From the January 1996 issue of Entrepreneur

In the face of competition from e-mail, faxes and who-knows-what future form of mail, the U.S. Postal Service is looking for love in new places. One of its most ardent emerging courtships is with small business, particularly local retailers and service providers, be they franchisees or independent operators. The USPS wants to be seen as their low-cost marketing ally.

Toward that end, the USPS plans to test a new service called "neighborhood mail" early this year. It is also pursuing major postal rate concessions for saturation mailers as part of an effort that began last March to reclassify postal rates. The concessions would help those mailers that provide low-cost "shared" mail advertising such as "shoppers" and coupon packages.

The neighborhood mail proposal-which was greeted harshly by mail preparation companies, some large saturation mailers and the newspaper industry-would allow small business to send solo advertising (which is much more valuable than shared mail) to potential neighborhood customers without having to put that customer's name and address on the envelope. And the pizza shop, florist or plumber would no longer have to go to mail preparation house to get mailing lists for surrounding neighborhoods. (Mailers currently pay extra costs for this information on top of solo saturation mail rates of 11.7 to 15 cents per piece.)

According to Frank Brennan of the U.S. Postal Service, the new rate would be between 11.7 and 12 cents per piece, depending on the weight. All the mailer would have to do is prepare a minimum of 250 mail pieces for one mail carrier's route and drop them off at the local post office.

"Neighborhood mail was conceived for mom and pop stores that have never used direct mail before and might want to send out five, six or seven hundred pieces." explains Brennan.

Brennan declines to discuss neighborhood mail further, nor has the USPS published any details. Its reticence stems from the loud opposition of shared saturation mailers who believe neighborhood mail will cost them customers. That accounted for the outcry from groups like the Advertising Mail Marketing Association and Direct Marketing Association.

Brennan says the USPS expects to begin neighborhood mail test in New Orleans; Sacramento, California; and Rochester, New York, early this year. This will give major mailers a chance to provide Postmaster General Marvin Runyon with some ideas about how to improve the neighborhood proposal.

"I think the Postal Service is making a genuine effort to serve a market they have not been serving," says Donna Hanbery, executive director of the Alliance of Independent Store Owners and Professions (AISOP). "It is trying to listen to its small-business customer."

Hanbery believes saturation mailers, who number several hundred in the AISOP, are judging the USPS proposal too harshly. "I think the mailers are doing themselves a dis-service by reacting so negatively to the neighborhood mail proposal," she says. "After all, it's only a test."


Stephen Barlas is a freelance business reporter who write monthly Washington columns for 15 magazines.

A Class By Itself

Although they're ranting over the neighborhood mail proposal, saturation mailers are raving about the mail reclassification case filed last March by the USPS. Their small-business customers cheered as well. That's because both would benefit from lower rates for third-class saturation mail, which would be renamed "enhanced carrier route saturation."

The term "saturation" gets its name and associated low postage rates from its requirements that milers send a minimum number of pieces to a carrier route. Under reclassification, saturation rate minimums would decrease by up to 5 percent. This would mostly help small businesses using shared mail advertising.

After entrepreneur Brent Schlosser became co-owner of three local Paper Warehouse stores in Minneapolis in 1986, he used saturation mail advertising to help build the company to 108 stores, half of them franchises. But postal rate increases in the 1980s and '90s forced Schlosser to invest more of his advertising budget in television and newspapers.

Schlosser's franchisees still depend on saturation mail, but they are struggling with its cost. "[Saturation mail] still cost substantially more than other forms of mass media." Schlosser explains, "and the trend toward increased costs for third-class mail suggests rate increases will continue to widen the difference between the costs for mail advertising and other forms of mass media."

In September, the independent Postal Rate Commission (PRC) completed hearings on the reclassification proposal, and at press time, it had planned to make a recommendation to the USPS' Board of Governors by year-end. If the Board approves the rate, they could go into effect this year.

Besides the enhanced carrier route category, there would be two other third-class-renamed "standard class"-categories: regular and automated. Automated mail rates would be cut below current rates, although they would still be higher than enhanced carrier route. Regular mail would face rate increases as high as 20 percent with rates reaching 20 to 26 cents per piece.

Of course, the newspaper industry is fighting hard against further breaks in saturation rates because of the potential loss in ad revenue. If its voice is heard by the PRC and/or the postal Board of Governors, the Postal Service's romancing of small business may end after the first date.

SBA Update

Small businesses that are at least 51 percent owned and operated by a member of an ethnic minority group may pre-qualify for Small Business Administration guaranteed loans under the SBA's New Minority Prequalification Loan Program.

Working with the help of private intermediary organizations chosen by the SBA, eligible entrepreneurs complete a loan application. The intermediary review the business's credit history and submits the application to the SBA, which then decides whether to approve it. Loans in most cases are for a maximum of $250,000.

Started in September, the program is being tested as a pilot program in Baltimore; Boston; Columbia, South Carolina, Detroit; Fargo, North Dakota; Helena, Montana; Houston; Kansas City, Missouri; Los Angeles; Miami; Milwaukee; New York City; Philadelphia; St. Louis; Santa Ana, California; and Seattle.

For more information, contact your local SBA office or call the SBA's Answer Desk at (800) 8-ASK-SBA.-Philip Lader, Administrator of the SBA