News Analysis: Royal Mail forces direct rethink

for campaign costs as well as the execution of mailings themselves.

The Royal Mail's new rules particularly affect charity,
business-to-business and FMCG direct marketers who send out samples in
bulky packs. The effects of the changes range from the relatively
trivial - folding A4 letters to get them into the cheapest letter format
- to more fundamental considerations concerning creativity.

The Direct Marketing Association (DMA) has encouraged agencies to carry
out impact assessments on their existing work over the past year, and
some have expressed concern about the results.

Robert Mayes, group communications director at WWAV Rapp Collins, cites
one example of a client that is being forced to change its strategy.
'One of our charities, which includes a pen with mailers, will see a 23%
increase in postage cost if it wants to continue to send the same pack,'
he says. 'We relaunched it with flat pens but it didn't work. We're
being put in a creative straitjacket.'

Despite such concerns, PIP presents the direct marketing industry with
opportunities, not least because the system has a higher weight
allowance than its predecessor.

'There are now an extra 40g free (for items classified as large
letters), so it is up to agencies to take advantage of this,' says
Anthony Miller, head of media development at Royal Mail. 'There are
examples of campaigns that are affected both positively and negatively.
Working within the parameters will become a skill that produces cost
benefits to some agencies.'

Business-to-business mailings are likely to sustain the greatest rises
in costs because many contain bulky samples. But it may still be worth
paying the extra postage, say agency sources, as the highly targeted
nature of these relatively low-volume campaigns means the returns could
justify the extra cost.

In recent years, Royal Mail has encouraged FMCG businesses to shift a
greater proportion of their marketing budget to direct campaigns.
However, with the cost of sending out mailers containing samples rising,
there are fears that direct marketing will become less appealing to the
sector. 'It certainly doesn't make the medium more attractive to
clients,' admits Mayes. 'Direct doesn't have a God-given right to
marketing share. We will make it work if we can, but we can also use
other media.'

Miller plays down the threat, claiming the changes will not be an
impediment to the vast majority of advertisers. 'We're talking about a
very small proportion of the sector that send out samples, but we need
to work with these clients,' he says.

Martin Hayward, director of consumer strategy and futures at marketing
consultancy dunnhumby, believes PIP may well prompt marketers to look
beyond sampling. 'We do lots of sampling for FMCG brands and
manufacturers such as Procter & Gamble, so the new parameters will no
doubt focus the mind,' he says. 'I think other media might also benefit
from PIP, such as in-store and home deliveries'.

Another sector likely to benefit from PIP is customer publishing.
Customer magazines do not carry covermounts, and so will be less
affected by the pricing changes than consumer magazines that are sent to
subscribers by post. Impact analysis has shown that the cost of mailing
magazines of certain sizes will drop dramatically under the new rules;
the altered weight divisions may also allow publishers to add pagination
to their titles in order to take full advantage of the category
allowances.

Although some marketers have begun to amend their plans to cope with the
new rules, the full impact will not be known until they have had a
chance to evaluate the effectiveness of campaigns.

'We have already reduced our A4 newsletter to an A5 size and so far it
has had no adverse effects,' says Steven Greenberg, direct marketing
manager at Help the Aged. Like other charity marketers, Greenberg is
also experimenting with sending out flat pens - he is hoping the impact
of this will not be as negative as it is said to have been for other
organisations in the sector.

PIP will shape the landscape of the direct marketing industry in coming
years. Like or loathe it, over the coming months marketers and agencies
will be navigating the limitations it imposes.

DATA FILE - PRICING IN PROPORTION

What changes are being made to postage rates?

Currently, postage costs are determined solely by weight. But Royal
Mail's 'Pricing in proportion' system will see charges determined by
size as well as by weight, the categories of which have also been
changed. Post will be classified in three categories: ordinary letter,
large letter and parcel. An 'ordinary letter' must be less than 5mm
thick, 240mm long, 165mm wide and weigh less than 100g. A 'large letter'
is less than 25mm thick, 353mm in length, 250mm wide, weighing less than
100g. Any item that exceeds those parameters is classed as a parcel, the
postal cost of which depends solely on weight.

When do the changes come into effect?

The scheme, which was unveiled a year ago, comes into effect on 21
August. Having originally been planned for roll-out in April 2006, the
launch was postponed following discussions between the direct marketing
industry and regulatory body Postcomm.

Why is Royal Mail making these changes?

According to Royal Mail, the new scheme is fairer than the existing
system and is a better reflection of its costs. It claims that 85% of
all the post it delivers will either cost the same or be cheaper to send
than before. It also claims that about two-thirds of business mailing
will be cheaper.