Pricing practice in the postal industry
Challenges facing the European postal industry are greater then ever before. The approaching full market opening in 2011 and 2013 will be the central factor driving commercial developments, where new market entrants – without the burden of the universal service obligation and additional social responsibilities as one of the largest employers in their domestic markets – will have the possibility to attract large volume B2B/B2C mailers away from incumbent national postal operators, and especially on the high-margin, highdensity urban areas. These are the main findings of the joint research paper "Pricing practice in the postal industry: Current approaches and challenges under liberalization" by INSEAD and Roland Berger Strategy Consultants.
Traditional bulk mailers such as financial service providers, telecom companies and utility service providers, which are themselves under pressure to maintain there revenue streams and/or decrease operational costs, will search for cost efficient mailing alternatives and thereby foster postal competition. Substitution through electronic/hybrid communication is also a continuing major force cutting into transactional mail volumes.
"Understanding customer demand and the development of customer oriented solutions will become central issues for postal operators on an open market", says Zoltán Szirmay, Senior Consultant at Roland Berger Strategy Consultants and Co-author of the study. Part of this customer orientation will be a shift in pricing policies, which today are often considered as purely a regulatory determined component in the revenue equation, with the primary focus of commercial activity being on volume development rather than on innovative pricing and billing practices.
As postal operators are dominant market players in domestic mail markets, full market opening will not mean the absence of regulation. To the contrary, strong supervision will limit their margins in price definition for universal service products, which have complex interactions with bulk mail products. Thus, a major challenge facing European postal operators besides competition is how to retain market share and price level simultaneously.
Eight key recommendations:
Traditional bulk mailers such as financial service providers, telecom companies and utility service providers, which are themselves under pressure to maintain there revenue streams and/or decrease operational costs, will search for cost efficient mailing alternatives and thereby foster postal competition. Substitution through electronic/hybrid communication is also a continuing major force cutting into transactional mail volumes.
"Understanding customer demand and the development of customer oriented solutions will become central issues for postal operators on an open market", says Zoltán Szirmay, Senior Consultant at Roland Berger Strategy Consultants and Co-author of the study. Part of this customer orientation will be a shift in pricing policies, which today are often considered as purely a regulatory determined component in the revenue equation, with the primary focus of commercial activity being on volume development rather than on innovative pricing and billing practices.
As postal operators are dominant market players in domestic mail markets, full market opening will not mean the absence of regulation. To the contrary, strong supervision will limit their margins in price definition for universal service products, which have complex interactions with bulk mail products. Thus, a major challenge facing European postal operators besides competition is how to retain market share and price level simultaneously.
Eight key recommendations:
- Pricing strategy has to be linked to overall corporate objectives and evaluation of various pricing alternatives must be harmonized with product definition, line of business strategies and the projected regulatory framework
- Pricing organization's operational function should be to understand and monitor market developments for individual lines of business and customer segments, while marketing strategy should be directed toward responding to competition and toward new product innovation, while assuring consistency across business lines
- Price definition should be based on pricing models, which incorporate market inputs, including customers, competition and regulatory framework and should determine price recommendations and switching propensities by market segments, even when pricing across these segments does not vary
- A reliable data and IT infrastructure is a prerequisite for fact-based price definition and this infrastructure should integrate transaction data and customer billing systems with qualitative data sources and customer surveys
- Market research tools should be used, beyond elementary monitoring, to provide insights on customer trade-off willingness concerning the utility of product attributes for existing and new products, and on customer-oriented billing and pricing
- Pricing structure should reflect the market structure and competition, with tailored offers for the public and corporate segments exposed to competition, and for important sub-segments of each of these major segments
- Customer interaction should move beyond traditional passive monitoring and tracking to be viewed as a proactive means of uncovering additional sales potential and cross selling opportunities across existing products, reflecting the required customer focus and value orientation of the sales and marketing team that will be required under competition
- Key pricing performance indicators, following a balanced scorecard approach, should be developed to provide a means of understanding the effectiveness of an operator’s pricing approach and to support early detection of market trends
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