Two years on, two consultations later, and after much debate, Royal Mail has finally won its battle to introduce size-based pricing, or as it is more recently known, pricing in proportion (PIP).
Postal regulator Postcomm has decreed that from September 2006 Royal Mail will be allowed to price post by size as well as by weight. In essence, the changes mean larger, lighter packs will be more expensive to send, while heavier, smaller post will be cheaper.
For many in the industry, this result was a foregone conclusion, and now the reality of working with PIP is starting to hit home.
There are concerns, for instance, that despite delaying the launch, many who will be affected by PIP have a limited understanding of what the actual issues are and how they will be affected. This is despite the fact that the September 2006 launch date represents a delay of five months, requested by interested parties in order to prepare for the changes.
Awareness drive needed
"Large mailers understand what is proposed and how to take advantage, where possible, of the new pricing structure," says Peter Carr, chairman of postal watchdog Postwatch. "But many large businesses, small and medium-sized enterprises and domestic customers generally do not. The challenge for Royal Mail is to bring its whole customer base up to the same level of understanding."
David Robottom, director of postal affairs and industry development at the Direct Marketing Association, believes there is little awareness of the impact PIP will have. "There are many who do not have PIP on their radar," he says. "It's up to Royal Mail to devise a strong communication programme and to meet the cost."
Others believe that giving postal users twelve months to prepare may not be long enough, and there are further fears that direct mail budgets will be slashed in favour of other, more cost-effective media.
Robert Mayes, communications director at WWAV Rapp Collins, says: "Other media are bending over backwards to introduce new ways of working - Royal Mail seems intent on doing the opposite."
Robottom agrees with Mayes, saying that Royal Mail and Postcomm have failed to understand that clients will be not be competing with other mail, but with other forms of media.
In the meantime agencies have been quantifying the effect of PIP on campaign costs for clients. WWAV has tested the potential impact of PIP on all of its clients. In a campaign for one charity, some 200,000 items were mailed at a postage cost of 拢32,158. WWAV estimates that under PIP, the postage would increase by over 17 per cent, or 2.8p per item mailed.
Not everyone in the industry see the changes as a threat, however. It's no secret that for catalogue and bulk mailers, the introduction of PIP will mean a reduction in mailing costs.
Home shopping business Shop Direct Group says it will be a net beneficiary of PIP, but adds that some of its mailing budgets will be directed into other communications channels.
Testing, testing
"We're glad that PIP is coming in," says Tony Preedy, brand director of Shop Direct. "However we will be rethinking campaigns that will not make economic sense and getting rid of our large format prize draw mailings. It is the light, large post that will be affected."
Shop Direct has been testing different creative formats for some time. "Whether we channel some of our DM budgets elsewhere is an issue I've been debating. It's all about achieving the best cost to response. The introduction of PIP is a small price to pay though, and it will encourage us to be cleverer with our campaigns - creativity will come from the database side."
But for most, PIP appears to present more disadvantages than it does benefits. For the DM industry, the battle has switched from when PIP will be introduced to how best to manage it. Whether this includes a switch away to other media, remains to be seen.
PRICING IN PROPORTION: THE FACTS
- Many DM packs are posted 2nd class or Mailsort 3 to avail of price discounts. Most DM packs aim to be under 60g to gain the maximum price reduction.
- Royal Mail says that 70% of mail will be unaffected, but DM packs of C5 or above will have to conform to tighter rules to avoid PIP's extra costs.
- Creative packs are often over-sized C5 in size, but under 60g. If they stay at oversized C5, posted 2nd class, the price per pack under PIP goes from 21p to 35p.
- The good news: the maximum mail weight will increase from 60g to 100g for the 240mm x 165mm (oversized C5) size, which is the lowest price band.
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