Royal Mail Quality of Service

Royal Mail Quality of Service Research Study Conducted for Royal Mail, Postwatch and PostComm June - July 2004

Contents Background & Objectives 1 Methodology 3 Sample 3 Qualitative Stage 4 Quantitative Stage 6 Presentation and Interpretation of the Data 7 Summary of Findings 8 Main Findings 10 Familiarity with Royal Mail 10 Favourability towards Royal Mail 12 Strategic Priorities 22 Customers’ Preferences 28 Appendices Statistical Reliability Conjoint Analysis CHAID Analysis Comments from medium and top 500 businesses Topline Results: Domestic and small business customers Topline Results: Medium and top 500 business customers

Royal Mail Quality of Service 1 Background & Objectives This report contains the findings of a survey conducted by Market & Opinion Research International (MORI) on behalf of Royal Mail, Postwatch and Postcomm. This survey is part of a larger review process undertaken by Postcomm to ensure that the new Royal Mail Quality of service targets, to take effect from April 2006 as part of the new price control, reflect customer expectations and requirements. Overall Objectives The current quality of service targets derived from Royal Mail’s internal End to End target were put in place before the licence of 2001 and subsequently updated after an interim review process by Postcomm in March 2005.

It is believed by all parties that these targets need to be reviewed. In particular, the new targets to be incorporated into the 2006 licence (which will run up to 2011) need to reflect the needs of all customers on the basis of their current habits, requirements and preferences. This is very important as the revision of Royal Mail’s obligations is considered by all parties to be fundamental to the future of the postal service in the UK.

Research Objectives In this context, the main objectives of the study were to: 1. Establish customer requirements of a Universal Postal Service in terms of speed of delivery, reliability and security 2. Assess customer expectations of quality over the period of the next price control (up to 2011) In particular, the outputs from the survey were not to be a new set of targets to be included in the new price control, but rather a first step in understanding the current perceptions and day-to-day service requirements of Royal Mail’s customers across all sectors. It was also important to gain an insight into how much customers are willing to pay for the services provided by the Royal Mail.

Due to Royal Mail’s obligation to provide a universal postal service in the UK1 it was essential for this piece of research to be fully encompassing and include customers from all sectors, both business and domestic, high value and low value, across the whole of the UK.

1 Postal Services Act, 2000

Royal Mail Quality of Service 2 The understanding gauged in this study should help Postwatch, Postcomm and Royal Mail through the remainder of the review process to put forward recommendations for workable and customer-based quality of service standards that will be incorporated into the 2006 Royal Mail price review.

Royal Mail Quality of Service 3 Methodology Sample Given the overall objective of this piece of research, it was important to ensure that the views of all types of customers were included.

At the same time, it was crucial that the appropriate research methods were applied to reflect the needs of each audience. For these reasons, we broke down Royal Mail’s customer base into four segments: domestic, small business, medium business and top 500 business customers. A brief definition of each of these customer typologies follows.

Domestic customers. All members of the public are customers or potential customers of Royal Mail. This may be through receipt of mail only or through despatch too. The majority of domestic customers receive more mail than they send, but their expectations and requirements concern both these aspects of the postal service. The majority of domestic customers only use the most basic of Royal Mail’s products: First Class and Second Class. Few use a more tailored service such as Special Delivery, Recorded or Redirection, although many have not got a clear idea of how these services differ from each other.

Small business customers. There are around 3.75m2 registered enterprises in the UK with around 95% employing less than 10 people. Individually, many of these businesses are not large Royal Mail customers, and tend to have a similar relationship with Royal Mail and similar expectations and concerns as domestic customers; they tend to receive more mail than they send and items are sent predominately by the standard services. Furthermore, should these business customers wish to complain about any aspect of the Royal Mail service, they are advised in the first instance to call a general (business) customer service line rather than a designated Royal Mail representative.

Medium businesses, which may be a company of any size, are those that have particular value (at least £5,000 per year) to Royal Mail as a customer and have their own account with Royal Mail. These businesses, as well as having the general requirements of all customers, will also tend to use one or more of the bulk mailing products: Presstream, Mailsort or business response services. They are also likely to have more contact with Royal Mail advisors or account handlers, for such issues as organising bulk mailings, docket checks etc.

Top 500 businesses. These are those that are, by value, the top 500 Royal Mail accounts.

Typically these are organisations posting vast volumes of mail on a regular basis, and comprise utility companies, financial institutions and mail-order subscription organisations. For these organisations, the focus is 2Small and Medium Enterprise Statistics for the UK 2001, Small Business Service DTI

Royal Mail Quality of Service 4 on the delivery of their items, as the success, timelines and price of delivery are fundamental to their business performance. MORI identified and recruited the sample of domestic and small business customers for all the stages of the research project. As for medium and top 500 business customers, Royal Mail provided MORI with contact details of the principal contacts in these organisations, from which we were able to draw the sample. Qualitative Stage To achieve the objectives set for this study, it was felt that both a qualitative and a quantitative phase were needed.

Qualitative research was conducted with the purpose of gauging initial insight into the needs and expectations of different kinds of customers. In order to reflect the different needs of the various customer groups, we conducted a mixture of focus groups and depth interviews as outlined below. Focus Groups – Domestic and Small Business Customers Both domestic and small business customers share similar relationships with and expectations towards Royal Mail, and do not feel out of place talking about their needs with their peers. With this in mind, a total of 12 focus groups were conducted throughout the UK among domestic and small business customers, as detailed in the table overleaf.

Participants to some focus groups were given a simple pre-task requiring them to keep a note of the following:
  • How many times they posted items in the preceding seven days
  • How much post they received (and if possible at what time) and to keep the outer packaging
  • Whether the post was First Class, etc.
  • What the posting date was on any mail received compared to the date received and to find out about their nearest post boxes and post office. This was intended to make sure that, referring to their seven day postal diary, participants would be able to give a more realistic focus for their expectations and perceptions of Royal Mail. Comparison with the control groups (i.e. those where no diary was compiled), allowed us to verify the extent to which top-ofmind perceptions of the postal service are influenced by real facts.

Royal Mail Quality of Service 5 Table 1: Focus Group Structure Group Number Business/ Domestic Country Place Rurality Age/ Turnover SEG/ Sector Date Pretask? 1 Business Scotland Edinburgh Urban More than £1m Any 7 June No 2 Business Wales Bridgend Rural Less than £1m Any 7 June Yes 3 Business England London Urban Any Services 10 June Yes 4 Business N. Ireland Belfast Urban Any Retail 3 June No 5 Domestic Scotland Edinburgh Urban 45-64 ABC1 7 June Yes 6 Domestic Wales Bridgend Rural 35-54 C2DE 7 June No 7 Domestic England London Urban 25-44 C2DE 10 June Yes 8 Domestic N.

Ireland Belfast Urban 35-54 ABC1 3 June No 9 Domestic England Exeter Rural 25-44 ABC1 8 June Yes 10 Domestic England Exeter Rural 65+ C2DE 8 June Yes 11 Domestic England Stockport Rural 25-34 ABC1 3 June No 12 Domestic England Stockport Urban 18-24 C1C2DE 3 June No Source: MORI Depth Interviews – Medium and Top 500 Business Customers Due to the individual nature of Royal Mail accounts, it was not appropriate to carry out focus groups with account managed businesses.

Businesses working in different sectors may have completely different priorities, requirements or expectations and use different services (e.g. Presstream, Mailsort 1 etc) independently from the amount they spend on postage.

Royal Mail Quality of Service 6 For this reason, we conducted 10 one-on-one depth discussions, 5 with medium and 5 with top business customers, in June 2004. These were conducted over the telephone, allowing us to conduct interviews with businesses all over the country. Interviews lasted around 40 minutes and were carried out with individuals with whom Royal Mail deals on the account and have the main decision influencing capacity on this. Quantitative Stage The findings from the qualitative phase of this study were fed into the design of the questionnaire to be administered to the various groups of customers.

As in the case of qualitative research, there were differences in the questionnaires and the methods used for the different audiences.

Telephone Interviews – Domestic and Small Business Customers Telephone interviews were conducted among domestic and small business customers between 1 and 21 July 2004. In the case of domestic customers, 2,000 interviews were carried out using a quota sample drawn from a cross-section of the UK population. Data were then weighted to the known population profile. We also conducted 300 interviews among a sample of small business customers drawn from our in-house company’s database. Quotas were set on types of business and region, to ensure that a sufficient number of interviews were achieved in each country.

The same questionnaire (see appendices for the full questionnaire) was administered to the two groups and the average interview length was 13 minutes. In addition to the quantification of different elements discussed in the focus groups, a simple pair-wise trade-off exercise was included in the survey, aimed at testing the relative preference for attributes of the postal service, namely, delivery target, hitting delivery target and price. Online Interviews – Medium and Top 500 Business Customers Interviews among medium and top 500 business customers were conducted online between 7 and 23 July 2004.

An e-mail was sent to potential participants inviting them to take part in the study by clicking on a link that would take them to a secure page of the MORI website, where the survey was hosted. In total, we achieved 605 interviews with medium business customers and 100 interviews with top 500 business customers.

At the heart of the quantitative stage of the survey among medium and top 500 businesses was a conjoint analysis exercise, designed to gain an insight into the preferences of these important customers (more details about this type of analysis are provided in the main report as well as in the appendices). Given the

Royal Mail Quality of Service 7 complexity of such type of analysis, it was felt that an online survey represented the best approach for these segments. In fact, a questionnaire administered online can handle complex systems and analysis. In addition, an online survey is very flexible and can be completed at a convenient time for the respondent, which is a major benefit in the case of a business sample.

Presentation and Interpretation of the Data Results are presented as percentages. Where percentages do not add to 100%, this may be due to rounding of figures or where respondents were able to provide more than one answer to a question.

As a sample of the population rather than the whole population was interviewed, results are subject to sampling tolerances, and not all differences between subgroups may be statistically significant. For more information on sampling tolerances, refer to the Appendices. An asterisk (*) in the table denotes a value of less than 0.5%, but greater than zero. Mean score calculations are derived from raw data. It should be noted that the findings of this research are based on customers’ perceptions of their use, their future requirements and their perceived experience of Royal Mail and not necessarily based on actual real life situations.

Thus the findings show what customers say they would do within a given set of parameters which may or may not be the actual behaviour in reality. Publication of the Data MORI’s Standard Terms and Conditions apply to this study, as to all those that we undertake. No press release or publication of the findings from this study shall be made without the prior approval of MORI. Such approval will only be refused on the grounds of inaccuracy or misrepresentation of the research findings.

  • Royal Mail Quality of Service 8 Summary of Findings Reputation of Royal Mail
  • Royal Mail’s reputation varies across different customer groups. The organisation is well known across its entire customer base, though domestic and small business customers tend have a more favourable opinion than account managed customers
  • Across all customer groups, favourability towards Royal Mail is lower than the comparable organisations, including the Post Office
  • Many say their opinion of Royal Mail has deteriorated over the last six months; more than half of account managed customers say this
  • The relatively low level of favourability towards the organisation is, at least, partially explained by Royal Mail’s underperformance on some critical service factors. In particular, only a minority of customers rate Royal Mail highly on ‘reliability’, ‘delivery on promises’, ‘accountability’ and ‘meeting expectations’ - all of which are positively correlated with favourability. In line with the overall attitudes, medium and especially top 500 business customers are particularly critical of Royal Mail’s performance on these same dimensions Strategic Priorities
  • Conjoint analysis further shows the need for Royal Mail to focus on ‘reliability’ and ‘delivery on promises’
  • The percentage of mail delivered on the specified day is key to all audiences. Among most domestic and small business customers it is more important than the actual time of delivery itself and on a par with price
  • Experience of loss has a significant negative impact on Royal Mail’s overall reputation. The first basic expectation, shared by all, is for their post to be delivered. Loss is therefore viewed as unacceptable by the majority, especially among account managed customers
  • Royal Mail Quality of Service 9 Customer Expectations
  • Most customers are more service, rather than price focused and place more value on an improvement in service than on a reduction in price. However, this varies with customer profile, especially by age among domestic customers, type of business among account managed customers and typology of products used among all type of customers
  • Given the importance of reliability and delivery on promises, all customers expect mail to be delivered within its target. Very few are prepared to accept a slippage in delivery of more than two working days after the target day for delivery of ALL remaining items
  • Only a minority of medium and top 500 business customers would be prepared to pay more in order to reduce frequency of loss. Domestic and small business customers are more indulgent; more than half say they would accept an increase in price to reduce the number of items that go missing. Many also say they agree to an increase in price if it leads to a more reliable service. This is not true, however, of the majority of account managed customers
  • Account managed customers have very high expectations when it comes to delivery and collection times; these are often critical to their own business operations. Only a minority are prepared to pay more to reduce the window of delivery ©MORI/22377 Janette Henderson Kieron Culligan Andrew Gunn Mara Galbiati

Royal Mail Quality of Service 10 Main Findings Familiarity with Royal Mail Royal Mail is well known across all the audiences included in this study; most feel they know it very or fairly well. None of the account managed customers and only a small proportion of domestic and small business customers feel they know almost nothing of the organisation. 46% 48% 36% 39% 37% 36% 54% 53% 14% 12% 10% 3% 4% 8% Overall familiarity with Royal Mail Q How well do you feel you know Royal Mail? Base: All Top Businesses (100), Account managed businesses (605), small businesses (300) consumers (2,000) Know very well Know a fair amount Know just a little Heard of/know almost nothing about Top 500 Business Medium Business Small Business Domestic Domestic and small business customers are also more likely than account managed customers to believe they know Royal Mail very well, with nearly half saying so.

This does not mean that these customers actually know Royal Mail better, but that the level of knowledge that they require to feel they know it very well may not be as high as it is among account managed customers. This is further supported by the findings in the qualitative stage of this survey, revealing that domestic and small business audiences often confuse Royal Mail and the Post Office. In addition, most account managed customers deal with Royal Mail on a daily basis and may be more aware of the complexity of the organisation and of a number of areas with which they may not be familiar.

However, this result may suggest a need to communicate better with members of this important audience.

As one might expect, account managed customers vary in their level of knowledge of Royal Mail. In general, the bigger users of Royal Mail (both in terms of expenditure and number of items sent) are more likely to believe they know Royal Mail very well, rising to 48% among those who spend more than £50,000 per month on postage.

Royal Mail Quality of Service 11 In addition, Royal Mail is rather better known than the Post Office and BT among account managed customers. Nine in ten feel they know Royal Mail very or fairly well, compared to seven in ten who feel the same about the Post Office and six in ten who say they know BT at least fairly well.

Similarly, they feel they know Royal Mail rather better than their main courier, known well by seven in ten. Likewise, among domestic and small business customers Royal Mail is better known than British Gas, whilst it is on a par with the Post Office and BT in terms of familiarity, as shown in Table 1 below.

Table 2: Familiarity with Royal Mail Know very well Know fairly well Know just a little % % % Account managed customers (705) Royal Mail 36 54 10 The Post Office 16 52 30 BT 14 44 38 Your main courier 32 38 20 Small business customers (300) Royal Mail 48 36 12 The Post Office 51 35 12 BT 54 35 8 British Gas 33 30 24 Domestic customers (2,000) Royal Mail 46 37 14 The Post Office 50 37 11 BT 48 36 13 British Gas 36 32 19 Source: MORI

Royal Mail Quality of Service 12 Favourability towards Royal Mail Customers were asked to rate how favourable they are towards Royal Mail.

The findings to this and subsequent questions reveal a clear difference between domestic customers and small businesses, on the one hand, and medium and top 500 businesses on the other, with top 500 businesses generally least favourable of the four groups. Throughout, domestic and small business customers hold very similar views about Royal Mail. Both are consistently more positive towards Royal Mail than account managed customers, with around seven in ten favourable to the organisation compared to a little over half of medium customers (56%) and less than half top of 500 businesses (43%).

2% 8% 22% 27% 41% 48% 50% 44% 22% 19% 12% 8% 7% 8% 11% 10% Overall favourability towards Royal Mail Q How favourable or unfavourable is your overall opinion or impression of Royal Mail? Top 500 Business Medium Business Small Business Domestic NET FAV +9 +29 +56 +52 Very favourable Fairly favourable Fairly unfav Very unfav Base: All Top Businesses (100), Account managed businesses (605), small businesses (300) consumers (2,000) Domestic customers who live in Northern Ireland or Scotland are particularly favourable towards Royal Mail (83% and 80% favourable respectively). Younger (16-24 year olds) and older (60+) segments are also more favourable than others (76% and 78% respectively).

It is worth noting, though, that these groups, and especially residents of Northern Ireland and older respondents, tend to be more positive towards all the organisations measured.

Favourability is also higher among those domestic customers who use the First Class service less; over three-quarters of those who use it for up to half of their mail are favourable towards Royal Mail (77%), compared to 70% of those who send most of their items by First Class post. Higher levels of expectations may explain this result – those choosing to use the more expensive First Class service may demand a better service and be more disappointed if their expectations are not met.

Royal Mail Quality of Service 13 As one might expect, personal experience has a strong impact on attitudes towards Royal Mail and favourability scores drop among those who have had items missing in the post – especially in the recent past.

Over one-third of domestic customers (36%) who have experienced loss in the last six months are unfavourable towards Royal Mail, compared to 8% who have never had such an experience. Among small business customers, only 5% of those who have never had an item missing in the post are unfavourable towards the organisation, compared to 24% of those who have.

Among domestic customers, heavier users of the postal system tend to be less favourable towards Royal Mail. Indeed, heavier users are also more likely to have experienced loss in the past, and this probably has a negative impact on their overall attitude towards Royal Mail. In addition, bigger spenders may have higher expectations of the quality of the service that Royal Mail should provide. This may also explain the relatively low favourability scores attributed to this organisation by medium and, especially, top 500 business customers. Less than half of top 500 business customers are favourable to Royal Mail and very few are very favourable.

Medium business customers are slightly more positive towards Royal Mail, but less than one in ten is very favourable and nearly one in three unfavourable to the organisation.

I can’t think of anything particularly good Top 500 business customers I couldn’t say ‘bloody hell they have done well here’. There isn’t anything Top 500 business customers As found with domestic and small business customers, favourability drops even further among large users, with 42% of those who spend over £50,000 monthly on postage unfavourable compared to 39% favourable. On the other hand, the proportion of those favourable rises to 62% among businesses spending less (between £400 and £10,000 per month on postage) whilst around one quarter (24%) are unfavourable.

The type of service used most often is also a discriminator of favourability, with less than half of users of Mailsort 3 favourable (49%) compared to nearly three in five users of First (58%) and Second Class services (57%) or their equivalents.

Mailsort 3 users tend to be bigger spenders and more dependent on the postal service than users of other products. Their potentially higher expectations and need for a flexible product may therefore explain the lower overall favourability score. Those who are more familiar with the organisation also have a better opinion of it, confirming that there is a need for better communication with key customers in order to improve mutual understanding and the overall relationship. The need for Royal Mail to be more personal and proactive in the relationship-building

Royal Mail Quality of Service 14 process is also highlighted by a number of participants in the qualitative in-depth interviews. The personal touch is disappearing and information is sometimes only available on the website Medium business customer We have had about 4 or 5 account managers in the last year and so there has not been continuity to build up a relationship with someone we can depend upon. If we have got any questions we have no real way of knowing who we are supposed to speak to Medium business customer Favourability in context Domestic and small business customers were also asked to rate the Post Office, BT and British Gas, while account managed customers were asked to rate the Post Office, BT and their main courier.

Generally speaking, Royal Mail is less well rated than these other organisations, the exception being British Gas, which is less well rated than Royal Mail among small business customers. The charts below show the relative position of each organisation in terms of familiarity and favourability. The horizontal axis shows the mean familiarity (on a scale of 0-4 where 0 = never heard and 4 = know very well). The further to the right of the chart an organisation sits, the better people think they know it. The vertical axis represents mean favourability (on a scale of –2 to +2, where -2 = very unfavourable and +2 = very favourable) and the higher up an organisation is positioned, the better regarded it is.

0.4 0.6 0.8 1.0 2.5 2.7 2.9 3.1 3.3 3.5 3.7 Base: All small businesses (300); All domestic customers (2,000) Favourability Familiarity Post Office British Gas BT Royal Mail Small Businesses Domestic Customers Royal Mail in Context - domestic and small businesses

Royal Mail Quality of Service 15 Domestic and small business customers are on balance favourable to all four organisations. Indeed, both audiences think more positively of both the Post Office and BT than Royal Mail. Domestic customers have also a better opinion of British Gas, despite its lower familiarity score.

However, Royal Mail is less well rated than the comparators (BT, Post Office and ‘Your main courier’) among medium and top 500 business customers. Favourability towards their main courier is the highest, suggesting that lower levels of favourability are not due to the nature but to the quality of the service. Couriers may represent one of Royal Mail’s main competitors and continued perceived underperformance by Royal Mail might drive some of its biggest customers to approach alternative organisations.

Couriers such as DHL generally provide a high standard of service. They have strong communication channels and you get hold of service staff very quickly to place an order or enquire about parcels location. The account managers are always available and you get a quick response to any problems which may arise Medium business customer We rely less on Royal Mail than previously. Now we use other couriers Business customer As the postal service is becoming more open to competition, the firm is starting to set up contingency plans and is looking into using other suppliers in the event of a break down of the postal services, such as when a strike takes place Medium business customer

Royal Mail Quality of Service 16 Royal Mail in Context - account managed businesses -0.2 0.0 0.2 0.4 0.6 0.8 1.0 2.5 2.7 2.9 3.1 3.3 3.5 3.7 Base: All Top 500 Businesses (100); all account managed businesses (605) Favourability Familiarity Post Office Your main courier BT Royal Mail Top 500 Businesses Medium Businesses Changing Perceptions of Royal Mail On balance, all four audiences say that their opinion of Royal Mail has deteriorated in the last six months, with over half of account managed customers actually saying it has got worse compared to around two in five domestic and small business customers.

Undoubtedly recent negative publicity about the organisation will have had an impact, but the deterioration in opinion is unlikely to be due exclusively to unfavourable media attention, but points to a reduction in service quality.

4% 3% 11% 28% 30% 27% 24% 20% 20% 3% 4% 9% 18% 19% Royal Mail is seen to be deteriorating Got a lot better Got a little better Got a little worse Got a lot worse Q Over the last six months, would you say your opinion of Royal Mail has got better, worse or remained about the same? NET better -40 -44 -36 -30 Base: All Top Businesses (100), Account managed businesses (605), small businesses (300) consumers (1,000) Top 500 Business Medium Business Small Business Domestic

Royal Mail Quality of Service 17 Even among domestic and small business customers, who tend to be more favourable to Royal Mail, very few have seen their opinion of Royal Mail improve in the recent past.

The majority have not changed their views on the organisation, but the balance among the remainder is negative, with a significant proportion (nearly four in ten among) thinking worse of it than they did six months ago. Their focus has become a little more laid back because they think that we can’t do without them (i.e. Royal Mail), so they make their own rules Small business customer, London We still need to send things by mail, but the service from the mail has got so terrible in the area where my offices are Small business customer, Edinburgh Once again, the opinion of those domestic and small business customers who have had items missing in the post is more likely to have deteriorated (51% and 50% respectively) than those who have not, confirming that personal experience is a key factor behind perceptions and reputation of Royal Mail.

This is particularly relevant considering that the number of those claiming to have lost items in the post is significant – over half say they have experienced loss in the past, including 31% who have done so in the last six months.

Half have experience of loss Base: All domestic customers (2,000) Q As far as you are aware, have you had any mail you sent go missing in the post? 31% 31% 21% 48% 31% 21% All with items missing in the last 6 months All with items missing All respondents No Yes – last 6 months Yes – ever As we have already seen, heavier users of the postal system and of the First Class service tend to be less favourably disposed to Royal Mail than lighter users, especially among domestic customers. Similarly, they are also more likely to say that their opinion of Royal Mail has got worse in the recent past.

Royal Mail Quality of Service 18 On the other hand, those whose opinion of the organisation has got worse drop to 24% (from 38%) among 16-24 year olds and to 19% among residents of Northern Ireland.

Among larger business customers opinion is more polarised, with fewer saying their opinion of Royal Mail has not changed over the recent past. A bigger proportion of top 500 and medium business customers say they think better of Royal Mail than they did six months ago, compared to domestic customers and small business, but the opinion of the majority has deteriorated over this period of time. Indeed, qualitative research revealed that some believe the future will not bring any improvement either, at least for a while.

I think that the quality of service of Royal Mail will probably get worse before it gets better. The large internal changes that are taking place will certainly have an impact on the service level Medium business customer The biggest spenders are particularly likely to report deterioration in their opinion of Royal Mail, with a third of those spending over £50,000 monthly on postage saying that their opinion of the organisation has got a lot worse. As one might expect, favourability and change of opinion towards Royal Mail are strongly correlated across all audiences, with the unfavourable most likely to say their opinion has deteriorated.

Table 3: Change of opinion towards Royal Mail Got better Got worse Remained the same % % % Account managed customers (705) Favourable 18 35 48 Unfavourable 2 83 14 Small business customers (300) Favourable 4 26 71 Unfavourable 2 88 10 Domestic customers (2,000) Favourable 9 24 66 Unfavourable 2 79 19 Source: MORI

Royal Mail Quality of Service 19 Worryingly though, a significant proportion of those customers who are favourable towards Royal Mail have seen their opinion of the organisation deteriorate over the past 6 months. Indeed, even among these groups, more say their opinion has got worse than say it has got better.

Use of CHAID analysis The strong correlation between favourability and change in opinion towards Royal Mail is further highlighted by the results of the CHAID analysis carried out on the data. CHAID analysis tests the strength of association between a key characteristic or behaviour and other factors and allows one to cluster a population according to the tendency to exhibit such a characteristic (see appendix for more details). CHAID analysis reveals that opinion towards the current service is the main discriminator when it comes to favourability.

Confirming what we have seen so far, personal experience of loss is a second level differentiator – those who have had such an experience are more likely to be unfavourable towards Royal Mail. Critical Service Success Factors Qualitative research was used to identify which factors are critical to customers in terms of service delivery from any organisation, not just Royal Mail. These were then tested in the quantitative research both in terms of their importance to service in general (i.e. not just Royal Mail) and in terms of the performance of Royal Mail on these factors.

The research shows that although medium and top 500 business customers have a slightly different agenda from the other two segments, the most important factors are common to all.

Of particular importance are reliability, delivery on promises and trustworthiness. All factors measured are important to varying degrees and play a critical role in determining what excellent service means, as the following two charts show.

Royal Mail Quality of Service 20 50 60 70 80 90 100 Top 500 Medium Reliability Delivery on promises Keeping to schedule Trustworthiness Meeting expectations Accountability Value for money Understanding customers’ needs Flexibility Access to information % Critical/ Very Important Many important factors in service delivery Q Thinking about the service you receive from companies and organisations, I would like to know how important each of the following aspects are to you Base: All Top 500 (100) and account managed businesses (605) 50 60 70 80 90 100 Small Business Domestic Customers Reliability Trustworthiness Delivery on promises Putting customers first Accountability Meeting expectations Knowledgeable staff Value for money Knowing who to contact Individual service % Critical/ Very Important A similar pattern is seen across all customer types Q Thinking about the service you receive from companies and organisations, I would like to know how important each of the following aspects are to you Base: All small businesses (300) and domestic customers (2,000) Although there are some small variations, overall the degree of importance of each of these factors is agreed upon across all sub-groups.

Royal Mail’s Performance In line with the findings so far, domestic and small business customers rate Royal Mail more positively than account managed customers on all factors. However, a certain degree of criticism can be found across all four groups on most dimensions.

Royal Mail Quality of Service 21 Reliability, for example, is perceived to be the most important factor, generally, across all audiences. As one might expect, it also seems to be very relevant when it comes to postal services specifically: ‘I’d like to stick the letter in the post box with a first class stamp on it and not even worry about it’ London, Small business customer Reliability is very important especially with any kind of mail product. It is important to trust the Royal Mail to deliver on time Medium business customer Although net ratings of Royal Mail on this dimension are positive across all audiences (i.e.

more think the service offered by the organisation is at least fairly good than think it is poor), less than one in five medium and top 500 business customers think that the reliability of Royal Mail’s service is ‘excellent’ or ‘very good’ (19% and 17% respectively). Among top 500 business customers, a similar proportion (15%) thinks that the service is ‘very poor’ or ‘terrible’. Reflecting their generally more positive disposition towards Royal Mail, domestic and small business customers are more positive about the reliability of Royal Mail’s service – 29% and 32% respectively think that this is excellent or very good, compared to 12% and 10% who think it is very poor or terrible.

However, the qualitative research suggested that even the most positive audiences feel that Royal Mail’s service reliability standards have been falling in the recent past. You lose faith in the reliability of Royal Mail Wales, Domestic customer I think very often you cannot rely on the post London, Small business customer It is worth noting, though, that not all agree with this point of view. ‘I don’t think I’ve ever sent a letter that hasn’t been delivered on time Stockport, Domestic customer They are there whatever the weather Exeter, Domestic customer Overall, across all four audiences, heavier users of the postal service and those who have experienced loss tend to be more critical of Royal Mail’s performance on most of the factors.

Thus, they are more likely to rate Royal Mail performance in terms of reliability more negatively, as shown in the following table.

Royal Mail Quality of Service 22 Table 4: Rating of Royal Mail’s reliability Excellent / Very Good Terrible / Very Poor % % Small business customers (300) 29 12 Ever experienced missing items (189) 22 17 Never experienced loss (108) 41 3 Domestic customers (2,000) 32 10 Items missing in past 6 months (629) 15 23 Never experienced loss (946) 45 3 Up to 10 items sent (1,842) 33 10 More than 50 items sent (36) 23 24 Up to 10 items received (958) 36 8 More than 50 items received (68) 25 25 Source: MORI In addition, the level of familiarity with the organisation has an impact on how Royal Mail is believed to perform on all the factors describing excellent service.

In particular, those who know the organisation very well are more likely to describe the service provided by Royal Mail as excellent or very good in relation to all the service success factors than those who do not feel their familiarity with the organisation is as high. The need for better communication with key customers to improve familiarity scores emerges once again. This is particularly true for bigger business customers who are less likely to feel they know Royal Mail very well and tend to be more critical of the organisation on all dimensions. Among account managed customers, users of Mailsort 3 are particularly negative towards Royal Mail’s performance on all these dimensions, reflecting the general more unfavourable attitude of this group of customers towards the organisation and its service delivery.

Strategic Priorities Although all the factors mentioned are felt by customers to be important in defining excellent service, it is important to identify which areas need immediate focus and action. The following charts show Royal Mail’s performance on each factor in relation to its importance among medium and top 500 business customers. The horizontal axis shows the mean importance (on a scale of 0-4 where 0 = not at all important and 4 = critical). The vertical axis represents mean ratings of Royal Mail’s performance on each of the factors (on a scale of –2 to +2, where -2 = very unfavourable and +2 = very favourable).

The quadrant lines on the chart represent the average importance and the average ratings scores for each

Royal Mail Quality of Service 23 attribute, and the point at which the lines meet marks the average position for the two. Factors found in the top right quadrant are those with a higher than average rating and on importance on which Royal Mail is perceived to be performing well. Factors in the bottom right quadrant, on the other hand, are those where Royal Mail is not perceived to perform as well, despite the fact that these aspects are assigned higher than average level of importance. Therefore, the chart suggests that the main areas of focus for Royal Mail in order to improve the satisfaction of medium and top 500 business customers are ‘delivery on promises’, ‘meeting expectations’ and ‘reliability’.

All three factors are of relatively high importance to these audiences, but Royal Mail’s perceived performance is only average or lower. Top 500 business customers are particularly critical when it comes to ‘reliability’. ‘Accountability’ is another factor that deserves particular attention. When it comes to Royal Mail’s perceived accountability, dissatisfaction among account managed customers is high, with more rating its performance poor rather than good. This is possibly a reflection of the perceived lack of a single, continuous, personal and reliable point of contact to whom these customers can turn with problems and queries, as emerged from the qualitative in-depth discussions with this audience.

2 -0.4 -0.2 0.0 0.2 0.4 0.6 2.5 2.7 2.9 3.1 3.3 3.5 3.7 Base: All top 500 businesses (100) Royal Mail Rating Importance Flexibility Understanding customer needs Value for money Trustworthiness Knowledgeable staff Accountability Meeting expectations Delivery on promises Reliability Keeping to schedule Access to information Top 500 businesses Royal Mail Performance on important factors – Top 500 Businesses On the positive side, Royal Mail is perceived as a trustworthy company by many, especially among medium business customers, a factor which is felt to be a key indicator of excellent service.

Royal Mail Quality of Service 24 1 -0.4 -0.2 0.0 0.2 0.4 0.6 2.5 2.7 2.9 3.1 3.3 3.5 3.7 Base: All medium businesses (605) Royal Mail Rating Importance Flexibility Understanding customer needs Value for money Trustworthiness Knowledgeable staff Accountability Meeting expectations Delivery on promises Reliability Keeping to schedule Access to information Medium businesses Royal Mail Performance on important factors – Medium Businesses It is also felt that Royal Mail offers good ‘value for money’, although this attribute is not perceived as important as those previously mentioned (though important nonetheless).

Use of Key Drivers Analysis These results become even more meaningful when the correlation between some of these factors and overall favourability towards Royal Mail is taken into consideration through Key Driver Analysis. This is a regression technique that looks at the underlying influences on satisfaction which are not currently measured in the E2E system. In particular, this is used to find out which factors are most strongly correlated with another factor (favourability to Royal Mail in this case).

Analysis of the results for top and medium businesses reveals that of all the factors tested in the survey, ‘meeting expectations’ is most strongly correlated with favourability.

In effect, improving the perception of these audiences on Royal Mail’s capacity to meet expectations would have the most positive impact on the overall favourability towards Royal Mail, all other things being equal. Other factors positively correlated with favourability are ‘accountability’, ‘reliability’ and ‘trustworthiness’. As already discussed, ‘reliability’, ‘trustworthiness’ and ‘meeting expectations’ are also amongst the most important factors felt to describe excellent service.

Royal Mail Quality of Service 25 Key Drivers to Favourability – Top 500 and Medium Businesses Base: All medium and top 500 businesses Q3 Favourability with Royal Mail Q3 Favourability with Royal Mail Reliability Reliability Showing strength of drivers 64% of Favourability with Royal Mail explained by model Meeting your expectations Meeting your expectations Accountability/ Taking responsibility Accountability/ Taking responsibility 40% 21% 18% Trustworthiness Trustworthiness 21% The relatively poor performance of Royal Mail on three of these dimensions no doubt goes some way to explain its low favourability score among top and medium business customers.

It also stresses the need to concentrate on these areas in order to improve Royal Mail’s reputation among its most profitable customers.

As shown in the charts overleaf, ‘reliability’, ‘delivery on promises’ and ‘accountability’ also constitute areas of focus for small business and domestic customers. ‘Putting customers first’, a factor that was not taken into consideration among medium and top 500 Business customers, is also an area where Royal Mail is considered to under-perform given its importance. Once again, Royal Mail’s ‘trustworthiness’ is rated very highly, together with the ‘value for money’ and ‘individual service’ offered by the organisation. However, these last two factors are not among those considered most important for excellent service (though, as mentioned earlier, that is not to say that they are unimportant).

Royal Mail Quality of Service 26 Royal Mail performance on important factors – Small Businesses 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Base: All small businesses (300) Royal Mail Rating Knowing who to contact Individual service Value for money Trustworthiness Knowledgeable staff Accountability Meeting expectations Delivery on promises Reliability Putting customers first Relative Importance Royal Mail performance on important factors – Domestic Customers 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Base: All domestic customers (2,000) Royal Mail Rating Knowing who to contact Individual service Value for money Trustworthiness Knowledgeable staff Accountability Meeting expectations Delivery on promises Reliability Putting customers first Relative Importance None of these three factors figure among the key drivers to overall satisfaction among small business customers.

In addition ‘trustworthiness’ and ‘individual service’ are relatively weak drivers to overall favourability among domestic customers.

Once again, it is ‘reliability’ which is the strongest factor driving favourability towards Royal Mail among both audiences, followed by ‘putting customers first’

Royal Mail Quality of Service 27 and ‘meeting expectations’ and, in the case of domestic customers, ‘delivery on promises’. Royal Mail needs to enhance its performance on each of these dimensions, in particular, in order for overall favourability to improve among these customer types. Key Drivers to Favourability – Small Businesses Base: All small business customers Q3 Favourability with Royal Mail Q3 Favourability with Royal Mail Meeting your expectations Meeting your expectations Showing strength of drivers 56% of Favourability with Royal Mail explained by model Reliability Reliability Putting customers first Putting customers first 49% 28% 23% Base: All domestic customers Q3 Favourability with Royal Mail Q3 Favourability with Royal Mail Trustworthiness Trustworthiness Showing strength of drivers 54% of Favourability with Royal Mail explained by model Meeting your expectations Meeting your expectations Putting customers first Putting customers first 28% 17% 8% Reliability Reliability Individual Service Individual Service Delivery on promises Delivery on promises 24% 17% 6% Key Drivers to Favourability – Domestic customers

Royal Mail Quality of Service 28 Customers’ Preferences In the real world, customers’ choices are based on a trade-off process, through which different service attributes are evaluated against price and each other. To simulate this trade-off process and understand the true relative importance of different aspects of the postal service, conjoint analysis has been used. This type of analysis is a well established research and statistical technique, described in more detail in the appendices. In this case, different analysis models have been applied to domestic and small business audiences and medium and top business audiences, to accommodate different interviewing techniques and reflect the level of choices generally made by each group3 .

The full conjoint exercise was administered to top 500 and medium business customers only. As for the other two audiences, this analysis was applied in the form of a pair wise trade-off exercise (see appendices for more details). Domestic and Small Business customers The following table details the attributes and levels used for domestic and small business customers during the survey. Table 5: Attributes and Levels Price Delivery Time Mail delivered within time target Level 1 35 p By 5 pm 88% Level 2 28 p By 12 pm 92% Level 3 21 p - 96% Source: MORI These attributes and levels were combined to offer a number of different options to choose from, as illustrated by the following chart.

3 It is not practical to administer a full conjoint exercise via the telephone survey. Furthermore, we believed a simpler exercise to be more appropriate for small business and domestic respondents because we wanted to ensure that the survey was sufficiently easy to understand across the complete spectrum of Royal Mail’s residential customer base.

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