Last week, PostCom (www.postcom.org) reported on a Postal Service idea that represents a rather innovative approach to using pricing freedoms to generate more mail volume and revenue. In response to numerous mailer inquiries, the Postal Service has sought to flesh out a bit more about its thinking, as it gets ready to offer the proposition for the Board of Governors review. If the Governors give the proposal a green light, the next step would be to file the proposed summer sale experiment with the Postal Regulatory Commission (PRC). Under the new postal law, the PRC will have 45-days to review the proposal and offer its decision.


Goals of sale
On the basis of whatever information is now available, it would appear that the Postal Service's goals for its proposed Standard Mail "summer mail" sale are (1) to generate more mail volume; (2) to stimulate economic growth; (3) to make more profitable use of excess mail capacity; (4) to learn from marketplace's responses if there are more innovative ways that can be employed to foster growth of new mail volume and revenue; and (5) to actualize more concretely the pricing flexibility Congress intended to make available to the Postal Service through the 2006 postal reform law.


The Postal Service recognizes that for any such "summer sale" to demonstrate any positive effectes would require the adherence to an aggressive timetable. While such a first-time-out-of-the-box proposal would not be honed to perfection, it certainly would give the Postal Service answers to some of the regulatory and marketplace questions that would be a part of such an idea. If even modest success could be attained, it clearly would have a set precedent on ways to offer other such proposals that could be marked by a greater level of complexity and improvement.


Description of sale
The idea the Postal Service has been floating involves a "summer mail sale" that would take place over the period of July 1, 2009 through September 30, 2009. The segment of the mail stream the Postal Service has said it would like to target is Standard Mail letters and flats. The sale would take the form of credits applied to a participant's mail account once the sale is over and certain requirements have been fulfilled. At present, the Postal Service is talking about a 30 percent rebate of postage applied to summertime volumes that exceed an established threshold.


To qualify, participating mailers would be those that ordinarily mail more than one million pieces between October 1, 2007 through March 31, 2008. The Postal Service said it believed that some 3,250 mail owners qualify. This, it reckons would amount to some 75 percent of all Standard Mail volume. Nonprofit mailers would be entitled to participate as well.

Updated Mailer threshold
The Postal Service said that it wants to look at each customer's performance and reward growth on an individual mail owner basis. The threshold established for this summer mail would be based on mail volumes that can be documented by a mail owners' mailing permits across all divisions and subdivisions of the company or organization. Mail owners who use mail service provider (MSP) permits would be eligible to participate provided they can provide proper documentation of the requisite past mailing behavior to the Postal Service.

Thresholda will be unique to each mailer. The steps noted below provide still more detail on how such a proposal would work. To determine whether or not your company or organization would qualify, here's what you'd have to do.

1. Take your base period volume (last summer or FY08Q4): 7/1/08 - 9/30/08
2. Take your trend: (FY2009 Q1 + Q2) / (FY2008 Q1 + Q2)
3. Multiple your base period by your trend to get your threshold: Base x trend = threshold.
4. To calculate rebate:

a. (Take actual volume (7/1/09 - 9/30/09) minus threshold)
b. Multiple by (actual postage cost (7/1/09 - 9/30/09) divided by actual volume)
c. Multiple by 30% discount

5. NEW: There is an October adjustment mechanism to help mitigate volume moving from October into September.

a. Take October 2008 volume
b. Multiple it by trend (#2 above) to get October threshold
c. If mailer mails above October threshold, then mailer will receive full rebate.
d. If mailer mails below October threshold:

i. Subtract October threshold from actual October 2009 volume
ii. This number gives you the rebate adjustment.

6. NEW: To calculate adjusted rebate (for all mailers mailing below October threshold)

a. (Take actual volume minus threshold minus rebate adjustment)
b. Multiple by (actual postage cost (7/1/09 - 9/30/09) divided by actual volume)
c. Multiple by 30% discount

Here is a numerical example that mailers can use get their own threshold by plugging in volumes where applicable:

1. Base volume (7/1/08 - 9/30/08 or FY08Q4): 1000
2. Trend:

a. FY2009 Q1 + Q2 = 1800
b. FY2008 Q1 + Q2 = 2000
c. a / b = (1800 / 2000) = .9 or 90%

3. Base x trend = threshold: 1000 x .9 = 900
4. Rebate = (Actual volume - threshold) x (actual postage cost / actual volume) x 30%

a. Actual volume for 7/1/09 - 9/30/09: 950; 950 - 900 = 50
b. Actual postage cost / actual volume = $204 / 950 = $0.215
c. 50 x $0.215 x .3 = $3.23

5. Adjustment (if needed):

a. October 2008 volume x trend (in #2) = October threshold: 500 x .9 = 450
b. If October 2009 < October threshold: threshold - actual = adj.: 450 - 440 = 10

6. Rebate Adjustment (if needed):

a. Actual volume - threshold - rebate adjustment: 950 - 900 - 10 = 40
b. New rebate: 40 x $.215 x .3 = $2.58

Implementation

At this point in time, the Postal Service believes it would need to finalize a list of participants by end of April. Those that can be deemed qualified on currently available information would be sent an invitation-to-participate letter. The Postal Service would provide as part of its invitation the threshold that would serve as a basis for determining postage rebates. Those wishing to participate would need to register online, if they agree with the Postal Service's determination of their volume threshold. (Disagreements would be subject to resolution between mailer applicants and postal authorities.) The Postal Service would need to finalize its eligibility determinations by July 1.

And now the "caveats"

This is a major step for the Postal Service. It most definitely would require the postal board's approval. No such approval has yet been rendered, and no affirmative outcome can be assumed. Similarly, there are no guarantees that such a proposal would clear all other regulatory hurdles. Nonetheless, the idea is intriguing, and postal management should be congratulated and supported in its pursuit of this endeavor.