Royal Mail must sweeten the pill of price increases

Russell Parsons

The Royal Mail is hell bent on bolstering revenue by increasing prices for whatever it is able to. But inflation-busting price hikes need to be offset by service enhancements, otherwise short-term gain will ultimately prove counter-productive.

Another week, news of more Royal Mail price rises. The annual cost of renting a PO BOX number is said to have increased to £170 last year, up from £95 a year earlier. Elsewhere, the price of a first class stamp has increased by 5p to a record 46p.

The hikes come a month before the price of business packet and mail services shoot up by an average of 10%.

A month that has forced Royal Mail well and truly on the back-foot in the year to date as it looked to make the case for increasing prices during an economic downturn that has left many of its customers, business and personal, feeling the pinch.

There are mitigating circumstances, of course. The postal operator’s finances remain in a perilous state. Its pension deficit remains cavernous, operating income is sliding and mail volumes are plummeting at a worrying rate.

A perfect storm that mail chiefs have concluded is best abated by wringing more from its customer base.

Caution, however, has to be expressed. The latter justification, declining volumes, is both a reason to increase prices and cause to think again. One of the reasons that less mail is being sent, by marketers at least, is that newer electronic channels – be it email, display or banner – are arguably cheaper and as much if not more effective.

Direct marketing has performed bullishly of late as straitened times lead to the need to explore cost efficient channels. It would be of long-term detriment to the direct mail industry – mailing houses, media owners and discipline-specific marketers – to waste that start by pricing direct mail out of the market, sending advertisers straight into the arms of a willing digital marketing industry.

To be fare to Royal Mail, it has realised that price rises must be offset by incentives elsewhere. Payment by results, DM sales and service improvements that offer advertisers advice on planning integrated and channel-specific campaigns have been mooted or introduced.

And they will need to continue to do this or risk losing every advertiser that turns its back on DM for good. All those that have trialed or increased their use of the channel need a reason to stay with it. Those that leave the channel behind to use another need a reason to come back.

Royal Mail needs to continue to innovate with price and service offers. It needs to accelerate its business-wide efficiency programme to cut long-term costs, lessening the need to turn to price increases.

Direct mail faces enough challenges. It does not need the additional burden of potentially crippling price increases without measures to soften the blow.

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