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The Institute of Postal Studies First Class Mail Summit February 28, 2006 Alexandria, VA The Institute of Postal Studies First Class Mail Summit February 28, 2006 Alexandria, VA

Background • The Institute of Postal Studies is a postal research arm of • Background • The Institute of Postal Studies is a postal research arm of • • the EMA Foundation for Paper Based Communication. The Foundation is the Education and Research arm of the Envelope Manufacturers Association. The Symposium was designed as a forum to gather ideas from key association and business leaders on First Class trends and new product ideas. The Symposium did not include postal employees. The Results of the Symposium was widely circulated.

Companies and People Participating • • • • Paul Carlin, Former Postmaster General Mike Companies and People Participating • • • • Paul Carlin, Former Postmaster General Mike Coughlin, Former Deputy Postmaster General John Nolan, Former Deputy Postmaster General Richard Porras, Former CFO, USPS American Express accenture Capital One Direct Marketing Association IBM New Postal Policy Council Pitney Bowes Post. Com Stamps. com

Total Mail Volume Trend Fiscal Year 2005 Source: USPS Financial Presentation to BOG Dec Total Mail Volume Trend Fiscal Year 2005 Source: USPS Financial Presentation to BOG Dec 2005

USPS Financial Results 2005 Volume Mail Mix Trend • • • First Class • USPS Financial Results 2005 Volume Mail Mix Trend • • • First Class • Standard A • • Other • Total 1999 2000 2001 2002 2003 2004 101. 9 103. 5 103. 7 102. 4 99. 1 85. 7 90. 1 89. 9 87. 2 90. 5 14. 0 201. 6 14. 3 207. 9 13. 2 12. 7 2005 97. 9 98. 1 95. 6 100. 9 12. 6 12. 7 207. 5 202. 8 202. 3 206. 1 211. 7 • (Billions) • Source: USPS FY 2005 Annual Report

Source: USPS 2005 Comprehensive Statement Source: USPS 2005 Comprehensive Statement

USPS Financial Results 2005 Volume Information 100. 9 Source: USPS FY 2005 Annual Report USPS Financial Results 2005 Volume Information 100. 9 Source: USPS FY 2005 Annual Report 98. 1

Mail Mix Comparison 212 Billion 208 Billion Down 11 % Up 12. 1% Down Mail Mix Comparison 212 Billion 208 Billion Down 11 % Up 12. 1% Down 5. 9% Source: USPS 2005 Comprehensive Statement

The Trend Is Not Surprising Over Time First Class Trend versus Standard Mail Volume The Trend Is Not Surprising Over Time First Class Trend versus Standard Mail Volume Trend 1997 -2005 Annual Reports Plus Transformation Plan

What Does the USPS Forecast Say? First Class Trend versus Standard Mail Volume Trend What Does the USPS Forecast Say? First Class Trend versus Standard Mail Volume Trend Transformation Plan Baseline

Economics of Electronic Bill Presentment and Payment Business Household Cost per paper bill: $5 Economics of Electronic Bill Presentment and Payment Business Household Cost per paper bill: $5 Many companies now charge customers for paper bills: $0. 99 - $2. 95/month per bill Cost per ebill: $2 Average cost savings per electronic bill: $3/month $0. 39 per stamp per bill Why is First-Class Mail still around?

Amid Widespread Internet Adoption, Holdouts Remain 64 percent of Americans use the Internet at Amid Widespread Internet Adoption, Holdouts Remain 64 percent of Americans use the Internet at home, up just 1 percent from last year. § Of those who had no Internet access, many were “vague” about why they didn’t have Internet at home or said they didn't have a reason. § 5 percent of people said they would never get Internet access at home regardless of how cheap it was. The City of San Francisco is completing a procurement with Internet providers which may provide free wireless access for all citizens. Source: Parks Associates

Why Do Businesses Use First-Class Mail? • Key to understanding the future of First-Class Why Do Businesses Use First-Class Mail? • Key to understanding the future of First-Class Mail is to understand the “jobs that customers are trying to get done. ” • Value of the mail depends on its meeting two types of requirements: –Business (effectiveness of how mail is being used to perform required tasks) –Operational (reliability, ease-of-use)

Bills, Statements, and Payments – First-Class Mail Jobs Customer Business Requirements Operational Requirements Treasurer/ Bills, Statements, and Payments – First-Class Mail Jobs Customer Business Requirements Operational Requirements Treasurer/ CFO Manage cash flow by taking float out of the system Maintain timely and accurate delivery Billing Manager Operational efficiency Reduction in paper and processing costs Fulfillment Maintain timely and accurate delivery ROI Marketing Customer acquisition Customer retention Consistent messaging Effective communication tool (reach, response rates) FCM value proposition Manage household finances Ease-of-use Convenience Security Read it when they want Receiver Least Likely to Prefer Paper Bills and Statements Most Likely to Prefer Paper Bills and Statements

Despite Security Threats, Online Bill Pay Grows Slowly But Steadily Actual Annual Growth Rate Despite Security Threats, Online Bill Pay Grows Slowly But Steadily Actual Annual Growth Rate Forecast Source: Forrester’s Consumer Technographics© 2005 North American Benchmark Study -- 87% 45% 29% 28% 26% 21% 18% 15% 11% 9% 7%

Can The On Line Bill Paying Trend Be Reversed? Top 4 Reasons People Have Can The On Line Bill Paying Trend Be Reversed? Top 4 Reasons People Have Not Started Paying Online Sustainability Worried about security of my data Technology improves, but mistrust and negative perceptions will linger Concerned about privacy Security breaches can always occur despite improvements in technology Don't want to pay a monthly fee Many banks offer online bill pay for free, more will most likely Don't want money deducted before Exact payment deduction date can payment is due be set, not sustainable Top 3 Reasons People Pay Online Sustainability It’s convenient It’s faster I don’t have to buy stamps Once they’ve started unlikely to revert back Can USPS help customers avoid this?

So What About The Ideas? So What About The Ideas?

The Perspective of Major Mailers • Businesses are under constant pressure to elevate their The Perspective of Major Mailers • Businesses are under constant pressure to elevate their game and create more value for their stakeholders – Decreased cycle time – Decreased cost – Increased complexity – Greater Innovation • Pressures in industry compete significantly with these goals – Increased costs – Decreased capacity – Limited resources • As 50%-75% of the costs of a first class letter package is postage, there is opportunity to make a difference – “Foster Growth Through Customer Value”

De-Averaged First Class • Hypothesis: Allowing business rather than USPS to optimize • their De-Averaged First Class • Hypothesis: Allowing business rather than USPS to optimize • their product makes the channel more efficient and increases demand Today, we pay for all or nothing – First Class is perhaps more than I need, Standard Class is too little • De-average the cost of the First Class components (and potentially beyond) and offer a la carte pricing – Delivery time frame – Forwarding – UAA information – Planet Coding

Radius Based Pricing • Hypothesis: Basing pricing on distance transported from origin versus flat Radius Based Pricing • Hypothesis: Basing pricing on distance transported from origin versus flat rate allows for industry to solve for USPS transportation costs • Today, mail produced in Philadelphia costs the same whether it’s going to LA or Chicago – Can this be reconstructed? Fed. Ex Air Origin AMC Origin SCF Origin Post Office (AO) Passenger Air Long-Haul Highway Dest. AMC Dest. SCF Dest. Delivery Unit (DDU)

Imaging Services • Hypothesis: USPS foray into imaging could provide a value add service Imaging Services • Hypothesis: USPS foray into imaging could provide a value add service for customers and reduce USPS costs or increase it’s revenue • Simplistically, image the outer envelope and send electronically to customer – Remittance applications – Similar to postmark promise for posting payment dates • More complex, but powerful - open, extract and image – – – Marketing and customer management applications Saves USPS transportation costs Decreases business cycle times The USPS – a mail company or information technology company?

Better Leverage Outer Envelope Real Estate • Hypothesis: USPS requirements restrict the amount of Better Leverage Outer Envelope Real Estate • Hypothesis: USPS requirements restrict the amount of space mailers have to utilize on an outer envelope – destroying potential value • Co-Branded Stamps • Co-Branded Indicia's • No return address • Reduced addressing requirements – Better use of barcodes • Invisible inks

USPS Intelligent Mail Charter Create end-to-end visibility into the mailstream • Make every mailpiece USPS Intelligent Mail Charter Create end-to-end visibility into the mailstream • Make every mailpiece — letters, flats, and packages — • unique and trackable Consolidate Postal barcodes and achieve the One. Code™ Vision for each mail type Letters and Flats Example Meter / PC Postage Industry migration to IBI Lite Bulk Mailers migration to 4 -State Customer Barcode (4 -CB)

Use Intelligent Mail to create Intelligent Applications • For Users – – – Date Use Intelligent Mail to create Intelligent Applications • For Users – – – Date Certain Delivery Customer Acquisition Cancellation Prevention Predictive Services Auto Redirect • Within the Postal Service – Operational Excellence – Improved Service

Increasing Awareness Mailstream Concept Business Processes: Marketin g Fulfillme nt Statemen ts Billing Custome Increasing Awareness Mailstream Concept Business Processes: Marketin g Fulfillme nt Statemen ts Billing Custome r Service Mailstream software, hardware, & services that manage: Data > Analytics > Map > Cleanse > Track > Address > Secure Channels: Web Mail / Carrier Process > Create > Store > Produce > > Distribute Integrate Technology > Digital > Metering > > Inserting Scanning > Printing Retail Other

Adding Value to the Statement through Advertising Adding Value to the Statement through Advertising

Customized Postage Pitney Bowes partnership with Zazzle -stampexpressions Customized Postage Pitney Bowes partnership with Zazzle -stampexpressions

Range of immediate business applications for Photo. Stamps Small businesses Corporate marketing • Branding Range of immediate business applications for Photo. Stamps Small businesses Corporate marketing • Branding – Business • Corporate Branding – • • • logos on a Photo. Stamps to promote their business Announce special events – “Grand Opening!” Advertise special promotions – “March is Tulip Month” Traffic-driving offers – “Mention this Stamp for 10% off” • • • maintain corporate logo on all import mail CRM campaigns targeting important customer groups – “Elite Member Offer Inside” Corporate events, sales conferences – “ 2006 National Sales Conference” New product launches – “Introducing the 2006 model Mailers & service providers • Postage images • • • coordinated with mailpiece design Premium Direct Mail pieces – “Open this First” – No meter marks on high-end packaging Campaign Taglines on the Stamp – “Just Do It” Service provider messaging – “Advertise with List. Co. ” 28

…and create a wide range of new direct marketing applications 29 …and create a wide range of new direct marketing applications 29

Customization and personalization have traditionally had a significant impact on response rates • Personalization Customization and personalization have traditionally had a significant impact on response rates • Personalization is critical to how consumers react to • the mail A recent EMA study indicates: – Women respond to personalization on envelopes more than men – 66% will open the envelope if they believe the contents might be interesting – 61% will open the envelope if they believe the contents will be of personal interest to them Consumers view Photo. Stamps as “unique and highly personal touch”

The USPS Has Already Done Quite A Few Things • e. Return Receipt • The USPS Has Already Done Quite A Few Things • e. Return Receipt • Repositionable Notes PFS Personalized Postage Vote by Mail NSA's Intelligent Mail/4 state bar codes Alternative Access for Postage Postal One Fed. Ex vs. commercial air More on surface Removing OCR's, AFCS image lift More DPS Address quality programs

But We Can Never Stop Looking At the Value Proposition for FCM • We But We Can Never Stop Looking At the Value Proposition for FCM • We need to continue to formulate, test and get ideas • • into the market quickly. How do we do that? We need to also understand that the value proposition changes over time. So we need to continually do research. This is only one summit, maybe we should have more on other classes of mail?

Studies by the Institute of Postal Studies (IPS) • A Resource Guide for Presidential Studies by the Institute of Postal Studies (IPS) • A Resource Guide for Presidential Commissions and Task • • • Forces. Commentary on Postal Reform for the President’s Commission. The Small Economic Model The Jobs and Mail Study Summits on Various Aspects of Postal Reform Summit on First Class Mail Paper on Scoring the Postal Reform Bill

How To Reach Us The Envelope Manufacturers Association Foundation for Paper Based Communication 500 How To Reach Us The Envelope Manufacturers Association Foundation for Paper Based Communication 500 Montgomery Street, Suite 550 Alexandria, VA 22314 www. envelope. org/Foundation/IPS 703 -739 -2200