Learning Center

Direct Effect - Postal Service to reward bulk customers with most accurate databases, but make size of pieces a factor in rates.

Monday, July 24, 2006, By: John Booth

Postage rates go up: You grumble, dig for extra pennies, maybe even buy a stash of low denomination stamps to tack alongside the regular ones.

But for direct mailers dealing in hundreds of thousands of pieces of mail, it’s never that simple, and the changes the U.S. Postal Service has in store for next year go far beyond the price hikes for which companies normally brace themselves.

While the Postal Service upped its rates in January under a congressional mandate, the makeover now in the pipeline represents the first, across-the-board rate case filed since 2001. Besides changes in postage rates – an average 9% increase in standard class mail is expected – the Postal Service also plans to calculate rates based on the size as well as the weight of a mailing.

In addition, the Postal Service wants to reward its biggest discounts to mailers with the most accurate address databases. The goal is to reduce its own expenses tied to handling undeliverable mail.

If accepted by the Postal Service’s board of governors early next year, the rate changes will take place in May, with the address validation incentives beginning in August 2007.

Gary A. Seitz, executive vice president of direct-mail database company C.TRAC in Strongsville, said there are two ways companies already are preparing to deal with the new regulations.

“Number one, they have to look at the design of their mail,” Mr. Seitz said. “The other thing they can do is this whole (database) hygiene process.”

Size Matters

The design factor comes into play because the post office no longer will use weight as the sold factor in pricing basic pieces of mail. For example, a two-ounce mailing under the present rate structure carries the same cost regardless of whether it’s slipped into a standard business envelope, mailed flat in a 9-by-11-inch envelope or tucked into an 11-by-17-inch padded packet. Under the new system, the larger pieces will be more expensive.

“Clients are going to have to make some decisions” when it comes to figuring out how to showcase their direct mail pieces, said Jean Gianfagna, president of Gianfagna Marketing in Westlake. A big question, she said, will be, “Is the format more important to me than the postage costs?”

Database hygiene – the cleansing of mailing lists to get rid of inaccurate information that leads to undeliverable mail – plays into the Postal Service’s move to reward mailers who provide the most detailed addresses.

Companies that invest in the newest bar code addressing technology, for instance, not only will be able to better track their mail’s delivery, but will receive the steepest discounts from the Postal Service. Of course, they’ll also practically need to guarantee a 100% accurate address: Addresses just one digit off will be considered invalid.

“In order for the major mailers to get this 5% to 10% discount (per piece), they’re going to need completely valid addresses,” Mr. Seitz said.

Prepping Clients

Joe Hannum, senior direct marketing strategist at Cleveland’s Wyse Advertising agency, already is working with clients on adjusting their direct mail plans for next year.

Client companies such as plumbing products maker Moen Inc. and Sherwin-Williams Co., he said, deal in business-to-business mailings that number in the hundreds of thousands. Wyse also used to handle mailings for Lone Star Steakhouse restaurants, overseeing the distribution of 3 million pieces every six weeks.

On that kind of scale, even the smallest discounts can mean big cost savings. Mr. Hannum said the key is “taking advantage of everything that the post office is steering you toward.”

But while the Postal Service is offering those price breaks for efficiency and accuracy, it’s also promoting its ability to process more unconventional pieces of mail, such as envelopes made of certain types of fabric, or foam mailings shaped like blimps. It’s own example is a plastic die-cut dinosaur that can be popped into any mailbox and sent as easily as a postcard. Those gimmicks, though, will come at a price.

“It’s very attention-getting impact, but the cost is very high,” Ms. Gianfagna said.

Even with the costs of direct mail advertising on the rise, though, don’t expect a dropoff in the practice: In the fiscal year that ended last September, companies in Cleveland, Akron and Canton spent $67 million on postage for direct mailing, Mr. Seitz said. And last year nationwide, the amount of advertising mail surpassed first class mail for the first time.

Reprinted with permission from Crain’s Cleveland Business News publications.