Bracing for Direct Mail Hikes

Folio: The Magazine for Magazine Management, March, 2000 by Mary Harvey

As industry organizations lobby against proposed rate hikes for Standard A postage, publishers are rethinking mail strategies and eyeing the Net more closely.

A proposed 15 percent rate hike for periodicals is not the only postal woe publishers must contend with. The proposed rate increase of 7.7 percent for Standard A--the direct mail category formerly known as third class--might translate to 9 to 10 percent for magazine publishers, industry experts say.

"It's an extremely serious situation," says Jim Cregan, executive vice president of Magazine Publishers of America. The Standard A increase, proposed with other increases by the U.S. Postal Service in January, is the category's largest since the early 1990s, Cregan says.

Although the industry annually spends far less on Standard A postage than on periodicals postage, Standard A mailings have recently become more important to publishers: Agency business drop-off has forced many to increase their new business promotions and renewal mailings.

"You'd be surprised by how big the postage bill for Standard A is for almost every publisher," says Jerry Cerasale, senior vice president, government affairs for the Direct Marketing Association. For example, Rodale's magazine division spends over $20 million on periodicals mail annually, and an additional $8 million on Standard A, says Mary Evans, controller for the division. Time Inc., which produces numerous ancillary products, spends about 2 percent more on Standard A than on periodicals each year, says Jim O'Brien, director of distribution and postal affairs for Time Inc.

The industry responds

Still, neither the MPA nor American Business Press are officially intervening in the Standard A rate case, saying it would detract from their main goal of lobbying against the periodicals increase.

"The job before us just on periodicals is mammoth," says David Straus, postal counsel for the ABP. "It takes an enormous amount of resources to participate in one of these cases. It's a significant strain on these organizations' budgets."

But the Standard A fight has been taken on by the DMA, the Association of Postal Commerce (formerly the American Mail Marketing Association), and others. "For mailers who do an awful lot of work-sharing--pre-barcoding, presorting and dropshipping--rate increases on a percentage basis are much higher than for those who don't," says the DMA's Cerasale.

But attacking rate hikes on both fronts is a tricky proposition, because lower increases for periodicals might mean higher increases for Standard A.

"It's hard to argue for lower second-class and third-class rates at the same time," says Straus. "If we try to throw off some of these attributable costs, those dollars have to come from someplace, and they'll come from first class and Standard A"--an acceptable tradeoff for ABP and others.

Of course, even more desirable would be to reduce USPS costs, which would lower rate hikes across the board. To this end, industry organizations have been assessing where USPS costs can be cut. The USPS says it's also working with industry representatives to improve efficiencies. "If you control or reduce costs in an area, those costs don't have to be paid by anyone," says Ashley Lyons, manager of pricing for the USPS.

Potential impact

While some companies are already assessing the impact of looming direct mail hikes, many are playing a wait-and-see game.

"It's early, so we're not reacting aggressively at this point," says Peter Johnson, vice president, corporate circulation director of Grain Communications.

"You won't get major shifts right away, but there's going to be a lot of testing this year," says the DMA's Cerasale. "The mail volume is not going to shrivel up to nothing right away.

Consumer magazines, which rely heavily on promotional mailings, may be hit hardest. "It's going to cause mailers to rethink their strategies on mail package design," says Time Inc.'s O'Brien. Time Inc., like others, sends some promotions via "automation flats"--a Standard A category that, according to the USPS, could increase by an average of 11.3 percent, compared to a 9.4 percent hike in "regular" Standard A. "We may migrate more packages back to letter-size," says O'Brien.

B-to-b mailers say they'll also focus more on design, and on presorting, barcoding and automation. "It may cut down on creativity--if you design mailings in tubes or triangles, they might not meet automation requirements," says Barry Green, vice president, director of circulation of Hearst Business Publishing. The trick for all publishers will remain weighing the costs of cheaper mailings against response rates.

The Net result

Rate increases may push publishers more to phone, fax, continuous service efforts, and--of course--the Net. "The best thing to do is eliminate the need for [Standard A] mailing," says Rodale's Evans. "Internet activity is one of the major things we've got to cut that cost."

"Our goal is to reduce dependency on renewal notices by the time we do our 2001 budget," says Grain's Johnson. He is already testing electronic means for renewals and requals. "This will further solidify our commitment to making it work."