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In the News

Royal Mail losing market share in the contestable parcels industry

Geoff Riley

29th December 2023

The privatised Royal Mail is losing market share to scaled rivals according to data for 2022 published by Pitney Bowes. The industry is an oligopoly - the top four carriers in the UK (Royal Mail, Hermes, Amazon Logistics and DHL) account for 66% of parcel market share by volume - but also a contestable market driven by price and non-price competition from other companies including UPS, Yodel and DPD.

This is a sector where economies of scale matter! According to Pitney Bowes, in the UK in 2022, 162 parcels were generated every second, or 14 million each day. However parcel volume declined 5%, year-over-year, to 5.1 billion in comparison to 2021 - in part a reflection of the end of pandemic lockdowns. Parcels generated per person were down to 75 and parcels per household dropped to 181 from 192 in 2021.

This is a really good industry to consider different types of price and non-price competition:

Competition Strategies for UK Parcel Delivery Companies:

Price & Value:

  • Competitive pricing: Offering lower prices or discounts for specific parcel sizes, weights, or destinations.
  • Value-added services: Bundling additional services like insurance, tracking, or signature on delivery at competitive rates.
  • Subscription models: Providing subscription plans for frequent senders with discounted rates or additional benefits.

Speed & Reliability:

  • Speed options: Offering a range of delivery speeds, from same-day to economy options, catering to different time-sensitive needs.
  • Delivery guarantees: Providing guaranteed delivery times with refunds or compensation for missed deadlines.
  • Network coverage: Ensuring wide and efficient delivery networks to reach remote areas and rural locations.
  • Reliability: Maintaining high success rates for on-time and damage-free deliveries.

Customer Experience:

  • Convenience: Offering flexible drop-off and collection options, including self-service lockers, parcel shops, and home collections.
  • User-friendly platforms: Providing easy-to-use online booking systems, tracking tools, and mobile apps.
  • Customer service: Offering responsive and helpful customer support channels for inquiries and issues.
  • Sustainability: Highlighting eco-friendly initiatives like electric vehicles or carbon offset programs.

Innovation & Differentiation:

  • Specialised services: Catering to specific niches like oversized items, perishable goods, or same-city deliveries.
  • Technological advancements: Investing in automated processes, AI-powered route optimization, and advanced tracking solutions.
  • Strategic partnerships: Collaborating with other companies or marketplaces to expand reach and services.

Beyond the Core:

  • Brand reputation: Building trust and positive brand perception through marketing and ethical practices.
  • Employee satisfaction: Recruiting and retaining skilled staff to ensure quality service.
  • Data-driven decision making: Analyzing customer data and market trends to adapt and improve services.

Ultimately, success in the competitive UK parcel delivery market requires a focus on a combination of these strategies, tailoring them to specific target audiences and constantly innovating to stay ahead of the curve.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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