Slide 1

The Institute of Postal Studies First Class Mail Summit February 28, 2006 Alexandria, VA

Slide 2

Background The Institute of Postal Studies is a postal research arm of the EMA Foundation for Paper Based Communication. The Institute of Postal Studies is a postal research arm of the EMA Foundation for Paper Based Communication. The Foundation is the Education and Research arm of the Envelope Manufacturers Association. The Foundation is the Education and Research arm of the Envelope Manufacturers Association. The Symposium was designed as a forum to gather ideas from key association and business leaders on First Class trends and new product ideas. The Symposium was designed as a forum to gather ideas from key association and business leaders on First Class trends and new product ideas. The Symposium did not include postal employees. The Symposium did not include postal employees. The Results of the Symposium was widely circulated. The Results of the Symposium was widely circulated.

Slide 3

Companies and People Participating Paul Carlin, Former Postmaster General Paul Carlin, Former Postmaster General Mike Coughlin, Former Deputy Postmaster General Mike Coughlin, Former Deputy Postmaster General John Nolan, Former Deputy Postmaster General John Nolan, Former Deputy Postmaster General Richard Porras, Former CFO, USPS Richard Porras, Former CFO, USPS American Express American Express accenture accenture Capital One Capital One Direct Marketing Association Direct Marketing Association IBM IBM New Postal Policy Council New Postal Policy Council Pitney Bowes Pitney Bowes PostCom PostCom Stamps.com Stamps.com

Slide 4

Total Mail Volume Trend Fiscal Year 2005 Source: USPS Financial Presentation to BOG Dec 2005

Slide 5

USPS Financial Results 2005 Volume Mail Mix Trend 1999 2000 2001 2002 2003 2004 2005 1999 2000 2001 2002 2003 2004 2005 First Class 101.9 103.5 103.7 102.4 99.1 97.9 98.1 First Class 101.9 103.5 103.7 102.4 99.1 97.9 98.1 Standard A 85.7 90.1 89.9 87.2 90.5 95.6 100.9 Standard A 85.7 90.1 89.9 87.2 90.5 95.6 100.9 Other 14.0 14.3 13.9 13.2 12.7 12.6 12.7 Other 14.0 14.3 13.9 13.2 12.7 12.6 12.7 Total 201.6 207.9 207.5 202.8 202.3 206.1 211.7 Total 201.6 207.9 207.5 202.8 202.3 206.1 211.7 (Billions) (Billions) Source: USPS FY 2005 Annual Report Source: USPS FY 2005 Annual Report

Slide 6

Source: USPS 2005 Comprehensive Statement

Slide 7

USPS Financial Results 2005 Volume Information Source: USPS FY 2005 Annual Report 98.1 100.9

Slide 8

Mail Mix Comparison Source: USPS 2005 Comprehensive Statement Up 12.1% Down 5.9% 208 Billion 212 Billion Down 11 %

Slide 9

The Trend Is Not Surprising Over Time First Class Trend versus Standard Mail Volume Trend 1997-2005 Annual Reports Plus Transformation Plan

Slide 10

What Does the USPS Forecast Say? First Class Trend versus Standard Mail Volume Trend Transformation Plan Baseline

Slide 11

Economics of Electronic Bill Presentment and Payment Business Cost per paper bill: $5 Cost per ebill: $2 Average cost savings per electronic bill: $3/month Household Many companies now charge customers for paper bills: $0.99 - $2.95/month per bill $0.39 per stamp per bill Why is First-Class Mail still around?

Slide 12

Amid Widespread Internet Adoption, Holdouts Remain 64 percent of Americans use the Internet at home, up just 1 percent from last year. Source: Parks Associates Of those who had no Internet access, many were vague about why they didnt have Internet at home or said they didn't have a reason. 5 percent of people said they would never get Internet access at home regardless of how cheap it was. The City of San Francisco is completing a procurement with Internet providers which may provide free wireless access for all citizens.

Slide 13

Why Do Businesses Use First-Class Mail? Key to understanding the future of First-Class Mail is to understand the jobs that customers are trying to get done. Key to understanding the future of First-Class Mail is to understand the jobs that customers are trying to get done. Value of the mail depends on its meeting two types of requirements: Value of the mail depends on its meeting two types of requirements: Business (effectiveness of how mail is being used to perform required tasks) Operational (reliability, ease-of-use)

Slide 14

Bills, Statements, and Payments First-Class Mail Jobs Customer Business Requirements Operational Requirements Treasurer/ CFO Manage cash flow by taking float out of the system Maintain timely and accurate delivery Billing Manager Operational efficiency Reduction in paper and processing costs Fulfillment Maintain timely and accurate delivery ROI Marketing Customer acquisition Customer retention Consistent messaging Effective communication tool (reach, response rates) FCM value proposition Receiver Manage household finances Ease-of-useConvenienceSecurity Read it when they want Most Likely to Prefer Paper Bills and Statements Least Likely to Prefer Paper Bills and Statements

Slide 15

Despite Security Threats, Online Bill Pay Grows Slowly But Steadily Annual Growth Rate --87%45%29%28%26%21%18%15%11%9%7% ActualForecast Source: Forresters Consumer Technographics 2005 North American Benchmark Study

Slide 16

Top 4 Reasons People Have Not Started Paying Online Sustainability Worried about security of my data Technology improves, but mistrust and negative perceptions will linger Concerned about privacy Security breaches can always occur despite improvements in technology Don't want to pay a monthly fee Many banks offer online bill pay for free, more will most likely Don't want money deducted before payment is due Exact payment deduction date can be set, not sustainable Top 3 Reasons People Pay Online Sustainability Its convenient Once theyve started unlikely to revert back Its faster I dont have to buy stamps Can USPS help customers avoid this? Can The On Line Bill Paying Trend Be Reversed?

Slide 17

So What About The Ideas?

Slide 18

The Perspective of Major Mailers Businesses are under constant pressure to elevate their game and create more value for their stakeholders Businesses are under constant pressure to elevate their game and create more value for their stakeholders Decreased cycle time Decreased cost Increased complexity Greater Innovation Pressures in industry compete significantly with these goals Pressures in industry compete significantly with these goals Increased costs Decreased capacity Limited resources As 50%-75% of the costs of a first class letter package is postage, there is opportunity to make a difference Foster Growth Through Customer Value As 50%-75% of the costs of a first class letter package is postage, there is opportunity to make a difference Foster Growth Through Customer Value

Slide 19

De-Averaged First Class Hypothesis: Allowing business rather than USPS to optimize their product makes the channel more efficient and increases demand Hypothesis: Allowing business rather than USPS to optimize their product makes the channel more efficient and increases demand Today, we pay for all or nothing First Class is perhaps more than I need, Standard Class is too little Today, we pay for all or nothing First Class is perhaps more than I need, Standard Class is too little De-average the cost of the First Class components (and potentially beyond) and offer a la carte pricing De-average the cost of the First Class components (and potentially beyond) and offer a la carte pricing Delivery time frame Forwarding UAA information Planet Coding

Slide 20

Radius Based Pricing Hypothesis: Basing pricing on distance transported from origin versus flat rate allows for industry to solve for USPS transportation costs Hypothesis: Basing pricing on distance transported from origin versus flat rate allows for industry to solve for USPS transportation costs Today, mail produced in Philadelphia costs the same whether its going to LA or Chicago Can this be reconstructed? Today, mail produced in Philadelphia costs the same whether its going to LA or Chicago Can this be reconstructed? Origin Post Office (AO) Dest. Delivery Unit (DDU) Origin SCF Dest. SCF Origin AMC Dest. AMC FedEx Air Passenger Air Long-Haul Highway

Slide 21

Imaging Services Hypothesis: USPS foray into imaging could provide a value add service for customers and reduce USPS costs or increase its revenue Hypothesis: USPS foray into imaging could provide a value add service for customers and reduce USPS costs or increase its revenue Simplistically, image the outer envelope and send electronically to customer Simplistically, image the outer envelope and send electronically to customer Remittance applications Similar to postmark promise for posting payment dates More complex, but powerful - open, extract and image More complex, but powerful - open, extract and image Marketing and customer management applications Saves USPS transportation costs Decreases business cycle times The USPS a mail company or information technology company?

Slide 22

Better Leverage Outer Envelope Real Estate Hypothesis: USPS requirements restrict the amount of space mailers have to utilize on an outer envelope destroying potential value Hypothesis: USPS requirements restrict the amount of space mailers have to utilize on an outer envelope destroying potential value Co-Branded Stamps Co-Branded Stamps Co-Branded Indicia's Co-Branded Indicia's No return address No return address Reduced addressing requirements Better use of barcodes Reduced addressing requirements Better use of barcodes Invisible inks Invisible inks

Slide 23

Letters and Flats Example Make every mailpiece letters, flats, and packages unique and trackable Make every mailpiece letters, flats, and packages unique and trackable Consolidate Postal barcodes and achieve the OneCode Vision for each mail type Consolidate Postal barcodes and achieve the OneCode Vision for each mail type Bulk Mailers migration to 4-State Customer Barcode (4-CB) Meter / PC Postage Industry migration to IBI Lite USPS Intelligent Mail Charter Create end-to-end visibility into the mailstream

Slide 24

Use Intelligent Mail - to create Intelligent Applications For Users For Users Date Certain Delivery Customer Acquisition Cancellation Prevention Predictive Services Auto Redirect Within the Postal Service Within the Postal Service Operational Excellence Improved Service

Slide 25

Increasing Awareness Business Processes: Marketing Fulfillment Statements Billing Customer Service Mailstream software, hardware, & services that manage : Data > Analytics > Cleanse > Address Process > Create > Produce > Distribute Technology > Digital > Metering > Inserting > Map > Track > Secure > Store > Integrate > Scanning > Printing Channels: Web Mail / Carrier Retail Other Mailstream Concept

Slide 26

Adding Value to the Statement through Advertising

Slide 27

Customized Postage Pitney Bowes partnership with Zazzle -- stampexpressions

Slide 28

28 Range of immediate business applications for PhotoStamps Small businesses Corporate marketing Mailers & service providers Corporate Branding maintain corporate logo on all import mail Corporate Branding maintain corporate logo on all import mail CRM campaigns targeting important customer groups Elite Member Offer Inside CRM campaigns targeting important customer groups Elite Member Offer Inside Corporate events, sales conferences 2006 National Sales Conference Corporate events, sales conferences 2006 National Sales Conference New product launches Introducing the 2006 model New product launches Introducing the 2006 model Branding Business logos on a PhotoStamps to promote their business Branding Business logos on a PhotoStamps to promote their business Announce special events Grand Opening! Announce special events Grand Opening! Advertise special promotions March is Tulip Month Advertise special promotions March is Tulip Month Traffic-driving offers Mention this Stamp for 10% off Traffic-driving offers Mention this Stamp for 10% off Postage images coordinated with mailpiece design Postage images coordinated with mailpiece design Premium Direct Mail pieces Open this First Premium Direct Mail pieces Open this First No meter marks on high-end packaging Campaign Taglines on the Stamp Just Do It Campaign Taglines on the Stamp Just Do It Service provider messaging Advertise with ListCo. Service provider messaging Advertise with ListCo.

Slide 29

29 and create a wide range of new direct marketing applications

Slide 30

Customization and personalization have traditionally had a significant impact on response rates Personalization is critical to how consumers react to the mail Personalization is critical to how consumers react to the mail A recent EMA study indicates: A recent EMA study indicates: Women respond to personalization on envelopes more than men 66% will open the envelope if they believe the contents might be interesting 61% will open the envelope if they believe the contents will be of personal interest to them Consumers view PhotoStamps as unique and highly personal touch

Slide 31

The USPS Has Already Done Quite A Few Things eReturn Receipt Repositionable Notes PFS Personalized Postage Vote by Mail NSA's Intelligent Mail/4 state bar codes Alternative Access for Postage eReturn Receipt Repositionable Notes PFS Personalized Postage Vote by Mail NSA's Intelligent Mail/4 state bar codes Alternative Access for Postage Postal One FedEx vs. commercial air More on surface Removing OCR's, AFCS image lift More DPS Address quality programs Postal One FedEx vs. commercial air More on surface Removing OCR's, AFCS image lift More DPS Address quality programs

Slide 32

But We Can Never Stop Looking At the Value Proposition for FCM We need to continue to formulate, test and get ideas into the market quickly. We need to continue to formulate, test and get ideas into the market quickly. How do we do that? How do we do that? We need to also understand that the value proposition changes over time. We need to also understand that the value proposition changes over time. So we need to continually do research. So we need to continually do research. This is only one summit, maybe we should have more on other classes of mail? This is only one summit, maybe we should have more on other classes of mail?

Slide 33

Studies by the Institute of Postal Studies (IPS) A Resource Guide for Presidential Commissions and Task Forces. A Resource Guide for Presidential Commissions and Task Forces. Commentary on Postal Reform for the Presidents Commission. Commentary on Postal Reform for the Presidents Commission. The Small Economic Model The Small Economic Model The Jobs and Mail Study The Jobs and Mail Study Summits on Various Aspects of Postal Reform Summits on Various Aspects of Postal Reform Summit on First Class Mail Summit on First Class Mail Paper on Scoring the Postal Reform Bill Paper on Scoring the Postal Reform Bill

Slide 34

How To Reach Us www.envelope.org/Foundation/IPS 703-739-2200 The Envelope Manufacturers Association Foundation for Paper Based Communication 500 Montgomery Street, Suite 550 Alexandria, VA 22314