Pricing In Proportion

Britain’s postage system is set for a radical change in pricing structure next year, with new Pricing in Proportion (PIP) guidelines based on item size as well as weight. Tom Wasilewski, head of publishing at Royal Mail, explains the true effects of the new guidelines on businesses, and the implications for industries such as subscription magazines and direct mail…

As Royal Mail heads towards a full opening up of the postal market on 1st January 2006, we have to take a more commercial approach and ensure that the price of our products and services is based more accurately on the true costs of delivering them, and that they are priced competitively against other mail suppliers. PIP is about understanding cost drivers and accurately reflecting these within the price structure.

Large but lightweight items will cost more to send taking into account the additional resource required to process them. In comparison compact but heavy items will cost less to send. This will lead to a fairer system where we will see an end to cross subsidies that occur on postage pricing where, traditionally customers sending heavy but compact items subsidise those sending light but bulky items.

Therefore, PIP will mean that people will pay a price for mail that will actually reflect the true cost of collecting, sorting and delivering mail, as the current pricing structure doesn’t reflect this.

The reason for looking at mail in this context is that size and format are the main costs of handling a piece of mail in a modern postal system as size is a better indicator of the cost of handling mail than weight. Large and bulky items are not sorted by machine, take up more space in mail pouches, bags and vans and so cost more to handle at all stages in the postal process. However, the weight of an item still has to be taken into consideration in determining the handling costs as for example; postmen are only allowed to carry up to 16kg at any one time, so they can carry fewer heavy items.

There has been a lot of industry speculation about the impact of PIP, but in truth, 70% of business mail will be unaffected by the pricing system changes. To ensure that businesses have been able to prepare for the changes we have run one of the largest business consultations in the UK over the last 5 years. We will also continue to offer advice and support to businesses, and trade bodies working on behalf of their members, that find they are affected by the price changes.

Royal Mail understands that there are a number of industries that are concerned about the impact of mailing costs for consumers, where they rely on consumer response, for example, in the magazine industry.

However, 80% of stamped mail will remain unaffected by the pricing changes and of the 20% of affected mail items half will come down in price and half will increase in price. Royal Mail is committed to ensuring that consumers understand from the offset how they can minimise the cost of their mailing. For example, by folding an A4 letter in half. All Post Office branches will have Pricing in Proportion templates so that customers can measure their mail to indicate the correct price for posting.

PIP will be officially introduced from 21st August 2006 following an extensive public information campaign across TV, radio, press, direct mail and information in Post Office branches.