Wednesday, July 9, 2008

How Much Does It Cost To Post A Letter?

Royal Mail used to have a simple system for costing letters. A letter was either first class 36p or second class 27p. However, the Royal Mail felt this was an inefficient method of paying for postage. because the cost of delivery depends on:
  • How much it weighs
  • How big the letter is.
  • How Far it has to travel
Therefore, they introduced a new pricing strategy, which charged different prices for size of letter (small letter - big letter, package) and also introduced more weight bands.

From an economic point of view this is more efficient. It makes it easier to charge the consumer the marginal cost of delivering the letter. It should encourage some to use smaller letters and reduce unnecessary weight. Previously, there was no incentive. In theory, this more efficient pricing should help reduce costs and lower the overall price of letters.

The Problem of Complicated Pricing

The problem with this new range of pricing structures is that it becomes more difficult to know how much a letter is going to cost. It results in people, either wasting time in measuring / weighing letters or people spending too much money on postage.

In the past few months, I have been uncertain about the weight and size of big letters, rather than
  • Waste time going to the post office to have it weighed
  • Buy a weighing scales.
I've just put 2 or 3 stamps on and hoped for the best.

This is because I'm always thinking of the opportunity cost. I'd rather spend and extra 36p on a 2nd stamp I don't really need, rather than waste time searching the proper price. The packages are important so I can't risk them not getting there, so I just put on enough stamps to make sure there is no risk. Therefore, I'm sure I've paid more in stamps than I should have done. But, as an infrequent poster, it makes sense to lose a couple of pounds rather than invest time in working out the correct price.
If you can earn £20 an hour, why spend even 5 minutes on measuring and weighing a letter so you can save 37p?

For me, the pricing change is not good. I've lost out, but, paying too much for postage is better than the alternative - wasting time in working out whether to pay 37p, 44p or 66p e.t.c.

It just shows, in the real world, ideas of allocative efficiency are more difficult to work than theory suggests.

By the way, researching this post, I found two useful pages, which will make it easier in the future to know the correct postage. The time investment was about 15 minutes, so it will eventually pay me back. But, if I hadn't been writing this post, I would never have bothered.

Pages on cost of Posting in UK

1 comment:

Anonymous said...

You need think about it. Despite the emails, the overwhelming evidence showing global warming is happening hasn't changed.
"The e-mails do nothing to undermine the very strong scientific consensus . . . that tells us the Earth is warming, that warming is largely a result of human activity," Jane Lubchenco, who heads the National Oceanic and Atmospheric Administration, told a House committee. She said that the e-mails don't cover data from NOAA and NASA, whose independent climate records show dramatic warming.