Mailing and Shipping Services MTAC Revenue Generation Update

Mailing and Shipping Services MTAC Revenue Generation Update Bob Bernstock President Mailing and Shipping Services May 19, 2010 Confidential Property of US Postal Service

Agenda M&SS 1. BCG Study Results 2. Mc. Kinsey Recommendation 3. Role of Mailing and Shipping Services 4. M&SS Business Initiatives Confidential Property of US Postal Service 2

Three of the Best Projected USPS Future M&SS Volume forecast Integrated business forecast Prepared volume and revenue projections of the USPS core mailing and shipping business Integrated the BCG and Accenture work with USPS data ▪ Forecast baseline and Revenue diversification research scenario profitability ▪ Assessed a comprehensive Examined revenue diversification pursued by foreign posts list of revenue and cost options Confidential Property of US Postal Service 3

Four trends are increasing pressure on USPS M&SS REVENUE TRENDS COST TRENDS Volume Universal Service Obligation Declining steadily Large fixed cost base Price Workforce Costs Rising but capped Rising cost per hour Confidential Property of US Postal Service 4

Closing the Gap M&SS Net income $ Billions 10 5 Actual Forecast 0 Remaining Cumulative loss 2010 -2020 -5 -10 $115 billion -15 Actions within USPS control $125 billion -20 -25 -30 -35 2009 2020 Confidential Property of US Postal Service Base case without product, service or productivity actions 5

M&SS Options Outside Control Reduce the 2020 gap by $15 B Pricing Products and services Government support Service levels 2010 -2020 Cumulative Gap ~ $ 115 B Workforce Confidential Property of US Postal Service 6

M&SS 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 Total Cumulative impact 2010 -2020 Confidential Property of US Postal Service ~ $ 18 B ~ $ 125 B 7

M&SS Role of Mailing & Shipping Services 1. GOAL: Remain a vital driver of the American economy far into the future 2. SOLUTION: a balanced approach to fundamental change u Pricing Mailing & Shipping u Products and Services Focus u Expanded Access (Service Level) u Delivery Frequency (Service Level) u Workforce u Retiree Health Benefits Prefunding (Govt. support) u Oversight (Govt. support) Confidential Property of US Postal Service 8

Mc. Kinsey Vetted Options and Supported Initiatives M&SS Source of ideas §Existing USPS ideas §Foreign post examples from Accenture §Other ideas from Mc. Kinsey ~60+ initiatives Examples of foreign post and other ideas include… Assess feasibility and impact on the gap § Financial services (e. g. , Banking, Insurance) § Transportation services (e. g. , 3 PL, warehousing) § Business and government services § Asset commercialization (e. g. , truck advertising) § New mail products Mc. Kinsey Recommendation § Same list of ideas § Helped analyze the revenue and profit potential § Retail products (e. g. , vending) Ideas with low profit impact or low feasibility Confidential Property of US Postal Service 9

M&SS Initiatives by Business Group Confidential Property of US Postal Service 10

M&SS Initiatives by Business Group Confidential Property of US Postal Service 11

Overview M&SS Today we will review three of our high priority projects a. Joyce Carrier on Priority Mail Integrated Campaign b. Joe Adams on Mobile Apps and Web-site (Phoenix) c. Marc Mc. Crery on Sample Showcase Confidential Property of US Postal Service 12

Mailing and Shipping Services Priority Mail Integrated Campaign Joyce Carrier Manager, Media Planning and Advertising May 19, 2010 Confidential Property of US Postal Service

M&SS Communications Planning & Execution Process A Rigorous Approach to Achieving Measureable Results 5 -7 Months 2 -8 Weeks Develop Business/ Marketing Plan Understand Business Situation Develop, Test & Finalize Campaign Ideas Test Promise Statements Quantify the Opportunities Approval To Proceed Finalize Brand/ Campaign Contract Ideation Ongoing 12 Weeks Approval To Proceed Launch 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 Confidential Property of US Postal Service 14

M&SS How Do We Measure Success? § Marketplace Results § Industry Awards Confidential Property of US Postal Service 15

M&SS Measuring Success – Marketplace Results Total FRB & Priority Mail Revenue by Month Campaign Start 19 -May Percent Change vs SPLY by Month 120% 100% 98% 82% 80% 60% 40% 20% 14% -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 FY 2009 Source: RPW Monthly Extracts FRB FY 2010 Total Priority Mail Confidential Property of US Postal Service 16

M&SS Industry Awards Confidential Property of US Postal Service 17

M&SS Measuring Success – Industry Awards - Retail U. S. Postal Service EPS Display: Gold Medal Winner for Permanent Display by a Specialty Retailer Confidential Property of US Postal Service 18

M&SS 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) Confidential Property of US Postal Service 19

M&SS 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 Confidential Property of US Postal Service 20

M&SS Measuring Success – Interest from Brand Leaders § Partnership with Disney/Pixar § Toy Story 3 – Opens June 18 th § : 30 second TV Ad, usps. com, instore, Direct Mail Confidential Property of US Postal Service 21

M&SS Confidential Property of US Postal Service 22

M&SS Toy Story 3 – Retail Integration § Ready Post Shipping Products § Point of Purchase Displays Confidential Property of US Postal Service 23

The information provided to the Pricing Committee should be considered proprietary and confidential and should only be shared with staff or others on a need to know basis. Improper disclosure of this information could result in a violation of SEC insider trading laws, which carry criminal penalties, as well as other laws and regulations. Please consult with the Law Department on any questions concerning disclosure of this information A new way to access Postal Services for consumers and small businesses Project Phoenix Update April, 2010 24

The information provided to the Pricing Committee should be considered proprietary and confidential and should only be shared with staff or others on a need to know basis. Improper disclosure of this information could result in a violation of SEC insider trading laws, which carry criminal penalties, as well as other laws and regulations. Please consult with the Law Department on any questions concerning disclosure of this information 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 The information provided to the Pricing Committee should be considered proprietary and confidential and should only be shared with staff or others on a need to know basis. Improper disclosure of this information could result in a violation of SEC insider trading laws, which carry criminal penalties, as well as other laws and regulations. Please consult with the Law Department on any questions concerning disclosure of this information 35 th largest ecommerce site • Above Home Depot, Toys. RUS, Barnes and Noble, Blockbuster • 60 th most visited website in US A leading business app for Apple i. Phone and i. Touch USPS. com revenue equivalent to: • 132 highest volume retail units • 18, 295 lowest volume retail units 26

Online Revenue Will Accelerate The information provided to the Pricing Committee should be considered proprietary and confidential and should only be shared with staff or others on a need to know basis. Improper disclosure of this information could result in a violation of SEC insider trading laws, which carry criminal penalties, as well as other laws and regulations. Please consult with the Law Department on any questions concerning disclosure of this information 27

The information provided to the Pricing Committee should be considered proprietary and confidential and should only be shared with staff or others on a need to know basis. Improper disclosure of this information could result in a violation of SEC insider trading laws, which carry criminal penalties, as well as other laws and regulations. Please consult with the Law Department on any questions concerning disclosure of this information 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 The information provided to the Pricing Committee should be considered proprietary and confidential and should only be shared with staff or others on a need to know basis. Improper disclosure of this information could result in a violation of SEC insider trading laws, which carry criminal penalties, as well as other laws and regulations. Please consult with the Law Department on any questions concerning disclosure of this information Medium-Term Vision Smartphone Apps ü Find USPS locations ü Lookup zip ü Track package “Access my account” • Registration & Login Next: Rate Calculator • Transactions USPS Mobile ™ Website • Service Inquiries, help (Any connected mobile device) • New services ü 1 Million visits month! per ü 5 x expectations 29

World Class Web Design The information provided to the Pricing Committee should be considered proprietary and confidential and should only be shared with staff or others on a need to know basis. Improper disclosure of this information could result in a violation of SEC insider trading laws, which carry criminal penalties, as well as other laws and regulations. Please consult with the Law Department on any questions concerning disclosure of this information 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 The information provided to the Pricing Committee should be considered proprietary and confidential and should only be shared with staff or others on a need to know basis. Improper disclosure of this information could result in a violation of SEC insider trading laws, which carry criminal penalties, as well as other laws and regulations. Please consult with the Law Department on any questions concerning disclosure of this information • Mobile website and i. Phone 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

The information provided to the Pricing Committee should be considered proprietary and confidential and should only be shared with staff or others on a need to know basis. Improper disclosure of this information could result in a violation of SEC insider trading laws, which carry criminal penalties, as well as other laws and regulations. Please consult with the Law Department on any questions concerning disclosure of this information 32

The information provided to the Pricing Committee should be considered proprietary and confidential and should only be shared with staff or others on a need to know basis. Improper disclosure of this information could result in a violation of SEC insider trading laws, which carry criminal penalties, as well as other laws and regulations. Please consult with the Law Department on any questions concerning disclosure of this information 33

The information provided to the Pricing Committee should be considered proprietary and confidential and should only be shared with staff or others on a need to know basis. Improper disclosure of this information could result in a violation of SEC insider trading laws, which carry criminal penalties, as well as other laws and regulations. Please consult with the Law Department on any questions concerning disclosure of this information 34

Sample Showcase Contract Pricing Process Status Report Mailers’ Technical Advisory Committee May 19, 2010 35

Sampling Market-Overview q Sampling is a nearly $4 billion dollar business, and interviews reveal that consumer products goods (CPGs) companies prefer to have products sampled at home. q There is now a significant amount of performance data around sampling, and the practice is driven almost entirely by conversions and ROI. q As marketers get smarter, targeting versus broad based sampling becomes more important. q The economy has impacted product sampling strategies. With more consumers staying closer to home, in home sampling has become more popular. Post Foods Facebook Survey Customers rate sampling as a key way to get them to try a product!! 58% would try via sampling 36

Sample Market Size The consumer promotions market is valued at $46 B, and the product sampling market is valued at ~ $4 B. 46. 4 49. 2 52. 4 2. 5 2. 3 2. 1 Sources: Veronis Suhler Stevenson Communications Industry Forecast 20082012, CPG and sample packaging manufacturer benchmarks. 37 ** 2009 and 2011 are forecasted

Sample Market Size The spend on product sampling is large and growing at 7% CAGR 4. 6 3. 8 4. 2 Sources: Veronis Suhler Stevenson Communications Industry Forecast 20082012, CPG and sample packaging manufacturer benchmarks. ** 2009 and 2011 are forecasted q There is potential to re-allocate sampling and overall consumer promotion spend if the right offer is created. q “All Other” includes samples in newspapers, samples bundled with products, door hangers, coupons for free samples, etc. 38

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. 1) Rigorous market assessment to-date § § Extensive Industry Research Frequent Customer and Consumer Interaction Input from Leading Sample Vendor Detailed Financial Analyses 2) Compelling economics and viable business models for all stakeholders § § § Sample Market is large ($4 B) and growing at 7% Brands: Favorable cost/conversion vs. alternatives Partners: Profitable at 40¢ avg. price/sample USPS in yr 5: $64 MM revenue, $22 MM margin Re-invigorates samples by mail Minimal cannibalization 3) Learnings from the lead market will improve the execution at larger scale § 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 39

Additional Benefits In addition to box-specific economics, the Co-op Box has several other benefits. q Creates a very noticeable and marketable launching pad for reinvigorating the sampling business. q Helps to change to brand perception of the Postal Service. q Improves the mailbox moment and helps validate that good things come in the mail. q 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. 40

Market Research Learnings There will be three rounds of surveys intended to understand the impact on brands and the perception of recipients. Market Research Phase Expected Learnings Pre-Survey Brand awareness, prior purchase Box Survey Recipient reaction of the box and what they did with it Product Survey Brand awareness lift, purchase intent, actual purchase 41

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 42

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%). Q 6 - 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: 43

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. Agree Completely that …… 84. 2% This Sample Showcase Box is for someone like me I was very excited when I received the Sample Showcase Box in the mail 82. 7% 84. 2% The products were easy to use I felt like I was opening a gift 80. 8% The mix of products inside appealed to me 80. 3% . This package is a good fit with the Postal Service 79. 5% 80. 8% The box was easy for me to open The products were relevant to me 70. 2% 0. 0% 10. 0% 20. 0% 30. 0% 40. 0% 50. 0% 60. 0% 70. 0% 80. 0% 90. 0% Q 7 Please rate your level of agreement with each of the following statements. Five (5) point agree / disagree scale used. Results above are “Agree Completely” 44

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. Q 8 - How likely would you be to recommend the Sample Showcase Box program to your friends or family? 45

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. Q 9 - 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! 46

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 …. 47

Questions? ? 48