confidential property of us postal service mailing and shipping services mtac revenue generation...

Confidential Property of US Postal Service

Mailing and Shipping Services

MTAC

Revenue Generation Update

Bob BernstockPresident Mailing and Shipping Services

May 19, 2010

Confidential Property of US Postal Service2

M & S S Agenda

1. BCG Study Results

2. McKinsey Recommendation

3. Role of Mailing and Shipping Services

4. M&SS Business Initiatives

Confidential Property of US Postal Service3

M & S S Three of the Best Projected USPS Future

Revenue diversification research

Volume forecast

Examined revenue diversification pursued by foreign posts

Prepared volume and revenue projections of the USPS core mailing and shipping business

Integrated the BCG and Accenture work with USPS data

▪ Forecast baseline and scenario profitability

▪ Assessed a comprehensive list of revenue and cost options

Integrated business forecast

Confidential Property of US Postal Service4

M & S S

COST TRENDSREVENUE TRENDS

Four trends are increasing pressure on USPS

VolumeVolumeUniversal Service Universal Service

ObligationObligation

Declining steadily Large fixed cost base

Rising but capped Rising cost per hour

PricePrice Workforce CostsWorkforce Costs

Confidential Property of US Postal Service5

M & S S Closing the Gap

Net income$ Billions

2005

0

20202009

-5

-35

-30

-25

-20

-15

-10

Actual5

10

Base case without product, service or productivity actions

Actions within USPS

control $125 billion

Remaining Cumulative loss 2010-2020 $115 billion

Forecast

Confidential Property of US Postal Service6

M & S S Options Outside Control Reduce the 2020 gap by $15 B

2010-20202010-2020Cumulative Gap Cumulative Gap

~ $ 115 B~ $ 115 BGovernment Government supportsupport

Products Products

and and servicesservices

PricingPricing

Service levelsService levels

WorkforceWorkforce

Confidential Property of US Postal Service7

M & S S Actions within Control Reduce the 2020 Gap by $18 B

Net profit benefit in 2020$ Billions

~ 2.0Product and service actions1

~ 10.0Productivity improvements2

~ 0.5 Workforce flexibility improvements 3

Total ~ $ 18 B

~ 5.0Avoided interest due to reduced debt

~ 0.5Purchasing savings4

Cumulative impact 2010-2020 ~ $ 125 B

Confidential Property of US Postal Service8

M & S S

1. GOAL: Remain a vital driver of the American economy far into the future

2. SOLUTION: a balanced approach to fundamental change

Pricing Products and Services Expanded Access (Service Level) Delivery Frequency (Service Level) Workforce Retiree Health Benefits Prefunding (Govt. support) Oversight (Govt. support)

Role of Mailing & Shipping Services

Mailing & Shipping Services Focus

Confidential Property of US Postal Service9

M & S S

Assess feasibility and impact on the gap

Existing USPS ideas

Foreign post examples from Accenture

Other ideas from McKinsey

~60+ initiatives

McKinsey Recommendation

Same list of ideas

Helped analyze the revenue and profit potential

Source of ideas

Examples of foreign post and other ideas include…

Financial services (e.g., Banking, Insurance)

Transportation services (e.g., 3PL, warehousing)

Business and government services

Asset commercialization (e.g., truck advertising)

New mail products

Retail products (e.g., vending)

Ideas with low profit impact or low feasibility

McKinsey Vetted Options and Supported Initiatives

Confidential Property of US Postal Service10

M & S S Initiatives by Business Group

Group Project1 Integrated Campaign for Flat Rate Box2 Priority Mail Contracts

3 Ground Shipping Grow Parcel Select and Returns4 Standard Mail Incentives5 Grow Direct Mail (small business)6 Grow Direct Mail (Saturation Mail)7 New Sampling Products 8 First Class Fall Incentive9 Intelligent Mail barcode applications

10 Consumer Products at retail11 PO Box Campaign12 Expanded Access Program13 Passport/Enrollment14 Change of Address/MoverSource15 Hybrid Mail (digital solutions)

16 Multi-Channel integration project

17 Sales Customer Partnership/ Sales Reorganization

Expedited Shipping

Retail

Digital Solutions

Marketing Mail

First Class / Marketing Mail

Confidential Property of US Postal Service11

M & S S

Group Project

1 Integrated Campaign for Flat Rate Box2 Priority Mail Contracts

3 Ground Shipping Grow Parcel Select and Returns*4 Standard Mail Incentives

5 Grow Direct Mail (Small and Medium Enterprises)

6 Grow Direct Mail (Saturation Mail)7 New Sampling Products 8 Intelligent Mail barcode apps9 First Class Fall Incentive

10 Consumer Products at retail11 PO Box Campaign12 Expanded Access Program13 Passport/Enrollment14 Change of Address/MoverSource15 Hybrid Mail (digital solutions)16 Multi-Channel integration project

17 Sales Customer Partnership/ Sales Reorganization

Expedited Shipping

Retail

Digital Solutions

Marketing Mail

First Class / Marketing Mail

Initiatives by Business Group

Confidential Property of US Postal Service12

M & S S Overview

Today we will review three of our high priority projects

a. Joyce Carrier on Priority Mail Integrated Campaign

b. Joe Adams on Mobile Apps and Web-site (Phoenix)

c. Marc McCrery on Sample Showcase

Confidential Property of US Postal Service

Mailing and Shipping Services

Priority Mail Integrated Campaign

Joyce CarrierManager, Media Planning and Advertising

May 19, 2010

Confidential Property of US Postal Service14

M & S S

Communications Planning & Execution ProcessA Rigorous Approach to Achieving Measureable Results

Understand Business Situation

Understand Business Situation

Quantify the OpportunitiesQuantify the

Opportunities

Define Target Market

Define Target Market

Test Promise

Statements

Test Promise

Statements

Develop Business/ Marketing

Plan

Develop Business/ Marketing

Plan

• Objectives• Promise statements• Creative brief• Preliminary architecture• Develop measurement plan

Develop Campaign Strategy

Develop Campaign Strategy

Finalize Brand/

Campaign Contract

Finalize Brand/

Campaign Contract

ApprovalTo

Proceed

ApprovalTo

Proceed

Develop Media Plan &

Finalize Forecast

Develop Media Plan &

Finalize Forecast

Measure Success & Optimize

Campaign

Measure Success & Optimize

Campaign

Develop, Test & Finalize

Campaign Ideas

Develop, Test & Finalize

Campaign Ideas

• Financial Performance

• Market Share• Growth Trends• Competitive

Situation• Product

profitability • Etc.

ApprovalTo

Proceed

ApprovalTo

ProceedIdeationIdeation LaunchLaunch

5-7 MonthsOngoing

2-8 Weeks 8 Weeks 12 Weeks

Confidential Property of US Postal Service15

M & S S How Do We Measure Success?

Marketplace Results

Industry Awards

Confidential Property of US Postal Service16

M & S S Measuring Success – Marketplace Results

Total FRB & Priority Mail Revenue by Month

Source: RPW Monthly Extracts

Campaign Start19-May

-3%

98%

82%

-15%

14%

- 40%

-20%

0%

20%

40%

60%

80%

100%

120%

Oct-09 Nov-09 Dec-09 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-10 Nov-10 Dec-10 Jan-10 Feb-10 Mar-10

FY2009 FY2010

Perc

ent C

hang

e vs

SPL

Y by

Mon

th

FRB Total Priority Mail

Confidential Property of US Postal Service17

M & S S Industry Awards

Confidential Property of US Postal Service18

M & S S Measuring Success – Industry Awards - Retail

U.S. Postal Service EPS Display: Gold Medal Winner for Permanent Display by a Specialty Retailer

Confidential Property of US Postal Service19

M & S SMeasuring Success –

Industry Awards – usps.com

LIA Silver in Digital Innovation

Hive Web App Award

DC ADDY Silver & Gold for Micro or Mini Site Best of Interactive Work (in the running for National ADDY)

Confidential Property of US Postal Service20

M & S S Measuring Success Industry Awards – Overall Campaign

Winner – The Grand Ogilvy

Finalist – The EffieWinner will be announced in June

Greg Whiteman accepting the Grand Ogilvy

Confidential Property of US Postal Service21

M & S S Measuring Success – Interest from Brand Leaders

Partnership with Disney/Pixar

Toy Story 3 – Opens June 18th

:30 second TV Ad, usps.com, in-store, Direct Mail

Confidential Property of US Postal Service22

M & S S

Confidential Property of US Postal Service23

M & S S Toy Story 3 – Retail Integration

Ready Post Shipping Products

Point of Purchase Displays

A new way to access Postal Services for consumers and small businesses

Project Phoenix Update April, 2010

Current mindset:

Go to the Post Office

Future…more choices:

• Online• Mobile app• etc.

Create such great experiences that typical customers prefer to use the website, mobile, and other lower cost channels

Demand for online is already apparent

USPS.com revenue equivalent to:

• 132 highest volume retail units

• 18,295 lowest volume retail units

35th largest ecommerce site

•Above Home Depot, ToysRUS, Barnes and Noble, Blockbuster

•60th most visited website in US

A leading business app for Apple iPhone and iTouch

Online Revenue Will Accelerate

$0

$500

$1,000

$1,500

$2,000

$2,500

FY05 FY06 FY07 FY08 FY09 FY10(p)

FY11(p)

FY 12(p)

FY13(p)

FY 14(p)

FY 15(p)

FY 16(p)

Convenient

at their location

on their schedule

Quick and easy

Helpful, always up-to-date

Same data online, in call center and at retail

New, useful products and services

Simple. Simple. Simple.

Medium-Term Vision

“Access my account”

• Registration & Login

• Transactions

• Service Inquiries, help

• New services

Mobile

Smartphone Apps

Find USPS locations

Lookup zip

Track package

Next: Rate Calculator

USPS Mobile ™ Website(Any connected mobile device)

1Million visits per month!

5x expectations

World Class Web Design

Goals

• Simple to navigate

• Simple to create label

• Simple to buy merchandise

• Simple to see history, tracking, and get help

• Simplify IT architecture for all channels

Project Timing

• Mobile website and iPhone app Fall, 2009

• Updated USPS.com & key IT architectureend 2010

• New Call Center Agent desktop end 2010 (module 1)

• Remaining USPS services 2011

…but we’re not waiting for the new website to create great online promotions

35

Contract Pricing ProcessStatus Report

Mailers’ Technical Advisory Committee

May 19, 2010

Sample Showcase

36

Sampling Market-Overview

Sampling is a nearly $4 billion dollar business, and interviews reveal that consumer products goods (CPGs) companies prefer to have products sampled at home.

There is now a significant amount of performance data around sampling, and the practice is driven almost entirely by conversions and ROI.

As marketers get smarter, targeting versus broad based sampling becomes more important.

The economy has impacted product sampling strategies. With more consumers staying closer to home, in home sampling has become more popular. Post Foods Facebook Survey

58% would try via sampling

Customers rate sampling as a key way to get them to

try a product!!

37

The consumer promotions market is valued at $46B, and the product sampling market is valued at ~ $4B.

Sample Market Size

Sources: Veronis Suhler Stevenson Communications Industry Forecast 2008-2012, CPG and sample packaging manufacturer benchmarks.

Consumer Promotion Spending ($B)

20.3 22.1 24.2

6.46.6

6.8

6.36.5

5.75.8

6.03.84.2

4.61.91.9

1.9

6.1

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

$50.0

$55.0

2007 2009 2011

Premiums

Point of Purchase

Coupons

PromoLicensing

Loyalty Prog

Sampling

Games/Sweeps

46.449.2

52.4

** 2009 and 2011 are forecasted

2.12.3

2.5

38

Sampling Market Size ($B)

0.5 0.5 0.5

1.4 1.5 1.7

0.70.8

0.9

1.21.3

1.4

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

2007 2009 2011

In-Store

Direct Mail

All other

Venue

Sample Market Size

3.84.2

4.6

Sources: Veronis Suhler Stevenson Communications Industry Forecast 2008-2012, CPG and sample packaging manufacturer benchmarks.

** 2009 and 2011 are forecasted

There is potential to re-allocate sampling and overall consumer promotion spend if the right offer is created.

“All Other” includes samples in newspapers, samples bundled with products, door hangers, coupons for free samples, etc.

The spend on product sampling is large and growing at 7% CAGR

39

The Co-op Box has compelling economics and presents a viable business model for USPS, partners, and brands based on thorough work-to-date and our lead market expectations.

Sample Showcase

1) Rigorous market assessment to-date

2) Compelling economics and viable business models for all stakeholders

3) Learnings from the lead market will improve the execution at larger scale

Extensive Industry Research Frequent Customer and Consumer Interaction Input from Leading Sample Vendor Detailed Financial Analyses

Already confirmed “Core” brands’ interest Refine the optimal product mix Refine the marketing strategy and sell story via

actual response and conversion rates Validate the optimal price point Refine process prior to national roll-out

Sample Market is large ($4B) and growing at 7% Brands: Favorable cost/conversion vs. alternatives Partners: Profitable at 40¢ avg. price/sample USPS in yr 5: $64MM revenue, $22MM margin Re-invigorates samples by mail Minimal cannibalization

40

Additional Benefits

Creates a very noticeable and marketable launching pad for reinvigorating the sampling business.

Helps to change to brand perception of the Postal Service. Improves the mailbox moment and helps validate that good things come in the mail. It can help change the perception that mail is only used to get people to act while

other media is used to get people to change how they feel about a brand.

In addition to box-specific economics, the Co-op Box has several other benefits.

41

Market Research Learnings

There will be three rounds of surveys intended to understand the impact on brands and the perception of recipients.

Market Research Phase

Expected Learnings

Pre-Survey Brand awareness, prior purchase

Box Survey Recipient reaction of the box and what they did with it

Product Survey Brand awareness lift, purchase intent, actual purchase

42

Co-op Box: Direct Mail

Front of card

Back of card

Consumers received a direct mail card one week prior to Co-op box drop date.

The card received a 5.8% response rate!!

43

Q6 - Please indicate which of the following words or phrases best describes your own reactions to the Sample Showcase Box. Choose as many words or phrases as apply:

People chose exclusively positive attributes to describe their reactions to the box. On average people chose ~5 descriptors. Leading terms were “Wanted to open it” (82%), “Grabbed my

Attention” (75%), “Made me curious” (65%), “Exciting” (61%), and “Interesting” (61%).

Topline results, Box Survey

44

Q7 Please rate your level of agreement with each of the following statements. Five (5) point agree / disagree scale used. Results above are “Agree Completely”

People’s level of agreement with statements used to describe the box was quite high as well. These reactions suggest that the Sample Showcase box provided a very strong delivery platform

for participating brands.

Topline results, Box Survey

45

Q8 - How likely would you be to recommend the Sample Showcase Box program to your friends or family?

On a seven point scale, 95% of respondents would Definitely or are Very Likely to recommend the Sample Showcase box to their friends or family. Here again this suggests the Sample Showcase program has the potential to provide a very strong platform for brands who are seeking to engage

people with their brands.

Topline results, Box Survey

46

Q9 - When you do recommend the Sample Showcase Box, how many people do you think you would tell about the Sample Showcase?

People who said they would recommend the program were asked to indicate how many people they thought they would tell about it. By applying simple conservative math*; the Sample Showcase

program generates at least 5 times the impact of box distribution footprint with over 1 million consumers reached in total with some news about the Sample Showcase program.

*Using 90% of Sample Showcase recipients recommending and using calculation “mid-points “of (2, 5, 8 and 11) the math results in 1,097,856 people touched!

Topline results, Box Survey

47

We expect people will like this … a lot

Consumer comments will appear in social media sites, these happened on the first day of delivery. These people ordered their boxes online ….

48

Questions????