The U.S. Postal Service, facing an expected shortfall in revenue, is cutting its marketing budget by $50 million and readying a review of the government's biggest ad account.
Young & Rubicam's five-year contract for all media buying and creative work on Global Priority Mail ends Sept. 10. The other three five-year postal service contracts are held by Foote, Cone & Belding, New York, for U.S. Priority Mail and stamps; Draft Worldwide, Chicago, for direct mail; and Frankel, Chicago, for employee communications and for running stamp-collecting programs. Those contracts end Sept. 10, 2000.
"Our intent is to restructure and recompete the contracts," said Frank Brennan, USPS VP-corporate relations. "The guys downstairs are working out the details."
He said the contract rebidding will be "in the near future."
Young & Rubicam, in particular, has apparently been on shaky ground with the postal service. At least one other agency recently was told to expect to pick up some Y&R assignments after September.
Y&R apparently picked up on the rumblings and lobbied to make its case to USPS officials.
In a letter earlier this month to USPS Chief Marketing Officer USPS Allen Kane, Y&R Vice Chairman-Chief Client Officer Linda Srere expressed concern about "your decision not to seek to extend the Y&R contract at the end of fiscal year '99," and asked "to meet with you and the key business driver clients to determine the course of action that is in the best interest of your organization."
"The Y&R assignments are broad, complex and deep. Your organization will be significantly affected by this potential decision," she wrote in the letter, a copy of which was obtained by Advertising Age.
A Y&R spokesman said, "We would absolutely participate in a review. We've worked with the USPS for over 20 years and we very much look forward to continuing the partnership for a long time to come."
FOLLOWS INTERNAL REVIEW
This all follows an internal review of advertising and an order from Postmaster General William J. Henderson to cut $800 million in service spending because of a revenue shortfall. The Washington Post last week wrote that the cuts included $50 million in marketing.
USPS said it spent $301 million for advertising in its last fiscal year (ended Sept. 30), but that includes non-media costs. Competitive Media Reporting data indicate the postal service spent $140 million on measured media in calendar 1998, up from $120 million in 1997.
USPS blames the shortfall on rising costs, together with large mailers taking advantage of new lower discounted rates and its own failure to achieve projected cost advantages.
The latest ad cuts continue a process begun after the ouster of Loren Smith as senior VP-chief marketing officer in 1996. During his tenure, USPS spent heavily on ads to push products and moved into a variety of new services.
Mr. Smith left after his transfer of more than $87 million in marketing funds without a required OK from superiors drew criticism from auditors and complaints from the Postal Service Board of Governors.
AD BUDGET LESS THAN SMITH ERA
With fewer programs to support now, USPS advertising was up last year, although it remains below the ad budgets of the Smith era.
It was not immediately clear how the new cutbacks would affect the advertising for USPS' one new program this year--delivery confirmation for Priority Mail. The postal service had been expected to spend as much as $50 million to introduce the product.
Most of the agencies declined comment.
"To the best of my knowledge, we have not been notified of any review or competition," said Liane Adduci, VP-corporate communications at Frankel.
NO OBJECTIONS FROM CONGRESS
Congress appears to have no objections to the ad cuts.
The Postmaster General "is in the best position to assess the need and to judge how those ad dollars affect his bottom line," said Sen. Thad Cochran (R., Miss.), head of the Senate Government Affairs panel that oversees the Postal Service.
"We put a lot of pressure on the postal service to operate without federal subsidies and it is wrong for Congress to nitpick," he said. "We either run it or have the [Postal Service] Board of Governors and the Postal Rate Commission run it."
Copyright April 1999, Crain Communications Inc.