In a context of downward trends in mail volumes, recent postal reforms have allowed postal operators to build tariffs with a more balanced approach between cost based and demand based pricing. In the United States, some increased pricing flexibility was granted to the USPS in 2006 with the adoption of the Postal Accountability and Enhancement Act. In Europe, the adoption of the 2008 postal directive which liberalizes the postal sector confirmed the application of the subsidiarity principle, according to which European Union member states are free to determine the scope of regulated services, and consequently the degree of pricing flexibility for postal operators. In line with these regulatory changes, postal operators practice has been characterized by more innovations, both in the United States and in Europe. Analyzing recent product launch and commercial policies, we identify a link between demand based pricing and legislations which set up liberalization and a more flexible approach of cost orientation principles. Through increased market segmentation, postal operators have developed differentiated pricing in relation to specific products and specific customers. The paper provides insights from postal operatorsâ€™ strategies and interactions with regulatory authorities concerning price, in a context of growing pressure from various stakeholders on postal operatorsâ€™ marketing strategies.

Pricing Strategies in Regulated Markets: Innovative Pricing in the Postal Sector

The growing competitive threat to the Postal Service’s role as a medium for electronic bill presentment and payment (“EBPP”) is similar to the competitive challenges that other regulated network industries—including the transportation, energy, and telecommunications industries—have faced from intermodal competition. Unlike other regulated industries, however, the Postal Service has not tried to meet this threat by offering targeted rate reductions aimed at stemming the loss of this high-margin business. The inaction appears to stem from the belief, widely shared in the postal community, that volume-retention discounts constitute undue discrimination, or are otherwise inconsistent with the Postal Service’s common carrier status. This paper has argued that volume-retention discounts of this kind, if reasonably calibrated to the competitive threat from the Internet, would be consistent with established legal standards for price discrimination.

Selective Rate Discounts To Preserve First-Class Mail Volume

This paper argues for the importance of pricing innovation in postal administrations that are transitioning gradually from highly regulated monopolies to less regulated, competitive entities. We argue that the incumbent operator ought to seek pricing innovation and flexibility under current regulatory constraints, with the anticipation that these strategies will better position the entity for competition in the future, if and when constraints are lifted. This paper offers a conceptual framework for pricing innovation based on established principles of market segmentation and value-based pricing. We illustrate the framework in the context of a Negotiated Service Agreement (NSA) that United States Postal Service (USPS) recently concluded with Capital One. The case study offers an opportunity to highlight the strategies, organizational changes, and resources needed for successful implementation of value-based pricing.

Pricing Innovation for a Transitioning Postal Administration

During the past 30 years, many regulatory commissions have abandoned their traditional hostility to customized rate and service contracts between regulated carriers or public utilities and individual customers. In 2002, the U. S. Postal Rate Commission (“PRC”) joined this trend, announcing that the PRC would look favorably on Negotiated Service Agreements (“NSAs”) between the United States Postal Service (“USPS”) and individual mailers. To date, however, the NSA mechanism has failed to live up to its potential. In contrast to the flourishing of customized contracts in other industries, only four NSAs with USPS have received regulatory approval in the past three years.

Michael K. Plunkett

Papers

Pricing Innovation for a Transitioning Postal Administration

Benefit-Cost Regulation of Negotiated Service Agreements