Chapter 5 - Financial implications

Estimated revenue, volume and contribution loss

Opinion Research Corp. conducted quantitative market research on behalf of the Postal Service in October 2009 to forecast the percentage change in volume resulting from five-day delivery.

Respondents were asked what impact five-day delivery would have on their use of each of the following products: single-piece and pre-sort First-Class Mail, regular and nonprofit Standard Mail, regular and nonprofit Periodicals mail, Express Mail, and Priority Mail.

The research was designed to estimate for each segment the percentage change in volume, by product and application, due to five-day delivery. Based on the research, if it had been implemented in FY 2009, there would have been an estimated volume loss of 0.7 percent of total volume, and a loss of 0.68 percent of total revenue.

Market research quantitative methodology

Customers were separately and randomly sampled in five customer segments:

• Postal Service national accounts — interviewed 59 respondents from 53 national accounts, out of a total of 236 accounts.
• Postal Service premier accounts — interviewed 630 respondents out of 24,754 premier accounts.
• Postal Service preferred accounts — interviewed 738 respondents out of 3,364,503 preferred accounts.
• Small businesses — interviewed 725 respondents out of over 11 million small businesses.
• Consumers — interviewed 636 respondents by phone.

All respondents to the quantitative survey had used one or more of the postal products identified on page 20 in the past 12 months. Respondents for the businesses surveyed were either the decision-makers, or persons with substantial influence on how mail and packages are sent. For the consumer segment, respondents were the persons primarily responsible for receiving, sorting and performing other tasks related to their household mail.

Business respondents were asked:

• To identify the applications used (bills, invoices, payments, correspondence, periodicals, newspapers and packages).
• To provide the past 12 months’ volume by application and product.
• To provide the anticipated next 12 months’ volume by application and product.
• To identify the degree of likelihood — on an 11-point scale — that five-day delivery would cause a change in the volume of mail or packages they send (with 0 being extremely unlikely, and 10 being extremely likely).
• To provide the anticipated volume by application and product in the first 12 months after five-day delivery is implemented by application and product.

Consumers were asked:

• To identify the applications (payments, correspondence, documents and packages) used personally over the past 12 months.
• To provide the volume of mail by application and product sent over the past 12 months.
• To identify the degree of likelihood — on an 11-point scale — that five-day delivery would cause a change in the volume of mail or packages they send (with 0 being extremely unlikely, and 10 being extremely likely).
• To identify by product how the past 12 months’ volume would have been sent if five-day delivery had been implemented 12 months before.

Forecast calculations of the percentage change in volume

Each respondent’s change in volume was calculated by application and product before and after implementation of five-day delivery.

Each respondent’s volume change was adjusted by the likelihood of change measure (0-10 scale). This was done by converting the scale to a percentage (0-100 percent). The percentage was multiplied by the difference between the next 12-month volume and the volume in the first 12 months after five-day delivery was implemented. This effectively adjusted the reported impact of the change to five-day delivery to reflect the likelihood of the actual change in volume of mail or packages sent.

Volume, revenue and contribution loss estimate

Exhibit 3 shows — by product and in total — the volume, revenue, cost and net change that would have occurred in FY 2009 if five-day delivery had been implemented.

Exhibit 3. Volume, revenue and contribution impacts if five-day delivery had been implemented in FY 2009

Product	Volume Change %	Volume Change	Revenue Change	Cost change	Net Change
		Millions
First-Class Mail Single Piece	-1.90%	(601.40)	($261.40)	($158.70)	($102.70)
First-Class Mail Presort*	-0.71%	(341.70)	($116.10)	($39.90)	($76.10)
First-Class Mail Flats	-1.99%	(57.00)	($70.50)	($42.90)	($27.50)
First-Class Mail Parcels	2.47%	14.40	$27.50	$27.00	$0.40
Regular Standard Mail	0.14%	94.30	$21.10	$13.80	$7.20
Non-Profit Standard Mail	-2.69%	(356.40)	($47.80)	($52.40)	$4.60
Regular Periodicals	-0.33%	(20.50)	($6.00)	($6.90)	$.90
Non-Profit Periodicals	1.43%	23.80	$4.90	$8.00	($3.10)
Express Mail	-4.43%	(2.10)	($39.50)	($24.70)	($14.70)
Priority Mail	1.12%	8.90	($60.10)	$46.20	$13.90
Parcel Select	0.00
Package Services	0.00
Totals		(1237.70)	($427.70)	($230.50)	($197.10)
Percent of Revenue/Volume Reduced	-0.70%		-0.68%

*Includes National Service Agreements revenue and volume