Addressing the postage hike

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For direct mail marketers, 2006 will mean out with the old and in with the new—at least when it comes to postal rates. But as they prepare for the 5.4% increase of most U.S. Postal Service rates and fees on Jan. 8, the big question is what effect, if any, the change will have on companies' direct mail marketing strategies.

So far, it appears leading b-to-b marketers will maintain current levels of direct mail in the coming year. Among those that say they have no major changes planned for next year are: Dell Inc., FedEx Corp., Pitney Bowes, United Parcel Service of America and Xerox Corp.

"We will continue to use direct mail marketing … because we are very targeted and personalized in our approach," said Beth Ann Kilberg-Walsh, manager of marketing communications for Xerox's Production Systems Group. "If we were to mail to just anybody, the postal increase would likely impact our budgets and strategy a little more."

FedEx cited e-mail marketing as the reason its mail volume would hold steady. "We have already moved a significant portion of our direct marketing to e-mail, so that has insulated us from some of the costs of direct mail," said company spokeswoman Carla Boyd.

50 million pieces of mail

Pitney Bowes Direct, which provides mail stream solutions to small-business customers, also plans to maintain its direct mail usage level from this year. Mike Monahan, president of Global Mail Solutions & Services, noted that Pitney Bowes sends out more than 50 million direct mail pieces a year, most of them to small businesses. "We are not as focused on reducing costs as we are on enhancing response rates and testing to improve the effectiveness of direct mail," he said.

DHL Global Mail views direct mail as a strong marketing channel and plans to increase the frequency and quantity of its mailings. "Direct mail is an important source for lead prospecting," said Edee Wollin, director of communications. "As we use our own services for our mailings … we experience a high level of deliverability and cost-efficiency from our consolidation methodology. The postage increase will not change our plans."

Despite the support voiced by direct mail marketing advocates, history suggests higher rates will inevitably cause mail volume to decline.

"With any postal rate increase, there is a reduction in the volume of mail," said Jerry Cerasale, senior VP-government affairs for the Direct Marketing Association.

Cerasale said the timing of the rate increase—immediately following the holiday season and in the middle of the high-volume January mailing cycle—could prevent marketers from adjusting their direct mail strategies before the new rates take effect. "Companies may wait up to six months to make changes, when they've had time to test and determine the impact on response rates," he said.

With additional postal rate increases expected in 2007 and beyond, changes may indeed be in order.

"If postal reform legislation is passed, we can expect annual increases beginning in 2008 but only at the rate of inflation," Cerasale said. "Even if we get reform, there will be another rate increase in 2007. We are expecting that rate case could be filed as early as March 2006, with the possibility for an overall increase of between 6% and 8%. Unlike the coming increase, the one in 2007 won't be spread evenly across the board."

Reducing direct mail costs

Cerasale noted that mailers have many options for reducing direct mail costs to offset rising postal rates. One strategy is to improve data hygiene to eliminate duplicate and inaccurate addresses from files. "In 2006, the DMA will be actively looking at ways to establish a program to notify business marketers when individuals leave companies," he said.

Several service providers involved in the direct mail marketing chain are similarly focused on helping mailers cope with higher costs. For instance, DHL Global Mail picks up, sorts and processes mail; consolidates mail volume and then injects the mail into the USPS mail stream further down the line—a process it says can provide postage savings and transit time efficiencies.

Wollin acknowledged, though, that 2006 will bring cost increases for the company's SmartMail services that are "in line with industrywide price adjustments." DHL Global Mail also offers hygiene tools and regular testing of mail transit times to reduce undeliverables and improve overall efficiency.

Likewise, Pitney Bowes offers presort and mail consolidation services, data quality software and a product called OnRoute that enables senders to track mail as it moves through the postal system. The latter can help marketers maximize their direct mail investments by optimizing the timing of multichannel campaigns, Monahan said. 

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