Failed Sequencing System: No Wonder USPS Still Hasn't Fixed the FSS

If ignorance is bliss, as the old saying claims, then the U.S. Postal Service must be in a truly blissful state about its billion-dollar Flats Sequencing System.

The USPS Office of Inspector General released a report last week claiming:
• Postal management doesn’t know whether the 10-year-old FSS is saving money or work hours.

• Sorting catalogs, magazines and other flat mail on FSS machines costs 6 cents per piece, versus 2 cents for the older Automated Flats Sorting Machines. In theory, the USPS could be making that up in improved efficiency at the delivery units, but “the Postal Service does not have any current information about carrier work-hour savings related to FSS processing.”

• The Postal Service doesn’t seem to be doing anything to track, understand, or correct one of the FSS’s biggest problems – flat mail that is supposed to be sorted on the football-field-sized machines but is instead processed on the AFSMs or manually. An in-depth study of five Atlantic Coast FSS facilities found an average “leakage” rate of 23%. (Dead Tree Edition’s opinion is that such a high leakage rate makes it virtually impossible for the FSS to achieve net savings. More on that below.)

• When FSS facilities receive mail that can’t be run on the machines, they simply divert it to other means of sorting without reporting the problem. That means there is no feedback to those who could prevent such problems from recurring – such as mailers, printers, and the postal employees who write or enforce flat-mail specifications.

“Processing flats mail on AFSM machines and having the carriers manually sequence the flats may be less expensive than processing flats using FSS machines,” says the report -- a statement USPS management called “unsupported,” without providing contrary evidence.

“Given the significant investment in these machines and their poor performance . . ., management needs to fully understand all the costs associated with the machines to best inform its decision going forward,” the Inspector General’s report says.

Productivity of the machines themselves is not an issue, the report indicates. The 18 Capital Metro Area (Maryland to Georgia) FSS machines average throughputs per labor hour during the 15-month study period exceed the goal of 1,650 by 1%.

But because of leakage and declining volumes, the machines are underutilized. The machines were run an average of 12.5 hours per day rather than the goal of 17 hours.

Who's minding the leakage?
At all five FSS sites the OIG staff visited, “flats mail was removed from FSS preparation areas because it could not be processed on the FSS due to its thickness, size, or unreadable address or barcode.” Such out-of-spec issues are supposed to be documented so that postal officials can work with mailers to prevent the problems from recurring.

USPS's FSS Vision in 2011

“None of the five facilities we visited used the electronic Mail Improvement Reporting (eMIR) system, as required, to report the flats mail problems we observed,” the report says.

“Management at four of the five facilities we visited said that prior eMIR system reports did not resolve mail problems.”

“During the audit, we repeatedly asked management to provide quantitative data categorizing the leakage causes. Although management informed us they had that information, nothing was provided. In addition, management expects mail processing facilities to optimize their processing windows to minimize leakage; however, without knowing the specific cause(s) of leakage, processing facility management may not be able to mitigate leakage.”

In response, USPS management indicated that late deliveries to the FSS facilities were a major cause of leakage. Each FSS facility processes flat mail in a predetermined order, it explained, so when a shipment arrives for ZIP codes that have already been sorted, the mail is diverted to other sorting processes.

(But do the people scheduling the deliveries know which ones are consistently problematic, so that they can adjust the schedules? And here’s a radical thought: Instead of considering a delivery one hour late for today’s processing, why not consider it 23 hours early – for tomorrow’s processing? That way, it can be run on the FSS, as intended.)

Strategy: We goof, you pay
Mail that is prepared in the proper sequence for FSS machines cannot then easily be sorted on AFSMs or manually. That makes FSS leakage copies a sort of worst-case scenario: The USPS’s costs for delivering them are inherently more expensive than for mail that has been prepared for and actually sorted by AFSMs or manually.

What’s even worse is that, if not for FSS, at least half of those copies probably would have been prepared in carrier-route bundles, a nearly best-case scenario for the Postal Service.

No matter how well the 77% of non-leakage mail is handled by the FSS machines, it can’t make up for the huge incremental costs of sorting the 23% of FSS mail that is diverted to other sorting methods. The Postal Service’s strategy for the FSS has been to ignore the problems while trying to pass along the costs to customers in the form of emergency rate hikes.

For further reading:

• Boondoggle: The FSS Goes from Bad to Worse
• The FSS: A Hopeless Case
• There's Inadvertence, and Then There's Postal Inadvertence 

Put a Wrap On It: As Magazine Ads Dwindle, One High-Priced Approach Thrives

The front of 2 Audience Innovation wraps

While U.S. magazine advertising revenue has been circling the drain with double-digit declines the past couple of years, a little corner of the business has been doing just fine.

It’s a niche – or, rather, a tactic -- that probably doesn’t even show up on most magazine-industry estimates or projections. And it involves mostly the kind of big-name, big-circulation consumer titles that have suffered the most precipitous advertising declines.

The tactic is sponsored cover wraps – typically a four-page piece placed atop the regular front and back covers of select copies. Here’s a great example of one.

(Note for fellow print geeks: On saddle-stitched magazines, the wrap is simply a four-page signature that’s placed atop the regular cover. On perfect-bound magazines, the wrap acts as the magazine’s cover, spine and all, while the regular front and back covers become two-page inserts placed just inside the wrap.)

From an MNI promotion

The continued success of sponsored cover wraps, especially on copies sent to non-subscribers, has valuable lessons for all magazine publishers that rely on advertising.

Publishers have been doing their own cover wraps for decades, most often for subscription renewals but sometimes for advertiser-paid promotions.

Several companies, such as CoverWrap Communications and MNI, are in the business of selling advertising programs that involve cover wraps placed on highly respected magazines and sent to custom mailing lists.

To get a better understanding of this prosperous little corner of the magazine business, I turned to Paul Kostial, the founder, president and CEO of another of those companies, Audience Innovation.

I called on Paul because he has been focused primarily on cover wraps for years and is passionate about the subject. Plus, I met him a few years back (He’s not aware of that.), so I know he’s the real deal.

“Our programs are really direct marketing,” Kostial says, adding that his company is usually selling to the people who handle direct marketing and not to those responsible for ad buys.

"We’re just using a magazine to do direct marketing because the content is still valued.”

“A lot of our clients use this program because they are not big enough necessarily to even be in the magazine full run with ad pages,” Kostial says. Sales revenue at AI (the company, not the technology) were up in 2017, he says, bucking the estimated 15% decline for U.S. magazine advertising.

Hitting home
“It’s really hitting home right now with a lot of clients that are having a hard time with their digital strategy.”

An MNI wrap

Many AI campaigns focus on two hard-to-reach groups – business decision makers and affluent people. Using a multitude of data sources, AI follows the client’s specifications to create a hyper-targeted mailing list that often has fewer than 5,000 names. From a stable of more than 400 titles, including offerings from most of the major consumer publishers, AI and the client select the magazine most likely to appeal to the target audience.

A campaign typically starts with an introductory letter or postcard announcing that the sponsor will be providing a complimentary subscription to the magazine for up to a year. At least four of the issues include a cover wrap with the sponsor’s messaging.

“Because the magazine is attached we get readership rates as high as 80 or 90 percent,” Kostial says. And the recipients aren’t just reading; they’re responding.

Response x 100
One client that targeted chief information officers – an overmarketed-to group if ever there was one – reported a 56% response rate to its cover-wrap campaign. Kostial states that another company aiming for C-suite executives “said they’re getting 100 times better response there than they are on their digital campaigns to the same target.”

Audience Innovation, like several other companies and publishers, offers “point-of-care” campaigns – typically copies mailed to specific types of doctors’ waiting rooms to promote pharmaceutical products. And for other types of public-place campaigns, it offers a selection of more than 400,000 retail locations ranging from hair salons to fitness centers, auto repair shops, golf courses, and B&B's.

The programs are mostly turnkey for the publishers. AI handles the sales, the printing of the cover wraps, and supplying the mailing list. Some publishers have also turned over management of their own cover-wrap offerings to AI.

The intelligence I’ve been able to gather indicates that AI’s payments to publishers are typically far greater than the publishers’ costs related to the cover wrap – mostly from bindery charges and postal inefficiency – but not necessarily enough to cover the costs of printing and mailing the copies.

From CoverWrap Communications

But because the copies count toward audited circulation, they are highly profitable for the publisher when used to displace giveaway copies or unprofitable subscription sources, an AI campaign is quite profitable for the publisher.

Kostial says there’s another benefit: “Clients using magazine cover wraps with a given magazine are also much more likely to advertise in-book too . . . and also far less likely to cut that magazine from their schedule if or when they have budget cuts.” Magazine cover wraps combine the best of digital and print advertising.

Programmatic ads can be micro-targeted to a highly select group, such as the proverbial “left-handed plumbers who drink chocolate milk.” But who actually looks at web ads these days (unless the ads are on Dead Tree Edition, of course)?

AI’s results show that people still like magazines, even though much of their reading has shifted online, and find print ads highly engaging. But there’s no magazine for left-handed plumbers, much less for those who drink chocolate milk. For advertisers who have been spoiled by the data-driven targeting of digital media, the audiences offered by big-name consumer magazines seem hopeless generic and mostly irrelevant.

CPM x 100
Cover-wrap campaigns show what happens when heavy-duty data analysis is combined with respected print brands in a highly visible format. For one thing, CPMs (the price of an ad per thousand readers) skyrocket.

An MNI wrap

At one magazine with a ratebase of 500,000, $15,000 can buy you a full-page ad – or a cover-wrap campaign mailed to a custom list of only 5,000 VIPs. That’s a $30 CPM versus a $3,000 CPM.

(I guestimate that Audience Innovation’s rates are closer to a CPM of $1,000, unless the campaign includes such extras as NFC chips or a companion digital effort. Kostial will only say that a cover-wrap campaign typically costs somewhat more than a direct-mail brochure or large-postcard campaign.)

With that same $15,000, you might be able to get 1 million or more page views from a programmatic campaign focused on a specific type of VIP – such as people with household incomes over $1 million or CIOs at major manufacturers. But how many of those views would be bots, or would only be seen for one second, or would just be ignored? And how many in the target audience would actually welcome the ads and click through to the sponsor’s white paper or product promotion?

Magazine people like to complain that web advertising has “turned print dollars into digital dimes.” Cover-wrap campaigns flip the tables, turning digital dimes into print C-notes.

So maybe magazine publishers should stop complaining and start figuring out how they too can leverage data and their trusted brands to create high-value campaigns for advertisers.

Other articles about magazine advertising include:

• Publishers Have a Problem: Their Outdated Approach to Magazine Ads 
• U.S. Magazines Are in a Steep Decline, Except . . . 
• Magazine Advertising Entered the 21st Century Today