Secret market survey

The year of wishful thinking: The market research on Network Rationalization

July 23, 2012

At the end of last week, the participants in the Advisory Opinion on Network Rationalization submitted reply briefs that address the issues and arguments in the initial briefs filed a couple of weeks ago.  Much of the debate about the advisability of proceeding with the consolidation plan hinges on the market research conducted last year to determine how big the revenue losses caused by the change in service standards might be.

As those who have been following this story know well, there were two phases of quantitative research.  The first round was conducted last August.  When the results came in, the Postal Service estimated a total volume loss of 7.7%, a revenue loss of $5.3 billion, and a net contribution loss of $2 billion.  That net loss would have nearly wiped out all of the $2.6 billion in operational savings from the consolidations. 

The Postal Service decided it needed to have the research firm re-do the survey, and the results of the second phase, done in October, were presented as testimony with the Request for an Advisory Opinion in December.  The Phase 2 survey showed a total volume loss of 1.7%, a revenue loss of $1.3 billion, and a net contribution loss of $500 million.  (All the numbers for the two surveys are here.)

The Postal Service didn’t mention the existence of the Phase 1 research in its initial testimony, but after a number of interrogatories were posed concerning the market research, the Postal Service revealed there was an earlier phase.  The Postal Service claimed the earlier round of research had been “abandoned” and left “incomplete.”  This research was “flawed” and “unreliable” because the concept statement read to participants to initiate interviews had mentioned other initiatives on the table — closing post offices and eliminating Saturday delivery — and this led customers to overestimate how much less mail they would send if service standards were changed.  

Several participants in the Advisory Opinion have argued that the Phase 1 research was valid, probably more valid than the Phase 2, and the Postal Service is seriously underestimating how much revenue it will lose.  In its Reply Brief submitted a few days ago, the Postal Service responds to those arguments. 

This section of the Reply Brief is entitled: “Opposition to reliance upon the Phase 2 quantitative market research estimates of the impact on mail volume caused by MPNR [Mail Processing Network Rationalization] is based on wishful thinking, not science: The only valid estimation of impact upon mail volume of changes in service standards derives from the Phase 2 research.”

The tone of that title pretty much captures the Postal Service’s attitude.  This section of the brief is really a piece of work, and it’s worth a closer look.

The USPS press release on the secret survey: They still can’t get their story straight

March 24, 2012

Yesterday, the Postal Service issued a press release responding to revelations about a market research survey it commissioned last summer but chose not to tell anyone about.  The press release contains several misleading statements that only serve to compound the Postal Service’s bad faith in keeping the survey secret. 

One wonders why they even bothered issuing a press release, rather than ignoring the story and hoping it went away.  But the Postal Service was probably getting inquiries from the media, and someone decided it would be best to refer reporters to a press release. 

The press release will probably raise more questions than it answers, as you can already see in the way Government Executive handled it.  In an article entitled "Postal Service steers attention away from 'flawed' revenue study," GE rehashes the press release but then quotes a staffer for Congressman Gerald Connolly saying that the real reason they abandoned the study was that "they didn't like the results because they would be very inconvenient for them."  


The two phases of the market research

The market research was conducted by Opinion Research Corporation (ORC) to determine how mailers would respond to the change in service standards on which the Network Rationalization plan is premised.   The survey showed that slowing down First-Class and periodical mail would cause First-Class to drop by over 10%, periodical mail by nearly 20%, total mail volumes by nearly 8%, and revenues by over $5 billion a year.  

When the folks in postal headquarters saw those results, they decided the survey instrument was “seriously flawed” and ordered a second phase of research, this time making sure the questionnaire and concept statement (the prompt used to initiate the questioning) were constructed in a way to get better, more “reliable” results. 

The results for the phase-2 survey were much more palatable, and this is the research that became part of the Postal Service’s testimony to the Postal Regulatory Commission (PRC) in December as part of the Request for an Advisory Opinion.  Below are the results of the two phases of the market research.

Net contribution
Total Single Piece FCM
Total Presort FCM
Total First-Class Mail
Total Standard Mail
Total Periodicals
Total Single Piece FCM
Total Presort FCM
Total First-Class Mail
Total Standard Mail
Total Periodicals
Source: Phase-1, released by PRC 3/22/12; Phase-2, Whiteman’s testimony before the PRC, p. 22.

The Postal Service presented two witnesses to provide testimony about the market research — Rebecca Elmore-Yalch, a VP at ORC, and Gregory Whiteman, Manager of Market Research at the Postal Service.  Their initial testimony was extensive, but neither mentioned the existence of an earlier phase of research that had been abandoned.   During the “discovery” part of the PRC’s Advisory Opinion process, several interrogatories were posed that could have provided an opportunity to mention the phase-1 research, but no one did. 

Eventually, the questions became so direct, it was impossible to avoid acknowledging the existence of the phase-1 research, and the Postal Service turned over some data to the PRC, but classified it as “non-public.”  It took some pressure from members of Congress, the postal worker unions, and perhaps others, but finally, on Thursday, the results of the research were made public.  The rest of the materials submitted to the PRC remains “non-public,” and one wonders if the other shoe is yet to drop.


The Postal Service issues a press release

Needless to say, yesterday’s press release doesn’t provide any of this background.  Instead, the press release begins as follows: “The Postal Service conducted market survey research related to potential service standard changes.  A questionnaire used in the fall of 2011 asked business customer respondents about a scenario that would never be implemented at the same time.”

The survey was actually conducted in late summer, during August, but that’s a minor error.  It simply reveals that the person who wrote the press release had very little knowledge about what actually happened.

Contrary to what the press release says, the phase-1 survey does not describe “a scenario that would never be implemented at the same time.”  Instead, the concept statement used to initiate the interviews notes that the Postal Service is experiencing an “unsustainable” budget deficit, and it then simply enumerates the changes being considered to address the problem: seeking legislative reform to change government requirements to pre-pay health and pension benefits, eliminating Saturday delivery, and closing small post offices.  The statement then outlines the revisions in service standards being proposed.  (The phase-1 survey is here; the concept statement is on page 11.)

The phase-1 concept statement says nothing about implementing these changes all at once, as part of some overall “scenario.”  It simply says the Postal Service is “exploring several changes.” 

The press release then says, “Specifically, the survey asked whether business customer respondents would lessen their use of the mail if the Postal Service immediately imposed price increases, service standard changes, altered delivery frequency, realigned its network of mail processing facilities and other actions.  Any such contemplated actions, if implemented, would be done so over a phased, five-year time horizon, providing adequate time for planning.”

The truth of the matter is that the survey questionnaire never once mentions anything about a rate increase — not in the concept statement or in the questions themselves.  The words “price” and “rate” and “increase” do not appear anywhere in the survey.

The survey questionnaire also says nothing about doing everything — or anything — “immediately.”  There’s nothing alarming like that in the concept statement. 

Secret market survey reveals USPS plans would cost over $5 billion in lost revenue

March 21, 2012

While hearings before the Postal Regulatory Commission (PRC) are usually pretty mundane events, something totally unexpected happened today.  The Postal Service revealed something it’s been hiding for months — the projected revenue losses its consolidation plan could cause. The numbers are something to behold.

The PRC was holding hearings for its Advisory Opinion about the Network Rationalization plan to consolidate over 200 mail processing plants and to reduce service standards in the process.  Gregory Whiteman, Manager of Market Research at the Postal Service, was answering questions about market research commissioned last summer to determine how much revenue might be lost if the Postal Service reduced service standards and slowed down First-Class mail.  Up until this moment, the Postal Service had been reluctant to say much about this research.  Instead, it has stuck to the testimony it presented to the PRC in December, which was based on a second round of research conducted in October.

The results of this first round of research will officially be released tomorrow morning, but at the hearing, Mr. Whiteman revealed that the research showed that First-Class mail volumes would drop a whopping 10.3%, and total mail volumes would drop by 7.7%.  That translates into $5.2 billion in gross revenue losses, and $1.9 billion in net contribution losses (the contribution loss figures in lower costs for lower volumes).  The breadkown for the market research numbers can be seen here.  (They also show a volume drop for periodicals of nearly 20%.)

Losses like that would wipe out nearly all of the $2.6 billion in cost savings the Network Rationalization plan hopes to achieve.  Given that the AMP studies suggest cost savings might be far less than $2.6 billion, the consolidation plan could easily end up losing more money than it saves.

These volume and revenue losses are significantly greater than the numbers provided in initial testimony for the PRC’s Advisory Opinion.  That testimony was based on the second round of research conducted by Opinion Research Corporation (ORC).  That research, which is a central part of the Postal Service's case for consolidation, said the service standard changes would cause a volume loss of 1.7%, a revenue loss of $1.3 billion, and a contribution loss of $500 million.

These new numbers provide circumstantial evidence that when the Postal Service saw the results of what we now know as the Phase-1 research back in late September or early October, it realized the numbers were devastating to their case for the consolidation plan.  It ordered the market research firm to stop the research before finalizing the numbers, and it began work on a new research survey, apparently designed to elicit better, less damaging results. 

If at first you don’t succeed, try revising the survey

March 15, 2012

Last summer the Postal Service hired Opinion Research Corporation (ORC) to do market research on how customers might respond to changes in service standards (slowing down the mail), as well as plans to close thousands of post offices, eliminate Saturday delivery, and seek legislative reforms on pensions and the retiree health care fund.  The purpose of the research was to provide data on which to base estimates of potential losses in mail volumes and revenue.

In her testimony before the Postal Regulatory Commission (PRC) for the Network Rationalization plan to consolidate over 200 mail processing plants, ORC's Rebecca Elmore-Yalch described the two components of the research. The qualitative research, conducted in August 2011, evaluated customer attitudes, while the quantitative research, conducted in October-November, focused on exactly how much less business mailers might do with the Postal Service if the mail slowed down.

Although the witnesses for the Postal Service were reluctant to mention it, we’ve learned from testimony that there was another quantitative study, done back in August or September, at about the same time the qualitative research was being done.  The Postal Service now says this phase-1 quantitative research was “abandoned” before it was completed, "with the result that no analysis of its preliminary results was pursued."  The Postal Service paid ORC over $430,000 to do the work, but it never analyzed the results.

The Postal Service has given the PRC the data for both phases of the quantitative research, but they are classified as “non-public” library references.  The Postal Service testimony (USPS-T-12, p. 22) includes calculations of lost volume and revenue for the phase-2 quantitative study, but not for phase-1.

The Postal Service says that because it didn’t complete the study there are no results to look it.  But when the existence of the other market research was first revealed in testimony by Gregory Whiteman, Manager of Market Research at the Postal Service, Whiteman stated, "In short order, the Postal Service plans to file two documents summarizing this research and its results." 

The PRC docket contains the market-research instruments — the concept statements and questionnaires — that were used for all three studies (the qualitative and both quantitative).   It’s worth taking a closer look to see how they were constructed and how they were changed for the phase-2 survey.  From the looks of things, it seems that the second time around, the Postal Service wanted to elicit responses that would result in less significant impacts on mail volumes and revenues. 

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