Going postal: why NZ Post’s price increases have the media biz in a tizz

From 1 July, New Zealand Post will have a new pricing model as a response to the declining number of letters being sent.

A NZ Post spokesperson tells StopPress the changes are necessary and will assist its business to manage the ongoing and significant loss of revenue from fewer letters being sent, as it maintains a network of more than 880 postal outlets and 1.98 million delivery points (250,000 of which are in rural areas).

Some of those specific changes were announced in March, and include the cost of sending a standard letter within New Zealand increasing 20 cents from $1 to $1.20, as well as product and price changes for business customers using Bulk Mail products.

While the spokesperson says NZ Post acknowledges and recognises the price increase will have an impact on businesses, it needs to make the changes to operate a commercially sustainable mail business.

“We work very hard to keep the cost of posting mail as low as possible for all of our customers. However, with an annual decline in mail items of approximately 50-60 million through our network and our service commitments to New Zealand, we are required to review the cost of our products and services,” they say.

In September last year, NZ Post reported a net profit after tax from continuing operations of $27 million for the 12 months to 30 June 2017. This represents a year-on-year improvement of $17 million on the FY 2016 result.

In the announcement, revenue growth in parcels was said to offset the impact of letter mail decline and that is clearly where NZ Post sees its future as ecommerce continues to grow. 

About the changes to it prices, the spokesperson says it’s working closely with all of its customers, including magazine publishers, and has given them as much notification as possible so that they can prepare for the changes. This includes incentives for high quality and accurate addresses, reviewing customer lodgements into its network and a 10 percent discount for registered charities.

“Just like postal services, we are aware that magazine publishers are also having to deal with the changing behaviours of customers as they increasingly choose to do more online.”

When StopPress asked about the changes and how publishers are dealing with them, the Magazine Publishers Association (MPA) responded with comments from James Frankham, director of Kowhai Media and chair of the association. He says many members are facing cost increases and some more than others.

“Naturally the MPA is at the centre of negotiations with NZ Post and lobbying hard for our members and the industry at large. There are a lot of options to explore to mitigate increases, reduce costs, consolidate lodgements or make lodgement processes more simple, and we’re pursuing all of those avenues.”

He also pointed out that magazines have already proven their ability to adapt to change as they’ve spread from beyond the page to digital and social platforms.

Speaking more specifically about what the changes mean for publishers, an industry source close to the issue told StopPress larger publishers face the biggest impact as they will no longer be receiving the discounted rates they have been for their large distribution numbers. For many smaller publishers that weren’t receiving as many discounts, the increase is thought to be around 15%, whereas some publishers with big numbers are thought to be facing increases of over 30%. 

StopPress contacted Bauer for its take on the issue but it was unable to comment. 

Making up the cost

While the MPA is at the centre of negotiations with NZ Post, when a price is determined and implemented, it could be a hard pill for some to swallow. 

Given subscriptions are paid for in advance of receiving the product, offsetting the increase won’t simply be a case of upping prices right away, as other products are able to do. 

For B2B magazines in particular, that do not have a retail presence, this could see them reduce their distribution numbers as a way to offset the cost.

And for the customers, the source says those in rural areas may feel the increase the most. If the cost of rural post increases further than metro areas, it could see rural customers be charged more for their subscriptions or lose delivery of magazines altogether.

When one door closes, another opens?

Another industry source who did not want to be named took a more positive approach, pointing out that while the price increase will have an impact on publishers, the loss of a thriving postal company to deliver magazines would be harder to overcome. NZ Post is basically a monopoly and while there are many other players in the distribution game, none are currently set up to deliver the same service, although it’s thought some are exploring the opportunity.   

“There’s a lot of ‘be careful what you wish for’,” they told StopPress, saying that if NZ Post took no action it would no longer be a sustainable business.

The source added that instead of complaining about the increase, publishers should be looking into how they can be optimising subscriptions.

Unlike retail in which the reader is anonymous, subscribers are known and that data can be commercialised and used to gain more subscribers, as Financial Times CEO John Ridding said in a recent Recode Media podcast. 

Examples of this can be seen in the US, where, according to Digiday, publishers are applying science to the numbers to rope in new customers as well as keep them engaged and encourage them to buy more products.

One publisher is Hearst Magazines, which according to the Digiday article has a team of eight PHDs who crunch past subscription offers to increase subscriber numbers, as well as identify likely candidates to give magazines as gifts.

Subscriptions can also be more efficient than retail sales. Ideally, publishers would hope for the 60 percent sales mark, but that’s often a very unrealistic and hard target to meet. Some titles run at 40 percent efficiency, which means a lot of waste. Those unsold copies are disposed of by the retailer unless there’s a firm sales agreement in place.

The Marketing Association

The Marketing Association is similarly realistic about the changes to NZ Post’s prices and CEO Tony Mitchell says it’s the result of the digital disruption changing the way business market to customers and how customers chose to communicate to one another. These have reduced the combined volume of letters and direct marketing being put through the service and a price adjustment keeps NZ Post economically viable.

And while that may suggest direct marketing is no longer an important part of the marketing mix, it’s not the case. According to Mitchell, less clutter in the direct marketing channel combined with direct mail’s response rate, which is 10 to 30 times more efficient to digital according to Data & Marketing Association, makes it an important part of the toolkit.

So what does the price increase mean for marketers’ future decisions using direct mail? Mitchell says just like any campaign that a business runs, marketers will first figure out who they want to communicate with, what they want to say, and then decide on which channel offers the most effective and cost-efficient form of delivery.

“I see direct mail as continuing to be in the marketers’ channel considerations. Direct mail, just like digital, TV, paper and billboard etc., is likely to remain viable marketing channel options for businesses to use,” he says.

“Regarding changes to day and time of day delivery, I would expect that marketers will have been less impacted by this as they have many channels that enable them to reach customers.”

Beyond the media industry

As well as publishers and marketing budgets potentially feeling the crunch of a price increase, service providers like banks and energy companies that rely on post to send statements and customer information, will also be affected. 

StopPress contacted the New Zealand Bankers’ Association for its response to the increase and chief executive Karen Scott-Howman said that for some time now, banks have been encouraging customers to get their statements online rather than by post. She said to contact the banks directly to find out what the percentages are, but none of them were willing to share that information. But there are still a huge number of paper statements sent out. 

She added it’s an effort that supports environmental sustainability and helps reduce the cost of printing and postage. 

“An increase in the cost of postage will impact banks like any other business,” she said.

ASB says: “Postage remains a significant cost for ASB. However, over recent years many of our customers have opted for digital communications, either through emails, our online banking channels or other media. Environmental considerations and customer preferences, in addition to NZ Post’s changes to their postal delivery frequency, have made digital options more convenient for our customers.”  

StopPress also contacted BNZ, which chose not to comment. But back in 2016, it said it was still sending out 2.9 million paper statements a year. 

Also in 2016, ANZ told Stuff with “its most popular ‘go account’ 87 percent of customers received electronic statements and for its ‘freedom account’ 63 percent of customers received electronic statements.”

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