Can the U.S. Postal Service Market Itself to Success?

If you picture the United States Postal Service as the affable but feckless Cliff Clavin of “Cheers,” think again. The nation’s most enduring symbol of plodding big-government-at-its-worst is striving mightily to reinvent its image: a bit less brusque polyester bureaucracy, a bit more rugged Pony Express, galloping fearlessly onto the 21st-century information superhighway. But can the postal service ride this road? Or is it doomed to be road kill, tripping on the Internet’s high-speed wires and run over by Federal Express vans?

The plans are nothing less than grand: The postal service wants to deliver your mail on time so that you use it more often. It wants to introduce new services, such as safeguarding your e-mail. It wants to wrap your packages and sell you phone cards and T-shirts and “Frosty the Snowman” videos. It’s introducing a Bugs Bunny stamp and trading cards for your kids, to lure them into philately. And when it absolutely, positively has to be there overnight, the postal service wants you to call 1-800-ASK-USPS (operational next year). Or at least not burst into laughter at the thought.

“We have to be market-driven and customer-friendly,” says Postmaster General “Carvin’ ” Marvin Runyon, speaking like the private-sector refugee he is (Ford and Nissan and the privatized Tennessee Valley Authority), “and make products that people want.”

Not since the 1930s, when the post office began replacing trains with airplanes, has this organization faced such flux. The information revolution has created something new and frightening for the postal service: competition. Faxes and e-mail and Mail Boxes Etc. and Airborne Express and FedEx and local messenger services and debit cards are eating into what was once a monopoly.

The postal service has $6 billion in accumulated debt. But this is not its big problem; in fact, it turned a $1.8-billion “profit” last year and will clear $1.6 billion again this year, so the debt is shrinking. The problem is that the postal service delivers six items--letters, junk mail, express mail, packages, international mail and publications--and in each of these, it is losing market share; customers use other services, such as faxes, e-mail and private couriers, for the same tasks. In the business world, another way to say “losing market share” is “dying slowly.” Of the 180 billion pieces of mail delivered each year, between 8 billion and 30 billion will disappear by the year 2000. So while the postal service delivers to 125 million addresses, a number that is growing rapidly, each mail carrier has less to carry--fewer pitches from Ed McMahon, fewer postcards from Junior studying in London, fewer batches of cookies from Grandma.

In other words, rising costs, falling revenues. Simple problem. A business would solve it by cutting service to some of the 125 million addresses, like the money-losing ones in, say, Idaho. But the postal service mandate forbids that. So far, the postal service has kept an even keel with those three-cent hikes in stamp prices that seem to come along every three years. But stamp prices have quadrupled since the eight-cent stamp of 1971. Can they rise forever?

Any giant institution--the postal service does $54 billion of business per year, more than Coca-Cola and Caterpillar and Xerox combined--would be hobbled by such challenges. But on top of all the headaches from the information age, the postal service faces its own unique aggravation: the hydra of Washington politics.

The postal service hasn’t received tax money since 1982, though it doesn’t pay taxes either. It has a monopoly on first-class mail, though there is an exemption that allows private companies to compete for express delivery. The postmaster general is chosen by a presidentially appointed Board of Governors, though he or she ultimately answers to Congress. Then there’s a Postal Rate Commission, also presidentially appointed, which, after long months of deliberation, recommends any proposed price changes. For example, when the federal government needs to send packages overnight, whom does it turn to? Federal Express. It sounds insane--Uncle Sam just signed a five-year, $300-million contract with FedEx rather than its own postal service--but it’s because the postal service cannot offer discounts, not even to the government, without the commission’s approval.

Finally, there are the lobbyists and unions and House committee chairmen and the White House and bureaucrats, all with competing, contradictory agendas. How does the postal service take on United Parcel Service when Big Brown doled out more than $3.4 million to congressional candidates from 1993 to 1995, more than any other company in America (FedEx was third, behind AT&T;)? The postal service is playing a business game with political rules. And if Washington eliminates cost-cutting and price increases, what’s left? In other words, this isn’t just the usual token bureaucratic reformese. The postal service must become something dramatically, legitimately new or become the carrier of last resort.

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Selling a skeptical public on the superiority of the postal service is tougher than, say, marketing tartar-control toothpaste. The post office, after all, is about as popular as dentists’ offices. “We have a schizophrenic image,” admits Loren Smith, the postal service’s chief marketing officer from 1994 to last November, who was brought in by Runyon to oversee the agency’s image refurbishment. “On one hand, there’s a lot of data that says as government agencies go, we are viewed as head and shoulders above anything else around. But we’re also the brunt of every talk-show joke; ‘lost in the mail’ is a common euphemism for something screwed up.” Not to mention those disgruntled Uzi-toting employees, an image that has become part of pop culture. (In “Clueless,” an insane outburst is referred to as “going postal.”) According to a report in Business Week, a survey of 100 managers named the postal service the absolute worst in customer service of several dozen companies and agencies.

Still, the image question is complicated. Many citizens despise Congress but like their representative. So, too, do many people curse the postal service while serving coffee and cake to the postman. There’s some evidence of improvement. According to a survey last December in Fortune magazine, the postal system improved its service more than any other company or agency in America. Audits by Price Waterhouse find on-time delivery up to 91%, with seven straight quarters of higher ratings. Smith insists postal workers are dedicated. “If you look at the track records of hurricanes and floods, the service back in operation first is consistently the mail.”

But how does one reinvent the image of an agency that received 500,000 formal complaints in 1994? For starters, Smith spent $230 million in advertising last year, up from $95 million the year before. George C. Scott is touting reliable service while the rather less-brisk Willard Scott is promoting the wonders of letter-writing (a campaign partly funded by the postal service for a nonprofit group called Healthy Aging). Also, the postal service is promoting, yes, junk mail. CEOs were aggressively asked, “How much do you waste in TV commercials reaching the wrong people?” Smith recounts. The message to corporations: With direct mail, you can focus very narrowly on your market.

The image overhaul kicked into high gear in 1994, when the postal service allocated $6.6 million to develop a new logo--a spiffy, “supersonic” bald eagle--and reproduce it on all of its equipment. The old logo was also a bald eagle, but as Runyon says, it just sort of sat there “roosting.” The new eagle, according to Runyon, embodies the “new, leaner, faster postal service; it looks like it’s jetting through space.”

While the revamped logo seemed a prudent business move--many corporations have updated their logos recently, spending far more than $6.6 million in the process--it was an immediate political loser. The backlash against the logo was disproportionately intense because the postal service, as always, is a convenient target for government bashers. Even the usually fuzzy Larry King couldn’t resist a dig at his guest, the postmaster general, in an interview. Typical of the media reaction was one columnist’s remark: “I do not care if the logo is an eagle, a pigeon, an aardvark, or a dirty dog whizzing on the front lawn. All I care about is this: That the postal service delivers the mail on time.”

But the supersonic eagle survived. The investment was part of a larger strategy, capitalizing on the newfound brand identity to emblazon the logo on all sorts of products. Have you always yearned for a Pony Express leather jacket? They’re for sale in Minneapolis. The postal service recently opened a retail store in the Mall of America called Postmark America that offers faux uniforms, stuffed eagle mascots and “Just Delivered” infant wear (no kidding), as well as stamps and envelopes.

The real money, however, could come from new items test-marketed at these retail stores. The big-selling merchandise--mail carrier caps, perhaps--would be offered in the lobbies of post offices across the country. The postal service would become like IBM, says Smith, with “an identity that can be spun off into sub-brands.”

The postal service’s most dramatic image make-over has been a hard-hitting campaign for Priority Mail that cost more than $50 million in 1995 alone. You’ve seen the TV ads: FedEx at $12 is a good deal; UPS at $6 is a better deal; Priority Mail at $3 is the best deal. They’ve worked. Since these ads first aired, Priority Mail has doubled its growth rate to 16%, more than paying for the campaign. “Members of Congress have told me they love this ad,” Runyon says. Smith, formerly of Citibank and Colgate-Palmolive, declares, “In my 36 years of making advertising, I can’t recall a campaign which has elicited such uniformly positive response.”

Almost uniformly positive. Competitors have cried foul. “The ads are very misleading,” says Gina Ellrich, spokeswoman for UPS. “They compare Priority Mail to UPS 2nd Day Air, which is apples and oranges: Their service isn’t guaranteed or tracked.”

David Showenfeld, vice president of North American marketing for Federal Express, which has dropped some rates by 35% in a move widely perceived as driven by the postal service ad campaign, is also on the attack. He cites a print ad that claims, “Priority Mail gives you Saturday delivery at no extra charge. FedEx doesn’t and UPS doesn’t.” The statement is only true in a limited sense: If Priority Mail happens to show up on a Saturday, the mail carrier delivers it for no additional fee. “We at FedEx will commit to delivering it on a Saturday,” Showenfeld says. “The ad compares commitment versus happenstance.”

The larger issue is, according to Ellrich: “Is the postal service a public service or a business? We want them to focus on their mandate of delivering the mail. Or if they want to compete, fine, just give up their tax-free and monopoly status.” The postal service, after all, has trucks that don’t need license plates or registration and don’t incur parking fines. It is not subject to customs regulations. It doesn’t have to pay shareholder dividends. “We’re not afraid of any fair competition,” says Showenfeld. “This isn’t fair.”

Smith notes that while the postal service doesn’t pay taxes it does have other high costs. “I doubt that FedEx or UPS pays $28 an hour for clerks. Look, UPS has a good campaign, a good product, and at the moment they are technologically ahead. But they’re spending more to advertise express mail. [UPS CEO] Oz Nelson just spent $40 million sponsoring the Olympics. We didn’t. And we started the express mail business, back in 1971. What would Nelson like us to do, just sit back and give him volume?”

Well, yes. Rival companies don’t complain about ads that aren’t working. The problem for the postal service is that while executives usually can only sniff about their competitors’ ads--Coke can’t do much to stop Pepsi’s commercials--UPS and FedEx have enough political clout to make Congress take notice. This backlash against the postal service’s aggressive advertising was compounded by its attempt to underwrite both the Democratic and Republican 1996 national conventions. For half a million dollars apiece, the agency would have a chance to showcase its new “with-it” image. While the postal service figured it was politically safe by sponsoring both parties--and had even secured an informal go-ahead from Alaska Sen. Ted Stevens, the most powerful politician on postal issues--media reaction was hostile, fanned by postal service enemies. The plan was quickly axed. But the public relations damage was done. Once again, some commentators seized on the plan as yet another example of a lumbering, bumbling postal service, this time trying to buy off reform-minded politicians.

The postal service’s Board of Governors, a traditionally stodgy bunch, was furious at what it saw as a pattern: too much, too fast, too sloppily. The board was already concerned that the new advertising was too aggressive and the sums were too large (the $230 million spent on ads last year was more than $90 million above what had been officially approved). Meanwhile, Mail Boxes Etc., which happens to be 17% owned by UPS (them again), Parcel Pak and others formed the Coalition Against Unfair USPS Competition. Its mission: To prevent the postal service from encroaching on its turf. Again, in trying to solve a business problem--stemming the loss of revenue to e-mail and fax machines--the postal service had created a political problem.

The postal service became increasingly vulnerable to the charge of “mission creep.” And this summer, Rep. Duncan Hunter (R-El Cajon) did exactly that. He introduced HR 3690, legislation which, if passed, will effectively strip the postal system of the ability to introduce new products: no photocopying, no gift-wrapping, no notary public, no selling of office supplies. “The postal service has a job to do--deliver the mail and sell postage. That is what it was designed to do by the founding fathers,” Hunter argued. “Offering ancillary services only detracts from their core mission.” Behind the scenes, the real issue is that Mail Boxes Etc. and other players in the $3-billion-per-year industry don’t want the competition.

And why should they face it? After all, every one of their customers is necessarily a refugee from his or her local post office: These companies exist because the postal service hasn’t met the demand for service.

Smith doesn’t buy it. “There’s an attitude in the private sector that the postal system should continue to be hobbled so they can make a lot of money.” While he admits those companies were born because the postal service has “lousy hours and doesn’t have good service,” he argues that past failures don’t mean the postal service shouldn’t strive to improve, to compete, to act as it should have in the first place. “Customers shouldn’t be inconvenienced just so someone has a competitive advantage.”

But by October, the postal Board of Governors had had enough. The political heat was becoming unbearable and Loren Smith became the sacrificial lamb. He “resigned” Nov. 1 and was replaced by Allen Kane, a 25-year postal service executive. The official reason was the overspent advertising allowance, but the de facto firing was a culmination of two years of ruffled feathers--the logo flap, the political convention fiasco, the outraged corporate lobbyists. Postmaster Runyon was pleased with Smith’s work but evidently didn’t have the power to forestall the board’s pink slip. “Loren is very dynamic and hard-charging, which is a little bit different from what the postal service is used to,” Runyon says. In other words, the board sent Runyon a message, via Smith, on pink paper: Slow down. Smith is presently in Taos, fly-fishing.

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Despite the tomatoes and worse hurled from the corporate boxes, Runyon insists that the postal service will press on with its hard-hitting promotion efforts. He has already presided over a major overhaul of the basics. There’s a $5-billion tracing and tracking system, in development for six years with another four to completion; a single toll-free number to replace the current system of hundreds of separate 800 numbers; new hubs in several cities and a focus on express delivery in certain corridors, like L.A.-San Francisco and New York-Miami. Post offices are spruced up. Stamps are available in automated teller machines. Dinero seguro, a money order being pushed in Latino neighborhoods, is part of a strategy to lure customers that banks don’t want for basic financial services.

But even if all this comes to pass--stronger image, better service, improved reliability, more freedom to compete, less regulation--the electronic age still looms. Snail mail will inevitably lose ground to the Internet for decades to come. It’s a race against technology that some are convinced cannot be won. Now what?

The postal service, for once, has a plan.

Twenty-two years ago, it was offered a crack at involvement with a promising young venture: the Internet (then called ARPAnet). A savvy assistant postmaster general warned that if the postal service didn’t seize the opportunity, it would be bypassed technologically. But the postal service hemmed and hawed, considered a half-baked hybrid, hand-delivered e-mail system, and ultimately, with typical foresight, passed on the opportunity.

Now the postal service has a backdoor strategy to get a slice of the ever-expanding online pie: electronic postmarking. The basic idea: You create an e-mail and choose whether to send it regular or “postal.” If you choose the latter, then for a small fee (22 cents has been floated) the e-mail is sent to postal service computers to be “authenticated”--affixing a postmark to prove that the message was transmitted and that it was not tampered with. Within a few minutes, the postal service routes the e-mail to its destination.

With $20 million already invested and possibly hundreds of millions in the immediate future, electronic postmarking sounds like another blunder. Who would pay a per-letter fee for e-mail when they pay nothing now? Businesses. Mark Levitt, a research manager at International Data Corp., a market research firm, says, “Financial institutions, law firms, government agencies, hospitals--those who need to know precisely when a court filing or a bid was delivered. Would you pony up 22 cents for a $100,000 contract? Of course. That’s nothing.” Electronic postmarking is already being tested in Sacramento hospitals and elsewhere; the postal service is talking to Lotus and Microsoft about integrating the postmarking into their systems and working on encryption technologies to make online business more secure.

Levitt says that for many business users these services will become inevitable. “The postal service is getting in on the ground floor, which is smart,” he says. “This demand for Internet security is not a fad.” He cautions, however, that this will not be a big revenue booster “for a long, long time.”

But do we really want the post office to handle e-mail? This is the same outfit that, in August of this year, had a software error accidentally eliminate the Patent Office in Washington’s ZIP Code--20231. For two weeks, all patent filings were returned to sender, over 50,000 pieces, wreaking havoc with the nation’s intellectual property.

Think about it: When America Online crashed this year, it made the front page of every business section in the nation. What happens when the postal service computers go down? Letterman and Leno would have a field day; camera-hogging politicians would call for investigations. Even if businesses want electronic postmarking, why can’t the private sector provide it? Runyon says, “Many companies come to us and say, ‘We need a third party that we can trust that the messages are not tampered with.’ The postal service is that trusted institution.”

Levitt agrees. “This isn’t rocket science here. And they won’t be a monopoly online. If you want their service, fine. If not, you simply send e-mail without an electronic postmark, the way you’ve always been sending.”

The postal service is also rolling out two other spiffy cyber-products: Global ePost and NetPost, which allow big computer-to-computer handoffs directly to the postal service. In theory, a small-business owner might be able to closely manage, say, the Christmas catalog mailing right from her laptop, saving the headache of running back and forth to printing and letter-preparation shops and ensuring that timing is perfectly coordinated. On a larger scale, Visa or American Express or MCI could wait until the eleventh hour before sending bills, making sure every purchase is on the statement, possibly even including those made the same day.

The electronic post office is quite a gamble. Already, the first interactive postal venture has folded, through no fault of the postal service, however. In September, Time Warner quietly pulled the plug on its much-hyped Orlando interactive cable experiment, which included features offering stamps and postal products. The debacle should serve as a cautionary tale: The information age has not been kind to the corporate giants clambering aboard.

The postal service is at a crossroads. The devil: The post office won’t just lose your mail, it’ll lose your e-mail, too. The deep blue sea: A “back-to-basics” post office will lose so much business to the Internet that stamp prices will rocket. Were he alive today, Ben Franklin, who headed up the operation 220 years ago, would probably gamble on the future. Then again, he might well be sitting next to Loren Smith, on the sidelines, fly-fishing.