Last week I had an extended conversation on the future of postal service and wanted to share some of my thoughts on potential scenarios 10 years from today. These are clearly quick sketches. The future – as is often the case – will likely be an amalgamation of these scenarios.
Scenario 1: Traditional Mail Ceases to Exist, Small Parcel the Only Thing Delivered
Small parcel post is escalating. I seem to recall a statistic recently from Fred Smith of FedEx, suggesting small parcels represent some 15% of their total shipment volume. This category of mail is driven by online retail sales and consumer-to-consumer transactions – both of which continue to increase. Consumer-to-consumer transactions are on the rise as sites like eBay continue to gain in popular and are used more frequently for a wider assortment of goods. Online sales represent only about 5% of retail sales today, but this is clearly growing as well. It won’t be surprising to find online sales representing a quarter of all retail sales within five or six years. As these transactions increase, small parcel post naturally follows.
There are a few trends playing out in the technology sector which will also impact the rate at which small parcel post increases. First, as the retail sector has become more challenging, manufacturers are increasingly looking at selling directly to consumers. This isn’t unique to technology companies, but is playing out across a host of categories. A second element I see evident in technology is the rapid acceleration of product launches, the speed at which companies are attempting to bring these products to market, and the swiftness at which information about new products is disseminated to potential consumers. Manufacturers are building less inventory over a shorter period time before bringing a given product to market. Seeking to fill a broad supply chain in a shorter window will force manufacturers to increasingly rely on expedited, small parcel post – regardless if they are going directly to consumers or through more traditional retail channels.
Scenario 2: The Death of Direct Mail
Today, direct mail represents roughly half of all mail sent. According to a report from advertising and marketing consulting firm Winterberry Group, direct marketing is actually on the rise. After falling 1.4% in 2007, 4.1% in 2008, and a dismal decline of 16.7% in 2009, spending on direct mail is expected to increase nearly 6% in 2011 to roughly $48 billion.
The future of direct mail is likely the single largest factor influencing the future of postal service. The effectiveness of direct mail is controversial (to read or not to read, that is the question). However, direct mail is a convenient and possibly cost-effective option for targeted marketing where there is a strong geographic component. This is most obvious with small, local businesses that are targeting a specific geographic market, like a single ZIP code.
However, the ability to target consumers with specific characteristics like geography is improving. In a world taking place increasingly online, identifying potential consumers with specific characteristics like geography is getting easier. Certainly characteristics like geography are elements mobile advertising are working to exploit. But more, sites like Facebook are sitting on troves of demographic detail – including geographic location – that advertisers will begin to use more effectively. Over the last decade we’ve moved to a period where demographic details are being captured at an accelerating rate. The next decade in advertising will be defined by the effective use of these details.
Small, local advertisers have really been the last to move to the effective use of digital advertising. They don’t typically have the bandwidth to take advantage of the metrics afforded digital advertising and the content holders have done a poor job providing them the value proposition they are seeking. This is perhaps most clearly evident with video which tends to be cater to national audiences. For example, most advertising you see on Hulu or YouTube are from nationally recognized firms. Newspapers and radio stations on the other hand have strong relationships with local advertisers. I keep expecting a Hulu to buy a major radio station simply to gain access to the local advertiser relationships.
Over the next decade, I expect this market coordination problem will be remedied and more local advertising will move to the digital sphere. This limited the need for direct mail (especially if it proves to be inferior) and will have vast consequences for mail service.
Scenario 3: The Influence of QR codes on Direct Mail
In scenario 2 I laid out a state where direct mail disappears because advertising mechanisms – especially for local businesses – improve. However, there are elements I see strengthening direct mail. Quick Response (QR) codes – after seeing success in parts of Asia – are starting to gain traction in the United States. QR codes allow advertisers to “push” readers of physical advertising to digital locations. These digital locations could be information pages, but they could also be e-commerce pages – allowing (and driving) consumers to make purchases. This will also provide much needed metrics for direct mail. In a world where direct mail becomes more measurable, its usefulness and reliability become more evident.
Scenario 4: A Changing Purpose: Finding Inelastic demand for Physical Mail
Outside of parcel post and direct mail, the purpose of physical mail has changed significantly in the last few decades. Electronic billing activation and automatic payments have increased significantly and we are therefore relying less on physical mail. Timely communication has moved to electronic tools like email, SMS, and telephony. Physical mail is appreciably less urgent than it was in the previous decade. This change will eventually exert significant influence on mail service.
As mail service has become less urgent, the need to check frequently (read: daily) diminishes. We’ve also moved to the less elastic part of the demand curve for physical mail. This means users will be willing to pay more for less of it. Think about how we use physical mail today? We use it for special announcements like births or holiday greetings. We use it to support traditional social norms like thank you notes. For many of us, there are few substitutes for these and that suggests that eventually a less frequent, higher-priced mail service could define postal service.
I haven’t assigned probabilities to these scenarios. And again, the future will encompass features from all of these scenarios. Technology tends to evolve much slower than most expect so the future of postal service will likely resemble today’s postal service in many ways. One of the best predictors of the future is the present. While the future might deviate significantly from today, it uses today as its launching point.