Has the Net sealed Royal Mail’s fate?

Royal Mail plans to become a major player in the global delivery business. But can a company used to having privileged nationalised status compete in a sector now being shaken up by e-commerce? asks Tom Bawden

When Royal Mail managing director for business and consumer markets Jim Cotton-Betteridge leaves (MW last week) it will be a pivotal moment in the company’s history.

After years of complacency, the last of the nationalised industry dinosaurs is beginning to stir – spurred by the forces of globalisation, deregulation and the Internet.

These forces have simultaneously created a bigger market with greater competition and, depending on how it adapts, Royal Mail will expand or shrink considerably in the next decade.

Following seven years of uncertainty over whether or not parent company the Post Office would be privatised, a white paper last summer put paid to the idea – at least for the foreseeable future – by saying it would be run as a private company with the Government owning the shares.

The first manifestation of Royal Mail’s evolution was its slimming down from 15 to nine business units, each dedicated to the nine main perceived market opportunities. Royal Mail marketing had previously been overseen by one group marketing department headed by Cotton-Betteridge.

The restructure gave each of the nine new divisions responsibility for its own marketing. Cotton-Betteridge’s business and consumer unit forms the centrepiece of the nine new divisions.

But opinion is divided as to his effectiveness.

One senior agency source who has worked closely with Royal Mail, says: “Jim was basically brand guardian before the restructure and had a lot of influence on marketing. This is not the case any more. While it is not the sole reason for his departure, I personally believe it may have hastened his decision to leave.”

Another source says: “Frankly he was a bit of a duffer. He came from the operations side and I don’t think he really understood media or what a customer-focused organisation was.”

Most observers expect Adam Novak, managing director for media markets, to take over as managing director for the flagship business and consumer markets division when Cotton-Betteridge retires – most likely early next year.

The recently created media markets division is dedicated to direct marketing, running education and training courses for agencies and mail houses, and promoting direct mail to the business world.

One source says: “Novak is a strong candidate for Cotton-Betteridge’s job. He has a much clearer understanding of marketing than Cotton-Betteridge.”

But whoever does take over from Cotton-Betteridge will have some key issues to contend with, which present both an opportunity for and a threat to Royal Mail.

Royal Mail chief executive John Roberts says: “The Post Office must sharpen its focus on its markets and develop a passion for meeting customer needs. Over time volumes will inevitably be eroded by the growing use of telephone and electronic communications.”

E-mail is the most obvious concern because it is rapidly replacing letters and becoming an increasingly popular form of direct marketing, threatening the huge volumes of direct mail post.

At the moment many e-mails are followed by a letter in the post, and electronic signatures are not yet legally acceptable. But as e-mail becomes the dominant form of written communication, follow-up letters are less frequent and new legislation permitting electronic signatures is understood to be just around the corner.

The Institute of Direct Marketing deputy managing director Neil Morris says the growth of e-mail also offers opportunities. “Apart from generating paperwork, an e-commerce transaction requires distribution. Meanwhile, a website needs to be promoted offline as well as online, and traditional direct marketing is an effective method of doing that,” he says.

Morris says the new media marketing unit has been very supportive of the direct marketing industry and has set in motion a whole range of initiatives including awards, educational programmes as well as effectively promoting the industry.

Morris adds: “Although direct mail may come to represent a smaller percentage of marketing communications, it will continue to grow in absolute terms.”

Royal Mail – through its package delivery service Parcelforce – faces increased competition in the distribution of products bought over the Internet from courier services such as FedEx, DHL and UPS.

But observers believe catalogue distributors such as White Arrow, which delivers mail order items for GUS, and the Next Catalogues home delivery service pose more of a threat in this area. This is because the likes of UPS have cherry-picked business mail and tend to stick to big cities, while the mail order companies are used to delivering across the entire country.

This is as yet a small source of business, but one which is rapidly growing.

Yet observers say that Parcelforce – traditionally the lame duck of the Post Office, and contributing a £25m loss to its £608m pre-tax profit for the year ending March 31 1998 – is improving steadily. The division recently spent £100m developing national and international hubs and has started delivering items within a much narrower timeframe.

Meanwhile, creeping deregulation will open markets considerably. At the moment, Royal Mail has a monopoly in the UK on any mail under £1. That is expected to be relaxed sometime later this year when the European Commission issues a white paper on deregulation, opening direct mail and business mail to full competition. Royal Mail is well positioned to exploit both areas.

Deregulation is also speeding up the inevitable trend towards globalisation. Royal Mail set up in the US in 1994 and now claims it is the number four operator in that country.

It also acquired German Parcel for £256m and has stakes in Sweden’s Citymail and General Parcel, which operates in 30 European countries.

Observers expect a handful of global players to emerge in the next decade and most say Royal Mail has the products and strategy to be one of them.

The main question mark is its notoriously bad customer service. If it can get over this obstacle – and many believe the shake-up has improved its service – it will be in pole position to deliver the goods.

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