As the saying goes, “Success has many parents while failure is an orphan.” To a degree, this may apply to the stillborn negotiated service agreement with Publishers Clearing House that the Postal Service had filed last August 11. That filing was different from other NSAs in that it was for market-dominant mail, not competitive products. As the USPS stated in its filing:
“The PCH NSA is designed to give PCH a discounted initial mailing of one million pieces of USPS Marketing Mail letters, mailed at cost. This initial mailing is limited to one million dormant prospecting customer addresses, which PCH has not mailed to within the past three months. In exchange for these discounts, PCH has committed to certain performance targets for follow-on mailings, both from PCH to the addresses of this million piece mailing and to PCH from the addresses of this million piece mailing, that are expected to result from the initial mailing, also known as a ‘multiplier effect.’ PCH expects two million pieces will result from the initial mailing, mailed at published rates, within nine months of the date of the initial mailing. If the parties deem the initial mailing and performance satisfactory, an additional second prospecting mailing could be authorized at least six months after the initial mailing. The same performance period and performance targets would apply to the second mailing. The forecasted expected multiplier volume by source is as follows [the numbers were redacted in the public notice]:
- Initial First-Class Mail sweepstakes entries from target prospects
- Marketing Mail follow-ups from PCH
- First-Class Mail responses by customers to follow-up Marketing Mail
- Invoices sent by PCH to converted prospects
- Responses to invoices from converted prospects
“The parties intend for the NSA to take effect in November or December 2023, upon favorable review from the Commission. The initial mailing date will then be established at least thirty calendar days after the effective date of the contract, expected to be in January 2024 or shortly thereafter. The contract term will be one year from the date of the initial mailing. If the parties agree to a second mailing, then the NSA term will conclude one year from the date of the second mailing. …
“If this NSA proves to be successful in improving the net financial position of the Postal Service, as expected, the Postal Service stands ready to consider NSAs on comparable terms to similarly situated mailers, provided that these mailers can provide a similar “multiplier effect” and are willing to commit to performance targets that mitigate the financial risk to the Postal Service.”
Concerns
Because it was in barely charted territory – there have been only a handful of NSAs for market-dominant products (First-Class Mail and/or Marketing Mail), including agreements with Bank of America, Bradford Group, Bookspan, HSBC North America, Discover Financial Services, and PHI Acquisitions. Most expired over a decade ago; the last was PHI’s that ended in 2018.
Moreover, the PRC has traditionally been leery of market-dominant NSAs, fearing they would offer a discount for “anyhow mail,” i.e., volume the mail owner would have sent even without the incentives proposed by an NSA. How either the Postal Service or PCH could dispel such a conviction wasn’t clear – there’s no possible evidentiary answer to a hypothetical presupposition. Similarly unclear is whether the commission believes that, absent such proof, the NSA shouldn’t be approved because, presumably, the mail would have been sent anyway.
Many in the commercial mailing industry were concerned that the PRC is less interested in exploring new ways to build (or preserve) mail volume than it is in preventing unjustified discounts and protecting the USPS from any level of financial risk. The USPS had taken pains to include provisions in the NSA to minimize such exposure that, even at its worst, would be reimbursed by PCH.
Approval
In a 41-page order issued November 22, the PRC provisionally approved the NSA, stating it had concerns about the lack of an “analytical principle,” i.e., a basis for evaluating the financial benefit expected from the incentive. As in previous market-dominant NSA proposals, the PRC also had serious concerns about the wisdom (and benefit) of offering a discount for “anyhow” mail that, it worried, would have been mailed without an incentive. As the PRC explained:
“One of the required pieces of information that the Postal Service must provide is ‘[d]etails regarding the expected improvements in the net financial position … of the Postal Service[,] … [which] shall be based on accepted analytical principles.’ …
“The Commission’s current accepted analytical principle for evaluating the contribution of Market Dominant NSAs is often referred to as the ‘Panzar analysis,’ as it was first developed by the economist John Panzar in the earliest Market Dominant NSA cases in the early 2000s. This methodology uses either a mailer’s specific price elasticity or a proxy of it (such as the subclass elasticity for the type of mail subject to the NSA), to attempt to quantify the volume increase that can be attributed to a discount, as distinguished from changes in volume that are due to other factors. …
“… [T]he Commission concludes that the design of the PCH NSA does not lend itself to the use of the Panzar analysis. However, that does not relieve the Postal Service of its fiduciary duty or from relevant statutory and regulatory requirements. The Postal Service does not … provide any explanation as to why the current accepted analytical principle is not the most accurate and reliable methodology available. Nor does the Postal Service … propose an alternative methodology that would objectively address the question of what volume of mail PCH would have been likely to have mailed absent a discount. The Postal Service’s financial analysis simply takes PCH at its word that none of the volume that would be sent under the PCH NSA would be mailed absent the NSA, particularly with regards to the initial mailing. This is precisely the kind of reliance on mailer assertions without critical analysis that the Commission has been critical of in the past. …”
Too late
Unfortunately, the approval came too late for PCH to implement its marketing plans, and so the company saw no value in pursuing the NSA. In turn, in a barely four-page notice sent January 17, the Postal Service informed the commission, and was clear that the withdrawal was directly related to how long it took the PRC to render its decision:
“The United States Postal Service hereby provides notice, in response to Commission Order No. 6813 (November 22, 2023), that Publisher’s Clearing House (PCH) has declined to implement its Negotiated Service Agreement (NSA) because of the delay in receiving regulatory approval of its contract.
“As background, the parties agreed on terms in late July 2023 to establish the NSA at issue in this docket. The Postal Service moved swiftly to obtain Governors’ approval on August 8, 2023, and file with the Commission on August 11, 2023. As the Postal Service noted in its initial filing, because of the relative complexity of market dominant NSAs and the difficulty of obtaining regulatory approval, the PCH NSA was the first market dominant NSA submitted to the Commission for review since 2014. The parties expected to receive favorable review from the Commission within two months, in order to give PCH adequate lead time to procure inventory, design a mailing campaign, and work with the Postal Service to validate the prospect list for its initial mailing, aiming for an initial mailing date in early January 2024. This was a reasonable expectation, based on the implicit 45-day time-frame for market dominant NSAs contained in [PRC regulations], and factoring in additional time for reasonable delays in the review process.
“Initially, it appeared that this timeline would be feasible. The Commission issued a single Chairman’s Information Request on August 23, containing only four questions, to which the Postal Service timely responded on August 30, with errata filed for certain supporting material on September 6. Comments were filed by the mailing industry and other parties on September 11 that were strongly in favor of market dominant NSAs in general, and the PCH NSA in particular. No additional issues were raised, and no follow-up information requests were submitted. Thus, within one month of the Postal Service’s filing date, all signs pointed to a smooth regulatory process and prompt Commission approval.
“Unfortunately, Commission approval was not issued until November 22, ten weeks after the last activity in this docket, and one day before the Thanksgiving holiday. By that point, PCH had significant levels of uncertainty about the status of its NSA and how it should allocate its budget for CY 2024. The week after receiving Commission approval, PCH and the Postal Service engaged in discussions on whether it was still feasible to implement the contract and take all necessary steps to establish an initial mailing date. PCH’s goal was to mail in January and have most of the multiplier volume mailed prior to the anticipated July price increase, which they assume will include the additional rate authority above CPI. With the lead time needed for procurement of the merchandise to be offered along with paper acquisition, the soonest an initial mailing could be planned would be the middle of March. In PCH’s estimation, a postage increase three months later would reduce the likelihood for the reactivated names to be profitable in the desired payback period. Regrettably, PCH determined not to go forward with implementing its NSA.
“It should also be noted that the Postal Service, in addition to receiving a great deal of positive industry feedback over the revival of market dominant NSAs, has had several other customers eagerly awaiting the resolution of the instant docket so that they could pursue their own market dominant NSA with the Postal Service. This includes mailers that seek functionally equivalent NSAs to the PCH NSA and others who seek different types of arrangements. These customers have been in a holding pattern for multiple months, and now with the failed implementation of the PCH NSA, must continue to wait to establish an NSA with the Postal Service, and face considerable uncertainty of their own.
“As the Commission ordered, it will ‘refrain from approving any other NSAs structured like the PCH NSA until a relevant accepted analytical principle is in place.’… Customers who seek to follow PCH’s lead with a functionally equivalent NSA are now left in limbo. Moreover, customers who seek more unique NSA opportunities with the Postal Service for market dominant products are now left to wonder if their NSA will be favorably reviewed by the Commission, and how long that process might take.”
Though dispassionately stated, the Postal Service’s notice had clearly left the corpse of the NSA – and the future of similar NSAs – on the PRC’s doorstep.
Pushing back
The PRC didn’t appreciate the Postal Service’s attribution of PCH’s decision to the commission’s “delay.” In a ten-page order issued January 29, the PRC fired back:
“… The Postal Service contends that the reason for PCH’s decision was perceived ‘delay in receiving regulatory approval.’ This is untrue and inconsistent with the facts. The Commission approved the PCH NSA within the timeframe identified in the Postal Service’s Request. At no time prior to the Commission’s approval did the Postal Service inform the Commission that the PCH NSA needed to be approved earlier to allow for implementation. As further explained below, the Commission remains ready to approve requests for Market Dominant NSAs that meet the legal requirements. …
“As explained in Order No. 6813 [provisionally approving the NSA], after attempting to obtain relevant information from the Postal Service pertaining to its novel Request that could not be evaluated using the Commission’s accepted analytical principles, which are well established and mutually understood by the Postal Service and the Commission, the Commission nevertheless provisionally approved the Request on November 22, 2023. This was within the timeframe expressed in the Postal Service’s filing for the parties to implement the PCH NSA to meet an initial mailing date “in January 2024 or shortly thereafter.” On January 17, 2024, stating that PCH has declined to implement the PCH NSA, the Postal Service lays the blame at the Commission’s feet for ‘delay in receiving regulatory approval of its contract.’ As the record below reflects, however, any perceived delay was due to the Postal Service’s failure to follow Commission regulations and challenges in obtaining information sought via a Chairman’s Information Request (CHIR).
“… The Commission’s regulations require the Postal Service’s initial request to include ‘[d]etails regarding the expected improvements in the net financial position … of the Postal Service[,] … [which] shall be based on accepted analytical principles.’ However, ‘f the Postal Service, believes the Commission’s accepted analytical principles are not the most accurate and reliable methodology available[,]’ then the Postal Service shall provide ‘[a]n explanation of the basis for that belief; and … [a] projection of the change in the net financial position resulting from the agreement made using the Postal Service’s alternative methodology.’ …
“As discussed in Order No. 6813, the novel design of the PCH NSA was not able to be evaluated using the Commission’s accepted [Panzar] analytical principle. However, the Postal Service did not propose any alternative methodology for evaluating the contribution associated with the PCH NSA that took into account the issue of anyhow volume. … CHIR No. 1 sought data that could have been used to conduct an alternative analysis of this issue, but the Postal Service filed a motion for reconsideration objecting to the provision of such data. This left the Commission with insufficient information to thoroughly analyze the likely contribution associated with the PCH NSA.
“Nevertheless, given the novel structure of the PCH NSA, and in recognition of the Postal Service’s need to be able to exercise flexibility and innovation to attempt to counteract Market Dominant volume declines, the Commission ultimately decided to provisionally approve the PCH NSA. The Commission conducted a sensitivity analysis and concluded that given the PCH NSA’s small scale, along with several other mitigating factors, the risk that the PCH NSA would result in lower contribution than would occur in its absence was minimized. Moreover, the Commission found that the PCH NSA had the potential to serve as a useful experiment, offering the Postal Service the opportunity to pilot a novel NSA structure with minimal financial risk, while at the same time providing both the Postal Service and the Commission with valuable data and experience that could be used to develop a new accepted analytical principle for evaluating the contribution associated with NSAs like the PCH NSA in the future. The Commission stated that it would initiate a rulemaking docket to develop such an analytical principle, but in the meantime it would refrain from approving any other NSAs structured like the PCH NSA until an accepted analytical principle was in place. …
“Despite the Postal Service’s post hoc statement that it and PCH ‘expected to receive favorable review … within two months … ,’ the Postal Service failed to articulate this expectation anywhere in its submissions before the Commission. To the contrary, its filings with the Commission merely stated that ‘[t]he parties intend for the NSA to take effect in November or December 2023 … [,]’ and that ‘[t]he initial mailing date will then be established at least thirty calendar days after the effective date of the contract, expected to be in January 2024 or shortly thereafter.’ The Commission’s Order No. 6813 approving the PCH NSA was issued on November 22, 2023, which was clearly within the timeframe expressed in the Postal Service’s Request.
“Moreover, any ‘delay in receiving regulatory approval’ of the PCH NSA was attributable to the Postal Service’s failure to address the Commission’s precedent or follow the Commission’s regulations, all of which were public and known to the Postal Service far in advance of its filing. …
“Because of the Postal Service’s failure to provide upfront with its filing an alternative methodology with which to evaluate the financial impact of its novel proposal, the Commission had to consider whether it could approve the PCH NSA in light of its statutory obligation to ensure that the PCH NSA would be more likely than not to improve the net financial position of the Postal Service. …
“The Commission remains ready and willing to approve any Market Dominant NSA that meets the requisite legal requirements. …
“In response to the Postal Service’s claim that all future Market Dominant NSAs are doomed by the Commission’s decision in this case, the Postal Service is directed to Order No. 6813, which laid out potential options for future agreements. In CHIR No. 1, question 1, the Commission gave an example of at least one alternative analytical approach that it would be amenable to – one that focuses on objectively assessing the profitability of mail volume subject to the NSA. …
“If the Postal Service has concerns about the speed of Commission review vis-à-vis the planned implementation date for a novel NSA it wishes to pursue, it could initiate a proposal to establish a new accepted analytical principle for evaluating the contribution associated with Market Dominant NSAs (or particular types of Market Dominant NSAs) prior to filing a request for approval of the NSA. The Commission also remains open to considering another Postal Service request to conduct an experiment along the lines of that contemplated by the PCH NSA with a different mailer, assuming that the scale and risk mitigation profile are similar to what was proposed in the PCH NSA.
“… To the extent that the Postal Service wishes to pursue further Market Dominant NSAs with other mailers, the Commission offers this response as guidance going forward.”
Claiming the orphan
Clearly, neither the Postal Service nor the commission wants to be forced to adopt the orphan of failure, and each party has a reason for taking its position. Reading the Postal Service’s January 17 notice, it appears the commission was simply too slow in making its decision but, in reading the commission’s response, the PRC’s pace might be attributed to the Postal Service not providing the “analytical principle” the commission needed to support favoring the NSA. To outside observers, there seems to be blame to share.
On the one hand, the Postal Service knew the commission would need an “analytical principle” but tried to avoid supplying one in the interests of time. The agency also seems to have not been as clear as it should have about the timeline on which PCH was operating and how that, in turn, drove the timeline for the PRC to act.
On the other hand, the commission took a very cautious – some would say overly cautious – approach to the issue of “anyhow mail” and was consumed by the need for an established “analytical principle” to offer shelter from the risks attendant to the novel NSA.
In sum, there’s no black-and-white answer as to the parentage of the failed NSA. The USPS tried to shortcut some steps and hurry the process, and the PRC was unwilling to step outside the box to learn if an untested idea would work.
At the close of its response to the USPS, the PRC stated that
“… based on PCH’s decision not to implement the PCH NSA, it is no longer necessary for the Commission to initiate a rulemaking docket to establish an accepted analytical principle as contemplated in Order No. 6813. It would not be an efficient use of either the Commission’s or the Postal Service’s resources to attempt to develop a new analytical principle in the absence of an actual NSA and without the data and experience that the PCH NSA was expected to provide. …”
Such a position seems to be less than proactive.
If, as it claims, the Postal Service has other customers interested in pursuing a market-dominant NSA, it might be wise for the likely protracted and technical argument about an appropriate “analytical principle” to be engaged. The best interests of potential NSA customers and of any additional mail volume or revenue they could supply might be well-served if the USPS and PRC set aside their bickering and engaged in the necessary anticipatory rulemaking.
Though the current postal administration has prosecuted an adversarial approach toward the PRC, believing it to be an “impediment,” the PRC has done little to overcome the perception that it prefers to hunker down within the ramparts of conservative legalistic principles rather than risk any creative thinking.
A constructive attitude adjustment on both sides might eventually yield the necessary framework to enable retention of mail volume and revenue from willing ratepayers.
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