The Group says research has demonstrated that using marketing mail in combination with other media “significantly” increases communications effectiveness and it plans to do more in the coming months to make businesses aware of the value of letters.
Royal Mail launched its media planning, data and creative service MarketReach two years ago with the aim of boosting physical direct marketing’s share of the UK advertising market.
In March Royal Mail drafted in three senior executives to lead the service as the company looks to make MarketReach an increasingly important part of the company’s business strategy.
In the same month Royal Mail was also awarded a significant contract to collect and deliver mail for 14 councils across London – a first of its kind for Royal Mail and the councils – as the Group looks to flex its services to bolster its offering to business customers.
The Royal Mail hopes direct marketing will play a bigger role in its revenue mix to offset the decline in its letters business.
Overall, the Royal Mail’s revenue increased by 2 per cent to £7.8bn in the year to 31, with the growth driven by parcel revenues, which overtook revenue from letters for the first time. Letters revenue, including marketing mail, declined 2 per cent to £4.6bn in the period. Marketing mail made up £1.1bn of the total, down 1 per cent year on year.
The Royal Mail said its letters performance was at the “better end” of expectations as the decline in volumes became moderated in the second half of the year. It said this was due to strengthening economic conditions, alongside one-off impacts such as energy companies writing to customer about price rises in October.
However, the company warned that competition from rivals such as TNT Post could impact future revenues and called on regulator Ofcom to carry out a review of direct deliver services across the UK.
Moya Greene, Royal Mail chief executive officer, says: “We are facing a couple of headwinds. The competitive environment on the parcels side is more intense. We are taking steps to remain the leader in this growing market.
“On the letters side, the headwind is direct delivery and we have strategies in place to counter its adverse financial impact. However, without timely regulatory action, direct deliver could undermine the economics of the Universal Service and our ability to generate sustainability a 5 to 10 per cent EBIT margin in our reported business.”
Ofcom has rejected The Royal Mail’s call for a review. The regulator said in a statement: “We do not believe that there is presently a threat to the financial sustainability of the universal postal service.
“Ofcom keeps the market under constant close review, examining the future business plans of major operators. We have a duty to secure the universal service, and if we identify any future threat we have powers to step in to protect it.
“We would expect Royal Mail to take appropriate steps to respond to the challenge posed by competition, including improving efficiency.”
The results posted today (22 May) are the first annual financials released since the Royal Mail floated on the London Stock Exchange in October.