Future of UK Postal Sector Large User Perspective

1
Future of UK Postal Sector- Large User Perspective

• David Robottom
• DS Consultants Ltd
• CWU Special Forum
• 9th February 2006
• Newcastle

2
Purpose

• Perspective of Royal Mails largest customers
• My credentials
• Involved in postal affairs for over 20 years
• Last ten years as Director of Postal Affairs,
  Direct Marketing Association (DMA) UK
• Chair of FEDMA Postal Affairs Committee
• Chair of ICC Postal Affairs Committee
• Chair of PUG Postal Affairs Committee
• Top 100 mailers account for over 30 of Royal
  Mails volume
• Therefore their views are important

3
Agenda

• Current position
• Market opening
• Competition
• Customer choice
• Customer requirements
• Future

4
Current Position

• UK Postal market experiencing volume slowdown
• Slight decline fuelled by slowdown in financial
  services activity and economic slowdown
• Direct Mail volume decline for the first time in
  10 years

5
Market OpeningBig Bang or Whimper

• Full market liberalisation is welcomed
• Expectations in reduced price and greater choice
• Act as an incentive on Royal Mail
• Many new operators entering market, primarily
  niche, local services

6
Competition

• Downstream Access
• E2E network development
• Consolidation
• B2B
• Supply chain impact
• Impact on Royal Mail

7
Competition-Downstream Access

• Downstream access developed as a means of
  providing choice, quickly
• Provides customers with choice, at lower prices
  and improved quality of service
• Operators provide access service as a route to
  market, permanent or pro temp
• Large users with own access agreement

8
Competition-Downstream Access

• Of the 13 licensed operators, there are 8 access
  providers handling somewhere between 1.5 and 2
  billion items for FY0506
• Margin protection from the regulator
• VAT issues cloud the development
• Unfair or slightly tipped playing fields
• DSA acted as a brake on the development of E2E
  services

9
Competition-E2E

• E2E slow to develop
• Piecemeal approach
• Driven by margin achievement
• Full E2E networks to rival universal service will
  not happen
• E2E via major city/urban
• Substantial E2E networks by 2008

10
Competition-Consolidation

• Consolidation key to the development of the
  sector
• Greater consolidation will lead to a greater
  number of businesses accessing discounts
• This will fuel sector growth through volume
  growth of new users and small users

11
Competition-B2B

• 9 licensed operators providing B2B services, all
  with own network
• Higher margin and greater choice and price
  savings for users
• Potential volume growth driven through customer
  choice

12
Competition-Supply Chain

• Estimate there are 18 supply chain models, within
  the postal market, driven by competition
• The multitude of options will drive choice and
  volume growth

13
Supply Chain Models

• Clients
• Mailing Houses
• Competitors
• Royal Mail
• Line haulers

• Software Procurement
• B2C networks
• B2B networks
• City and Urban
• Regional

14
Competition- Impact on Royal Mail

• Volume loss through downstream access, where
  Royal Mail controls gateway
• E2E impact negligible for the next 3-5 years
• VAT creates market share cushion for Royal Mail
• HMG guardian of universal service
• Similar gradual market share erosion to BT

15
Customer Choice

• Reliability
• Predictability
• Measurability
• Price reductions
• Media performance
• Recognition

16
Customer Choice

• If Royal Mail perform leaving minimal advantage
  for the clients in leaving, then they will stay
  with Royal Mail
• Only 25 would switch without price incentives
• Users want an efficient Royal Mail delivering
  excellent quality of service
• Royal Mail must listen and take recognition of
  customers needs and importance

17
Customer Choice

• In order to achieve customer switching, new
  operators must provide
• Improved quality of service
• Price savings
• Innovation
• New and more efficient ways of managing totality
  of the clients mail

18
Customer requirements

• Development of delivery
• Nominated day
• Nominated time slot
• Scanning at P.O.D
• Pricing reflecting their postal streams and
  subsequent mail stream (Multiplier Effect)
• Economy product
• Spot pricing
• Premium products

19
Customer requirements

• Products interacting with other media
• Advertising mail and direct mail specific
  products
• Transactional mail products
• Trusted third parties to manage whole mail process

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Universal Service

• Users want and need an effective universal
  service
• Key is the scope of the service
• One hand, products removed as they are in the
  competitive arena
• But issues on business mail products removal from
  universal service
• A balance needs to be struck

21
Future

• Market predictions point to volume growth over
  the next 5 years, above GDP
• Fuelled by market opening, new E2E networks both
  B2C and B2B
• Sector growth from Direct Mail and Advertising
  Mail
• Most large users expect to see growth in mail
  volumes over the next 5 years

22
Future

• Increasing number of new operators entering
  market (possibly 20 in 2006)
• Fragmentation and some confusion
• Some customer Inertia
• Volume growth driven by choice
• A competitive medium

23
THANK YOU

• David Robottom
• DS Consultants Ltd
• davidrobottom_at_aol.com
• 07768 511108