After an unmatched recession, the printing and supporting industries are finally showing signs of recovery. While a number of segments within the industry are performing slightly better than they did two years ago, direct mail activity appears poised for expansion, based at least in part on recent legislation and consumer preferences.
Perhaps one of the factors affecting the printing industry and leading to the formation of The Print Council has been that print buyers and direct mail marketers have more communication options than ever before. In addition, conservative marketing budgets and the general economy have put pressure on “media specifiers” to seek alternatives to print that can reach broader audiences at a lower cost.
Differentiation and Its Effect
A large part of Cenveo’s business is envelope manufacturing, digital and offset printing, direct mail, distribution and fulfillment, and we often are exposed to trends in the mailing industry before others. What we are seeing with most of our major accounts is a growing trend toward affinity and customer retention marketing.
Our accounts see personalized direct mail, combined with their own customer data, as a means to effectively cross-sell or upsell their existing customer base with related products and services.
This focus puts pressure on advertising agencies, direct mail firms and marketing managers to provide their clients with communication vehicles that are personalized and unique, involving highly customized solutions rather than product or equipment capabilities offered by printers and providers.
Now, more than ever, printers are required to differentiate themselves and not only among themselves but against other non-print mediums. For Cenveo, this trend caused us to take a serious look at our business, products and organization, as well as how we could better address industry changes and the needs of our customers, many of them in the direct mail and advertising industry. We realized that we needed to do the following: define a new category of service provider; reorganize to suit customer buying habits and trends; deploy a total customer solutions selling model; and, finally, unite our company under one strong name and identity that encompasses our unique value proposition.
However, for many printers, these changes haven’t been enough to allow them to sufficiently differentiate themselves from their competition based on the technological advances in a printer’s supply chain and the current business models under which the industry operates.
Broad Availability
For the most part, a printer’s equipment, paper and ink can be bought by anyone. This situation creates a leveling effect for anyone with the same equipment and capabilities. The quality of equipment and supplies available to printers decreases the ability of the printer to differentiate on quality achieved by the talent of the printer’s employees.
Production technology has advanced to a highly automated state and once complex, high quality offset and digital print has become push-button. Paper and ink have become mass produced commodities and printers can no longer compete on quality alone.
In addition, innovations in technology have directly and indirectly affected the graphic arts and printing industry over the last three decades. In the 1980s, the introduction of the Apple Macintosh computer compressed the number of individuals or services needed to produce a printed piece. As we move deeper into the 21st century, the expansion of services that a printer provides further condenses the parties involved.
This creates what I call a solution provider that must now compete with other providers that offer the same capabilities and equipment. Printers or solutions providers are forced into competing almost completely on price, which has gradually driven profitability down over the last eight years. Profits have dropped faster than shipments during the same period. As a result, differentiation has become more difficult based on capabilities and quality. Printers or providers have been forced to compete on price, which affects profit margins. Printers have turned to their suppliers to help shoulder the financial burden. Prices drop, equipment becomes more freely available and the cycle continues.
Why then should we train for excellence when 95 percent quality is built into the equipment we now all have? Why continue to invest in new products when it is unlikely that a printer can differentiate in this fashion? While in the end, a printer’s customer will see cost benefits, both printers and their suppliers will suffer.
Failing to Create a Macro Benefit
A printer’s profits have declined over the years, even as the economy and the industry are doing better. Second-quarter 2004 profits were up only 1.6 percent from the same period a year ago, according to independent economist Joe Webb.
Decreasing the costs or making equipment more affordable to more printers without a “macro benefit” decreases the industry’s profits. In addition, free equipment or deferred payment terms are a dangerous practice as weak players use their cash flow advantage to service their new machine on price. This practice also brings overall pricing down.
From a printer’s standpoint, quality is no longer a selling feature since everyone with the same equipment can easily achieve the same quality. As a result, equipment and capabilities do little to ease competitive pressures and the mass production and mass marketing of equipment and consumables is no longer appropriate.
What’s the Solution?
First off, the relationships between supplier and printers must change. Technology must be designed and delivered allowing printers to be unique, in that it allows them to differentiate themselves from their competition and break the price cycle. Suppliers must partner with printers and create solutions that allow printers to remain competitive in the markets they serve. Finally, we must work together to allow technology to be marketed and sold that creates “macro value.”
For example, one of my competitors had its ink company formulate an offset varnish that, when printed, looked like UV coating. Nobody could replicate the formula and thereby my competitor was able to win customers based on his ink company being able to help him differentiate.
Another example is an equipment manufacturer of high-speed, variable data color presses. These presses are custom made, one at a time, and each of them is unique. They are suited for certain market applications that require speed at a lower cost – direct mail, for example. Printers who own these presses can effectively compete with other printers because of this uniqueness.
When we invest in efficiency technology, we must adjust estimating systems to retain benefits and work with our suppliers to develop unique solutions in the markets we serve. When we see our suppliers partner with competitors we shouldn’t punish our suppliers, but demand they partner with us to develop technology that allows us to stand apart and compete on value.
