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Australia Post must rediscover its purpose

09 Mar 2015

University of Sydney Business School

By Gary Oliver

When an organisation is losing money there are two standard responses. First, put up prices. Second, stop offering the product or service.

In the case of Australia Post things aren’t that simple because mail is important, particularly in rural areas, and not everyone pays for the internet.

Anyone who stands at the entrance to a post office must have wondered what business Australia Post is really in. In front of you are toys, stationery, books, lollies, food and technology items. They are displayed using bins, racks and stands that create aisles for queues of customers waiting for counter service by Australia Post staff. This suggests that Australia Post are not sure what exactly is their business and how to market it.

In an article called marketing myopia in 1960, Theodore Levitt contrasted marketing to sell products with marketing to satisfy customer needs. It appears that Australia Post have taken the product approach and conceded that their main products - letters - no longer appeal to customers.

We know why there has been a decline in the numbers of letters posted: other alternatives are quicker, cheaper or more convenient. But we haven’t seen letters promoted in any creative or practical way.

All Australia Post has done is watch the drop in letter volume and use it to soften up Malcolm Turnbull and the government to deregulate letter prices, reduce community expectations about the service and emphasise the business they really want to be in is parcels.

The talk of a new two-speed mail delivery service is old wine in new bottles. We already have a two-speed service: traditional snail mail and express envelopes. It now appears that the express envelope service will be cannibalised for the new two-speed mail. The number of post boxes will be reduced by about 75 per cent.

The revenue improvement from increases in prices is also unclear. Australia Post head office offers organisations with large mail volumes concessional rates. Turnbull has flagged the need to have government departments send fewer letters. It is also unclear what rate the ACCC will consider is the efficient cost of a standard letter service. Certainly a contributor to the high fixed costs of Australia Post is the astronomical salary of its chief executive, Ahmed Fahour.

Gaining government acceptance to increase the cost of letters may help one forgotten group: licensed post offices. These are the post offices that are managed by independent owners whose revenue depends upon letter prices. Many of them are in rural areas where they cater for a local clientele which may also be reducing in number.

Licensed post offices derive no income from handling parcels on behalf of Australia Post yet this is the bulk of their activity. As the Senate inquiry found, Australia Post had not consulted them on its strategic plans. The operation of concessions and the retention of the Christmas card fixed rate will not improve their income.

The real question is what is Australia Post’s strategy? Some say it is to unshackle itself from government ownership by (a) emphasising its inevitable unprofitability and inability to deliver a dividend to the government, and (b) seeking funding of its community service obligations for mail delivery from the government as a secure source of revenue.

Others say it is to rid itself of the letter business and focus on parcels. It is not clear how the acquisition of the Startrack parcel service from Qantas occurred. It certainly fits the priority for parcels. However, it is puzzling why they would choose to compete in such a crowded space against organisations with worldwide coverage and superior systems for logistics.

Australia Post has been very effective in softening up the government and the media on the unprofitability of letters. There has been very little questioning of its own complicity in the downfall in volume and revenue. It is easier to blame the customer and competing technologies and redefine the business as that of parcels.

The recent Boston Consulting Group report noted the decline in letters. Their loss of customers is due to the marketing of their competitors. With the salaries in the head office (409 managers and executives at Australia Post were earning more than $195,000 a year), they should have no difficulty attracting marketers and finding what customer needs they can satisfy.

This article was also published in The Australian.

First published in University of Sydney Business School

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