Royal Mail’s long-term health should not be down to price

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There are few more maligned brands than Royal Mail. Its ubiquitous presence in Britons’ lives results is both a blessing and a curse to its guardians, with the latter predominantly the case in recent years as strike action, price hikes and accusations of poor service erode love for the doughty doyen.

A reason to be cheerful arrived last week, however, in the form of a much improved financial performance in the half-year of its financial year.

A jump in bottom-line profit to £171 million for the six months to 30 September represents a considerable leap from the £55m loss registered in the same period last year. Better news too from its core letters division. Losses narrowed to £41m in the period in the unit that includes revenue generated from direct mail services, up from the £55m reverse last year. Total revenue was up £200m to £4.6bn.

But alas, improvements were not driven by people ditching electronic mail and social media in favour of good old fashioned mail – mail volumes continued to head southwards, by 6% in the period – but by cost cutting, parcel delivery for the burgeoning online shopping sector and price hikes.

It is the latter that should be the most interesting and perhaps worrying to those that ply their trade in advertising mail.

In response to the results, bullish chief executive Moya Greene said what should be a cause of concern to all direct mailers: “The necessary measures we implemented earlier in the year – increasing our prices and tight cost control – are a key part of our strategy to return Royal Mail to sustained financial viability.”

There is a residual fear in the DM industry that Royal Mail will get a taste for price increases after seeing the boost to the bottom line. That fear is only accentuated by an expected change in regulation that will see many of the price controls that have restricted Royal Mail from increasing prices removed.

Mail volumes are going to continue heading south. Royal Mail and others do a sterling job in promoting advertising mail as the cost effective channel it undoubtedly is but that will only slow the irrevocable decline.

This reality, however, should sharpen those efforts not tempt Royal Mail to price hike the channel out of marketers’ minds. It is through modernisation and efficiency improvements that Royal Mail will succeed and only then can it justify price increases.

Improved profit might increase the short-term appeal of the business to potential investors but gains driven by price hikes will damage the long-term health of the organisation.

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