Abstract
Advertising letter mail competes for marketing budgets against a range of different media types. Since the early 2000s, its share of total advertising expenditure in the UK declined by approximately half to account for less than a tenth by the end of 2018. However, advertising mail remains an important component of UK letter volumes, accounting for over three billion items and around a third of addressed inland letters in 2018. A number of factors impact the demand for advertising letters, some outside the control of postal operators and decision-makers (such as economic conditions and advances in new technology), but price is a factor that can influence demand. Here we investigate advertising price elasticities using a rich source of UK customer data.
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Notes
- 1.
Estimates informed by figures from various World Advertising Research Center (WARC) Expenditure Reports.
- 2.
For example, to use a Royal Mail advertising mail product, a customer needs to mail a minimum of 1000 letters or parcels, and parcels or 250 large letters.
- 3.
It would have been possible to differentiate product categories further, for example, by machine-readable font type or eco-friendly paper envelopes. However, Royal Mail product managers, in the first instance, tend to differentiate addressed advertising letters by speed, sortation, and format level, and this product grouping categorization was adopted. A further point to note is that customers infrequently send a relatively very small number of First-Class sorted advertising letters which have been excluded from this analysis.
- 4.
The main reason for the relatively low number of non-zero observations is that customers do not simultaneously consume all eight product categories at each point in time. That is, customers do not send addressed advertising mail containing all levels of sortation, all speeds of delivery, and all format types in every three months of the year.
- 5.
Access products are collected and sorted by upstream competitors to Royal Mail, as well as some very large customers, who then transport it to a Royal Mail inward mail center prior to Royal Mail delivering it to its final destination.
- 6.
The price paid by large senders of advertising mail tends to be subject to competitive tenders and can differ to the standard rate card price publicly available at the time.
- 7.
A technical appendix detailing these computations is available upon request from the authors.
- 8.
Unfortunately, we do not have data on customers who switch from sending advertising mail via a Royal Mail retail product to an access operator service, and therefore we cannot directly estimate access customer cross-price elasticities.
- 9.
For example, advertising cross-price elasticity estimates with respect to First-Class Mail and Periodical lie in the range 0.1–0.2 and are substantially lower than estimates reported in Table 2, possibly reflecting the fact that the USPS product groups contain mails that, in general, are used for different purposes.
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Fève, F., Magnac, T., Soteri, S. (2020). Demand Elasticities at the Intensive and Extensive Margins for Advertising Mail Traffic in the UK. In: Parcu, P.L., Brennan, T.J., Glass, V. (eds) The Changing Postal Environment. Topics in Regulatory Economics and Policy. Springer, Cham. https://doi.org/10.1007/978-3-030-34532-7_16
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