Stephen M. Kearney is Vice President of Pricing and Classification. His group prepares cases to be filed with the Postal Rate Commission (PRC) in support of new products, services, and price changes; and helping to implement them nationwide. We sat down with Kearney to talk about Negotiated Service Agreements (NSAs), the success of the Capital One NSA, and future NSAs.

MC: Some of our readers may not be familiar with the term “Negotiated Service Agreement.” Could you tell us what it is?

Kearney: Sure. “Negotiated Service Agreement,” or “NSA,” simply means negotiating pricing with our customers. It’s a contractual agreement between the Postal Service and a customer to provide pricing incentives to the customer in exchange for a shift in their business mailing practices. In many cases, the customer’s behavior change may result in a substantial increase in their mail volume that benefits both the customer and the Postal Service.

MC: We understand that you have some good news about new NSAs?

Kearney: Yes, I’m pleased to report that we recently received authorization from the Postal Service Board of Governors to file two new NSA cases with the PRC. Both of these NSAs are with large financial institutions and are modeled after the Capital One NSA we implemented last year. We will ask the PRC for expedited consideration and hope to have its recommended decision and the Postal Governors’ approval as quickly as possibly.

MC: Can you tell us about the design of the Capital One NSA?

Kearney: This NSA provides pricing incentives to Capital One if they send more First-Class Mail than they typically do in a year. It also promotes the extra value of First-Class Mail as a customer acquisition tool with its built-in features of free forwarding and consistent speed-to-market, while at the same time eliminating the need and expense of another key attribute — the physical return of undeliverable letters. Capital One converted its systems to use Address Change Service (ACS) — electronic notification of forwarded mail and undeliverable pieces. This means that Capital One no longer has to open returned pieces and enter data manually to update bad addresses on their mailing list, and the Postal Service no longer has to sort and return millions of undeliverable pieces of mail.

MC: What will be covered in the two new NSAs to be filed with the PRC?

Kearney: The two new agreements are modeled after the Capital One NSA. Both customers would receive pricing incentives on any First-Class Mail they generate above their typical annual mail volume. They also have agreed to convert to ACS for handling of their undeliverable First-Class Mail pieces. In addition to the expected new First-Class Mail volume and resulting net revenue, the Postal Service will be able to avoid the costs of collecting, packaging, and delivering millions of return pieces to them. Ultimately, these NSAs can be worth millions of dollars to the Postal Service over the three-year test periods.

MC: Why negotiate pricing through NSAs? And why does the Postal Service want to do it?

Kearney: Today more than ever, the marketplace is very competitive. Businesses need to negotiate pricing to retain customers, to reflect customer needs (such as volume or ease of service), to encourage customer reliance for long-term growth, and to encourage customers to try new products or services.

There are many alternatives to mail, and most of them claim to offer better economics, either in cost or return on investment (ROI). Many Postal Service competitors negotiate pricing to win business. The Postal Service needs to negotiate pricing in order to retain and grow its business.

MC: As the Postal Service continues to transform itself, how important are NSAs?

Kearney: NSAs are one of the corporate goals of our Transformation Plan, so putting them to work is an important step forward for our organization.

Contractual agreements similar to NSAs are commonplace in the private sector. Even though NSAs are new to the Postal Service in terms of selling our products and services, it’s not all that dramatic a change. For decades, we have worked with mailers to identify and address their needs in ways that improve service, reduce costs, and increase mail volume and net revenue. As a result, we have come up with many new products and services that save and make money, and benefit all parties.

Adding pricing incentives to the mix is the next logical step for the Postal Service. NSAs will allow us to partner with mailers to strengthen mail volume, keep existing customers from diverting their messages to alternative media, and even acquire new customers.

MC: What makes a good NSA?

Kearney: A good NSA benefits both the customer and the Postal Service. It provides customized prices to the customer in exchange for extra mail volume from them — volume and revenue that we otherwise might not get. For us, it lowers our costs and it focuses on retaining and growing an area of the business that is in play, that could grow or decline depending on how well we perform.

MC: Does an NSA put the Postal Service at any risk?

Kearney: For the Postal Service, an NSA involves little risk other than “opportunity cost” in exchange for potential significant value. Opportunity cost means the risk that we could have gotten more revenue from the customer by not negotiating prices. In other words, the main risk is that customers really would not be influenced to change their behavior by the unique prices we negotiate with them.

Pricing incentives negotiated by the Postal Service are much safer than those used in the private sector. Our pricing incentives begin only after a high threshold of mail volume is reached and also require a mailer to adopt new behaviors, such as using ACS, which in turn has a positive impact on the efficiency of our processing operations.

MC: What is involved in putting together an NSA?

Kearney: At least for now, NSAs are complex and time-consuming to create. In the private sector, if the opportunities are there, the two organizations work to negotiate the details of the agreement and that would be it. You’d have an NSA. For us, that’s just the first step.

Once negotiated, the NSA is presented to the Board of Governors and authorization is requested to file the case with the PRC. The Postal Service and the customer then litigate the case before the PRC, presenting documentation and evidence that the agreement is in the best interest of the mailing public. This process can take 10 months. If the NSA is recommended by the PRC, it is returned to the Board of Governors for final approval and implementation.

Mailers and the Postal Service want to make the NSA process easier and less expensive. We are working with the PRC to try to improve the NSA process.

MC: Are there any other NSAs in the pipeline?

Kearney: A handful of other possible agreements are in negotiations at this time, all at different stages in the process. I can’t say anything specific about these discussions, but I am encouraged and optimistic.

MC: How does a company propose an NSA?

Kearney: Mailers interested in entering into a Negotiated Service Agreement can get more information by contacting Pricing Strategy at NSA@usps.com, going to www.usps.com/nsa, calling (202) 268-7284, or writing to Pricing Strategy, U.S. Postal Service, 475 L’Enfant Plaza SW, Room 3616, Washington, DC 20260-3616. Interested parties will receive a company profile form and other preliminary documents to complete and apply for NSA consideration. The Postal Service will review the information and contact the applicant to discuss any appropriate further steps.