How USPS Overcome Substitution Threat

Considering substitution threats, our US Post Office is faced with a serious threat from email and online banking. Their proposed solution is to raise the price of first class mail again. What do you think of that strategy? Have they all but given up? Is it their only recourse? What happens next?

Considering the widespread use of email and online banking and the increased competition from fellow players such as UPS and FedEx has attributed to a steep decline in USPS business. Another reason that has lead to increased burden on the quasi-government organization is its wastage of money on sports-sponsorships and its inability to reduce labor costs even though they invested huge amounts on fancy automatic mail sorting equipment (Ryan S., 2004, March 10.).

All these events forces USPS to work on price hikes to remain financially stable. Increase in gas price or inflation, probably, is not the root cause for the price hikes. If it was, we could have seen the same in the history, almost constantly. The introduction of the ‘Forever’ stamps is an example that indirectly proves this (USPS, 2007, March 26). The consumers can use these stamps at 41 cents, forever, irrespective of the price cuts.

Given any situation, the price hikes is not at all a good strategy. Price hikes is not the only solution to improve or aid its financials. Instead, USPS need to consider organizational improvements, leveraging its current e-commerce capabilities, cutting down of labor costs and unnecessary spending on ads and commercials and sponsorship activities, which will retain huge capital and will reduce the operational costs to a greater extend. They really do not require extensive advertisement, since they already has the monopoly over first class mail service with full government support.

To retain its credibility, USPS need to work in these lines and make sure that its labor costs are kept under control. If not, and they continue with price hikes, soon, competitors will take advantage of the situation and will be succumbed to pressure by email and other online convenience services.

References:

1. Ryan S. (2004, March, 10). Going Postal. Retrieved April 27, 2007 from http://www.nationalreview.com/comment/ryan200403100927.asp

2. USPS. (2007, March, 26). Nation gets sneak peek of the forever stamp. Retrieved April 27, 2007 from http://www.usps.com/communications/newsroom/2007/sr07_011.htm

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