Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 6: Postal Costing Beyond ABC: Estimating the Economic Cost of Mail Services
6. Postal costing beyond ABC: estimating the economic cost of mails services* Richard Robinson and Jane McMurdie INTRODUCTION 1 The postal market in the UK is undergoing a signiﬁcant change. As in other countries the historical link between economic variables (such as Gross Domestic Product) and mail volumes appears to have been broken with electronic substitution, ‘green’ issues and the proliferation of alternative communications media all playing a part. At the same time the mails market in the UK has been fully liberalized since January 2006 and there has been a continuing requirement upon Royal Mail as universal service provider to provide universal service of signiﬁcant scope and high quality. In these circumstances, Royal Mail faces a diﬃcult ﬁnancial position and must ensure that it can compete on price and service where it needs to while charging a fair (and aﬀordable) price for the universal service products. To be competitive, prices must be cost reﬂective so future pricing must include the unwinding of historical cross-subsidies between products serving diﬀerent types of customer. A fundamental requirement is therefore for an approach to product costing that can determine the true economic costs of providing speciﬁc products (or groups of products). This chapter describes how Royal Mail has developed an approach to product costing that goes beyond the traditional activity-based costing (ABC) approach but which can nevertheless be implemented within the structure of the existing ABC system. This extends the work originally described in Robinson et...
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