Royal Mail originally filed an application for zonal pricing in July 2006 and after incorporating the issues outlined in the September consultation, submitted a revise application in February 2007 and then again in July 2007 to counter fears from the PPA.

However, the ink had barely dried on the proposal before Postcomm issued a press release announcing their intentions to reject the application. Details were published in the a full consultation document in August and this ‘Apply & Reject’ game rattles on for a few more rounds until Postcomm finally ends the saga with a published note expressing its determination to reject Zonal pricing.

Behind the scenes: - Cost reflective pricing is how Royal Mail wants to charge clients in the future. If Postcomm had accepted the application, Royal Mail would be left free to withdraw non-zonal tariffs, leaving residential & business users having to pay different stamp costs depending on the destination.

Basically Postcomm took issue because zonal pricing is discriminatory and complex and therefore by nature not transparent as required. To take the first issue, discriminatory, Postcomm felt that zonal would be unfairly prejudice to rural users. The table below shows the inconsistency between the cost base to RM and the proposed zonal item rate.

The other issue is of transparency in pricing. From our own perspective, Post-Switch routinely carries out postage audits for our clients to determine optimum tariffs. To conduct this using a zonal tariff is arduous, technical & requires specialist software. Firstly the database needs to be loaded into a system that separates the address to the 5 pricing zones. The quantity within each zone then needs to be totalled up and the cost calculated based on the unit charge for that zone. The charges for each zone then need to be summed to get the final posting cost.

The final reason for rejection is on the basis it would severely distort the development of effective competition. Zonal pricing would all but deter competition and effectively force rival operators to pass on extra costs incurred by Royal Mail’s inefficiencies. The aim of competition is not only to encourage innovation and market choice but to place economical pressures on Royal Mail to reform and improve itself. Zonal pricing provides a protective cushion ensuring that charges incurred by incompetent divisions are passed onto customers.

A pricing system which isn’t discriminatory and isn’t transparent for starters. Postcomm will want to keep things simple and not allow Royal Mail to fix a pricing mechanism which is in essence, a stealth vehicle to smuggle through Royal Mail’s inefficiencies. A pricing mechanism that encourages competition through fair pricing and which everyday customers can use to predict their postage costs.

Nobody wants to see a national operator at war with its regulator. Clearly Royal Mail has exhausted the current application process. They have the financial clout and economic incentives to lodge a European appeal.

The question is whether a European court would adopt a more sympathetic view. In our opinion, this is unlikely. Postcomm have played this by the book and have rejected the application due to inherent objections in zonal pricing, namely discriminatory, transparency and anti-competitive. These are tenets of the licence which govern Royal Mail and are policed by Postcomm. To over-rule them would necessitate re-writing the rule book and would have serious ramifications for competition hoping to grow in other European countries.

This is an area of expertise for Post-Switch. We have taken some of the UK’s biggest mailers through the switching process and there a few things to consider.

In order to get the best out of an open postal market you need to be able to switch your campaigns between operators depending on what you send. Variables such as campaign quantity, size, geographical spread and mailing house location will all have a bearing on which operator is best for you.

Cost is clearly an important decision factor for our clients, but they also want the assurance that the operator has sufficient quality control measures. When you change any supplier you introduce risk. Our job is to mitigate and manage that risk.

Considerations apart from cost tend to be operational. Its all well and good switching and bringing an instant return on investment, but to do this properly you need to have a good grasp of the operating procedures for each operator; indicia artwork, preferable tariffs, how the data gets sorted, training the mailing house on operational requirements etc. Switching needs to be well planned, organised and closely monitored. That’s what we do for our clients.

Post-Switch has a 100% retention rates for clients. Every single customer that has switched as continued to spend their budget with rival operators. We have not heard any of OUR customers dissatisfied with the service.

Not sure if the question relates to operators or customers.

Operators – the market is saturated with 18 rival operators call competing for the same piece of the market. This has led a number of operators to specialise in niche areas, such as light weight items, or heavy packets. Clearly, there is need for consolidation in the industry & we expect the key players to make acquisitions.

This is exactly what Post-Switch recommend. Clients need to build a postage profile of how they spend their postage budget and then make a commercial assessment on migrating parts of that spend to competing operators. For our largest clients we hold open bids to allow rivals to compete head to head on price. For some campaigns (those which may have a Mailsort Lite element for instance) Royal Mail is still the cheapest operator and we would recommend that they retain that spend with the incumbent.

However, in order get the best saving from an open market, clients need to use the full portfolio of operators and be smart in using their purchase power to negotiate the best possible rate. This is the service post-switch.com provides to our clients.