Customers matter – June 10, 2015

When a business, organization or government agency that is funded by customers experiences a crisis that threatens its relevance, what does that entity need most? It needs its customers, of course. It needs loyal customers who will stay with it through thick and thin because they value what the organization provides and how it treats them.

On December 20, 2006, President Bush signed the Postal Accountability and Enhancement Act (PAEA) that notably changed United States Postal Service (USPS) price regulation from cost of service to price cap based on the Consumer Price Index (CPI).

For years before PAEA, the USPS had prided itself for keeping postage increases below the CPI even though it was not required. After passage of PAEA, the USPS made the following statement: “This new law could not have come at a better time. The Postal Service has never been stronger and this law enables us to build on our successes.”

After its first year under the new law, the Postal Service fiscal year 2007 annual report continue the high praise: “Its provisions set us on a new path with new opportunities for growth. The new law gives us flexibility to adjust prices and product offerings promptly in response to dynamic market conditions and changing customer needs.”

But the USPS willingness to continue its longstanding practice of pricing below the rate of inflation disappeared a couple of years later.

As a part of its March 2010 comprehensive plan called, “Ensuring a Viable Postal Service for America: An Action Plan for the Future,” the USPS stated its new position on living within the CPI price cap:

“Current pricing constraints have severely hampered our ability to remain financially solvent. The Postal Act of 2006 caps prices for every class of Mailing Services mail at the Consumer Price Index for All Urban Consumers (CPI-U), ignoring the key drivers of postal inflation. This legal framework must be modified to allow the Postal Service the financial flexibility we need to remain viable into the future. Simply put, we require the authority to adjust pricing to better reflect market dynamics and to offset current and future volume and revenue declines.”

Then on July 6, 2010, facing a CPI price cap of minus 0.356 percent, the USPS filed the first ever “exigent” rate request for a 5.6 percent increase citing the recession as an extraordinary or exceptional circumstance.  Three months later, the Postal Regulatory Commission (PRC) unanimously found that the USPS did not meet legal requirements for an exigent increase.

But this was only the beginning of a quest by the USPS that continues five years after it started.

Since the March 2010 release of its “Action Plan,” and the July 2010 first attempt to break through the price cap, the USPS has subjected its customers to continuous, relentless, still ongoing and costly litigation to gain as much revenue as possible under the exigent provisions of the 2006 law. Five of the 8-1/2 years under the new law have been devoted to the Postal Service at odds with its customers over how much above the rate of inflation it can increase prices. By early August 2015, USPS will have successfully received $3.2 billion of customer money above the CPI, and it is going for more.

The five year USPS campaign to price well above inflation goes directly against central tenets of the 2006 law in which Congress imposed a price cap to “create predictability and stability in rates” while “maximiz[ing] incentives to reduce costs and increase efficiency.”

One of the co-authors of the 2006 law, Senator Susan Collins, Republican of Maine, expressed grave concerns with the USPS exigent attempt, saying that most of the volume decline was due to the longstanding predictable diversion of hard copy to the Internet, rather than extraordinary or exceptional circumstances. Senator Collins pointed out dire consequences if the USPS continued to pursue above-inflation funding from customers:

“The proposed rate increases would impose substantial costs on the mailing industry, would hurt small businesses and local newspapers, and undoubtedly would accelerate further decline in mail volume and revenues. The Postal Service will permanently lose business from catalog companies, publishers, and others. Some small newspapers may be forced to completely abandon their relationship with the Postal Service because of the increased costs, coupled with the possible decline in service proposed by the Postal Service.”

We are greatly concerned that five years of USPS leadership so dedicated to winning the next round of its exigent case risks doing long term damage to its customer base. Five years of high uncertainty about the future cost of postage is taking its toll. We hear anecdotally about executives in all kinds of industries that use the mail getting together saying things like: USPS is one of our largest and most important suppliers, yet they treat us like no other business partner. Why are they doing this to us? We have been loyal customers for many years. Don’t they want our business?

It is important to remember that the Postal Service campaign against the inflation cap is a choice it made and continues to make. We urge USPS leadership to take into account whether it will lose more in the longer term than it gains in the short run. We believe that the choice USPS has made is compounding many other headwinds it faces in building strong relationships with and retaining the types of customers who will continue to support the Postal Service mission to bind the nation together for years to come.

 “The customer’s perception is your reality.”

Kate Zabriskie

“We see our customers as invited guests to a party, and we are the hosts. It’s our job every day to make every important aspect of the customer experience a little bit better.”

Jeff Bezos

“Make a customer, not a sale.”

Katherine Barchetti

“Your most unhappy customers are your greatest source of learning.”

Bill Gates

“The moment you make a mistake in pricing, you’re eating into your reputation or your profits.”

Katharine Paine

“It is so much easier to be nice, to be respectful, to put yourself in your customers’ shoes and try to understand how you might help them before they ask for help, than it is to try to mend a broken customer relationship.”

Mark Cuban

(c) 2015 Alliance of Nonprofit Mailers