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Impact of the New Pricing Regulations Stephen M. Kearney Vice President Pricing and Classification November 7, 2007 PowerPoint Presentation
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Impact of the New Pricing Regulations Stephen M. Kearney Vice President Pricing and Classification November 7, 2007. 1. No more rate cases No more revenue requirement and break-even rule Contentious, “zero-sum game” replaced with after-the-fact review

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Impact of the New Pricing Regulations

Stephen M. Kearney

Vice President

Pricing and Classification

November 7, 2007

impact of the new pricing regulations top 10 changes
1. No more rate cases

No more revenue requirement and break-even rule

Contentious, “zero-sum game” replaced with after-the-fact review

Decrease in the conflicting needs of different customer groups

Postal Service and customer resources can be directed at growing business

International mail regulated

Inbound mail and services from Posts are products

Impact of the New Pricing RegulationsTop 10 Changes
impact of the new pricing regulations top 10 changes3
2. Streamlined price changes

Market-dominant products (mailing services)

90% of revenue – 45 days review

Future price increases capped at CPI for each class

Individual prices within a class may vary

Competitive products (shipping services)

10% of revenue – 30 or 15 days notice

Prices set by Governors

Minimum cost floor to prevent cross subsidy

Minimum contribution to institutional cost

Impact of the New Pricing RegulationsTop 10 Changes
impact of the new pricing regulations top 10 changes4
3. Predictability

Price changes will be annual

Market dominant price changes will be within CPI

No more big changes every 2-4 years

Postal Service will provide at least 90 days notice prior to implementation

Strategies can be implemented gradually over a number of years

Impact of the New Pricing RegulationsTop 10 Changes
impact of the new pricing regulations top 10 changes5
4. Cost-based ►Market-driven

No longer cost-plus regulation

Consider how market will respond

Need to identify new products opportunities to generate profit

Profit incentive means incentive to innovate to meet customer needs

Greater customization

More market testing

Impact of the New Pricing RegulationsTop 10 Changes
impact of the new pricing regulations top 10 changes6
5. Encourage or limit customized agreements?

Law and regulation specifically provide for negotiated, customer-specific prices

Product definition requirement is somewhat vague and open-ended

New product proceedings could include discovery or evidentiary hearings

Postal Service and customers will need to weigh use of resources for customized agreements

Impact of the New Pricing RegulationsTop 10 Changes
impact of the new pricing regulations top 10 changes7
6. Speed to market

After the fact review allows rapid product innovation

Ability to improve response to changing business environment

45 and 30 days notice requirement

Impact of the New Pricing RegulationsTop 10 Changes
impact of the new pricing regulations top 10 changes8
7. Customer communication paramount

Increased communication between Postal Service and customers

Advance notice of price and product changes

Greater use of customer data and needs in product and pricing changes

Impact of the New Pricing RegulationsTop 10 Changes
impact of the new pricing regulations top 10 changes9
8. Accountability and transparency

Complaint process

Annual compliance review

Service for price more visible

Transparent and increased communication between Postal Service and PRC regarding prices and products

Impact of the New Pricing RegulationsTop 10 Changes
impact of the new pricing regulations top 10 changes10
9. Profits fund capital and infrastructure

Growing network and infrastructure requirements

Must fund through profits

Future success linked directly to present performance

Impact of the New Pricing RegulationsTop 10 Changes
impact of the new pricing regulations top 10 changes11
10. Annual profit or loss

No more break-even

Improve product management and development

Focus on opportunities to provide profitable products

Reduce costs while providing service

Entire organization re-oriented toward profits and growing business

Impact of the New Pricing RegulationsTop 10 Changes
impact of the new pricing regulations top 10 changes12
No more rate cases

Streamlined price changes

Predictability

Cost-based ►Market driven

Encourage or limit customized agreements?

Speed to market

Customer communication paramount

Accountability and transparency

Profits fund capital and infrastructure

Annual profit or loss

Impact of the New Pricing RegulationsTop 10 Changes