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MTAC Revenue Generation Update

MTAC Revenue Generation Update. Bob Bernstock President Mailing and Shipping Services May 19, 2010. Agenda. BCG Study Results McKinsey Recommendation Role of Mailing and Shipping Services M&SS Business Initiatives. Three of the Best Projected USPS Future. Volume forecast.

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MTAC Revenue Generation Update

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  1. MTACRevenue Generation Update Bob Bernstock President Mailing and Shipping Services May 19, 2010

  2. Agenda • BCG Study Results • McKinsey Recommendation • Role of Mailing and Shipping Services • M&SS Business Initiatives

  3. Three of the Best Projected USPS Future Volume forecast Integrated business forecast • Integrated the BCG and Accenture work with USPS data • Forecast baseline and scenario profitability • Assessed a comprehensive list of revenue and cost options Prepared volume and revenue projections of the USPS core mailing and shipping business Revenue diversification research Examined revenue diversification pursued by foreign posts

  4. Four trends are increasing pressure on USPS REVENUE TRENDS COST TRENDS Universal Service Obligation Volume Declining steadily Large fixed cost base Price Workforce Costs Rising cost per hour Rising but capped

  5. Closing the Gap Net income $ Billions 10 5 Actual Forecast 0 Remaining Cumulative loss 2010-2020 $115 billion -5 -10 -15 Actions within USPS control $125 billion -20 -25 -30 Base casewithout product, service or productivity actions -35 2005 2009 2020

  6. Options Outside Control Reduce the 2020 gap by $15 B Pricing Products and services Service levels Workforce 2010-2020 Cumulative Gap ~ $ 115 B Government support

  7. 5 Actions within Control Reduce the 2020 Gap by $18 B Net profit benefit in 2020$ Billions 1 Product and service actions ~ 2.0 2 Productivity improvements ~ 10.0 3 Workforce flexibility improvements ~ 0.5 4 Purchasing savings ~ 0.5 Avoided interest due to reduced debt ~ 5.0 ~ $ 18 B Total ~ $ 125 B Cumulative impact 2010-2020

  8. Role of Mailing & Shipping Services • GOAL: Remain a vital driver of the American economy far into the future • 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) Mailing & Shipping Services Focus

  9. Ideas with low profit impact or low feasibility McKinsey Vetted Options and Supported Initiatives Source of ideas ~60+ initiatives Assess feasibility and impact on the gap 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) • Existing USPS ideas • Foreign post examples from Accenture • Other ideas from McKinsey McKinsey Recommendation • Same list of ideas • Helped analyze the revenue and profit potential

  10. Initiatives by Business Group

  11. Initiatives by Business Group

  12. Overview Today we will review three of our high priority projects • Joyce Carrier on Priority Mail Integrated Campaign • Joe Adams on Mobile Apps and Web-site (Phoenix) • Marc McCrery on Sample Showcase

  13. Priority Mail Integrated Campaign Joyce Carrier Manager, Media Planning and Advertising May 19, 2010

  14. Communications Planning & Execution ProcessA Rigorous Approach to Achieving Measureable Results Develop, Test & Finalize Campaign Ideas Quantify the Opportunities Test Promise Statements Approval To Proceed Approval To Proceed Launch Understand Business Situation Develop Business/ Marketing Plan Ideation Finalize Brand/ Campaign Contract Measure Success & Optimize Campaign • Financial Performance • Market Share • Growth Trends • Competitive Situation • Product profitability • Etc. Define Target Market Develop Campaign Strategy Develop Media Plan & Finalize Forecast • Objectives • Promise statements • Creative brief • Preliminary architecture • Develop measurement plan

  15. How Do We Measure Success? • Marketplace Results • Industry Awards

  16. Measuring Success – Marketplace Results Total FRB & Priority Mail Revenue by Month Campaign Start 19-May 120% 98% 100% 82% 80% 60% Percent Change vs SPLY by Month 40% 14% 20% -3% 0% - 20% -15% - 40% 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 FRB Total Priority Mail Source: RPW Monthly Extracts

  17. Industry Awards

  18. Measuring Success – Industry Awards - Retail U.S. Postal Service EPS Display: Gold Medal Winner for Permanent Display by a Specialty Retailer

  19. Measuring 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)

  20. Measuring Success Industry Awards – Overall Campaign Winner – The Grand Ogilvy Finalist – The Effie Winner will be announced in June Greg Whiteman accepting the Grand Ogilvy

  21. 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

  22. Toy Story 3 – Retail Integration • Ready Post Shipping Products • Point of Purchase Displays

  23. A new way to access Postal Services for consumers and small businesses Project Phoenix Update April, 2010

  24. 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

  25. Demand for online is already apparent 35th largest ecommerce site • Above Home Depot, ToysRUS, Barnes and Noble, Blockbuster • 60thmost visited website in US A leading business app for Apple iPhone and iTouch USPS.com revenue equivalent to: • 132 highest volume retail units • 18,295 lowest volume retail units

  26. Online Revenue Will Accelerate

  27. Simple. Simple. Simple. • 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

  28. Mobile • Medium-Term Vision • “Access my account” • Registration & Login • Transactions • Service Inquiries, help • New services • 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

  29. 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

  30. Project Timing • Mobile website and iPhone app Fall, 2009 • Updated USPS.com & key IT architecture end 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

  31. Contract Pricing ProcessStatus Report Mailers’ Technical Advisory Committee May 19, 2010 Sample Showcase

  32. Sampling Market-Overview Post Foods Facebook Survey 58% would try via sampling • 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. Customers rate sampling as a key way to get them to try a product!!

  33. Sample Market Size The consumer promotions market is valued at $46B, and the product sampling market is valued at ~ $4B. 52.4 49.2 2.5 46.4 2.3 2.1 Sources: Veronis Suhler Stevenson Communications Industry Forecast 2008-2012, CPG and sample packaging manufacturer benchmarks. ** 2009 and 2011 are forecasted

  34. Sample Market Size The spend on product sampling is large and growing at 7% CAGR 4.6 4.2 3.8 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.

  35. Sample Showcase 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. • Extensive Industry Research • Frequent Customer and Consumer Interaction • Input from Leading Sample Vendor • Detailed Financial Analyses • Rigorous market assessment to-date • Compelling economics and viable business models for all stakeholders • Learnings from the lead market will improve the execution at larger scale • 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 • 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

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

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

  38. Co-op Box: Direct Mail Consumers received a direct mail card one week prior to Co-op box drop date. The card received a 5.8% response rate!! Front of card Back of card

  39. Topline results, Box Survey 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%). 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:

  40. Topline results, Box Survey 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. 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”

  41. Topline results, Box Survey 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. Q8 - How likely would you be to recommend the Sample Showcase Box program to your friends or family?

  42. Topline results, Box Survey 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. Q9 - When you do recommend the Sample Showcase Box, how many people do you think you would tell about the Sample Showcase? *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!

  43. 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 ….

  44. Questions????

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