Royal Mail group is a public limited company trading in the mail service delivery across United Kingdom. It is the largest universal company serving millions of addresses within and outside the UK. The Royal Mail Group has been known to provide the cheapest mail services in the UK because of its low economies of scale. However there have been changes in regulation of the mail delivery service which has created unsuitable climate of competition with the entry of cream skinned service providers. We would like to explore a number of dynamics that have resulted to this.
To begin with, competition is the main factor affecting the survival of royal mail group this has come due to the access regime where the regulator Postcomm have encouraged the access to volumes of mail by other players. The behavior of new entrants has led to reduced retail volume of the Royal Mail Group since they target its customers. This has made a reduction in business operation and increase in cost. For example, when there is a decrease of 20 percent in volume delivery it leads to 5 percent reduction in customers served for each day resulting to 16 percent of unattended customers and only 4 % saving of costs.
Hence we find an end to end competition which increase the unit cost since there would employees who would cover same distance but do not attended to all customers. This creates a lot of damaged business for Royal Mail . Cross subsidies has encouraged new entrants into the market without innovation strategies. This is largely due to inducement by Postcomm. For example in cross subsidies in Royal Mail has been largely due to pricing in respect to historical and regulatory constraints like the low prices for first class mail users.
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It has given negative warnings to customers based on cost benefit effect like sending of large mails compared to small sized mails. The entrants have admitted that they have come as cream skimmers and not to bring new dimension of market competitiveness that would create new customer base and improve mail delivery. This scenario can only be deregulated by Postcomm since they are responsible for market choice, business rivalry and innovation, and protect interest of customers. Such competition would impact negatively on the innovative competitors and universal viability of mail delivery.
Therefore introduction of zonal pricing may bridge the gap for access of the products by Royal Mail. This would reflect the cost of delivery in areas of high mail address density verses areas of low mail density. This is especially so in the urban and rural setting. All cross subsidies if removed from non-universal service mail and rebalancing of prices should be effected. That is the zonal prices to should be based on the setting area and differentiated accordingly. This is especially so as a consequence of competition and would reduce mail costs for customers. The barriers to entry into this industry have been considered to be low.
Postcomm believes that an upsurge in access to volumes of mail could ensure end to end competition. This is because Royal Mail does not pay VAT nor does it account for its contribution to VAT. However this is considered a government issue. In the long run most competitors enter the market with consideration that the main barrier is the low prices of Royal Mail. But we find that Royal Mail has a pension deficit of ? 6. 6 billion hence creating price vacuum for new entrants to take up market share. Royal Mail therefore asserts that fixed cost nature of delivery should allow for budding competitors to have an impact on prices and efficiency.
Thereby the rising industry unit cost could be avoided to reduce impact on welfare loss. In this respect the inducement by Postcomm through Condition 21 (5) (b) of the licence encourages mechanisms which are inefficient and may spell economic welfare loss. Hence viable sustainable competition must be based on efficiency and credible business models. Royal mail now has big task to face unfamiliar outcome from these challenges that pose unsuitable competition to its service delivery. The Royal Mail service delivery could be hampered by cross subsidies and low entry costs.
Otherwise its mail services could become inefficient and costly. The future of Royal Mail is in a balance because when the market is characterized by upstream and downstream competition, there is decrease in mail volumes processed and delivered hence rise in unit cost per item. Uniform pricing should be adopted as cross subsidies are eliminated because with the presence of cross subsidies Royal Mail is in the verge of profit loss under the universal service funding. Therefore Royal Mail to be allowed by Postcomm to review its prices between group products which reflect the cost of operation and destination difference.
Hence bring about affordability to its customers. The Royal Mail through its ranch component Post Office Ltd had embarked on the technological improvement of their services to the rural community. The rural pilot survey report of 2006 detailed a number of significant impacts that the Post Office Ltd would achieve in later years. To begin with, a rural community is defined by the report as the community of less than 10000 people. The post office has a network of 8000 branches distributed unevenly across United Kingdom serving 15 million address holders.
The management structure constitutes a network component of four main models i. e. commercial model, direct channels, core and outreach mode, and conventional model. The commercial model and direct model are considered as commercially viable of which they operate in areas of high demand and be able to generate income without the support of government. They actually operate full time, professionally and with wide varieties of products and services. On the other hand, the core/outreach models and the conventional models operate in rural environment where population is widely dispersed with limited time period.
This has been brought about by the significant economic hurdles of the individual sub-postmaster owner who operate the business in the locality. This is due to resignation and insufficient income from the business to support them. Through this understanding the government came up with a strategy to support the Post Office (PO) Ltd operation through the Social Network Payment initiated in 2003 and become operational in 2008. The government seeks to inject ? 150 million per annum. Likewise the Post Office management initiated new services to counter the competition from other retail businesses.
These include financial services, cash access service, and travel services. It also introduced a more flexible efficient mode access to these services in a cost efficient operation of the Post Office. The main networks used by PO ltd at rural areas were core/outreach and the conventional branches. The core branch provided the home service, mobile service, hosted service and partner service while the conventional branches here outreach and normal PO ltd operation were unable to reach by virtue of geographical factors this was used at reduced time. For effective operation of the services at those levels the report notes three factors.
They are network economic factors like operational hours, investment sources and retail operation environment; revenue generation through better marketing or developing new products and lastly Infrastructural support by use of Information technology and cash as cost cutting measures. From the findings the models used gave positive response from the community. This was seen by the outreach model which operated efficiently in the field at a reduced time. The results showed 65 to 70% transaction level, 67% customer satisfaction and 97% satisfaction when operated part time via satellite for a year.
However, the 33% dissatisfied customers gave reduced time as reason but not the mode of service delivery. It is also noted that the customers preferred part time or core model service delivery than no postal service at all. Although the operation was cost efficient, it was not making enough profit for PO ltd due to limited revenue growth dependent on low customer base. However postal service is of community value, this is seen from the response got during the study where 93% said face to face opportunity is important and 92% is crucial to their community .
The impact of these strategies is variable depending on the nature and success of allied retailers as well as financial dependence of the sub-postmaster to the core PO ltd income. This is due to the economic dynamics of operating in an evenly distributed population. For example the distribution of branches per number of people served is as follows; Scotland 1514 per branch, Wales 1557 per branch, Northern Ireland 1736 and England 2027 per branch. Most of 8037 branches countrywide are classified as loss making because they servre a small widely dispersed population.
To maintain this network, the PO ltd has managed to keep it at a fairly stable position with only 10% of branches exchanging hands and 2% reduction of fixed branches. More so it is projected that out of 26 million adults who visit postal offices per week in urban areas and 7 % in rural areas, there is a projected oversupply of postal services in rural areas than urban areas of between 65 to 80% with respect to time allocation. However, most customers are satisfied with the PO ltd Services offered countrywide.
For example 92% say they are generally satisfied and 75 % say they trust PO Ltd for direct transaction with government. Conventional branches are those which the PO Ltd uses to reach to customers affected by geographical factors such that they cannot access postal service at normal operation mode. Here the traditional approach is employed to suit the region such as use of mobile van or using third party agents. The PO Ltd initiated programs to improve the business transactions of the conventional branches. One was to reduce the information technology costs by improving sale techniques of sales agents with limited resources.
Two was to train sales staff on new skills with respect to new products launched such as the use of credit cards and insurance services. Lastly to increase rural investment scheme grant so as to enable investment in the branches and improve efficiency. The introduction of open-plan counters helped improve safe working environment as opposed to anti-bandit screens. These was evident from the response from the staff who reported improved phone e-top ups, reduced costs, improved staff satisfaction and an economic pay back of 18-27 months. The customers also responded positively although they had reservation for the staff security.
Currently only 5 % of conventional branches have open-plan counters as opposed to 57% who don’t want because of security and cost issues. CONCLUSION JJB Sports Plc and Royal Mail Group ltd are public owned companies operating the retail business. JJB Sports deals with sale of sportswear to sport fraternity while Royal Mail Group ltd deals with postal services. From the research undertaken and discussion above it is evident that the two most common external factors affecting the business operation of these companies are political (government policy) and competition.
The government plays a critical role in ensuring fair trade and protection of consumer rights. Competition is crucial for the survival of the business although viable competition is necessary for innovation and service delivery. All these two companies have proposed good strategies for the future of customers with the help of government.
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