Product Redesign

1

• Product Redesign
• Update
• Mailers Technical Advisory Committee
• May 16, 2002

2
PRODUCT REDESIGN
Agenda

• Overview Purpose Objective
• Process Timeline
• Major Redesign Themes
• Major Ideas for Each Product

3
PRODUCT REDESIGN
Why Product Redesign Now

• Changing Customer Needs and Capabilities
• Prepare for Future USPS Operating Environment
• Increasing Physical and Electronic Competition

4
PRODUCT REDESIGN
What We Want To Accomplish

• Products That Meet Customer Needs
• Products That Reduce Combined USPS and Customer
  Costs
• Products That Fit Future USPS Operations
• Prices That Generate Growth in Volume and
  Contribution

5
PRODUCT REDESIGN
Process And Timeline
Year
0 1 2 3
Develop Refine Proposals
Cost Market Research
Prepare Filing
PRC Hearings
Implementation
May 02
May 01
May 04
May 03
6
PRODUCT REDESIGN
Process

• Joint USPS/Industry Process Throughout
• Steering Committee Strategic Focus
• Broad Industry Representation
• Workgroups Develop Refine Proposals
• For Each Mail Class and Multi-product Issue
• First-Class, Standard, Periodicals, Bound Printed
  Matter, Parcels (All Classes), and Address
  Quality

7
PRODUCT REDESIGN
Steering Committee Operating Principle

• Provide a Process that Allows All USPS and
  Customers Views to be Considered Equally and
  Fairly

8
PRODUCT REDESIGN
Steering Committee Guidance to Workgroups

• Five Broad Goals
• Flexible Cost-Based Presort, Preparation and
  Entry
• Define Additional Worksharing Opportunities
• Improve USPS Value (Price and Service) to
  Customers
• Incentivize Mailing Practices Which Drive Costs
  Out of the Total System
• Prices and Products That Generate Growth in
  Volume and Contribution

9

• Major Redesign Themes

10
PRODUCT REDESIGN
Major Redesign Themes

• Recognize Different Mailer Capabilities
• Retail
• Households Other Single-Piece Mailers
• Commercial (Bulk-Entered Mail)
• Mail-Intensive Customers
• Moderate Users

11
PRODUCT REDESIGN
Major Redesign Themes

• For All Commercial Products
• One Size Fits All Preparation Requirements No
  Longer Adequate
• Presort Levels
• Containerization
• Entry Requirements
• Address Quality

12
PRODUCT REDESIGN
Permits, Mailings, Volume by Customer Size
Permits
Mailings
(millions)




























































13
PRODUCT REDESIGN
Permits, Mailings, Volume by Customer Size
Commercial Standard Customers
Average Per Customer
Annual
Mailings
Per Mailing
Per Year
Volume
Per Year
Pieces
Postage
Pieces
Postage

















































































14
PRODUCT REDESIGN
Major Redesign Themes

• New Preparation Options
• Minimal Preparation
• Mailers Who Find Current Requirements More
  Trouble Than Theyre Worth
• Pay the USPS to Do More of the Work
• More Complex Options
• Mail-Intensive Customers
• Opportunities to Do More than Today
• Increased Flexibility

15

• Address Quality

16
PRODUCT REDESIGN
Three Elements of Address Quality

• Physical Address Accuracy
• Move Update
• Address Presentation on Mail Piece

17
PRODUCT REDESIGN
Physical Address Accuracy Three Levels

• Delivery Point Validated (DPV) Address
• Confirmed to be both correct and complete
• ZIP4 Coded Address
• Confirmed to be within a valid range (blockface)
  of addresses
• 5-Digit Coded Address
• Confirmed to be within the correct 5-Digit ZIP
  Code area

18
PRODUCT REDESIGN
Move Update Methods

• Pre-Mailing Process
• NCOA, FASTforward for MLOCR, and FASTforward
  Mailing List Correction (MLC)
• Post-Mailing Process
• Address Change Service
• Exceptional Addressing
• Or Current Resident

Note Retain Existing Alternate Move Update
Methods
19
PRODUCT REDESIGN
Address Presentation

• More Complete Address Presentation to Enhance the
  Last Mile of Delivery
• Print on Mailpiece ALL Address Elements Used To
  Generate the Barcode
• Print Carrier Route Number on Flats and Parcels
  Even When Not Mailed at Carrier Route Rates

20
PRODUCT REDESIGN
Possible Address Quality Discount Matrix
21

• The Big Ideas
• Product by Product

22
Shape-Based Rates
PRODUCT REDESIGN FIRST-CLASS

• Present Rate Structure Weight-Based
• A Rate for the First-Ounce, plus 23
• Over 4 Billion From Additional-Ounce Rate,
  Mostly from Flats and Parcels

• Trying to Make One Rate Do Three Jobs
• Reflect Costs of Weight Per Se
• Reflect Costs of Changes in Shape-Mix
• Reflect Value of Sending Heavier Items

23
PRODUCT REDESIGN FIRST-CLASS
First-Class Costs by Weight and Shape
Single-Piece Unit Costs (Smoothed)
1.50
1.00
0.50
0.00
24
Shape-Based Rates
PRODUCT REDESIGN FIRST-CLASS

• A Possible Shape-Based Rate Structure

• Different Rates for Different Shapes
• Rates for Parcels Higher Than for Flats
• For Both Shapes, Rates Start High
• Letter Rates Apply Only Up to 3 Ounces
• For Each Shape, Fewer Weight Steps
• Flats and Parcels One or Two Steps
• Letters First-Ounce Rate, Plus
• Single-Piece One Rate for Next 2 Ounces?
• Workshare Half-Ounce Increments?

25
Drop Shipment
PRODUCT REDESIGN FIRST-CLASS

• Strong Industry Interest
• Need Improved Service to 3-Day Areas
• Distributed Printing Is Becoming Easier
• Reduce Combined-Cost of Transportation?
• Mailers Consolidate With Existing SCF Dropship
  Volume in Other Classes
• Distributed Printing Eliminates Transportation
• USPS Concerns
• Earlier Market Research Limited Cost Saving
• Broad Policy Issues

26

• Standard Mail

27
Cost-Based Rates
PRODUCT REDESIGN STANDARD MAIL

• Heightened Awareness of Importance of Identifying
  Costs for More Components
• Bundle and Container Handlings
• Address Quality Elements
• Underlying Theme Provide Direct Incentives for
  Mailers to Create More Efficient Mail
• Provide Flexibility to Meet Individual Mailers
  Needs and Capabilities

28
PRODUCT REDESIGN
Mail Processing Costs Piece, Bundle, Container
FY 2000 Flats Mail Processing Costs Standard
Regular
29
PRODUCT REDESIGN
Mail Processing Costs Piece, Bundle, Container
Flats MP Cost Increases FY2000 gt FY 2003
Components of 10.8 Standard Regular Increase
30
PRODUCT REDESIGN
Standard Flats Pieces vs. Bundles

• 5-Digit Auto Flats
• 5.7 Billion Pieces in 252 Million Bundles
• 23 Pieces / Bundle On Average

• One-Third of Pieces in
• 136 Million Smaller Bundles,
• 72 Million Medium Bundles, and
• 44 Million Larger Bundles
• Piece Rates Cover Bundle-Handling Costs
• Each Piece Pays Same Amount
• If Bundle Cost 46, Each Piece Pays 2

31
PRODUCT REDESIGN
Standard Flats Pieces vs. Bundles
5-Digit Auto Flats by Bundle Size
Revenue _at_ 2 cents / piece
Cost _at_ 46 cents / bundle
32
PRODUCT REDESIGN STANDARD MAIL
First-Class Lite

• Stripped-Down Commercial First-Class
• Ancillary Services Not Included in Rate
• Move Update Not Required
• Buy-Up Service for Standard Mailers
• Buy Down for First-Class Mailers
• Does Not Create an Additional USPS Mailstream

33
Combining Classes of Mail
PRODUCT REDESIGN STANDARD MAIL

• Mailers combine classes in Bundles and
  Containers (e.g., With Periodicals Flats)
• Improve Presort Densities, Reduce Sacks
• Improve Drop Shipment Opportunities
• USPS Processes Fewer Mailstreams
• Processing Efficiencies
• Potential Service Improvements
• Coordinate with Network Integration and Alignment
  (NIA)
• Strong USPS Operations Support

34
New Growth Opportunities
PRODUCT REDESIGN STANDARD MAIL

• Reduced Rates for Prospect Mailings
• Peak and Off-Peak Pricing
• Volume Incentives
• Strong Industry Support Across Classes
• USPS Focus on Innovative Pricing
• Some May Work Best as Negotiated Service
  Agreements (NSAs)

35

• Periodicals

36
Three Big Ideas
PRODUCT REDESIGN PERIODICALS

• Cost-Based and Rules-Based Pricing
• Service-Related Pricing and Processing
• Separate Pricing for Forwarding

37
Cost-Based Pricing
PRODUCT REDESIGN PERIODICALS

• Like Standard, Would Motivate Most Efficient
  Preparation
• Addressing, Packaging, Containerization and Entry
• Separate Bundle and Container Handling Costs From
  Piece Handling Costs
• Encourage Fewer Bundles and Containers
• Would Provide Direct Incentives for
  Co-palletization and Co-mailing
• Would Provide Flexibility to Tailor Mail Prep to
  Service Needs and Productions Costs

38
Rules-Based Pricing
PRODUCT REDESIGN PERIODICALS

• Limit Exposure of Smaller Circulation
  Publications Likely From Totally Cost-Based
  Pricing
• For Mailers Unable to Create Most Efficient Mail
  Due to Lack of Mail Volume or Density
• Similar to Current Structure, but Would Prohibit
  Most Inefficient Preparation
• E.g., No 6-piece Sacks Under Rules-Based
• Rates Pushed up Somewhat From Current Structure
  Due to De-averaging
• Hope to Limit by Prohibiting Worst Practices

39
Service-Related Pricing and Processing
PRODUCT REDESIGN PERIODICALS

• Possible Approaches
• Allow Mailers to Combine Standard and Periodicals
  Mailings In the Production Process or at
  Consolidation Facilities
• Allow USPS to Process Periodicals and Standard
  Mail Together at Destination Facilities
• Create 2 Flats Mailstreams Instead of 3
• Time-sensitive With First Class Less
  Frequently Issued Titles With Standard, OR
• Combine All Periodicals with Standard

40
Separate Price for Forwarding
PRODUCT REDESIGN PERIODICALS

• Currently, forwarding Periodicals appears to be
  free
• The cost is embedded in the base price
• Remove forwarding cost from base price
• Charge for each piece forwarded
• Reward Reductions in Number of Pieces Forwarded
• ACS Would Be a Requirement
• Keep Fee Collection at a Reasonable Cost

41

• Parcels

42
Split Parcels Into Commercial Retail
PRODUCT REDESIGN PARCELS

• Identify Differences in Costs and Service Between
  Parcels Entered by Commercial Shippers and at
  Retail
• Retail Simpler Options and Convenience
• Prepaid Boxes in Several Sizes
• Commercial Cost-Based Pricing
• Small vs. Large Parcels
• New Category for Small Parcels

43
Service Standards
PRODUCT REDESIGN PARCELS

• Set Delivery Standards That Meet Customer Needs
  and Achieve Them Consistently
• Realistic Priority Mail Standards for 98 On-Time
  Delivery at Reasonable Cost
• Critical for USPS to Grow Market Share
• Re-examine Entry Points and Service Standards if
  Necessary

44
Returns
PRODUCT REDESIGN PARCELS / BPM

• Reverse DDU/DBMC Returns Service
• Mailer or Consolidator Picks up Bulk Returns at
  DDUs or DBMCs
• USPS Scans Delivery Confirmation Barcode at DDU
  or DBMC
• Creates Reverse Manifest
• Provides Customer Return Information to Mailer

45
Summary of Big Ideas
PRODUCT REDESIGN

• Differentiate Between Commercial and Retail
  Entered Mail
• Offer Simple Preparation Options for Small Volume
  Commercial Mailings
• Create Incentives for More Efficient Mail
  Preparation Through Cost-Based Pricing
• Recognize Levels of Address Quality

46
Summary of Big Ideas (Continued)
PRODUCT REDESIGN

• First-Class Lite
• First-Class Drop Shipment
• Create Efficiencies Through Fewer Flats
  Mailstreams
• Create New Returns Services For Parcels/Bound
  Printed Matter

47
Next Phase
PRODUCT REDESIGN

• Market Research and Costing
• Assess Value and Significance of Opportunities
  Identified By Work Groups
• Quantify Potential Costs, Savings, Prices
• Need Some Real Numbers to Determine Benefit to
  USPS Industry