When, in 2002, Royal Mail first floated its ideas for changing the basis upon which it charges for mailing, the direct marketing industry was not at all impressed at the prospect of having to consider the size and thickness of mailpacks, as well the weight and speed of delivery.

Most direct marketers agreed with Richard Hallam, chairman of advertising agency McConnells, who still believes that "Royal Mail is repaying its biggest and most loyal customers with an enormous price hike that could damage their bottom line".

Undeterred, Royal Mail forged ahead with its plans which, it argues, simply mean that we will pay the true price for our mail to be delivered.

In March this year, it outlined its final plans for Pricing in Proportion (PiP). These will come into force on 21 August 2006.

During the last four years, many in the direct mail industry have come to accept the idea of PiP, and some even argue that the changes could present opportunities for the industry. All, though, need to accept that it is going to happen and prepare themselves for it - especially when it comes to the size and shape of the packaging around the mail. Mailers will be looking at their envelopes and how changes there might cost - or potentially even save - them money.

Royal Mail believes that the changes can benefit mailers. Fraser Chisholm, head of media propositions at Royal Mail, says: "In many cases, businesses will be able to save money in one area to balance out any increased costs elsewhere."

One obvious example of the type of saving that can be made is where A4 documents are mailed out in C4 envelopes. If the documents are folded in half, they can then be sent out in a DL or C5 envelope at a cheaper rate.

Colin Forrest, mail creation product manager at Pitney Bowes, estimates that this saving could be as high as 49 per cent. Many banks will be able to make this saving on statements and so offset any increased costs on their marketing mailings.

It is mainly the high volume mailers like banks that will be able to benefit from this offsetting of costs. However, most low volume mailers will be equally unaffected, simply because the cost of postage on a high-value, well-targeted mailing is marginal compared to the cost of production.

As Declan Bermingham, UK marketing manager at Neopost, observes: "The greatest impact of the PiP system will be felt by the mid-volume direct marketing mailers - those that send between 10,000 and 100,000 mail pieces per month - where the shape of the mail may have an impact on the cost of the campaign."

Marketers at those companies will have to think hard about how to minimise the impact of PiP. The first thing they should look at is their data.

No direct marketer likes to admit that he or she is wasting effort and budget through poor data but, despite this, according to address management firm QAS, only 14 per cent of businesses can boast totally clean data.

There are few businesses that could not benefit from increased investment in data cleaning and as Rebecca Clayton, director of marketing at QAS, comments: "Increased mailing costs that might result from PiP make it even more important than ever before that every pack is successfully delivered."

This emphasis on data should not stop at address accuracy. According to research by mailing house Corporate Mailing Matters, two-thirds of the UK's top 1000 company marketers believe that PiP will encourage more targeted, lower volume direct mail. It looks set to accelerate the trend which has seen average campaign volumes fall from 176,000 in 2001 to under 90,000 today.

However, the greatest changes will probably occur in creative departments.

David Laybourne, technical director of DPS Direct Mail, says: "The arrival of PiP means that designers are going to have to enter the world of accountability and rigorously test different envelope sizes to understand which format elicits the greatest, and most cost effective, response."

In other words, the days when creatives could just decide on a whim to use a larger pack size and envelope are numbered. After the introduction of PiP, the size of envelope and mailpack will have a significant bearing on the cost of the campaign, and so will have to be justified. However, far from dreading this new constraint, some creatives are actually looking forward to working within it.

David Harris, creative partner at marketing agency LIDA, says: "I'm not daunted at all. There's too much gratuitous packaging sent out with too little thought. This will force creatives to focus on what is relevant to the product, the campaign and the audience." Harris recalls judging the latest Campaign Direct Awards, when the judges debated the merits of a Tesco campaign by EHS Brann. "It was simply a till receipt, asking customers to come back to their local store. For me, it stood out against all the over-packaged gimmicks," he says.

Many marketers are already looking more closely at how they can differentiate their offers within smaller pack sizes. Tony Richardson, art director at marketing agency TDA, says: "Creatives have more reason than ever to take a closer look at the range of finishes available, from coloured foils and simulator paper to plastic and fluorescent stocks as well as coloured glassine that shows what's inside. There are plenty of design tricks to get around the new rules."

Others are looking at the envelopes themselves. Steve Crossland, production manager at JDA says: "One thing which most designers forget when designing an envelope is the window. There doesn't always have to be just one oblong window in the front of an envelope. An envelope can have two or three windows on either the front or the back. They can be designed and punched out in many shapes and sizes, rather just the boring old 45x90mm oblong."

Far from spelling the end for creativity in direct mail, PiP might prove to be a useful spur to it. More than anything though, it should refocus creatives on the basics of their art. Patrick Baglee, creative director at EHS Brann, says: "Clever printing techniques may well provoke curiosity but, without a relevant offer or message, the technique will be seen as a gimmick, and its effectiveness will reflect that."

Just as data managers will need to ensure that mailpacks reach their destinations and are sent to the best prospects, so creatives will need to focus once again on producing striking copy, arresting imagery and propositions that appeal to recipients. Those are surely challenges which good data managers and creative will relish.

In spite of this, in the long run PiP may prove to be very damaging to some in the industry. It is certain that some companies will face higher charges and they may be unable to find extra marketing budget to cover these charges and so will have to settle for smaller packs. Not all of them will be able to maintain their level of response rates within these new constraints. A good example is charities which mail out a large amount of pens. This will become much more expensive under PiP. The danger for the DM industry is that charities, and other similar organisations, may be forced to move their marketing budgets elsewhere.

Robert Mayes, group communications director at WWAV, has already tried changing an A4 control pack to A5 for one of his charity clients. The response rates dropped significantly. He says: "These clients simply won't pay what is often double the postage under PiP, and so will be lost to direct mail. Other media owners are bending over backwards to be more flexible, to give clients and agencies more innovative ways of using their particular media. By introducing PiP, Royal Mail is making the medium less attractive to some clients.

PiP is not all bad news - in fact, Chisholm claims 70 per cent of all mail and more than 95 per cent of direct mail will be unaffected by the changes - and imaginative direct marketers can do a great deal to mitigate any harmful effects. But, in the long run PiP will probably do very little to help mail win its battle against newer and more interactive media for its share of the marketing budget. P

PiP IN BRIEF

After the introduction of PiP on 21 August 2006, mail items will fall into three categories, two for letters and the other for everything else. Letters will be classified by their maximum dimensions and weight, as follows: letters up to 240x165x5mm, 100g and large letters up to 353x250x25mm, 750g.

Light bulky items, such as poster tubes, greetings cards with badges attached and large sized cards, will all be more expensive to post. However, compact but heavy items, such as books and DVDs, will cost less to post.

Royal Mail predicts that 70 per cent of business mail will be unaffected by the changes. Out of the remaining 30 per cent, half of the mailings are expected to be less expensive.

More information is available at www.royalmail.com/pip or by calling the dedicated PiP customer services number: 08456 113113.

THE GOOD NEWS

Some organisations have already begun to think about how they can mitigate against the extra cost that the PiP changes will bring, while others will be lucky enough to find themselves better off as a result of the new system.

Tom Logan, associate director at mailing house Prolog has found that the cost of a first class, A4 mailing weighing 60-750g will actually fall, meaning that one of his clients, a regular mailer of 22,000 packs, will save £800 per mailing.

Others will not be so lucky. The Central Office of Information (COI), which provides marketing support to government departments, has commissioned a study which revealed that if it were to do nothing about PiP, its costs would rise by six per cent. It posts many large, lightweight booklets and it estimates that these will be 40 per cent more expensive to send.

Robert Irons, deputy director of the COI's direct & relationship marketing division, comments: "A major change is that you will be able to send 100g in the same sized package for the price of 60g today. This means you can fit more materials inside your mailing, so we can include more information in our marketing packs and get a better response rate, or we can send two mailings together and actually save money. Equally, because so many marketers will stop using the 220x220mm envelope, those continuing to use it can achieve real stand out." Others might find that they can turn their transactional mailings into marketing communications, simply because of the increase in allowable weight limit for a letter from 60-100g. If the pack width stays below 5mm, firms can add fairly bulky marketing material to their statements, bills, receipts etc.

The smart companies are now thinking about how they can use this excess capacity to create a new revenue stream. Roger Williams, international marketing director at Abacus, says: "As they will be paying the same price whether their pack is 70g or 90g, they are considering taking inserts from non-competing firms with the same target audience. In this way, they can make money without being penalised on the mailing weight."

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