Abstract
Over the most recent decade, Postal Operators (POs) have suffered financially from the dramatic reductions in single piece communication mail, which have put Universal Service Obligation (USO) funding in jeopardy. To some extent, however, and especially in the US, weakness in the demand for single piece mail has been partially compensated for by continued strength in bulk mail, though the margin on bulk mail is lower. Electronic substitution has been weaker for presentment mail than for remittance mail. Further, direct mail has held on to its share of the overall advertising market.
The views expressed in this chapter are those of the authors and do not necessarily reflect those of, the Office of Inspector General. The authors thank Claire Borsenberger, Heikki Nikali and Giota Chistodoulou for helpful comments.
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Notes
- 1.
Such considerations bear with greatest force upon those POs for whom direct mail is a greater fraction of the business. Standard Mail, under which most direct mail is sent in the US, constitutes over half of USPS volumes (see USPSOIG 2013b). In Europe, direct mail is a substantial fraction of mail volume in Germany, Austria, the Netherlands and Switzerland, but a much smaller fraction in other countries (see Dieke, et al, 2013).
- 2.
Bergemann and Bonattii, on page 421, explain this approach as follows: “A sale of product x occurs if and only if the buyer is interested in the product and receives at least one message from firm x. In the terminology of Bagwell (2007), we adopt the complementary view of advertising, in which the message and the suitable recipient are necessary to generate a purchase. Each sale generates a gross revenue of $1, constant across all product markets.”
- 3.
In this framework, the price of the product is given exogenously but the price of advertising (sending a message through the mail) is determined endogenously, measured relative to the $1 net profit from a sale. There are many sellers of homogeneous goods but they are each small relative to the advertising market and are thus price takers for advertising at a constant unit price. Though we do not present a developed analysis of the structure of the ad market, each advertiser sells only one product and is not concerned that an ad for a substitute for x might reduce sales of product x.
- 4.
In essence, this approach assumes that consumers make a purchase of an item if they receive a targeted message even if they also receive a saturation mail about the same product. In other words, receiving a saturation mailing about a product does not reduce the consumer’s receptiveness to a targeted advertisement. It would be of interest to relax this assumption in future work
- 5.
Note that as x gets very large, Sx approaches λ.
- 6.
The price of the product does not explicitly appear on the profit function because it is exogenously set equal to one.
- 7.
Note the difference between λ and γ. The former relates to the concentration of consumers interested in purchasing the product in the product market and the latter relates to the concentration of consumers interested in the product in the targeted subset.
- 8.
In this calibration, x is sufficiently large so that λ and Sx take on the same values to two digits. This is not the case for all calibrations.
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Bradley, M.D., Colvin, J., Perkins, M.K. (2015). Targeting Versus Saturation: Derived Demand for Direct Mail. In: Crew, M., Brennan, T. (eds) Postal and Delivery Innovation in the Digital Economy. Topics in Regulatory Economics and Policy, vol 50. Springer, Cham. https://doi.org/10.1007/978-3-319-12874-0_6
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