2028 4.7 3.8 5.3 172 Model of USPS's Services to Amazon 173 We will expand the above model to isolate and forecast the size and profitability of USPS's services to Amazon. 174 Let's 'guesstimate'that: 175 Amazon currently represents 30% of USPS competitive revenues. 176 Amazon is currently receiving a 25% discount resulting in USPS's variable cost per dollar of revenue being 33% greater (1/(1-25%)=1.33) than for other customers. 177 USPS'fixed costs per dollar of revenues for Amazon are inflated by 33% assuming fixed costs are allocated based on volume not revenues. 178 Let's assume that the impact of USPS priding strategy to Amazon will occur as a step change at the beginning of the next calendar year, 179 180 Amazon 2020 2021 2022 2023 2024 2025 2026 2027 181 Revenues 2.0 2.3 2.5 2.8 3.1 3.4 4.2 182 Variable Costs 1.6 2.5 2.8 3.1 3.5 3.9 4.3 4.7 183 Allocated Fixed Costs 1.1 1.2 1.3 1.5 1.6 1.8 2.0 2.3 184 Fully Absorbed Costs 2.7 3.7 4.2 4.6 5.1 5.7 6.3 7.0 185 Profit (0.6) (1.5) (1.6) (1.8) (2.0) (2.2) (2.5) (2.8) 186 Marginal Contribution 0.4 (0.3) (0.3) (0.3) (0.4) (0.4) (0.5) (0.5) 187 188 The above model is driven by entering values for the following two factors: 189 The percent of the 30% of USPS's competitive business revenues that Amazon currently represents that USPS would lose if USPS retains its current pricing. 190 Percent of Revenues from Amazon Lost 191 The additional discount that USPS would need to offer Amazon to retain the current share of Amazon's deliveries that USPS represents. 192 Additional Discount Provided to Amazon 30% 193 You will now apply the Model of USPS's services to Amazon to forecast the following two hypothesized scenarios: Harvest and Defend. 194 To do this enter the appropriate values in the two green cells immediately above. 195 2.5 7.8 (3.1) (0.6) 2029 5.2 5.8 2.8 8.6 (3.5) (0.7) = 195 196 Harvest Strategy 197 In a 'Harvest' strategy a company retains its pricing and sacrifices sales. 198 Assume USPS will not increase its discount to Amazon but will ultimately lose 50% of it current share. 199 Percent of Revenues from Amazon Lost = 50%, Additional Discount Provided to Amazon = 0%. 200 In the green cells below enter the 2029 values (not a formula) of the Profit and Marginal Contribution based on this hypothesized scenario. 201 Profit Marginal Contribution 202 203 204 Defend Strategy 205 In a 'Defend' strategy a company reduces its pricing and retains sales. 206 Assume an incremental 30% discount will avoid any additional loss of deliveries to Amazon internal operations. 207 Percent of Revenues from Amazon Lost = 0%, Additional Discount Provided to Amazon = 30%. 208 In the green cells below enter the 2029 values (not a formula) of the Profit and Marginal Contribution based on this hypothesized scenario. 209 Profit Marginal Contribution 210 211 212 If you were the Postmaster General which strategy would you select? 213 214 = 2028 4.7 3.8 5.3 172 Model of USPS's Services to Amazon 173 We will expand the above model to isolate and forecast the size and profitability of USPS's services to Amazon. 174 Let's 'guesstimate'that: 175 Amazon currently represents 30% of USPS competitive revenues. 176 Amazon is currently receiving a 25% discount resulting in USPS's variable cost per dollar of revenue being 33% greater (1/(1-25%)=1.33) than for other customers. 177 USPS'fixed costs per dollar of revenues for Amazon are inflated by 33% assuming fixed costs are allocated based on volume not revenues. 178 Let's assume that the impact of USPS priding strategy to Amazon will occur as a step change at the beginning of the next calendar year, 179 180 Amazon 2020 2021 2022 2023 2024 2025 2026 2027 181 Revenues 2.0 2.3 2.5 2.8 3.1 3.4 4.2 182 Variable Costs 1.6 2.5 2.8 3.1 3.5 3.9 4.3 4.7 183 Allocated Fixed Costs 1.1 1.2 1.3 1.5 1.6 1.8 2.0 2.3 184 Fully Absorbed Costs 2.7 3.7 4.2 4.6 5.1 5.7 6.3 7.0 185 Profit (0.6) (1.5) (1.6) (1.8) (2.0) (2.2) (2.5) (2.8) 186 Marginal Contribution 0.4 (0.3) (0.3) (0.3) (0.4) (0.4) (0.5) (0.5) 187 188 The above model is driven by entering values for the following two factors: 189 The percent of the 30% of USPS's competitive business revenues that Amazon currently represents that USPS would lose if USPS retains its current pricing. 190 Percent of Revenues from Amazon Lost 191 The additional discount that USPS would need to offer Amazon to retain the current share of Amazon's deliveries that USPS represents. 192 Additional Discount Provided to Amazon 30% 193 You will now apply the Model of USPS's services to Amazon to forecast the following two hypothesized scenarios: Harvest and Defend. 194 To do this enter the appropriate values in the two green cells immediately above. 195 2.5 7.8 (3.1) (0.6) 2029 5.2 5.8 2.8 8.6 (3.5) (0.7) = 195 196 Harvest Strategy 197 In a 'Harvest' strategy a company retains its pricing and sacrifices sales. 198 Assume USPS will not increase its discount to Amazon but will ultimately lose 50% of it current share. 199 Percent of Revenues from Amazon Lost = 50%, Additional Discount Provided to Amazon = 0%. 200 In the green cells below enter the 2029 values (not a formula) of the Profit and Marginal Contribution based on this hypothesized scenario. 201 Profit Marginal Contribution 202 203 204 Defend Strategy 205 In a 'Defend' strategy a company reduces its pricing and retains sales. 206 Assume an incremental 30% discount will avoid any additional loss of deliveries to Amazon internal operations. 207 Percent of Revenues from Amazon Lost = 0%, Additional Discount Provided to Amazon = 30%. 208 In the green cells below enter the 2029 values (not a formula) of the Profit and Marginal Contribution based on this hypothesized scenario. 209 Profit Marginal Contribution 210 211 212 If you were the Postmaster General which strategy would you select? 213 214 =