Implications of our analysis of the underlying needs of postal

As outlined in Section 2.2, the study must ensure that three issues are accounted for appropriately: the two-sidedness of the postal market, different exposure of letters and parcels to intermodal competition, and a service-output orientation of the choice experiments.

Accounting for the two-sidedness of the postal market

The insight that the postal market is a two-sided network calls for an analytical distinction of the postal network along three main features that are interrelated in important ways and hence cannot be analysed separately. Figure 3.1 illustrates these three features of a postal network:

- Sender side: Accessibility of S to the services offered in C (point of collection) - Recipient side: Accessibility of R to the services offered in D (point of delivery) - “Platform” or “Connection” C – D linking sender and recipient side: Physical

delivery of communication (newspapers, most letters) and goods (parcels, express, some letters)11

Figure 3.1 Two sides, one platform, based on Jaag and Trinkner (2011b)

As elaborated in Section 2.2, the ubiquity and accessibility dimensions will be crucial issues on the sender and recipient sides. For the platform (C –- D), the relevant dimensions include the scope of services provided (e.g. letters, parcels) and their reliability, quality, uniformity and affordability.

A first issue is the manifold interdependencies between these features and dimensions. For example, the end-to-end speed of delivery is determined by as many as seven attributes: accessibility, frequency of collection and the latest clearance on the sender side,

11 _{The distinction of 3a) and 3b) might be of importance as there is intermodal competition of digital means in 3a).} Sender side (S – C)

ubiquity, accessibility

Recipient side (D – R) ubiquity, accessibility Connection / Platform / Service (C – D)

Scope, reliability, quality, uniformity, affordability

Postal network

R Recipient S

Sender delivery of communication

delivery of goods C Point of collection D Point of delivery

RAND Europe Implementing the valuation methodology

Accent in three member states

Swiss Economics

accessibility, frequency and time of delivery on the recipient side, and the time the platform needs to send an item from C to D. Hence, a service feature such as “frequency of delivery” contains no real information to the consumer sitting on his sofa and wondering when the birthday parcel sent earlier in the day will reach its destination. Rather, it is a rough proxy for speed of delivery based on an assumption of how the other four service features are defined.

We have hence decided to opt to test attributes that are directly meaningful to consumers, for example a speed indication rather than the number of collection or delivery days. As we see below, this is also compatible with a general “output-orientation” of the attributes. A second challenge is to correctly incorporate in the study design the externalities that are exhibited in the two-sided postal market. It will be important to include those externalities that are relevant from an economic policy point of view.

A precondition for the consideration of externalities is the inclusion of both sides into the study, but to compute the WTP jointly for both sides, and to frame the choices such that respondents view themselves simultaneously both as senders and recipients (e.g. “when thinking as of sending or receiving letters or parcels…”). This ensures that double- counting of WTP is excluded, but externalities between sides remain included. To elicit differences between consumptions patterns (items sent vs. items received) and (high volumes vs. low volumes), we will collect information on the how much each respondent sends and uses postal services and we will use this information to investigate whether different users have different valuations of postal service attributes.

With this approach, we do not yet control for possible public good externalities. We therefore include post offices implicitly in one attribute (cf. Section 3.1.5, services available at point of collection).

Accounting for platform competition between letters and digital means

The digitalisation trend of the past decades has resulted in a number of new technologies. Based on these technologies, letters are increasingly replaced and substituted (“e- substitution”) and consumers use new channels to buy their products, which increases parcels volumes (“e-commerce”). The new substitutes and complements to postal services will continue to exercise pressure on customers’ needs and preferences, as revealed by the development of postal volumes.

Recalling the analysis of the underlying needs for postal services earlier (Section 2.2), digital means are likely to change the opportunity cost of sending mail (for example, lower costs for letters that can be sent via e-mail) and the importance of externalities in cases where the other side of the postal market can be reached with electronic substitutes. Similarly, fast letter services may not have the same priority to consumers as in the past as digital alternatives offer instantaneous delivery.

As illustrated in

Figure 3.2, the degree of platform (intermodal) competition with new means is very different for letters (high) and parcels (low). Correspondingly, the WTP for letters and parcels may evolve differently.

Figure 3.2 Intermodal competition between physical and electronic delivery of communication, based on Jaag and Trinkner (2011b)

The customers’ WTP for postal service elements are therefore likely to crucially depend on the availability and usage of digital alternatives.

It will be interesting to see whether there are attributes that exhibit different valuations for letters and parcels. To enable such a comparison, it is important to distinguish in the choice experiments the delivery of communication (letters) and goods (parcels, packages) by using separate, but otherwise identical, choice cards. These differences are likely to be greater where the availability of digital alternatives is higher. The availability will vary from country to country (penetration of internet, e-commerce and e-government, legal status of mail) and from consumer to consumer (IT equipment in place, broadband connection, user know-how, etc.). It is therefore recommended to select member states that differ in digital penetration and e-commerce usage, to control for the availability of substitutes and the legal status of digital signatures, and to collect socio-economic information regarding respondents’ individual internet availability and usage.

Output-orientation of attributes

As introduced above, some attributes such as frequency of delivery are meaningful in a broader context only. To get as much information as possible out of a single attribute, it will be necessary to select attributes that are “output-oriented”. Such attributes have a direct link to the goodness of the service that consumers experience. This is in contrast to input-oriented attributes that relate to the production of postal services such as the number of sorting and collection facilities or the number of collection and delivery days. Input- oriented attributes may be perceived as proxies for real services attributes such as speed of delivery. It is however better to ask directly for the relevant attributes in an output-oriented way, thereby avoiding the risk that customers are not able to understand the effect of the input-oriented proxies appropriately.

We therefore focus on testing output-oriented attributes.