Postal Service ‘Discovers’ A Way To Grow Direct Mail

Don’t be surprised if you start seeing more solicitations for Discover cards showing up in your mailbox.

The U.S. Postal Service and Discover Financial Services have reached a deal giving Discover incentives to increase its mail volume during the next three years. The arrangement could set a pattern for deals with other large mailers that, like Discover, are mailing fewer customer statements these days because of online billing.

The Negotiated Service Agreement “is intended to promote new growth in Standard Mail that will help offset the expected decline in DFS’ First-Class Mail volume,” says USPS’ recent filing with the Postal Regulatory Commission. The agreement needs the PRC’s blessing to be implemented.

To qualify for rebates and avoid a penalty, Discover’s mail volume in the first year must be 10% higher than in the February 2010-January 2011, then 15% the second year and 20% the third year. But there’s a kicker:

“To qualify for rebates DFS must send an extra $1.65 worth of Standard Mail to offset each dollar decline in postage rom First-Class Mail. This mechanism is intended to control the difference in contribution margin between First-Class Mail and Standard Mail, and to maintain or increase overall contribution from DFS mail.”

Without the agreement, the Postal Service says, Discover’s First-Class mailings (such as monthly statements) would decline about 5% annually and its Standard mail (such as credit card solicitations) would increase 7% to 11%.

“In order to qualify for a rebate (and avoid paying a penalty), DFS will have to increase the Standard Mail postage it pays another five to 15 percent,” the Postal Service’s request says. “The Postal Service estimates that this agreement will generate an additional $2 million to $15 million in contribution.”

The Postal Service envisions pursuing similar deals with other large mailers “to maintain or increase the value of a customer whose use of highly-profitable First-Class Mail is declining.”

Other recent articles about the Postal Service include:

• Is That A Flat-Rate Envelope in His Pocket, Or Is the Postmaster General Just Glad To See You?
• The Elephant Has Ears: Some Good News for Mailers Along With the Rate Hikes
• Donahoe, No Potter Clone, Quickly Making His Mark