Future of UK Postal Sector- Large User Perspective David Robottom D&S Consultants Ltd CWU Special...

Future of UK Postal Sector- Future of UK Postal Sector- Large User PerspectiveLarge User Perspective

David Robottom David Robottom D&S Consultants LtdD&S Consultants LtdCWU Special ForumCWU Special Forum

99thth February 2006 February 2006NewcastleNewcastle

D&S Consultants LtdD&S Consultants Ltd

PurposePurpose

Perspective of Royal Mail’s largest customersPerspective of Royal Mail’s largest customersMy credentialsMy credentials Involved in postal affairs for over 20 yearsInvolved in postal affairs for over 20 years Last ten years as Director of Postal Affairs, Direct Last ten years as Director of Postal Affairs, Direct

Marketing Association (DMA) UKMarketing Association (DMA) UK Chair of FEDMA Postal Affairs CommitteeChair of FEDMA Postal Affairs Committee Chair of ICC Postal Affairs CommitteeChair of ICC Postal Affairs Committee Chair of PUG Postal Affairs CommitteeChair of PUG Postal Affairs Committee

Top 100 mailers account for over 30% of Royal Top 100 mailers account for over 30% of Royal Mail’s volumeMail’s volumeTherefore their views are importantTherefore their views are important


AgendaAgenda

Current positionCurrent position

Market openingMarket opening

CompetitionCompetition

Customer choiceCustomer choice

Customer requirementsCustomer requirements

FutureFuture


Current PositionCurrent Position

UK Postal market experiencing volume UK Postal market experiencing volume slowdownslowdown

Slight decline fuelled by slowdown in Slight decline fuelled by slowdown in financial services activity and economic financial services activity and economic slowdownslowdown

Direct Mail volume decline for the first time Direct Mail volume decline for the first time in 10 yearsin 10 years


Market OpeningMarket Opening“Big Bang or Whimper”“Big Bang or Whimper”

Full market liberalisation is welcomedFull market liberalisation is welcomed

Expectations in reduced price and greater Expectations in reduced price and greater choicechoice

Act as an incentive on Royal MailAct as an incentive on Royal Mail

Many new operators entering market, Many new operators entering market, primarily niche, local servicesprimarily niche, local services


CompetitionCompetition

Downstream AccessDownstream Access

E2E network developmentE2E network development

ConsolidationConsolidation

B2BB2B

Supply chain impactSupply chain impact

Impact on Royal MailImpact on Royal Mail


Competition-Downstream AccessCompetition-Downstream Access

Downstream access developed as a Downstream access developed as a means of providing choice, quicklymeans of providing choice, quicklyProvides customers with choice, at lower Provides customers with choice, at lower prices and improved quality of serviceprices and improved quality of serviceOperators provide access service as a Operators provide access service as a route to market, permanent or pro temproute to market, permanent or pro tempLarge users with own access agreementLarge users with own access agreement


Competition-Downstream AccessCompetition-Downstream Access

Of the 13 licensed operators, there are 8 Of the 13 licensed operators, there are 8 access providers handling somewhere access providers handling somewhere between 1.5 and 2 billion items for FY0506between 1.5 and 2 billion items for FY0506Margin protection from the regulatorMargin protection from the regulatorVAT issues cloud the developmentVAT issues cloud the developmentUnfair or slightly tipped playing fieldsUnfair or slightly tipped playing fieldsDSA acted as a brake on the development DSA acted as a brake on the development of E2E servicesof E2E services


Competition-E2ECompetition-E2E

E2E slow to developE2E slow to develop

Piecemeal approachPiecemeal approach

Driven by margin achievementDriven by margin achievement

Full E2E networks to rival universal Full E2E networks to rival universal service will not happenservice will not happen

E2E via major city/urbanE2E via major city/urban

Substantial E2E networks by 2008Substantial E2E networks by 2008


Competition-ConsolidationCompetition-Consolidation

Consolidation key to the development of Consolidation key to the development of the sectorthe sector

Greater consolidation will lead to a greater Greater consolidation will lead to a greater number of businesses accessing number of businesses accessing discountsdiscounts

This will fuel sector growth through volume This will fuel sector growth through volume growth of new users and small usersgrowth of new users and small users


Competition-B2BCompetition-B2B

9 licensed operators providing B2B 9 licensed operators providing B2B services, all with own networkservices, all with own network

Higher margin and greater choice and Higher margin and greater choice and price savings for usersprice savings for users

Potential volume growth driven through Potential volume growth driven through customer choicecustomer choice


Competition-Supply ChainCompetition-Supply Chain

Estimate there are 18 supply chain Estimate there are 18 supply chain models, within the postal market, driven by models, within the postal market, driven by competitioncompetition

The multitude of options will drive choice The multitude of options will drive choice and volume growthand volume growth


Supply Chain ModelsSupply Chain Models

ClientsClients

Mailing HousesMailing Houses

CompetitorsCompetitors

Royal MailRoyal Mail

Line haulersLine haulers

Software Software ProcurementProcurement

B2C networksB2C networks

B2B networksB2B networks

City and UrbanCity and Urban

RegionalRegional


Competition- Impact on Royal MailCompetition- Impact on Royal Mail

Volume loss through downstream access, Volume loss through downstream access, where Royal Mail controls gatewaywhere Royal Mail controls gatewayE2E impact negligible for the next 3-5 E2E impact negligible for the next 3-5 yearsyearsVAT creates market share cushion for VAT creates market share cushion for Royal MailRoyal MailHMG guardian of universal serviceHMG guardian of universal serviceSimilar gradual market share erosion to Similar gradual market share erosion to BTBT


Customer ChoiceCustomer Choice

ReliabilityReliability

PredictabilityPredictability

MeasurabilityMeasurability

Price reductionsPrice reductions

Media performanceMedia performance

RecognitionRecognition



If Royal Mail perform leaving minimal advantage If Royal Mail perform leaving minimal advantage for the clients in leaving, then they will stay with for the clients in leaving, then they will stay with Royal MailRoyal Mail

Only 25% would switch without price incentivesOnly 25% would switch without price incentives

Users want an efficient Royal Mail delivering Users want an efficient Royal Mail delivering excellent quality of serviceexcellent quality of service

Royal Mail must listen and take recognition of Royal Mail must listen and take recognition of customers needs and importancecustomers needs and importance



In order to achieve customer switching, In order to achieve customer switching, new operators must provide:new operators must provide: Improved quality of serviceImproved quality of service Price savingsPrice savings InnovationInnovation New and more efficient ways of managing New and more efficient ways of managing

totality of the clients mailtotality of the clients mail



Development of deliveryDevelopment of delivery Nominated dayNominated day Nominated time slotNominated time slot Scanning at P.O.DScanning at P.O.D

Pricing reflecting their postal streams and Pricing reflecting their postal streams and subsequent mail stream (Multiplier Effect)subsequent mail stream (Multiplier Effect)Economy productEconomy productSpot pricingSpot pricingPremium productsPremium products



Products interacting with other mediaProducts interacting with other media

Advertising mail and direct mail specific Advertising mail and direct mail specific productsproducts

Transactional mail productsTransactional mail products

Trusted third parties to manage whole mail Trusted third parties to manage whole mail processprocess


Universal ServiceUniversal Service

Users want and need an effective Users want and need an effective universal serviceuniversal service

Key is the scope of the serviceKey is the scope of the service

One hand, products removed as they are One hand, products removed as they are in the competitive arenain the competitive arena

But issues on business mail products But issues on business mail products removal from universal serviceremoval from universal service

A balance needs to be struckA balance needs to be struck


FutureFuture

Market predictions point to volume growth Market predictions point to volume growth over the next 5 years, above GDPover the next 5 years, above GDP

Fuelled by market opening, new E2E Fuelled by market opening, new E2E networks both B2C and B2Bnetworks both B2C and B2B

Sector growth from Direct Mail and Sector growth from Direct Mail and Advertising MailAdvertising Mail

Most large users expect to see growth in Most large users expect to see growth in mail volumes over the next 5 yearsmail volumes over the next 5 years


FutureFuture

Increasing number of new operators Increasing number of new operators entering market (possibly 20 in 2006)entering market (possibly 20 in 2006)

Fragmentation and some confusionFragmentation and some confusion

Some customer InertiaSome customer Inertia

Volume growth driven by choiceVolume growth driven by choice

A competitive mediumA competitive medium


THANK YOUTHANK YOU

David RobottomDavid Robottom


[email protected]@aol.com

07768 51110807768 511108

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