Setting the Best Postage Rates for Catalogs and Direct Mail

Let’s not kill the goose that laid the golden egg

The direct marketing industry needs to focus on getting the USPS to set the smartest postage rates for catalogs, magazines, saturation mail for retailers and direct mail. It’s in the best interest of the USPS to respond to guidance from the mailing community because direct mail is a major source of profitable mail volume. The Post Office should be focused on increasing its profitable volume rather than ratcheting up postage rates again and having volume and profits dwindle as a result.

What's wrong with the proposed postage increase? The demand for First Class mail won’t change much when the price of a stamp goes up two cents. When the price goes up, First Class mail volume doesn’t fall off very much. So the USPS achieves an increase in revenue and profits. But direct mail volume is directly tied to costs; a price increase raises break-even points and volume inevitably falls. So the increase in price results in a decrease in volume. 

Since direct mail is profitable, it's a big issue whether increasing postage and thereby decreasing volume yields an increase or decrease in profits. The Post Office needs to look back at the last two price increases to see what happened to its revenue and profits as a result. Certainly volume dropped as a direct result of the postage increases; the issue is whether the USPS’s profits also declined, and if so, by how much.

What should the Post Office do to maximize its own profitability in handling all kinds of bulk mail?

First, the USPS needs to study the cause-and-effect relationship between increasing postage, decreasing volume and profitability. If it's done any studies on previous postage increases, this information needs to be made available to direct marketers so that the industry can respond with some insight to this latest postage increase.

Second, the Post Office needs to examine ways to increase the proportion of carrier route mail because that's the easiest and most profitable mail for it to handle. Offering sortation discounts for carrier route mail has revolutionized the relationship between mailers, printers and the Post Office, and created an entire industry around the use of co-mail — allowing mailers to combine their mail with other mailers to achieve savings from maximizing carrier route and other sortation discounts. The Post Office should look to set rates that continue to push mailers to use co-mail and incentivize carrier route discounts.

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