Donna Hanbery
Saturation Mailers Coalition

On October 30, 2008, a delegation of steering committee members from the Saturation Mailers Coalition, including many free paper publishers, met with the top brass for the USPS. The purpose of the meeting was to present SMC's request for a rate and operations environment that would help saturation mailers, and the Postal Service, to build our mutual businesses. The free paper industry was represented by the best of the best. Likewise, the Postal Service sent in their top dogs in charge of Mailing Services, Customer Relations, and Pricing.

The free paper team included Pete Gorman, Harte-Hanks, Harry Buckel, Maryland Pennysaver, Dick Mandt and Steve McKinnon from Carolina Moneysaver, Carol Toomey of Action Unlimited and Dean Deluca and Bill Cotter of the Pittsburgh Pennysaver.

Postal Service officers included Robert (Bob) Bernstock, President, Shipping and Mailing Services, Steve Kearney, Senior Vice President, Customer Relations, Maura Robinson, Vice President of Pricing, and David Schoenfeld, Senior Vice President, Mailing Services. Several key staff persons from the Mailing Services, Pricing, and Customer Relations Departments were present along with outside consultants doing studies for the USPS.

Donna Hanbery called the meeting to order by asking everyone to gather round and hear from SMC business people who would like to do more business with the Postal Service. Pete Gorman led off the presentations by describing Harte-Hanks as a true partner with the Postal Service. Gorman described the Pennysaver product as a business that was born in the depression to help bring buyers and sellers together. The Pennysaver has proven expertise in growing geography and market share.

Gorman described the Pennysavers' experience in these tough market times. In northern California, the Pennysaver bit the bullet to lower prices and give advertisers a reason to invest in advertising in spite of tough market conditions. Drawing analogies to the airline business, Gorman explained that "we do well by filling seats." Although Harte-Hanks has seen decreases in its revenues and margins, it has managed to grow market share and a loyal following with advertisers in spite of adverse market conditions.

Gorman outlined the opportunities for free papers and the Postal Service to pursue insert advertising and circulars. He explained the problems that mailed free shoppers have when they compete with the blended rates of TMCs. Saturation mailers need relief in single piece rates and the pound rate to compete for this business.

Gorman described four things the Postal Service could do to help mailed free papers grow and to do more business with the USPS. He asked the USPS to keep the single piece rate at or below inflation, to reduce the pound rate, to increase the differential between saturation rates and high density rates, and to create a simplified addressing option for city addresses.

Steve McKinnon of the Carolina Moneysaver reinforced the importance of a simplified option for free papers. Steve began his remarks by saying he was probably "a billionaire" when it came to the number of labels he put on pieces over the years. He described how the free paper industry had worked with the USPS to develop the DAL as an alternate to having to put an address on the piece at the end of inserting and production runs. When SMC members learned that DALs were increasing Postal Service costs, we worked to give up the DAL and the revenue that went with it. McKinnon stressed that publishers need an option to efficiently print and enter weekly free papers without the delayed through-put and production problems that occur when individual pieces need to be addressed.

Carol Toomey reinforced the problems mailers experienced doing business with the Postal Service. Toomey explained that her passion was helping small businesses develop effective advertising. She does not want to be in the distribution business. But she explained she is "on the fence" with the Postal Service. The increase in prices, combined with the need to put an address on pieces going to city routes, made it hard for free papers to choose the mail. Toomey held up a picture of a delivery box that included a USPS mail box above a private delivery receptacle. She explained that the Postal Service was more expensive, charged more for weight, and had operational requirements that were drawbacks for papers wanting to just "write a check" and let someone else handle the distribution.

Toomey told the USPS it could keep and draw more free papers into the USPS if they named a product manager to work with the saturation mail industry and made postal pricing and operations rules more competitive.

Harry Buckel explained the threats the Postal Service was facing to its franchise from sophisticated private delivery companies. He described his experience in the free paper business and successes in growing circulation. "We know how to grow this business." He described the customers served by free papers and the tremendous opportunity the Postal Service had with the talented sales force of free papers calling on small business persons. In recent months, his paper has deeply discounted its prices to build ad count and market share. Buckel, like the other presenters, described the free papers' expertise in helping and serving small businesses. "Google gave up on small business. They have come to us to partner with them to reach the small business customer."

Dick Mandt, described by some as their free paper "godfather," or "mentor," shared how he learned about the business. When he saw consumers standing in the snow outside a free paper publisher waiting to get advance copies of a Pennysaver to "get the good stuff," he began to see how this could be a good business. Mandt also described the success and prestige of "real life newspapers" that could be significant Postal Service customers. He described his experience printing and distributing the Hometown News in Florida. This award-winning publication grew so significantly in size that it saw its postage costs more than double. The high pound rate postal costs for heavier papers, punished success. This formula, combined with the requirement to do an on-piece address, pushed the Hometown News paper out of the mail. Mandt urged the USPS to reexamine business policies and pricing that punished success.

Dean DeLuca and Bill Cotter spoke to their experience at the Pittsburgh Pennysaver and to hybrid newspaper products their company had created that combined the shopping classifieds and ads of a traditional Pennysaver along with very local news. These highly local newspaper products have been wildly successful but they run heavy. "We are over weight every week," DeLuca explained. The USPS could encourage and pick up more of this new print product by pursuing SMC's rates and operations proposals. DeLuca and Cotter spoke to the popularity of Pennysavers with advertisers and consumers. DeLuca said their Pennysaver paper had the highest read rate in the marketplace. Consumers were more likely to read the Pennysaver then the daily newspaper. Bill Cotter described his years of sales experience and desire to help customers. In these tough economic times, there are days when your customers are practically in tears. You want to do everything you can to help them stay in business. Cotter, like the other presenters, described that postal rate increases were not something that papers could just pass on to their customers. Several presenters described how postage had increased as a percentage of their revenue and, for many, was their highest single expense. Cotter echoed the comments made earlier by Gorman and Buckel. "We hate to cut circulation," but sometimes it is what we have to do to reduce our postage costs. The USPS officers heard how free papers may cut out PO boxes, businesses, or cut back on or close recent expansion markets.

The Postal Service also heard from other SMC members. Albert Braunfisch of MailSouth described how his company had grown threefold in the last four years. But this growth rate is beginning to stall. Braunfisch explained the huge investment that saturation mailers must make to open and develop a market. The market development time can take 2, 5, to 7 years to mature and produce profits.

Braunfisch described the opportunities the Postal Service, and mailers, could see if the Postal Service offered saturation program mailers a discount to add frequency or expand geography in their markets. Braunfisch gave examples of how growth is often driven by advertiser requests. He described markets where MailSouth only mails monthly or twice a month, but advertisers want a weekly program. Any other business provider would work with its customers to explore ways to jointly invest in these opportunities. Braunfisch explained that the Postal Service and mailers were leaving money and opportunities on the table by a pricing structure that put all of the burdens and risks of growth on the mailer. Braunfisch explained that saturation mailers were in the business for the long haul. "When we open a market, we want to stay in the market." There is a lot of lost money, and face, when a market or frequency expansion does not succeed. If the Postal Service wants to stimulate this type of growth, it should look at SMC's proposal for a frequency and market expansion incentive program.

John Sabo rounded out the presentation by describing the coupon envelope business and Money Mailer's franchise system. Sabo noted that in 2008 DMA reported more coupon redemption this year then any prior year. Money Mailer sells advertising to America's micro businesses. These businesses are generally run by family members and have 1-5 employees. Their survival often depends upon coupons.

Sabo explained that the highest fixed costs for many of Money Mailer's franchises was the cost of postage. Money Mailer, like free paper publishers, would like to expand its geographic footprint and the frequency of its mailing programs. Sabo explained that the USPS could develop and grow its coupon envelope business by considering and adopting the 2009 rates and operations requests presented by SMC.

The meeting ended with positive comments and feedback from the Postal Service officials. Bob Bernstock, who joined the Postal Service from the private sector, explained that his knowledge base had increased greatly from the presentations in the meeting. Dave Schoenfeld described that the Postal Service had heard our requests for a product manager and that his department would have a person to work with our industry. All of the Postal Service officials gave positive feedback to SMC's plea for a simplified city address option. Although the officials stated there were USPS internal discussions and departments that needed to participate in next steps on our request, they said, "You have succeeded in making the business case for a simplified addressing option for saturation program mail going to city routes."

When it came to discussing rate specifics, the Postal Service officials said that our message about problems with the pound rate was heard loud and clear. The officials acknowledged the opportunities we had presented to partner and grow our mutual businesses in many ways. The USPS promised to take a hard look at the SMC proposal for encouraging saturation mail programs to increase frequency and circulation with an incentive or expansion rate.

After the meeting, there were several productive one-on-one conversations and invitations for the USPS to learn more about the free paper industry. Who knows, maybe the next publisher's breakout session with SMC at the AFCP conference in Myrtle Beach will include a firsthand opportunity for a USPS product manager to meet and greet existing and potential free paper customers!