Industry fears client cutbacks over direct mail price rise

Royal Mail is facing a growing backlash from the marketing industry over plans to increase advertising mail costs by an inflation busting 10.7% – the second rise in 10 months – amid fears clients will slash spend on the medium in favour of channels with more flexible pricing.

The price hike was first announced on the Royal Mail Wholesale website last month through a statement, which read: “The price changes, which we have carefully considered, are a reflection of the very challenging financial position the Universal Service and Royal Mail is in.

“The substantial decline in letter volumes from 20 billion in 2004/05 to 7 billion in 2022/23 means that the Universal Service is now unsustainable. The Universal Service has not changed for over 20 years, despite major changes to how people communicate. Volumes could drop to around 4 billion in the next five years.”

The statement went on to say Royal Mail has been calling for reform for more than four years and that Ofcom calculates that providing the current Universal Service to the UK has a net cost to Royal Mail of £325m to £675m every year – equivalent to £1m to £2m a day.

It concluded: “The price changes we are making seek to ensure the Universal Service (and in turn our Access services) can be delivered.”

WPNC group chief executive and chairman John Watson was first out of the blocks. He recently said: “While most sensible media owners would respond to falling demand by reducing prices, Royal Mail have taken the novel approach of increasing prices.

“And given the non-negotiable nature of Royal Mail pricing (again, sensible media owners look at demand pricing to balance volume and value) the only way to get ROIs to something halfway reasonable is to squeeze the pack production cost.”

Nick Dixon spent nearly 30 years in the print industry before moving into the data-driven marketing consultancy sector. He is now group CEO of The Salocin Group, which includes Edit Agency and media business Join The Dots.

He says: “Direct mail must compete with a plethora of other marketing channels. As a business, we are media agnostic, evaluating all channels based on ROI and campaign objectives. An increase in channel costs inevitably impacts its usage.”

Dixon also concedes that for large printers trying to maximise direct mail capacity, “this is a challenge”. For a services business focusing on first-party data, however, direct mail remains viable in smaller, more precisely targeted volumes, complementing other channels.

He adds: “Marketers now have access to more data points than ever before and it’s essential to move beyond demographic data to identify new prospects. Competing for consumer attention requires understanding when they are receptive to new products and services. The timing of targeting is crucial and leveraging social influence to spread brand messages can be achieved through social behavioural science.

“And, although this approach will likely reduce the volume of direct mail, it will increase recruitment numbers and enhance short- and long-term customer value.”

Eight Days A Week Print Solutions group managing director Lance Hill has nearly four decades of experience working in the industry. Having started as an apprentice at Colorgraphic in the late 1980s, he had spells at Go Inspire and Spectrum Flair before taking up senior roles at The Lettershop Group, Eclipse 4DM, and Royal Mail MarketReach before starting his current post nearly five years ago.

He says: “Royal Mail’s current financial position is not sustainable, and as such they need to go through a significant exercise to improve their profitability going forward, which is very much linked to the outcome of the Ofcom review around the Universal Service.

“Am I happy about the price rises? Of course not, and neither is the wider mail producing industry and its collective customers, as it puts further pressure on an already under-scrutiny channel.”

Hill has a unique insight into Royal Mail, and its inner workings, having spent four years at MarketReach as head of media specialists, from January 2014 to August 2017. He explains: “At times Royal Mail will put prices up above inflation rates which is what we are seeing here. This decision will without question challenge marketing budget allocation.”

However, Hill is keen to stress that, as an industry and a channel, direct mail still proves to carry very strong ROI rates when campaigns are done well (with good data, creative and proposition).

Hill adds: “There is also a huge amount of green washing that the ‘digital by default’ brigade love, but it’s mostly bullshit which lacks facts. When you research the channels properly it is very clear that printed media is one of the most sustainable channels in town, we just need to get better at telling the (true) story but integration is still key to successful campaigns.”

Chris Freeland, executive chairman, EMEA and APAC of agency Rapp, is also concered about the move. He says: “Direct mail is still an important part of the marketing mix. Inundated with digital ads, consumers simply scroll past to resume their regular content, whereas in the right context direct mail remains an effective channel to engage physically at home and reported to be more attention efficient in terms of cost per minute while driving commercial effectiveness.

“But this second price increase risks undermining the channel’s future cost-effectiveness, and could force advertisers to migrate to cheaper digital channels – impacting Royal Mail’s revenue at a time where it needs business support most.”

Freeland explains that with the price hike in mind, marketers must ensure that they are utilising data and analytics as a part of their omnichannel strategy to get the most bang for their buck.

He concludes: “This means leaning on the transformative tools available to brands, like AI. The best tech tools and strategy can then be used to optimise data accuracy, content, segmentation and testing to ensure that any direct mail campaigns are highly targeted, and therefore effective. The holy grail for all brands and marketers.”