Return mail challenges and solutions

According to Pitney Bowes estimates, Financerepresents approximately 35% of all First-Classreturn mail, or more than 490 million pieces peryear. One particular reason for the large volumeof return mail within this industry is that returnmail is managed at decentralized locations. Different departments have different standards formanaging return mail, and the central organizationdoes not get visibility to the enterprise problem.For example, one division of a high-end invest-ment group cannot not make an address changewithout the client’s approval, while another division can update an address just based onUSPS NCOALink® or Address Correction Service(ACS®) data. This makes it difficult for the central procurement part of the organization toensure that lines of business are meeting the requirements for USPS work-sharing discounts.Without centralized reporting and analysis of return mail, how can an organization meetcompliance requirements in a Postal InspectionService audit? The lack of consistent measure-ment capabilities also make it difficult to findthe root causes of the pre-mailing address

issues that need to be corrected.Pitney Bowes estimates that Insurance and

Healthcare together account for 20% of returnmail, or more than 280 million mail pieces peryear. In the Health Insurance and Healthcarearena, companies often have the unique problemof not being in control of address data when it isprovided by employers or government agencies.This can make return mail management very expensive because sales representatives need topersonally follow-up with their clients to updateemployee address files. All these issues canhamper insurance and health care companies’ability to meet USPS Move Update regulationsand make them potential candidates for auditsand penalties.

Pitney Bowes also estimates that Energy, Telcoand wireless providers comprise 21% of the return mail problem, or around 294 pieces a year.These industries face many of the same issuesas financial, insurance and healthcare companies.In addition, a big challenge today for thesecompanies is keeping up with customer movesas they migrate to wireless services.

Return mail has become a pervasive problem

for corporations who need to communicate

with their customers. The issue is particularly

concentrated among high volume First-Class

mailers in five business sectors: Finance;

Insurance; Healthcare; Utilities (Energy, Telco

and wireless providers); and Government.

High volume communications sent via United

States Postal Services® (USPS®) First-Class

Mail® include: billing and other transactional

statements; explanation of benefits (EOBs);

and legal and regulatory notifications. Each

type of organization has its own issues.

Return mail challenges and solutions 2

Pitney Bowes estimates:

Finance representsapproximately 35% of all First-Class returnmail, or more than490 million piecesper year.

Insurance andHealthcaretogether account for 20% of returnmail, or more than280 million mailpieces per year.

Energy, Telco andwireless providerscomprise 21% ofthe return mailproblem, or around294 million pieces a year.

Government entities at the local, state, andfederal level have similar issues stemming frommobile populations and decentralized approachesto managing databases and return mail. Onemight think that the government should havethe most recent household data on the Americanpublic, yet counter to this view, 21% of the U.S.Census mailing was returned as undeliverable.

The scope of the problemThe challenge for the mailing industry is that

approximately 1.9% of all First-Class Mail does notget delivered. While that number doesn’t seem sig-nificant, it actually amounts to approximately 1.3billion pieces of mail annually that is returned tothe company where it originated as“Return to Sender/ Return Mail.”According to Pitney Bowes’ estimates, each piece of return mailcosts a company an average of $3per piece in operational costs alone,including postage and printing, handling, research, re-mailing,and related processes. With 1.3billion pieces of return mail overall, that’s a whopping $4.2billion in operational costs the industry absorbs each year!

The true total cost of all this return mail is actually muchhigher. Below the surface, the totalfinancial impact of return mail canexceed $50 per mail piece. Manycompanies continue to strugglewith profitability, layoffs and reduced access toworking capital. That means that an estimated$65 billion is absorbed or unrealized by busi-nesses each year due to return mail. Included inthis total is the lost value of the returned communi-cations: delayed and missed payments, excesscall center activity, and overall customer servicecosts. These costs can have a major impact oncash flow, labor costs, and customer retention.

According to Pitney Bowes research, a centralized and automated approach to returnmail management can reduce a company’s operational costs by up to 70%. The other components of the total cost of return mail(missed payments, etc.) are 100% returned to the company’s bottom line.

Postal regulations add further impactIn January 2010, the USPS increased

enforcement of its Move Update requirement. By USPS mandate, organizations must now update First-Class Mail claiming discounts andStandardMail™ with customer move information

within 95 days prior to the mailing. If a company’smailings do not reflect current customer addresses, the USPS can fine the company intwo ways:

1. Prior to mailing,USPS Mail acceptanceunits take a random sample of a company’smailing and process it on a machine calledMERLIN® (Mail Evaluation Readability Lookup Instrument), which determines if the mailing iseligible for postal discounts. If MERLIN detectsa sufficient number of moves that a mailer didnot update, the USPS rejects the mailing and amailer can either rework the mailing or pay a$0.07 per piece fee multiplied by the percent of themail that fell below the threshold. In the industry,

this is referred to as the PBV (PerformanceBased Verification) test.

2. After mailing, the Postal Inspection Servicecan also perform audits triggered by return mailto determine if mailers are generating undeliver-able mail with stale move information. Return maillabeled “ForwardingTime Expired” signifies movesthat are over 12 months old. The USPS can thenfine the company:4 The postage deficiency between what was

claimed and what was actually earned. Fora First-Class mailing, this would be the difference between full postage ($0.44 per piece) and presort automation postage (typically $0.357 per piece) on all pieces in the mailing.

4 If the mailer knowingly claimed discounts for mail that was non-compliant with MoveUpdate, the USPS may:

– Multiply the postage deficiency (noted above) by a factor of x2 or x3.

– Fine $11,000 per mailing (per falsely signed postage statement). Return mail challenges

and solutions 3

$ ThousandsPrint andPostage

OperationalProcessingCosts

4 4

AuditsCash FlowChurnComplianceCost of MoneyData Entry ErrorsDepartmental ResearchDirect Mail toWaste

Facilities and UtilitiesMaintenanceManagement and TrainingProcurementSoftware/HardwareUncapitalized Assets

4

4

4

4

4

4

4

4

4

4

4

4

4

$ Millions

Approximately 1.9%of all First-ClassMail does not getdelivered. Whilethat numberdoesn’t seem significant, it actually amountsto approximately 1.3 billion pieces of mail annuallythat is returned tothe company whereit originated as Return to Sender/Return Mail. Eachpiece of return mailcosts a company anaverage of $3 perpiece in operationalcosts alone, including postageand printing, handling, research,re-mailing, and related processes.

– Multiply a company’s fine by a number of years (because the Move Update regulation has been in place since 1997), if the mailer knowingly claimeddiscounts for mailings that were non-compliant with Move Update.

These fines can significantly impact a company’s bottom line. Unfortunately, manymailers believe that they are fully compliantwith the Move Update regulation only to findout later that only certain mailings met the requirements for postage discounts. Mailersshould therefore consider the following questions before signing a postage statement:

1. Do we have visibility into all mailings in the organization claiming postage discount

2. How recently was a USPS-certifiedmethod of Move Update performed? Is thatprocess documented? Where would we go toproduce reports if the USPS were to audit ourprocess?

3. How does our company handle moves thatdo not have a forwarding address? Are we requiredto send those pieces and if so, are we sendingthem at full postage?

The following examples demonstrate thepotential financial impact of non-compliancewith the Move Update regulation:

Technology: addressing toolsTo begin to solve this First-Class return

mail problem, there are address tools availablefrom the USPS as well as databases availablefrom many third-party sources. Companiesand service providers also offer solutions thatwork with postal certified databases. Therange of tools include:4NCOALink – The NCOALink product makeschange of address information available to mailers to help reduce undeliverable mail piecesbefore mail enters the mailstream. TheNCOALink process consists of computer softwarepurchased, leased or developed by the licenseeto access the NCOALink data.4 CASSTM/DPV – The USPS Coding AccuracySupport System along with the Delivery PointValidation process validates address deliver-ability and updates hygiene attributes.4LACSLink – The Locatable Address ConversionSystem updates rural route conversions to cityaddresses and other address renaming and/orrenumbering.4 SUITELink – This adds or updates suitenumbers in business addresses.4MLOCR based solution (FASTforward®, orUMove system) – These systems perform OCRscans of the mail pieces and use data from theNCOA database to look for updates on movers toapply directly to the mail piece at the time of mailing.4 Intelligent Mail® Barcode (IMb) – The IMbprovides a means to uniquely identify every mailpiece in a mailing. When used with additionalservices like Address Change Service, adds theability to more easily connect the mail pieceback to a specific mailing and/or record withinthe customer database.4 Address Change Service (ACS™) – A USPSservice that provides a post- mailing method ofattaining electronic Change of Address (COA) andNIXIE information. There are several versions ofACS. To review all the options, visitwww.USPS.gov. While ACS allows the mailers toreceive information on return mail back in anelectronic format, there may be additionalcharges for ACS records. In addition, not everycompany can use all the ACS options; those mailingconfidential materials cannot allow the USPS todestroy the mail piece via a process that is notconsidered secure. A company will request thatall critical documents such as physical creditcard or service cancellation notices be returned,even if undeliverable.4Address Element Correction (AEC) – AUSPS service that corrects and standardizesaddress elements by focusing on address element deficiencies such as misspellings,

4Return mail challenges and solutions 4

In January 2010, the USPS increasedenforcement of its Move Update requirement. ByUSPS mandate, organizations mustnow update First-Class Mail claimingdiscounts and Standard Mail™ with customer moveinformation within 95 days prior to themailing. If a company’s mailingsdo not reflect currentcustomer addresses,the USPS can fine the company.

non-standard abbreviations, incorrectly joined,improperly ordered or missing elements, andaddress lines containing data other than theactual address.4AECII® – The next generation of AEC. AECIIuses Delivery Force Knowledge™ to correct errors in addresses that are not correctible byexisting programs. Delivery Force Knowledgeleverages the efforts of local delivery unit employees who review bad addresses andenter corrections into an AECII electronic processfor return to the submitting customer.4Third-Party Data Sources – Many businessesoffer proprietary databases that use consumerand credit information to update addresses,though some have reported varying degrees ofeffectiveness with this method. Use of third-partydata must be carefully determined based on thetested quality levels of the results. In many cases,use of third-party data should be limited onlyto when a piece of mail is undeliverable andwhen that information is verified, supported viaUSPS certified addressing tools and/or verifieddirectly with the intended recipient.

Industry technology trendsAs mailers continue to struggle with their

bottom line, many are taking a closer look at whatused to be considered a cost of doing business.The reality is, return mail and its related impactsare a significant cost of doing business. To attackthese costs, mailers are exploring the latesttechnology advancements for solutions. Actually,there are many solutions at different levels ofdeployment, and each have their own set of trade-offs, so mailers need to evaluate how the use ofmultiple solutions can be justified and deployed toaugment and enhance their processes.

Full Service implementation of the IntelligentMail barcode with ACS is a trend generating themost interest. Implementing Full Service ver-sion of the IMb can require significant initial investment, but can yield financial bene-fits including additional postage discounts and discounted ACS services. Mailers may be able to leverage these discountsto justify implementation costs.

While this process may reduce the number ofphysical return mail pieces that a mailer needsto process, it can increase the total number ofnotices that still need to be verified, researched,analyzed and acted upon by the mailer. It is impor-tant not to get ACS confused with traditionalNCOALink. Both are valid, certified methods ofmeeting the USPS’s Move Update requirement.NCOALink includes permanent Change of Addressinformation only. ACS also includes information on

Temporary Changes of Address, NIXIE’s, andpermanent moves where matches were able tobe made thanks to carrier knowledge. Independenttests run by software vendors have found a10% - 20% difference between ACS andNCOALink data regarding permanent Changesof Address. If your company has strict policiesregarding updating customer data, it is highlyrecommended that you review ACS data usingother postal certified data sets, such asCASS/DPV and NCOALink.

The Intelligent Mail barcode and OneCode ACShave been around for several years however, FullService IMb and Full Service ACS are still relativelynew and is experiencing operational issues thatthe USPS is working to correct, such as:4 The inability to return some ACS notices.

This will cause a mailer to continue to send mail pieces to bad addresses that they otherwise could have suppressed or applied an update to.

4 Failure by the USPS to detect and treat a mail piece as Full Service ACS, resulting in the manual handling of the mail piece (withcorrespondingly higher fees). In 2010, some mailers indicated that over 50% of these mail pieces were not being returnedas Full Service ACS mail pieces. The rootcause can be traced to factors such as piece production issues, physical damage from delivery processing and handling, USPS scanner issues, and even actions by the recipient. Since some of these factors are outside the

control of the mailer and the USPS, many mailersare implementing not only the FullService IMbwith ACS but maintaining a back-up of TraditionalACS for the return mail piece at no additionalcharge.

Additionally, mailers are taking a much closerlook at data that is provided by these tools andservices to obtain more value from them, or ensureproper handling. Studies by Pitney Bowes andthe mailing community consistently show that10% to 17% of the USPS reason codes as to whya mail piece was not delivered are incorrect. In-correctly suppressing mail to a valued client hasthe same financial impact as losing all contactwith them (e.g. when they moved and did not notifya product or service provider of the move).

Maximizing the impact on a customer’s bottomline means utilizing the right tools and servicesto obtain, confirm, and enhance the necessaryinformation and take the appropriate action. It is important that you work with a technologysolution provider to develop a roadmap fromphysical to virtual return mail. This also requires

As mailers continue to strugglewith their bottom line, many are taking a closer look at what used to be considered a cost of doing business. The reality is, return mail and its related impacts are a significant cost ofdoing business. To attack these costs, mailers are exploring the latest technology advancements or solutions

54Return mail challenges and solutions 5

6

constantly reviewing the latest tools and servicesthat are being developed and released.

The ideal approachA truly effective solution to reducing operating

costs and risking fines associated with First-Classreturn mail is to create a centralized, automated managed service. This approach integrates multiple technologies to convertphysical mail into usable data, update addresses,and perform a variety of processing and post-processing functions to ultimately update addresses.

The ideal approach goes beyond products toprocesses that analyze the root causes of the return mail problem and work to eliminate it. Thegoal is to establish a timely, efficient, consistentprocess that can be managed with the centralizedreporting needed for a USPS compliance audit.

To be effective, a managed return mail serviceshould: automate integrated technologies; incorporate postal hygiene addressing toolsand third party data; provide real-time reportingand auditing; and significantly reduce the volumeand cost of return mail.

There are four steps in the process of operating acentralized, automated return mail service:

1. Document capture and conversion.Mostcompanies lack the security, processes, andworkflow required to efficiently process andtrack physical mail internally. The first step inthe return mail process is to capture physical mailpieces and convert them to electronic format. Thiscan be done with scanning or bar code capture,onsite or offsite, using company personnel oran outside service.

Once document capture is completed, theoriginal mail pieces can either be shredded orstaged for repurposing or secondary processing,such as re-mail, reprocessing, and addressvalidation with customer follow-up if required.Data should be promptly reported to a hostplatform for updating and storage.

2. Address management, standardization, andsearch. After an organization has establishedcentralized document capture and convertedphysical return mail to digital files, their addressdatabase needs to be updated and validatedusing the tools (USPS certified and third-party)mentioned above. The ideal approach utilizes thesetools with an integrated data platform thatcombines intelligent program logic with multipledata compilers and hundreds or thousands of activepostal certified and third party databases. Integrating these with mail and undeliverablemail data and secondary repurposing of customer communications can provide valuable

output data and solutions.The goal is to conduct a truly comprehensive

search of consumer and business records,including everything from landline and cellphone data to voter registrations and magazineand newspaper subscriptions. These advancedsearch activities can significantly improve thelikelihood of finding the last known or updatedaddress, far beyond using only the commodityaddress quality and move update solutions.

3. Secondary processing and document repurposing. The next part of the return mailmanagement services operation involves settingup back-end business processes and data-drivenevents. These make it easier to re-mail or reissue mail to updated addresses and allowsubsequent automated reprocessing of any addresses with on-going issues. It also is necessary to set up the secure destruction ofphysical return mail either onsite or offsite.

It is critical for mailers to historically trackhow many pieces of undeliverable mail originatedfrom a single record. Companies suppress badaddresses but often find that the process wasestablished based upon old logic that was notinitiated by a postal expert. Too often, companiessuppress customers that have an updated address.

Rebound processing can also be used to immediately access any remailed document,which is returned again as undeliverable. Thiscan quickly provide automated suppression andcustomer data that can be used to feed callcenters or trigger alternative methods of communication.

4. Reporting, auditing, and metrics. Finally, an effective return mail management serviceneeds to include core reporting, metrics, and auditprocesses that return usable and reliable key data toupdate the host platform and providemanagementstatistics. Tracking, analysis, and documentationshould be established to validate the qualityand metrics of the process. Also, all imagesshould be indexed and archived and electronicfiles should be stored to meet user requirements.

The two examples on the following pageshow how a centralized, automated return mailmanaged service can deliver significant results forlarge First-Class mailers.

Maximizing the impact on a customer’s bottomline means utilizingthe right tools andservices to obtain,confirm, and enhance the necessary information andtake the appropriate action. It is important that you work with a technology solution provider to develop a roadmap from physical to virtual return mail.

54Return mail challenges and solutions 6

C A S E S T U D Y 1

Property and casualty insurer

A Midwestern property and casualty insurance carrier islicensed in 48 states and has been in business morethan 100 years. The company had serious issues withFirst-Class returned mail containing invoices for premiumsdue, renewal offers, cancellation notices, and other criticalcustomer communications. Return mail sent to bothconsumer and business customers came back daily tocompany headquarters for reprocessing.

The company tried to manage the problem with internalresources for capture, phone research, and address updates, but their mostly manual process was very inefficient, taking 30 days or more to locate a customerafter numerous unsuccessful attempts. This caused extended service issues and delays and cash flow issuesdue to late or no payments, and lacked the reportingthat could help management solve the problem.

Fortunately, the company saw this problem as an opportunity to improve their operations, financial performance and service to both customers and independent agents. They retained centralized, automatedmanaged service expertise to handle the return mailissue. Using integrated technologies and consistent,well-designed processes, the return mail managedservice vendor delivered:

4 Immediate system implementation4 Accurate statistics and measurements4 Update rates above 50% for all returned mail4 Capture, search, and reissue of initial customer bills in

three to five business days, versus one to three months4 Dramatic improvement in customer service, as

address updates occurred in hours instead of months4 Updated phone information for more effective

follow-up4 High success rate in locating customers who had

moved with no forwarding address Bottom line: the company’s centralized, automated return mail approach delivered a better than 25:1 return on investment (ROI).

7

C A S E S T U D Y 2

Financial services company

A financial services company manages billions of dollarsin assets for many U.S. financial institutions. SEC regu-lations require them to mail Privacy Notices to each oftheir 450,000 customer accounts at least once a year.The company experienced a high rate of return mail forthis as well as other mailings throughout the year. Theythought their undeliverable-as-addressed (UAA) issueaffected as much as 10% of their mailings, but had noactual data to support this premise.

The company attempted to manage their return mailprocess with internal resources for capture, phone re-search, and address updates. This approach was ex-tremely inefficient, as it at times took 12 months or moreto conclude an address update, if one could be success-fully completed at all. There was a physical backlog oftwelve months of UAA customer communications, andthe company had no tracking or measurement tools inplace to manage the problem.

The company turned to a centralized return mail man-aged service vendor for a solution to this problem. Theautomated technologies and repeatable processesyielded dramatic results:

4 System implementation took just one week4 Accurate measurements and statistics were

generated, revealing the actual UAA mail rate was 4.2%, not the 10% estimated

4 Update rates of 71.1% for all returned mail4 Improved customer service as address updates were

accomplished in hours instead of months or years4 Re-mailing of original documents after address

updates eliminated the need for secondary handling or reprinting

4 High success rate in locating customers who had moved with no forwarding address

This centralized, automated return mail system savedthe company thousands of hours of labor and provided anew level of timely customer communications.

Every connection is a new opportunityTM

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