The Future of Mail System Providers

It’s not always about the Postal Service. Mail System Providers (MSPs) are a critical part of the mailing industry value chain, standing between major mailers and the Postal Service. They provide a wide variety of services and are influential in determining the overall value of the mailing experience. However, they are losing position to digital marketing service providers and are in danger of being eliminated from the customer’s decision process.

The MSP Business Model No Longer Works Effectively

MSP’s act primarily as sales and servicing agents for the Postal Service. They help mailers use the Postal Service, and live on the margins created by postal worksharing discounts, value added services such as mailing list management, and, above all, volume-based cost per impression and traditional return on investment formulas. Their services are focused on providing quality mail pieces at the lowest possible price. MSP’s largest cost is postage, and they resist any increases as a fundamental threat to their viability.

Future 1Unfortunately, they are finding it increasingly difficult to compete with lower cost digital marketing channels. MSP’s have been pushing the limits of mature print and delivery technologies that currently define the mail business. Many new technological applications, such as Quick Response Codes and Augmented Reality, are seen as marginally useful tools that require additional effort on the part of mail receivers (changing customer behavior is hard) and adds costs to the mail equation. It is difficult for many MSP’s to see the value of such tools.

One of the results of their current positioning is that they are becoming “order takers” to a declining base of customers who are trimming their volumes. They typically deal with functional operations managers and purchasing agents in large firms, and are not generally involved in helping companies make strategic marketing decisions at the higher levels of the organization.

Many Current MSP Strategies will Have Limited Long-Term Impact

Many MSP’s have responded by becoming better at managing and analyzing multiple streams of data, and have become more sophisticated at targeting customers with customized offers.Future 2 They are linking mail to digital channels (omni-channel marketing), and using new technologies to provide new print features (enhanced, multi-color graphics). Most MSP’s continue to focus on major mailers, and consider consumers as “targets” who have a limited amount of time and “targets” who have a limited amount of time and attention to spend on each piece of mail in a market saturated with marketing messages coming from multiple channels. For the most part, these are all incremental improvements to the current mail product and do not fundamentally change the nature of the offering in an increasingly competitive market.[1]

Some recent indications suggest that enough MSP’s are seeing some success with these strategies, and are becoming more effective at making the case for Direct Mail.[2] Direct Mail volume is holding relatively steady, and some studies indicate that revenues and profits are increasing, at least for some segments of the industry.[3]

The MSP Industry is Vulnerable to Disintermediation through Digital Simplification

MSPs are in danger of losing their place at the table. They are increasingly dependent upon “experts” to make the case to decision-makers for using direct mail as part of the marketing mix. These experts are often third-party marketers, advertising agencies, creative services – all with strong capabilities in online and social media.

It is the nature of technological disruption that “if it can be digital, it will be.”Future 3 Mail is increasingly created digitally (the “Digital Front End of Mail. Postal complexity, one of the key rationales for the existence of  the MSP industry, is in danger of being replaced by comprehensive online sites with easy-to-use applications that will enable mailers – even medium and small businesses – to use mail as an effective business tool.[4]

Some foreign posts have web sites that currently offer such services. These services could disintermediate MSP’s as the interface between mailers and the postal system, and would certainly be a new source of revenue for postal services. In the U.S., it is more likely that such services will be offered by a high-tech service company not in the mailing industry, unless one or more current MSP’s can find ways to collaborate with the Postal Service in developing a common solution.

The Continuing Relevance of the “Mail Moment” for Consumers

Future 4The Postal Service’s “Mail Moment” research focused on the customer experience of receiving mail, and provided some critical details about how mail is used in households.  Mail is often a trusted, familiar “first step” in planning consumer activities such as paying bills and shopping. Mail is a relatively uncluttered, high-attention medium with significant social sharing capabilities that is favored across generational and income lines. It can be (but often isn’t) an incredibly locally oriented and personal “call to action” (even if that action is visiting a web site for more information and actual transactions). It is a key initial step of the consumer’s “Path to Purchase.”

Direct Mail is an Underserved Market

The old model creates too much “junk” mail. A new model would create a demand for more mail – mail that is relevant for the important tasks a consumer has. Future 5Market speed-up, clutter, and a bewildering number of choices are all barriers for marketers, but the daily, simple, and routine nature of paper communications slows down the cycle and allows the “CEOs” of mail to give some thought to the content. Traditional brand-centric direct marketing is push advertising, while mail is a high-interaction link between local retailers (or their sites) and consumers that can build trust, familiarity and loyalty. Mail is where shopping lists start.

A New Industry Business Model Built on Consumer Preferences

Direct mail currently lacks the kind of direct feedback loop enjoyed by some forms of digital advertising.Future 6 There is kind of a negative option (do not mail) offered by the Direct Marketing Association’s Mail Preference Service, but its opposite (SendMeStuff.com) does not yet really exist.[5] Consumers are quite willing to share their preferences in order to get more relevant messages, and recent work done on mail feedback loops described by Prof. Marshall Van Alstyne of MIT at this year’s PostalVision 2020 conference show how big data and social media can create powerful customer demand pull, instead of the push messages that current dominate direct mail campaigns.[6] The new model will require marketers to see the shopping experience from the eyes of the consumer (CEO of mail).

A Challenge to the Industry

The mailing industry, with the Postal Service as a lead voice, must change how marketing industry experts views mail – from being an increasingly costly way to reach target audiences with brand-centric direct response marketing to being a premier social network forbuilding “Path to Purchase” loyalty via a powerful social network that connects businesses to the wallets of their potential market like clockwork, every day.

Future 7

 

 

By Kent Smith

Kent Smith is Research Director, Ursa Major Associates / Postal Vision 2020. His 38 year career in the Postal Service included Rate Classification Research, Market Research, and Strategic Planning. Ursa Major Associates / Postal Vision 2020 is dedicated to taking a broader, longer-term perspective on the future of the mailing industry ecosystem. The thoughts expressed in this “Point of View” are his own.

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[1] See case studies by PODI and others. Mail is most effective when combined with other channels as part of multi-channel campaigns. Integrating mail and online communications is a challenging new capability that some MSP’s are developing.

[2] See Semper International Third Quarter 2014 Industry Insight Survey, www.semperlic.com.

[3] This does not mean that they are not effective. Most current research indicates that mail is still an effective channel for generating awareness, site traffic (physical or online), trial, and sales.

[4] The industry has not generally embraced postal initiatives such as EDDM, a relatively simplified direct mail product targeted to small and medium businesses.

[5] According to the DMA, about as many people ask to get put on the list to receive mail as ask to block mail.

[6] http://www.postalvision2020.com/wp-content/uploads/2014/04/Digital-Data-%E2%80%93-Direct-Mail-Feedback-Loop.pdf

 

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2 Replies

  1. Kent, great and comprehensive post. One of the issues I see is that the postal Service’s business model is driven by volume, not value. The Postal Service can mainly charge for its cost to deliver, not for the value it brings. So, decluttering mail will exacerbate the Postal Service’s downward spiral unless it has freedom to price and to operate.

    1. Kent Smith

      Exactly right. The whole industry should be focusing on value.

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