Ahead of the summer 2006 launch of Pricing in Proportion - the new structure for postal services charging - Royal Mail pricing director Lorna Clarkson sets out the PiP rationale
21 April 2006
The UK's postal market opened to full competition on 1 January 2006. And as in any competitive marketplace the commercial enterprises within seek to ensure that prices best reflect costs.
In the Royal Mail's case, the existing weight-based pricing structure does not best reflect the costs.
For items below 1kg, the size of the piece is a greater driver of costs than weight because of the resources associated with collecting, sorting and delivering the items. Smaller, compact items (for example, DVDs or magazines) are easier to process and deliver through the letterbox. Yet, light but bulky items require extra resources, such as hand sorting, and more space is needed on vehicles and in mailbags.
For these reasons, Royal Mail has been talking to the industry regulator Postcomm for several years about a new system of charging, Pricing in Proportion (PiP). The system was granted approval in 2005 and so, from 21 August 2006, the size, shape and weight of mail will be taken into account.
The changes mean that over half of business mail will be cheaper to post. Overall 70 per cent of business mail will be either cheaper to send or the same price as now. A typical monthly glossy magazine for example, measuring 215mm by 285mm and weighing 700g has a first class franked mail price of £2.61 under the current pricing system. But under PiP the price will drop by more than half to £1.24.
Not only will many business mail postage prices decrease under PiP, but also the current 60g weight limit for a first class stamp will rise to 100g. So provided that the size of the item is within the letter category the weight of the item can be up to 100g.
To make sure that residential and business customers can prepare, Royal Mail is investing over £10 million in its biggest-ever customer awareness campaign. The UK's mail room managers are also being targeted with information so they can prepare their businesses now to benefit most from the PiP changes. For example, businesses need to plan by encouraging employees to consider the format of the documents they send. Of note for marketing and legal departments is that if A4 mail can be folded in half and posted in a C5 sized envelope, it would be regarded as a 'Letter' and would be cheaper to send.
Now is also an appropriate time to consider whether any technical changes may need to be made to franking machines. All franking machines in the UK will be able to cope with the changes but some weigh scales may need replacing and if the correct postage is manually selected on the machine, users will need to refer to the new prices in the information packs that Royal Mail is distributing. For franking machines that use a tariff rate chip to determine the correct postage, the manufacturer will contact the user before August to arrange for the chip to be updated.
Due to the type, volume and size of mail they send, some businesses will see greater changes than others (including the photo finishing, home shopping, charity, greetings cards, magazine and publishing and direct marketing sectors). Royal Mail has been in consultation with businesses from all sectors over the last five years to minimise the impact and maximise the benefits of PiP, and many businesses are already making changes. For example, Proximity, the London-based marketing agency, has been encouraging the industry to think more creatively about direct mail to take advantage of the PiP changes. The publishing industry has also been forward thinking and has reduced the size of magazines to benefit from PiP.
With its biggest-ever consultation and marketing programme Royal Mail is confident that the UK will follow in the footsteps of other countries, including the Republic of Ireland, Australia, USA and Canada that have successfully adopted similar pricing structures. Royal Mail will continue to work with its customers over the coming months so that each might take maximum benefit from the changes.
Lorna Clarkson is director of commercial policy and pricing at Royal Mail
Information on PiP is already available online at www.royalmail.com/pip or by calling the dedicated PiP customer services number 08456 113113
The three categories of PiP
| Category | Current Price (stamped 1st class) | PiP Price (stamped 1st class) |
|---|---|---|
| Letter: eg, a standard-sized birthday card 24cm x 16.5cm x 0.5cm and weighing 60g | 32p | 32p |
| Large letter: eg, a DVD 19cm x 14cm x 1.5cm and weighing 100g | 49p | 44p |
| Everything else: eg, a monthly magazine 285mm x 215mm x 25mm and weighing 700g | £2.69 | £1.31 |
| Or... a poster, 300mm x 380mm rolled up in a cardboard tube weighing 300g | £1.14 | £1.70 |