Direct marketing: Competition winners

handlers to choose from.

Major players such as TNT Post, UK Mail and DHL have picked up a
significant amount of business from firms that send bulk mailings, which
sees them collect, sort and deliver the post to Royal Mail centres for
'final mile' delivery. According to Royal Mail, these so-called 'access
deliveries' account for 25% of the bulk-mail category, and 12% of the
£4.7bn overall postal market. Chief executive Adam Crozier has
reportedly said that Royal Mail will have lost 40% of its corporate
business by the end of the year.

The big advertisers have realised that they can make hefty savings on
mailing costs, be they regular transactional mailings, such as bank
statements, or one-off direct marketing campaigns. 'Competition in the
postal market has helped put mail on the agenda. It's often a very big
cost to an organisation and, typically, has had little attention paid to
it,' says Derek Fairhurst, managing director of PostalAudits, an
independent agency that works with some of the UK's biggest mailers,
including Tesco and Yell.

The private sector has been quick off the mark. Royal Bank of Scotland
is believed to be saving £5m a year as the result of moving
responsibility for the 200m items it sends annually to UK Mail, while BT
has shifted its £30m account, covering 170m items of transactional
mail, to TNT Post. Even Whitehall has woken up to the potential savings.
Late last year the National Audit Office estimated that the public
sector, which sends out 2.5bn items of addressed mail a year, could save
£31m by more efficient use of post. The Department for Work and
Pensions shaved £1.7m off its annual £70m mailing bill by
moving a third of its postal business to UK Mail.

Brand considerations

Price has played a major role in the success of Royal Mail's
competitors. However, none of the parties involved is willing to
attribute the shift in the balance of power solely to costs. Better
service in terms of flexibility in collections, deliveries, tracking and
account management are cited as factors too.

Royal Mail's director of sector marketing, Thierry Saada, admits that
the pace of change has been surprising. 'Quite a significant share of
the market has gone over to the competition and has been gaining
momentum, much quicker than our regulator (Postcomm) and we thought it
would,' he says.

Saada attributes this to the ability of Royal Mail's competitors to pick
and choose business and clients, while Royal Mail must deliver all mail,
both business and social. 'They have been targeting the easiest parts of
the business. The regulatory environment doesn't help us,' he adds.

Last July, Royal Mail attempted to redress this by asking Postcomm to
allow it to introduce zonal pricing, which would enable it to cut
charges for bulk deliveries to city centres, while raising those for
less accessible delivery destinations, such as rural areas and central
London. Royal Mail argues that this system would better reflect the cost
of delivering mail, but the proposal, which could be introduced next
year, faces opposition from a number of groups, including private
mailers, magazine publishers and mail-order companies.

'Royal Mail is finding it difficult to respond to competition and is
trying to frustrate rather than compete,' says Steve Patrick, managing
director of UK Mail, who believes that zonal pricing would be
complicated and confusing.

To date, most of the bulk-mail business lost by Royal Mail has been in
the form of transactional mailings such as bank statements, which,
because they are big and regular, are easier for rivals to service. Now,
however, some brands are using these companies to handle direct mail
campaigns too.

The speed with which Royal Mail's rivals are able to deal with the
logistics of delivering a campaign is aiding their push for new
business; typically it is a one- or two-day window. It is an area in
which marketers have been calling for tighter delivery dates for years,
so that their direct mail activity is better able to link in with TV,
print and poster campaigns.

'Most direct mail is generally linked to a call to action, such as
contacting a call centre, which can gear up for the response,' says TNT
Post chief executive Nick Wells. 'We are doing a lot of direct mail
activity for clients such as BT, Centrica, BSkyB and Npower.'

Flexibility is a key selling point. 'Mail users can find working with
new service providers such as DHL, TNT and UK Mail a breath of fresh
air,' says Fairhurst. 'They can offer real flexibility and are often
considered more commercial than Royal Mail in the way in which they
respond.'

This flexibility extends to payment terms, collection times and the
relationship side of account management. 'They are willing to come up
with bespoke arrangements that Royal Mail is often unwilling or unable
to adopt,' adds Fairhurst. 'It has a reputation for being rigid in its
approach, saying "if we did it for you, we'd have to do it for everyone
else".'

It isn't all bad news for Royal Mail. Despite the legacy gripes, it is
generally agreed that it has raised its game in response to the
competition. Saada says the organisation has improved account management
and, as a result of customer surveys, is giving clients contacts at an
operational level to deal with problems. It is also set to introduce new
products.

A Postcomm survey, conducted last autumn, supports this view; 34% of
respondents said the quality of Royal Mail's service has improved, and,
since deregulation, one in five business customers says mailing prices
have reduced significantly. If Royal Mail can maintain and build on such
improvements, it could yet tempt many of its former clients back to the
fold.

- 2.5bn items of addressed mail are sent out by the public sector each
year.