Get Into Shape

15 July 2006

Changes by Royal Mail to the pricing of letters and parcels from next month will have implications for FMs responsible for the post room. David Higham explains the changes and gives some tips on how to manage the change to minimise disruption and extra costs on outgoing post

ON 21ST AUGUST, THE ROYAL MAIL IS IMPOSING a new pricing system on its customers called Pricing in Proportion (PiP). Since Royal Mail mooted the idea more than a decade ago, PiP has been the subject of much debate with some calling it the most radical change in postal pricing since the introduction of the Penny Black in 1840.

From August, however, the UK postal market will be in good company with postal operators around the world such as those in Australia, Canada, Japan and USA already all using sizebased pricing systems. But what exactly will the impact be for UK businesses and what does it mean for mailrooms up and down the country?

In proportion
PiP, replaces the 16 prices that Royal Mail currently operates with 10 that take into account both the size and weight of a letter or parcel. The new PiP structure creates three categories of mail. These are letters, large letters and packets. Within these categories there are different weight bands.

Royal Mail has long argued that pricing mail on weight alone does not realistically reflect the increased cost of sorting and handling lightweight mail that is large or bulky. Royal Mail believes that size-based pricing would more accurately reflect its costs and help facilitate greater machinability of mail in order to improve its own efficiency in handling mail.

From the outset the idea of PiP has been met with mixed responses. Main opposition to the change has tended to come from those businesses that will be impacted the most such as publishers and direct mail. The Periodical Publishers Association, for example, argue that Royal Mail has so far failed to produce any sound cost justification for the changes it proposes to the prices for mailing pre-sorted magazines which do not need to be machined. The direct mail industry has also voiced criticism of the pricing change saying that it will stifle creativity and bring about a downturn in mail volumes. Royal Mail has hit back, however, saying that it believes PiP will encourage better targeting of direct mail.

Confusion
In recent weeks there has also been a spate of concern across the UK from consumers. According to regional newspapers across the country, confusion is rife over the new price structure, with many people not even aware that a change is taking place. Due to the fact that recipients will incur a £1 fine if their post is received with incorrect postage and a journey to the sorting office to collect the offending item, it is anticipated consumers will be flooding Post Offices with enquiries and long queues are expected.

Royal Mail, however, are trying to communicate that actually the impact of the change in price structure will be felt only by a minority of people. It claims two-thirds of business mail will be unaffected. Whether this is the case remains to be seen post 21st August.

Mailroom impact
Whatever the opinion on PiP is, it is now unavoidable. To prepare for 21st August and beyond, mailrooms need to make sure they are ready and have taken every precaution to minimise the negative impact, if any, and consider what advantages their business can make from PiP.

If businesses mail directly from their offices, then it will simply be a case of updating the chip in the franking machine. Royal Mail claim that all franking machines in the UK will be able to cope with the changes, but here are a couple of things to look out for:
● Businesses that use franking machines with manual postage selection will need to refer to the new price guides
● If franking machines use a tariff rate chip to determine the correct postage, the manufacturer will be contacting the business to arrange for an updated chip to be delivered
● Franking machines with weigh scales may need to be replaced

The good news is that it could be possible for businesses to take advantage of the pricing change and save money. This can be done by taking some simple steps towards changing the format by which businesses communicate with their stakeholders. The table above shows a range of simple changes that can bring about easy wins for businesses in each of the three sizing sections.

PIP is here to stay and should reflect better Royal Mail's costs, ensuring prices both retail and wholesale are truly cost reflective. There are winners and some losers. TNT Post as Royal Mail’s leading competitor will continue to work with its clients to ensure they gain maximum advantage from PiP. TNT Post will continue to look for innovative solutions with clients across all their mail streams ensuring they maximises their return from their mailing activity, offering innovation and high quality.

Countdown to PiP
5. Do an audit of communications and see where savings could be made. Communicate this internally in
the business

4. Discuss cost savings with supply chain, eg. Agency, Printers, Mailing House and Data bureau

3. Test the changes to mailings to make sure they fit with the new PiP structure

2. Talk to new mail operators such as TNT Post for additional advice

1. Regularly review mail flow to look for better efficiency and cost savings 21st August 2006

Not more than 165x240x5mm ....Letter
A letter is an item of mail that will fit into an envelope no larger than 165mm x 240mm and no more than 5mm thick. The maximum weight is 100g and includes most A5-sized items, such as bills, statements and some brochures. PiP first class will cost 30p, compared with current stamp prices that range from 30 to 46p.

Not more than 250x353x25mm ....Large letter
A large letter is defined as a mail item that will fit into an envelope no larger than 250mm x 353mm and no more than 25mm thick. Letters containing unfolded A4 paper, catalogues, company reports and most magazines will fall into this category. There are four different weight bands, and the corresponding prices in the large-letter format increase to 750g.

Not more than 250x353x25mm or 750g ....Packet
A packet is a mail item that either measures more than 250mm x 353mm, is thicker than 25mm or weighs more than 750g. There are five weight bands in this format and prices range from 80p for a second-class stamp in the lightest band, to £2.53 for a first class stamp in the 751g-1000g band. Mail that falls into this
category will experience the most significant price rises.

Simple changes for letters
● Increase your contents on C5 communications
● Reduce catalogue size to A5 but increase catalogue pagination
● Convert as much correspondence to A5 or folded A4
● Use sleeves for CDs to meet 5mm thickness but fill for even thickness
● Reduce brochures pagination to meet 5mm

For large letters
● If C5 is not achievable or practical, ensure you make maximum use of 28mm maximum thickness
● Publishers should consider reducing dimensions to meet large letter specification
● For CDs and DVDs use lightweight packaging and promotional material to maximise thickness but minimise weight
● Use CDs or DVDs instead of VHS – it is better technology and will cost you less to send
● Increase catalogue and brochure pagination but reduce paper weight
● Consider alternative folds to roll folds

Packets
● Maximise thickness and minimise weight by adding low weight papers
● Avoid using VHS which is 29mm thick and with packaging is 30mm

● David Higham is Development Director at TNT Post.