CLOSE-UP: LIVE ISSUE - ROYAL MAIL. Can ads help to address Royal Mail's many woes?

The Royal Mail wants one agency group to handle its ad strategy.

The highest-paid civil servant in the country he may be, but sometimes the Royal Mail Group chief executive, Adam Crozier, must wish he were back at the Football Association, clashing swords with the likes of Ken Bates and "Deadly" Doug Ellis. Such is the magnitude of the task that lies ahead. The Royal Mail Group is currently losing more than £1 million per day.

Both Crozier, and his executive deputy chairman, the former New Zealand Post supremo Elmer Toime, will have a tough job preventing the state-owned company from going into administration.

Before their arrival, the Royal Mail Group's attempts to reduce its huge losses had consistently courted controversy. Plans to scrap the second post, charge rural dwellers extra for deliveries and close unprofitable rural post offices have proved unpopular. And a proposed scheme to price mail by size instead of weight has been met with howls of derision from the business and direct marketing community.

Massive losses meant that the postal service borrowed £1 billion from the Department of Trade and Industry, and in an attempt to tackle repayment, is considering increasing the price of first and second-class stamps by 1p. But even this will have only a limited effect: it will bring in an extra £190 million per year and any subsequent rises would be subject to stringent conditions until 2006.

At the same time, the Royal Mail's existing revenue streams are under threat. Its monopoly status has been significantly decreased by both European and domestic postal services directives - delivery licences have already been awarded to competitors, such as Deutsche Post and UK Mail, and full competition is scheduled for April 2007. And in April this year, the Government will begin paying state benefits directly into recipients' bank accounts, thus denying the Post Office a vital stream of revenue.

It would be naive to suggest that the company can be rescued by advertising alone, but the Royal Mail will have to make its marketing budget work harder than ever if it's to stand any chance of turning around its performance.

That's why this week it embarked on a review process that will affect more than 30 of its agency contracts, including those held by Bates, Joshua, Proximity and OgilvyOne. The only business not affected is the media planning and buying account, which is held by Carat.

While the review is statutory, it also promises to be radical. The Royal Mail is looking for agencies from all disciplines to get together and provide integrated proposals in a bid to reduce its roster and costs.

The streamlined roster will reflect the newfound efficiency of the Royal Mail's present marketing department, which was created by the merging of its three predecessors - business and consumer markets, media markets and the home shopping division.

The head of marketing, Paul Troy, explains: "We've pushed three units together to make one streamlined marketing team. This will enable us to have one lead agency, and what we now need is a strong integrated solution by one group, with £60 million behind it."

Both Troy, and the deputy managing director and marketing director, Paul Rich, would like to see one holding company group its advertising and direct marketing operations together and present the Royal Mail with a solution that can work across all disciplines and be adopted by every outfit on its huge roster.

So far, two undisclosed holding companies have presented themselves, but others have been slow to react, according to Troy, who hopes that the enormity of the prize hasn't escaped the industry's notice.

"We need to step up our game, and we want a big player to help us do this," he says. "I hope the major groups recognise what an opportunity this represents."

Over the past few years, the Royal Mail's advertising has focused on social mailing. The "I saw this and thought of you" campaign was highly regarded, but its replacement, The Real Network, hasn't been as memorable.

The Royal Mail plugged the gap between campaigns with its Elton John execution, securing the rock star for free by agreeing to use his single I Want Love in the ad.

The ad was significant because it was relevant to both businesses and consumers. It acted as a bridge between the playfulness of "I saw this and thought of you" and the drier business message that the Royal Mail wanted its newer campaign to carry.

"Our focus has shifted. From now on, customers will feature in our advertising in that we will show them as recipients. But the bulk of our revenue comes from business, and this has to be reflected in our marketing spend," Troy adds.

"In regards to social mailing, I think we've already ticked that box. We've no new news to shout about."

Going forward, Royal Mail's advertising will focus on its profitable products, such as special delivery, which, despite being worth £250 million a year, is subject to fierce competition from the likes of TNT and DHL.

If this advertising strategy is to help the Royal Mail recoup much- needed funds, it has to present it as a reliable brand, and a credible alternative to its newer competitors. It intends to do this by showing the service as vital to the success of companies such as Barclays and Amazon.

"We're going into a more competitive market," Troy says. "People trust us, and we need to re-enforce that. We can retain both profits and customers by building our brands."

But, as with all advertising, the Royal Mail's message must communicate an essential truth. The campaign should only promise a reliable service if the Royal Mail can indeed iron out its many problems and deliver just that.