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Caithness News Bulletins July 2004
ROYAL MAIL SIZE BASED PRICING
Why are we doing it?
What is it?
Size Based Pricing
Royal Mail needs to change the pricing of its mail services so that postage prices reflect postal costs. The price of postage will be related to the size of the item sent since size is a key factor in the cost of handling and delivering mail.
Our proposals, submitted to Postcomm in August 2003, would NOT change postage prices for nearly three-quarters or 74 per cent of the nation’s mail. This would continue to fall into the basic letter category – 28p First class and 21p Second class - and be unaffected by these proposals.
There wouldn’t be any overall postal price increase or decrease, so UK plc’s postage bill wouldn’t go up, and the impact would be revenue neutral for Royal Mail.
It makes commercial sense for Royal Mail, as it would relate prices more closely to cost. Royal Mail lost nearly £500 million in 2002/03 on post weighing up to 100g – which accounts for 75 per cent of the 82 million items sent each day.
The new pricing would be sensible in the increasingly competitive and regulatory environment; and would help Royal Mail meet its commercial goals.
Some ordinary letters will be cheaper to post as customers will be able to use 28p for First class and 21p for Second class stamps on letters weighing up to 100g, where currently they can only be used up to 60g. Heavier packets would also be cheaper to post and the maximum weight for Second class mail would be extended from 750g to 1kg.
Royal Mail believes that a size-based system would be simpler and easier for customers once they are used to it. In most cases customers would be able to price their mail at a glance instead of needing to weigh it. There would be only five prices for First and Second-class mail, instead of the current 16 for First and 13 for Second class.
Royal Mail recognises that this would be a major change, and have an impact on some business customers, so it has been talking to them about the proposals for a year and made some amendments to its initial proposals as a result.
Royal Mail estimates, from consultations with companies, that 81 per cent of our large business customers are in favour or neutral about the changes. An impartial research agency, the National Opinion Poll (NOP), found that 74 per cent of ordinary customers and 68 per cent of small businesses were positive or neutral about the changes. We would expect that more people would be in favour when they understand the benefits.
Postcomm has a three-month first consultation on these proposals which closes in July 29 2004, followed by a second consultation (probably lasting about a month). Royal Mail would aim to give customers as much notice as possible before introducing these changes, once the proposals were approved. The aim is to introduce the changes from Sept 2005 at the earliest.
Size-based pricing is not a new idea. Many other most postal administrations already take account of size in their prices, and others are introducing it. The countries which take account of size in their postal prices include Austria, Belgium, Bulgaria, Czech Republic, Denmark, Germany, Greece, Finland, Italy, Ireland, Luxembourg, the Netherlands, Poland, Slovenia, Switzerland, and outside Europe in Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, South Africa, and the USA.
Why is Royal Mail Making These
Is this a price increase?
Business customer research
Postcomm’s policy for achieving effective competition within the postal market for items weighing less than 350g and costing less than £1.
There will be a fully competitive market in postal services in the UK from April 2007 – one year later than originally proposed. Competition was introduced gradually, beginning on 1 January 2003.
In a decision document, which took account of almost 2000 responses to its consultation on competition, Postcomm said that competition will be introduced in three phases, as follows:
· Phase 1, from 1 January 2003 – 31 March 2005: bulk mail above 4000 items (from a single site in a similar format), around 30% of the UK letter market by value, together with consolidation services and niche services.
· Phase 2, from 1 April 2005 – 31 March 2007: the bulk mail threshold will be adjusted to open up a total of 60% of the market by value.
· Phase 3, from 1 April 2007: all restrictions on market entry abolished