USPS Should Raise Its Prices – Way up

Every few years the USPS goes in front of congress for price increase. The increase come in 1 and 2 cent increments. The Congress allows it price only enough to recover the costs because the postal service is just that a service and is not seen as a for profit business. USPS costs are all fixed costs, for the infrastructure, the distribution network, fleets and the employees.  But the costs are always on the rise and with fall in revenues from fall in mail volume it is forcd to look hard at its cost components. One way to reduce costs is cutting service, the postal chief is reported to be considering cutting mail to five days a week.

The problem with this approach is it addresses only one side of the profit equation. There is no reason why the USPS cannot be run as a for profit business and practice pricing as one. With most bills and other regular mails moving to online they are seeing a reduction in volume of mails. But this also represents a change in their customer fix, to those who need the USPS and do not have a cheaper alternative. Those who use USPS have a higher willingness to pay, else they would have changed to other services. So it makes sense to increase prices to capture a larger share of the value they get. So instead of continuing to price for a larger market that is continuing to switch  they should price it for the smaller segment that requires this service.

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