Royal Mail price hikes expected to hit DM budgets

In October, the Royal Mail asked regulator Postcomm to approve a price hike for business clients in an attempt to raise £100m, prior to a privitisation in 2011.

Postcomm has provisionally approved the proposal, which would see bulk prices rise by some 7% in the second quarter of 2011. The Royal Mail made a £157m loss on such "access' activities, where collections are made by rivals such as TNT, but delivered by the Royal Mail.

According to James Campbell-Clause, head of sales and marketing at post brokering firm Post Switch, which specialises in direct mail campaigns, the increase has been targeted to close a gap in the Royal Mail's two main delivery options – the standard seven to 10-day delivery and premium two to three-day delivery.

Competitors can fulfil orders in two to three days using the Royal Mail's sorting network, but compete on price with their standard sven to 10-day service. Hiking bulk prices will remove much of the price advantage for competitors and raise costs for DM campaigns.

Campbell-Clause said: "Over the past two years, we have been working hard to reduce the costs for direct marketing campaigns, and the Royal Mail hiking prices will undo all that hard work.

"For agencies, direct marketing is still one of the best ways to acquire customers, although the internet is good for retention. Hiking direct marketing costs will effectively hit marketing departments where it hurts."

The Royal Mail plans to raise its prices in the first quarter of 2011, and the new Bill to privatise it is likely to pass through parliament within a year.

Retailers are trialling an evening delivery service within the M25 in an attempt to give customers greater choice.

This article was first published on marketingmagazine.co.uk