Bloomberg Businessweek Expanding Use of Alternative Delivery

Bernie Schraml, Bloomberg Businessweek's Director of Manufacturing and Distribution has told the Courier Express and Postal Observer that the magazine will more than double the number of weekly issues delivered by alternative delivery when the magazine switches delivery in the Los Angeles, CA, San Diego, CA, Chicago, IL, and Portland Oregon media markets in August.  With the addition of these four markets, Postal Service competitors will deliver around 20% of all of Bloomberg Businessweek's circulation, or around 170,000 copies every week. 

Mr. Schraml told the CEP Observer that additional markets, will switch to alternative delivery in September with the timing depending upon finalization of negotiations of with delivery firms.

Since the publication of the last article on Businesweek's switch to alternative delivery, Mr. Schraml stated that other periodicals and periodical associations have contacted him to get more information on both costs and service quality. Delivery firms have also contacted Mr. Schraml and he indicated that these delivery firms could allow expansion in markets beyond those that he expect will start in September.

With this expansion, Bloomberg Businessweek will use alternative delivery in the following markets at the end of August:

• Los Angeles, CA
• San Diego, CA
• San Francisco, CA
• Washington, DC
• Chicago, IL
• Boston, MA
• Portland, OR
• Philadelphia, PA

Businessweek Fires the Postal Service

Last week, Businessweek told many of its Washington DC customers that the Postal Service will no longer deliver the magazine.  Instead, the weekly magazine will use the Washington Post's delivery service to deliver the magazine early on Friday morning at the same time that it delivers newspapers.

In an interview, Bernie Schraml stated that Washington DC is the fourth market that Businessweek has turned to alternative delivery.  It started the shift in Philadelphia in December, 2010; followed by San Francisco in February, 2011 and Boston, MA in June, 2011.

Combined, alternative delivery now represents 10% of Businessweek's 850,000 subscribers. This shifts 4.42 million magazines from the mailstream annually.

Currently, Businessweek is negotiating with delivery firms in four additional markets which it hopes to bring on-line by the end of the year.   Mr. Schraml indicated that Businessweek is looking for distribution partners in other cities to expand the use of alternative delivery beyond the eight markets already in operation or under negotiation.  

Mr. Schraml indicated that the delivery company in two of the markets is The Washington Post and the Philadelphia Inquirer.  Businessweek is delivered by the newspaper delivery network early on Friday morning at the same time that the Friday paper is delivered.  The magazine arrives at the recipient's address in the same manner as the daily newspaper.

While alternative delivery has shifted subscriptions from the mailstream in four markets, not all subscribers in these markets receive their Businessweek via alternative delivery.   The contracts with delivery firms specify the 5-digit zip codes that the delivery firm delivers to, and in some cases the portion the portion of the 5-digit zip code that it serves.   All other recipients continue to receive their magazine by mail.   Even with the cherry-picking of delivery points, the alternative delivery firms have made a major shift in volume.  Mr. Schraml expects that contracts in other cities will be similar with the delivery firm delivering magazines to a significant portion of Businessweek's subscribers and the Postal Service delivering to only those subscribers that alternative delivery firms cannot reach.

Mr. Schraml indicated that the primary driver in shifting to alternative delivery is service.  In order for Businessweek to compete with the Wall Street Journal's Saturday edition, Barron's, and the Sunday New York Times as well as its own and competitor's web-based content, it needed to arrive on the same day or before these competitors arrived.  Therefore, Businessweek requires delivery on Friday or Saturday with as late a drop-off time as possible.  In cities where Businessweek has begun alternative delivery, Mr. Schraml stated that delivery quality was better than both Postal Service standards and his experience with Postal Service delivery.   The newspaper delivery networks have delivered 100% of its issues on Friday morning.  With the Postal Service, only 30-35% arrived on Friday and no more than 69% were delivered by Saturday.

The alternative delivery networks also offered Businessweek greater flexibility as their critical entry times were no earlier than late afternoon Thursday, and in one city, Friday delivery could be made with entry as late as just before midnight the night before.  Critical entry times for the Postal Service are currently earlier than that of alternative delivery, and starting July 1, they will become even earlier putting the Postal Service at even a larger service disadvantage.   (See Dead Tree Edition)  The potential loss of Saturday delivery creates further problem as that could push the share of magazines with entry into the mailstream on Thursday and delivered before the weekend below 50%.  (For Businessweek and other publications that need late critical entry times due to competitive concerns, earlier critical entry times and the loss of Saturday delivery could make their print product noncompetitive.)

Businessweek's focus on service as the primary motivator for alternative delivery is different from the driver of alternative delivery over two decades ago.  The larger periodical publishers created a nationwide alternative delivery network in 1990 called Publishers Express with a goal of delivering periodicals at a lower cost than the Postal Service. (Pittsburgh Press, Pittsburgh, Pennsylvania) October 29, 1990, pages B5, B7)  Publishers Express acted as a middleman between the publishers and printers and the local delivery firms in both large and small metropolitan areas. This alternative delivery network went out of business in 1996 (Lawrence Journal World, Lawrence, Kansas, February 28, 1996, p. 4D) as it met neither the profitability nor the service requirements that its publishers/owners demanded as well as efforts of the Postal Service to counter the competitive threat.

When asked about price, Mr. Schraml indicated that the total cost of alternative delivery was competitive or less but he did not provide specific cost information.  

He did indicate that alternative delivery had lower preparation costs for Businessweek as addresses were not printed on the magazine, magazines did not have to be combined in bundles to reflect presort requirements and magazines could be loaded on full pallets for alternative delivery as opposed to partial pallets for the Postal Service.  The difference in pallet size reflect the presort requirements of the Postal Service.   The difference in mail preparation and palletization lowers Businessweek's printing and transportation costs.  

Mr. Schraml indicated that he is interested in talking to other publishers about his experience and potential delivery firms about delivering Businessweek in other markets.  Given the speed that he has moved so far to shift subscribers to alternative delivery,  he should be able to shift well over half of his subscribers to alternative delivery within a year.  

Impact on the Postal Service

For a commentary on the impact on the Postal Service see:

The Death Spiral Could It Be Driven By Service As Well As Costs

Leaving the Mailstram: Saturation Advertising

This blog had previously reported on the actions of Valassis to use alternative delivery for its saturation advertising products.  Last month, PowerDirect, a California company that manages a nationwide network providing door delivery of advertising introduced a new direct-to-door, co-op polybag media program announced that it will launch its service in Las Vegas on July 3. 

PowerDirect like other firms trying to compete with the Postal Service for a share of the market for delivery of print advertising to households is a firm focused on local delivery of advertising.   Their business model allows them to compete with the Postal Service on both a price and service basis.  The success of these firms suggests there is a business model that allows for home delivery of advertising at below $1 per stop and more than likely at a cost that makes their advertising products competitive with Postal Service delivery.   This business model is not the model of FedEx, UPS that shifts parcels going to remote locations and those that generate less than $3 to $4 in revenue to the Postal Service through their services integrating pick-up and transportation to near destination by UPS or FedEx and delivery by the Postal Service.  

In its Press release, Mike Hiskett, VP of Sales at PowerDirect highlighted the Postal Services problems to press the case for the new product. “We have seen the many challenges that our retailer clients face in trying to reach consumers at home on the weekend when they are most likely to make purchase decisions and shop,” states Mike Hiskett, VP of Sales at PowerDirect. With shrinking newspaper circulation, limited Total Market Coverage (TMC) programs, and the prospect of a Saturday postal-service cutback, many of our clients are seeking a more reliable weekend marketing medium to drive incremental sales."

The Postal Service can expect more and more firms in the advertising and periodical delivery business to begin nibbling away at what it perceives to be an impenetrable market.  These firms know now that they can compete on price.  Their challenge going forward is to convince customers that they can compete on service and investment return.

Is it Time to Choose Alternative Delivery?

Mailers face greater uncertainty today than ever before about the future of the Postal Service.  Mailers face the real possibility that rates could begin rising faster than inflation in 2011 and beyond if the Postal Service's volume projections do not pan out or Congress fails to make all of the changes necessary to ensure a viable postal enterprise.  The face the likelihood of less service as the Postal Service switches to 5-day service and less certain service as the inevitable glitches arise during the transition.

So what should a mailer do?

Most mailers have few options.   If they want to delivery to households, access to the mailbox is key and only the Postal Service has access.  Therefore, if they want a delivery to a household, they have to have a product that does not require delivery to the mailbox.  Valassis currently is expanding its use of alternative delivery networks in numerous media markets across the United States for delivery of its saturation advertising products.   In these markets, Valassis partners deliver the ads in plastic bags on door steps instead of the mail box.   This delivery mechanism that works well for saturation advertising and work even better if others saturation mailers, including Valpak, political candidates, community colleges, and health care facilities would partner with Valassis and use the same network.  Right now Valassis and other have the choice of alternative delivery firms for saturation advertising in at least 28 states, with local firms serving customers in most others.

Periodical mailers tried to develop an alternative delivery network for household delivery of periodicals nearly 20 years ago with Publisher's Express.   This experiment ended once the Postal Service lowered its rates and increased mailer worksharing which eliminated the cost advantage that Publisher's Express promised. 

Mailers seeking delivery to business addresses may have options but few have explored them fully.  Most business addresses do not have mailboxes, so alternative delivery services have greater access to the recipient than they do for home delivery.

A vibrant periodical delivery industry has existed for over 35 years focused on deliveries to business addresses.   This industry offers delivery of daily, weekly, and monthly periodicals to businesses in most metropolitan areas.  These firms currently generate less than 25% of revenue generated by the Postal Service and the private sector in the delivery of periodicals to business addresses in the markets they serve.   As these firms regularly stop at most businesses in their service area on a daily or weekly basis, they could add volume from mailers to businesses that use the Postal Service at very competitive prices

Right now mailers to businesses facing the greatest price pressure are those that mail periodicals.  Advertising in trade and business publications down so finding a cheaper delivery route could sustain the print product until the economy and advertising recovers, or the publication fully switches to a digital only format.    The problem is even greater for mailers whose format will not pass the Postal Service's "droop test."  Alternative periodical delivery firms would have little trouble handling this mail now at rates more than competitive with the Postal charges now or will charge after the new "droop test" rules go into effect.  


Right now, I would advise mailers that are concerned about the uncertainty associated with the Postal Service's rates, service quality, or acceptance rules should begin exploring what alternatives now exist.   I would expect that most would find the breadth of offerings now available would surprise them.   If you need assistance in exploring available options, and if necessary creating new ones using the existing alternative delivery infrastructure contact me at alan.robinson@directcomgroup.com .