board of Governors, which oversees the Postal Service and must approve any rate changes. If Congress doesn't approve some of the nominations before its holiday recess, scheduled to start later this week, the board will lack a quorum until next month -- and maybe much longer if Congress deadlocks or is too busy naming post offices to act on the nominations.

With no quorum, no rate increases could be enacted. It's not completely clear whether the governors, while still having a quorum, could approve a rate increase but leave it to management's discretion when, or even whether, to file the new rates with the Postal Regulatory Commission.

The Board of Governors announced Oct. 1 that it would forgo the usual inflation-based January rate increase "in part because of the uncertainty regarding the exigent price increase." (See The Postal Service Giveth, and the Paper Market Taketh Away.)

The exigent surcharge of 4.3%, intended to compensate USPS for its losses during the Great Recession, is scheduled to expire next summer, but the agency has gone to court to increase and extend the surcharge.And some politicians have talked of making it permanent.

Also prompting the Postal Service's change of plans may be declining oil prices, which could lead to decreases in the Consumer Price Index. Normal increases in market-dominant rates are limited to changes in the CPI.

The current CPI-based ceiling of 1.678% may be the largest USPS will see for at least a few months if petroleum prices keep dropping. Unless USPS files for an increase, the ceiling will be recalculated Dec. 17 (not Dec. 15, as I originally mis-stated) when the Labor Department reveals the CPI for November.

Saturday, December 6, 2014

Donahoe Will Be in Good Shape When He Leaves U$P$

Last fiscal year, even before she was chosen to be the future the Postmaster General, Megan J. Brennan was the U.S. Postal Service's highest paid employee.

But don't fret for retiring Postmaster General Pat Donahoe. He will leave USPS on Feb. 1 with a pension having an estimated present value of more than $4 million, according to a financial report the agency filed Friday.

Brennan's FY2014 base salary of $236,536 was $42,000 less than Donahoe's. But with a $20,000 bonus and a $77,000 gain in the value of her FERS retirement plan, her total compensation of $351,655 came out $3,000 ahead of Donahoe's.

Before some grandstanding politicians tries to score points by blathering about overpaid postal executives, consider this: The CEOs of USPS's slightly smaller competitors, FedEx and UPS, earned more than $14 million and $10 million, respectively -- versus $1.8 million for the top five USPS executives combined.

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Monday, November 24, 2014

Postal Service Starts Fiscal Year With a Bang

Maybe it was the election. Maybe it was the economy. Maybe it was even a sign that an organization that was left for dead is bouncing back.

Whatever the reason, the U.S. Postal Service revealed today it had a bang-up October, with domestic mail volume up nearly 7% over the same month last year, rather than the 2% decrease USPS was expecting.

The beleaguered agency had "controllable operating income" of $647 million in the first month of Fiscal Year 2015, more than double what it budgeted or what it earned last October. Controllable operating income excludes what is euphemistically referred to as prepaid retiree health benefits, which USPS has stopped paying, and accounting adjustments for the future cost of workers compensation cases.

Big growth areas
Major mail categories with significant revenue increases over October 2013 included "Permit Imprint Nonprofit Standard" (43%), Parcel Select (30%), "Permit Imprint Regular Standard" (14%), and "Permit Imprint First-Class (7%), according to an in-depth financial report also released today. Even the Periodicals class was up a bit.

In the first month with aggressive parcel rates for large business mailers, volume for Shipping & Package Services rose 14% and revenue by 12%.

Despite the higher volumes, work hours increased by less than 2% and total expenses by less than 3%.

It will take more than one strong month, however, to get one of the country's largest employers out of the financial woods. USPS is frequently on the verge of running out of cash, and it has no ability to borrow money, even for such mission-critical needs as replacing its decrepit, inefficient delivery vehicles.

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Wednesday, November 19, 2014

Discover-ed: How Direct Mail Competes With Digital Marketing Channels

A major financial services company provides a rare peek inside its direct-marketing strategy, with lessons aplenty for printers, marketers, and postal officials

With more than $300 million spent annually on direct-mail postage, Discover Financial Services is one of the U.S. Postal Service’s largest customers. And though Discover still spends most of its direct-marketing budget on mail, it is increasingly shifting those dollars to a variety of digital media.

A Discover executive recently provided a peak inside the company's marketing strategy, demonstrating how digital media have become more competitive with direct mail and yet how good old snail mail endures as a marketing channel despite its high cost.

“Last year, for the first time, more of our new accounts were acquired through digital channels than they were through the mail channel,” Harit Talwar, Discover’s chief marketing officer, told the Postal Regulatory Commission recently.

Postage rates up; digital costs down
Though they “once were rather immature marketing outlets,” digital marketing channels “are now viable, fully effective, cost efficient channels that produce good results, he wrote. “Moreover, they are channels that tend to become less expensive over time. This is in contrast to mail which also produces good results but tends to become more expensive over time.”

“For the Postal Service to continue to play in this arena, it must maintain and improve the effectiveness of mail, push mail to work effectively with other channels, and deliver that effectiveness at appropriate price points,” Talwar wrote. He was explaining why the PRC should approve a proposed negotiated service agreement between USPS and Discover that would provide incentives for Discover to spend more on direct mail.

“It is critical to understand that for us, Standard Mail is not a monopoly product for it operates in a highly competitive market that includes a wide variety of targeted digital channels,” he wrote.

“Our digital channels are now viable, effective, cost-efficient channels with higher adoption rates that reach far more recipients at a much lower price than mail.”

“Discover has many choices, and their number and effectiveness grow every year,” Talwar added. For example, the ability to target people by interests and even location, along with new creative formats, have made web advertising far more effective than it was in the days of untargeted, undifferentiated banner ads.

He categorized Discover’s nine direct-marketing channels as email, pop-ups (including home page takeovers), paid search, banner ads, social media, Discover’s web site, mobile web, mobile apps, and direct mail.

Skipping the light Fandango
“New technologies are emerging that would allow an advertiser such as Discover to promote the 5% Cashback Bonus promotional earn category to a user who is making a dinner reservation in their Open Table® app, reading a restaurant review in their Yelp® app, or buying movie tickets from their Fandango® app.”

“More customers are signing up for a Discover card via our mobile app than initially expected.”

Contrary to popular opinion, however, email no longer competes with direct mail when it comes to attracting new customers because consumers have learned to ignore un-targeted email blasts. But email is still “a highly effective channel” for cross-selling existing customers, Talwar wrote.

“Among the targeted marketing channels, mail is about two-thirds of our marketing spend for promotion of the Discover card. Four years ago it was a bit more than 80%.” Nevertheless, Discover’s spending on postage has increased 27% during the three-year life of its current NSA – an indication of how rapidly the company’s total direct-marketing expenses have risen.

Answering the unanswered question
For the printing and mailing industries, Talwar left a key question unanswered: Why does Discover continue to spend so much money on direct mail – the vast majority of it for postage – when its cost per acquisition from digital channels is in general so much lower? But he did provide a few hints:
  • “To acquire new cardmembers, we partner with an outside source on a database of prospects. Based on credit bureau attributes and risk tolerance, we send pre-approved offers with segmented messaging and pricing, or we send invitations to apply.”
  • Some new-customer mailings go to all of Discover’s “analytic segments, while others go only to select segments. “Segmentation is based, among other things, on customers’ creditworthiness and response rates.”
  • “We market primarily to those whose credit quality is sufficient to qualify for a Discover card.”
  •  Mail is used extensively with existing customers, with “targeted offers to encourage them to activate their card, to increase their use of the card, or to take advantage of balance transfers. Mail is also used to promote our card's features and benefits, to promote business with our partner merchants, and to ‘cross sell’ our other products and services.”
  • “Mail is used in tandem with the other channels to reinforce each other and send a coordinated set of messages, or a common message across our channels to our targeted recipients.”
It's clear that Discover derives huge value from direct mail's ability to hone in on precise targets. Only mail messages can be delivered solely to prospects having good credit scores and other characteristics that make them likely to get approved for a credit card and to be profitable customers. Mail's targetability enables Discover to send different offers to different people, with especially high-value prospects getting additional mailings.

Mail is also the only reliable way to reach existing customers with a cross-selling promotion. (Yeah, there’s email and mobile apps, but do you look at every email and download the apps from all of your banks and credit-card providers?)

Talwar’s comments indicate that Discover doesn’t fall victim to “the last-click fallacy” – the belief that a sale should be attributed solely to the last communication the customer received before signing up. The company realizes that direct mail, like event sponsorships and TV advertising, makes people more likely to click on its digital offers.

“Mail is a very strong, viable, and highly effective channel, which is not going away,” Talwar wrote. “It is just not the only game in town anymore, and it is going to have to compete with these other channels, as well as with the channels that will emerge in the future if it is to maintain its position and prosper.”

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