U.S. Postal Service

The U.S. Postal Service has developed an array of new products in recent years, such as Global Priority Mail, prepaid phone cards, and retail merchandise. Some Members of Congress contend that the Postal Service is unfairly expanding its product line to compete in nonpostal markets and have introduced legislation to curtail such activity. Some private sector companies have also raised concerns that the Postal Service could use its governmental status to an unfair advantage when introducing products that compete with private sector companies. This report (1) identifies the statutory and regulatory authorities and constraints covering all major groups of new products, (2) identifies the potential impact that H.R. 22 and the Postal Service's proposed reform legislation could have on new products, and (3) discusses the Postal Service Marketing Department's new product development process and determines, for three products, how closely that process was followed. GAO found that during fiscal years 1995, 1996, and 1997, the Service marketed, or had under development, 19 new products that had been publicly announced. Three of these new products involved strategic alliances with other businesses. As of July 1998, the Service had discontinued five of the new products and was considering discontinuing another. Total revenues and expenses for the 19 products from inception through fiscal year 1997 were $148.8 million and $233.5 million, respectively. During the first three quarters of fiscal year 1998, Service officials said that four of the 19 new products had produced revenues that exceeded expenses. GAO notes that it may not be reasonable to expect all new products to become profitable in their early years, because new products generally take several years to become established and recoup their start-up costs.

GAO noted that: (1) the statutory and regulatory authorities governing USPS provide USPS broad latitude to develop and market a wide variety of new products; (2) GAO's analysis shows that USPS is subject to at least three constraints in developing and marketing new products; (3) since it is the underlying statutory mission of USPS to provide postal services to bind the nation together, USPS needs to be able to explain how any new product it develops will further that mission; (4) under its statutory authority, before marketing a new domestic postal product, USPS must request a recommended decision from the Postal Rate Commission (PRC) regarding the propriety of USPS' proposed classification, rates, or fees for the new product; (5) prior to issuing its recommended decision, PRC is required to hold hearings on USPS' proposal; (6) the Postal Board of Governors may reject or modify PRC's recommended decision; (7) USPS is not required to request a recommended decision from PRC in the case of nonpostal products; (8) USPS' ability to market new products can be constrained by congressional oversight, restrictions imposed during the appropriations process, or other legislative actions; (9) adoption of either H.R. 22 or legislative changes offered by USPS would amend USPS' current statutory authority to develop, test, approve, and market new products; (10) H.R. 22 should place new restrictions on the introduction of new, nonpostal products and international postal products; (11) however, H.R. 22 would provide USPS with broader latitude to test market experimental postal products; (12) USPS' Marketing Department established the New Business Initiatives and Products Group, which implemented a new product development process, CustomerPerfect!; (13) it is intended to ensure effective management control through a formalized system of checks and balances that require top management buy-in at four critical stages: (a) concept; (b) business plan; (c) test; and (d) implementation; (14) three judgmentally selected products showed that in developing these products, the Marketing Department's New Business Initiatives and Products Group generally followed the CustomerPerfect! new product development process; (15) information and financial data show that during fiscal years 1995, 1996, and 1997, USPS marketed, or had under development, 19 new products that had been publicly announced; and (16) total revenues and expenses for the 19 products, from inception through FY 1997 were $148.8 million and $233.5 million.