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Category Report - Postal Solutions

Category Report

01 July, 2008 08:08

Postal Solutions contains the following data:
Postal Scales
Franking Machines

Postal solutions: getting to grips with the mail

by Sara White

Mail volumes are falling as costs rise, but postal deregulation has not created a competitive playing field. Here we consider the different mailing options from franking meters to hybrid mail services.

The dominance of email as the communication of choice is affecting mail volumes and, for the first time this year, overall mail volumes are down significantly.

In recent years, the UK has bucked the European trend, maintaining reasonably stable figures until 2005. But the latest figures indicate this is no longer the case. Mail volumes were down three per cent in 2007/2008; Royal Mail predicts its volumes to decline by 3.5 to 4.4 per cent per year over the next 10 years, depending on market conditions.

"Franking machines have a role to play, but they need to
be integrated into the mail process," said Philippe Masson, Pitney Bowes

Email is the real threat to mail as electronic invoicing and email marketing campaigns replace traditional mail. Transactional mail is also in decline as companies pressure consumers to move to electronic billing, offering financial sweeteners to make the transition. There are also environmental considerations as companies look to reduce their carbon footprint.

The largest proportion of mail is generated by business and sent to domestic consumers. To put this into perspective, 50 companies account for 40 per cent of the mail market.

Smaller enterprises are also regular users, and are often dependent on the postal service in carrying out business. A
survey by the Federation of Small Businesses found that 88 per cent of respondents send post every day, 59 per cent delivering goods and services, and 69 per cent sending invoices.

Deregulation

The deregulation of the market has changed the industry, giving Royal Mail tough competition in the bulk mail segment. But, initial findings of an independent review of postal competition, commissioned by the government, found that the greater competition has had little, if any, impact on smaller businesses or consumers.

The report said "they have no choice in provider and are paying higher stamp prices. The introduction of a pricing methodology based on weight and dimensions makes life more difficult."

Competition is based predominantly on price, but the report stressed that while the open market is still very new, there has been less innovation than might have been expected.

At the same time, digital communications offer opportunities for more flexible, targeted services at a higher value.

Postage costs

Faced with rising postage bills, businesses need to look closely at their business processes and analyse mailing costs. Undoubtedly the pricing in proportion (PiP) changes introduced in 2006 have changed the way many companies view mailings.

This is illustrated by the increasing use of C5 envelopes, now classified as a standard letter by Royal Mail, while traditional C4 envelopes, once the preferred method for unfolded A4 business letters, are the exception.

"Direct mail is being substituted by email - small mailings are definitely moving to email," said Francotyp Postalia director Phil Myers

With the large difference in cost between letter and large letter postal prices, this is hardly surprising. What used to cost the equivalent of 36 pence now costs 52 pence [C4 envelope], a substantial increase in total postage costs if a business does not change its mailing patterns.

There are Royal Mail discounts on franked or PPI post; 2p for first class and a recently increased 3p discount for second class letters up to 100g; 6p for first class, 5p for second class large letters; and discounts on parcels and packages. Royal Mail's Cleanmail service (see below) also offers substantial discounts on one-off bulk mailings.

Franking costs

Postal franking machines allow companies to frank mail for delivery by Royal Mail in place of using stamps or pre-paid envelopes. There are over 210,000 franking machines in the UK with the supply and maintenance of machines worth an estimated £100-115 million a year.

Two suppliers - Pitney Bowes and Neopost - account for up to 90 per cent of installed franking machines and dominate the aftersales market; Francotyp Postalia accounts for 8 per cent of the market while Swiss company Frama holds a nominal share.

The majority of franking machines are leased, often on a relatively long contract - the franking vendors like to sign up customers for up to five years, not always a commitment that is desirable or flexible. The decision to lease a franking machine should be considered carefully.

The total running costs include the annual lease charge, annual maintenance contracts, charges for meter price changes (postal rate chips), ink cartridges, and the cost of inspection and re-crediting services.

With growing emphasis on environmental issues, it is important to consider environmental factors and the end-of-life policy of vendors - what happens to the machine at the end of the lifecycle and refurbishment or recycling policies, what about energy efficiency, manufacturing processes and the supply chain.

Franking machine vendors saw a big increase in sales with the introduction of PiP in 2006. However, sales have not grown at the same rate in the past two years. High volume machines are in decline, although there is still strong demand for smaller volume franking machines.

Francotyp Postalia director Phil Myers said: "The talk of recession is having an impact and, for the first time ever, mail volumes are lower year on year. Up until now, UK mail volumes have flown in the face of what was happening in Europe. Direct mail is being substituted by email - small mailings are definitely moving to email."

Last year's Royal Mail strike also took its toll. "It prompted a rethink as companies had to think about how they could get around the strike," said Myers. "Forget post office closures; that is headline grabbing. The problem is that Royal Mail is still hugely bureaucratic - they do not behave like a commercial organisation in terms of the layers of management and costs. But they are changing; they could be a profitable business. Royal Mail still has a trusted and respected brand image."

A fall in demand for high volume machines is filtering through. "We are selling a lot of smaller machines by telesales - that part of the install base is growing, but that is pretty much the only segment that is growing. Prices are going down even for the bigger machines," said Myers.

Market leader Pitney Bowes sees the future in diversifying its business into mail processing with a big emphasis on mailing processing software and addressing systems to improve business processes and reduce mail wastage.

Pitney Bowes postal market development director Philippe Masson said: "The overall mail market has decreased, but the quality of mail is increasing. Marketing people need to see a better performance from mailings and there are the green issues. Businesses have decided to play an active role in reducing waste - they do not want to stop mailings, but they want to improve the quality."

Neopost marketing director Andrew Mackenzie said: "The decline in mail is a double-edged sword - there is a downshift in the size of machines going into the market. The nature of discounts is also moving away from sortation; it is more about clean mail addresses. Cleanmail Advance, for example, provides discounts for batches of mail. That is the future of mail."

Despite the rapid move to alternative mail providers, Masson is confident that franking still has a place in the market. He said: "Franking machines will be there for mixed mail. Today's alternative providers are directed to batch mail, not small quantities of mixed mail. Franking machines have a role to play but they need to be integrated into the mail process. They need to be complimentary to the whole business."

Pitney Bowes marketing director Andy Beer added: "The market is a changing environment. This was highlighted when Royal Mail brought in PiP in 2006. Now mail users are spending a lot of time thinking about mail processing, rather than thinking about overall mail. Some of the direct mail agencies are rebounding and saying that DL envelopes do not do it for us. They want something square or oblong, but they need to get smarter about mailings.There have been a lot of changes in transactional mailing, but the DM agencies are saying that they are giving up on C5 envelopes as they are not getting results from the mailings."

Choosing a franking machine

Neopost has launched a range of five franking machines, based on a brand new upgradeable platform and rewritten electronics software. "These are the first machines built around an operating system that can be upgraded remotely - it is the first brand new platform we have had in six years," explained Mackenzie. "We have replaced four models with five, added some modularity to the range and brought dynamic scales down the range because of pricing in proportion. There is a very strong focus on design and the user interface. The new machines are considerably smaller and much more compact. On the higher end machines we have also made a real effort on noise levels - these are the quietest machines we have ever had."

Neopost marketing manager Graham Bennett said: "Many of the key reasons people buy franking machines become more important when companies are looking at business processing."

Customers also want to have detailed information about franking costs and billing data. Neopost has a web-based system, myneopost, an online accounting analytical tool, which is included in service contracts and provides 24/7 access to online statements.

Pitney Bowes is also developing a cost analysis product for the European market. Although it is already available in the US, it does not expect to launch the web-based service before 2009.

Pitney Bowes has upgraded its range of franking machines. It has added a new software platform and LAN connectivity on its high-end DM800 to DM1000 machines; also new is the DM990, a high volume machine for mailing houses and financial houses that are looking for a high volume workhorse. It has added autofeed compatibility lower down the range on the DM400 and 450c, as well as a QWERTY keyboard on the user interface.

The DM575 has an enhanced, fully connected mixed mail feeder which rates correctly in all orientations, useful for mixed batches of envelopes. The growth of parcels has also influenced upgrades with the DM200, an entry-level device, now featuring a larger weighing platform while adjustable, upgradeable scales have also been built into some devices.

SmartStamp

Royal Mail's SmartStamp is an online service that prints postage onto an envelope or labels, and can interface with mail merge documents for mailings. There is a registration charge (£4.99pcm or £49.99 per annum) and postage costs the same as stamps. Users can track funds through online statements and accounts can be topped up using a credit or debit card, or direct debit.

Postal scales

Postal scales can provide a number of features including postage costs, carrier comparison features and DX price monitoring, and can be a useful standalone tool.

Design Initiative, a manufacturer and developer of postal scales, is focused on designing products with a range of features to simplify mailing processes. Managing director Gina Sterritt said: "The last major redesign of our scales was for pricing in proportion so now we have a range of scales that can meet customer needs. Now we are simplifying the services and putting features on the scales to help small businesses."

"People are being much more careful about how they spend their money and what they
are contracting. They are looking closely at capital expenditure," said Gina Sterritt, Design Initiative

A good example is the DX monitoring feature on scales. "You can see exactly what you are spending on DX transactions," she said. "In many cases, it is a huge bill as you pay based on an estimated charge. If you spend £1,800 a quarter, you might only be using £1,000 a quarter.

"Cost control is a key issue. Small companies want to look at cost accounting and individual costs; you do not need a franking machine for that. Companies need to look at the most cost-effective ways to send post.

"In today's economy, people are being much more careful about how they spend their money and what they are contracting. They are looking closely at capital expenditure."

Competition: alternative postal providers

While downstream access is targeted at bulk mailers, there are options for companies with daily volumes of at least 250 items.

UK Mail has hit back at suggestions that alternative postal service providers are only interested in working with large customers. Managing director Steve Patrick said: "To say that private operators are not interested in working with smaller sized businesses is simply not true. UK Mail already provides services to over 700 smaller volume mail users. The challenge facing UK Mail is to make customers aware that they do have a choice and can receive cost savings of up to 10 per cent."

Electronic mail fulfilment services

The launch of electronic mail fulfilment services uses a different model to cut costs.

UK Mail has launched a next-day mail delivery service, i-mail, with prices starting at less than the price of a first class stamp and including stationery and printing costs. It is designed for first and second class post business users that are looking to lower costs and reduce administration.

Companies can access the i-mail service directly from an internet-enabled PC. The print option sends an encrypted copy of a letter or document to one of UK Mail's sort centres where it is printed, enveloped and handed over to Royal Mail for delivery. Customers can send their mail requirements up to 6pm for nationwide, next day delivery.

Competition factors
* A fifth of Royal Mail's upstream volume - 4.1 billion items in 2007-08 - is handled by ‘access' operators such as TNT Post and UK Mail, at less than half the costs Royal Mail is able to achieve.
* For larger customers, this has kept prices around five per cent lower and slowed the rate of decline.
* Minimum mail volumes of 250 items a day mean alternative providers rarely offer a viable alternative for smaller mail users.

TNT Post has also launched a hybrid postal service, TNT-it, which removes the need for users to print, fulfil and post documents. Small volume mailers can send letters and documents from a PC to TNT Post's print and fulfilment facilities where they are automatically printed, folded, enveloped and posted. By using this service, businesses do not have to buy stationery, franking machines or stamps, and do not have to manage direct collection from the premises.

Quality Ornamentals, the sales and marketing arm of a bedding plant producer based in Stockport, was an early adopter and signed up to the TNT-it service at launch.

General manager Paul Brooking said: "After a short trial period we became enthusiastic customers. We have not had to envelope a single invoice or monthly statement. Invoicing is obviously vital but it was also a very time-consuming exercise to us. Postage and stationery costs have reduced by more than 40 per cent and our cash flow position has improved."

Cleanmail: bulk mailings

Royal Mail's Cleanmail Advance gives businesses flexibility on irregular volume mailings as well as substantial discounts on postage costs.

To use Cleanmail Advance the posting must meet defined dimensions including address location, have a licensed number on each letter, consist of at least 1,000 letters presented in trays and be accompanied by a customer collection receipt
Royal Mail sorting machines read the licence number, check the letters for address accuracy and allocate a 9 to11 per cent discount on an item basis for items automatically sorted. Items that cannot be auto-sorted, are priced at account/franked rates
The customer has to sign a contract with Royal Mail
Royal Mail provides a 12 alpha character 1st and 2nd Class licence number
Licence number has to be printed in blue ink in a defined area (top central area) of the envelope when the Printed Postage Impression (PPI) or Franked Meter Impression is applied
No up-front accreditation or postal cheques
Franked Meter impressions are applied at the Franked Standard Tariff
Discounts are refunded by cheque or as a credit
If you pay via Franked Meter, contact the meter machine supplier to modify the machine to use Cleanmail Advance
Use blue ink for Cleanmail services. You can also use the blue ink for other franked postage instead of standard red

Contact file

Franking machines
Frama
www.frama.co.uk

Francotyp Postalia
http://www.fpmailing.co.uk/

Neopost
http://www.neopost.co.uk/

Pitney Bowes
http://www.pitneybowes.co.uk/

Postal scales
Cherlyn
http://www.cherlyn.co.uk/

Design Initiative
http://www.post.eu.com/

Francotyp Postalia
http://www.fpmailing.co.uk/

Neopost
http://www.neopost.co.uk/

Pitney Bowes
http://www.pitneybowes.co.uk/

Salter Brecknell
http://www.salterbrecknell.co.uk/

Total Postweigh
http://www.postweigh.com/