Here’s an Alternative “Exigent” Solution
Last week the Postal Regulatory Commission (PRC) released its recommendation for 2014 postal rates. In addition to the annual price increase tied to inflation (1.6 percent), the commission once again is attempting to implement an exigent increase on the order of an additional 4.3 percent, for a total increase of 5.9 percent.
I’d like to share some news with the PRC: demand is downward sloping. It shouldn’t be much of a news flash to the commission, but judging from its actions, its copy of Marshall’s “Principles of Economics” must’ve been lost in the mail.
Yes commission, if you increase price, demand will decrease. You may have more hard data on the elasticity of demand from all the previous increases you’ve implemented, but I’m skeptical that you’ve done the analysis to parse out the effect of price versus other structural effects on demand, such as technology-based payment methods, e-mail, and digital marketing efforts. If you have this information, we would love to see it, as the effects of your actions could undermine our entire industry.
What I do know is that my customers’ demand is incredibly sensitive to price. They fret each and every year about the budget for next year; what will happen with paper prices, manufacturing costs, and of course, postage. For direct marketers, each mailing is a self-contained P&L statement. And from our own examination of many of the line items for next year, it appears as though costs are increasing…for our customers and for printers.
The uncoated offset market has reduced capacity by 8 percent and market leaders have already announced a 7 percent price increase set for this month (more than likely implemented by December) with another one set for early 2014 when capacity is actually removed from the system. Additionally, the Affordable Care Act is threatening to increase the cost of employing many of the low-wage individuals our industry relies upon, and now we’ve heard from the USPS with its rate increase.