Outsourcing print delivers results for Peapod

Asá the worldáof printing and production grows more complex, companies such as online grocery delivery service Peapod, whose core competency isn’t printing procurement and production, are finding it more efficient to outsource these functions the same way other companies hand off human resources or IT responsibilities.

“Direct mail has always been our bread-and-butter acquisition tactic,” says Brad Porter, marketing director at Peapod. However, as the company has grown over the past 17 years, the number of printing and production vendors it has been dealing with has also grown. In addition, Peapod increasingly found itself required to have complex information about paper and presses at the ready to negotiate the best deals.

Three years ago, Peapod realized that it either had to hire more personnel to handle its growing printing and production needs or get some outside help. That was when the company decided to outsource the procurement and production of all of its printed materials, working with print-management services provider InnerWorkings.

Maximizing printing efficiency
InnerWorkings doesn’t own any printing assets but has a working relationship with more than 6,000 print and fulfillment providers. Using its own proprietary technology to match printing jobs to the right printing plant, InnerWorkings can help clients save on their printing costs.

“It is our experience that the printing industry has latent excess capacity,” says Eric Belcher, COO of InnerWorkings. “The combination of matching a job spec with a plant’s ideal capabilities, at a time when it may not have a lot of work, can create real savings for our clients.”

InnerWorkings will also parcel out pieces of a single campaign, sending the business-reply envelope to one facility and the variable data portion to another. “We have to balance the additional logistics costs so that it makes sense, but in direct mail it often makes sense,” Belcher says.

In Peapod’s case, InnerWorkings’ ability to “find the best vendors and manage them for us saves us time and resources,” Porter says. The company produces a range of print products, brochures and premiums, and each requires a specialized vendor. By working with InnerWorkings, however, Peapod was able to reduce its printing and production costs by 30 percent in 2006.

Since January, Peapod has been reinvesting that money into its direct mail effort, which accounts for the largest portion of its marketing budget, testing different formats, lists and offers with the goal of bringing in larger volumes of new customers and further lowering costs.

Peapod typically does two large-scale acquisition campaigns a year, for which it involves InnerWorkings early on in the project to make sure the printing and production will be efficient. For smaller projects, Peapod gives InnerWorkings the job specifications and lets them take it from there.

Fine-tuning direct mail
For Peapod’s big customer-acquisition campaign in the first quarter of this year, the company tested three different trial offers to see which was the most effective in generating a response. One segment included a coupon good for $20 off the recipient’s first order; another a coupon for $15 off; and another a coupon for $10 off. Peapod mailed close to 2 million pieces in all of its markets.

Peapod concluded that the $20 offer was the most efficient for return on investment. Overall, the campaign produced a 10 percent increase in results compared to last year’s first-quarter effort.

Peapod’s next big new-customer-acquisition push will be in the fourth quarter, when it will mail out between 1 million and 1.5 million direct mail pieces.

The company also executes several segmented loyalty direct mail efforts annually that are designed to boost order frequency during certain times of the year.

The various segments consist of customers who have lapsed in order frequency, best customers and new customers, who are nurtured through their first five or so orders with a series of mailings.

The company also puts a significant number of resources into paid-search campaigns on Google, MSN and Yahoo. Another major portion of its marketing budget goes to affiliate marketing.

Affiliate marketing has proven to be a successful strategy for Peapod, according to Porter. Affiliate marketing tends to “catch people in the right mindset,” he says. As a result, the company tends “to see a fair number of customers coming from these programs.” In fact, this strategy has been so successful that Peapod is looking at expanding into additional networks in the future.

Growing the business
Peapod also does some TV, radio and outdoor advertising, but many ads are typically timed to coincide with its direct mail efforts. However, the message in its TV, radio and outdoor ads tends to be more brand-oriented than the company’s other marketing efforts. The focus of Peapod’s brand messaging is based on what the company’s most recent research indicates is top of mind for its shoppers at that time, whether it’s price, value or convenience.

Peapod’s investment in direct mail and Internet marketing represents important strategic moves as the online grocery delivery market is showing signs of a revival.

Numerous online grocery sites were around during the heyday of the Internet boom in the late ’90s, including HomeGrocer.com, Webvan and HomeRuns.com. However, like many other dot-coms of the era, they quickly disappeared, giving a boost to Peapod’s sales along the way.

Once the dust from the Internet bust had settled, however, others began to realize that once you solved the issue of warehousing costs, which is what tangled up some of the others, there was still something profitable in the online grocery shopping business.

Early on, Peapod teamed up with grocery stores in the markets it served to help reduce warehousing costs. Today, it uses a combination of fast-pick centers that are connected to a store and standalone warehouses, depending on the size of the market. Its two primary grocery store partners are Stop & Shop and Giant, which are owned by international food giant Royal Ahold. Peapod is also a wholly owned subsidiary of Royal Ahold.

These days, Peapod faces competition from the Safeway supermarket chain, which offers online grocery ordering in several markets, including Arizona, California, Maryland, Oregon, Virginia, Washington and Washington, DC. Peapod’s markets include Chicago, Boston, the greater Washington, DC area and Baltimore, Long Island, NY, and New England. Peapod’s strongest markets are in urban areas like Chicago.

Albertson’s also offers online grocery ordering, primarily on the West Coast. And with Fresh Direct being such a force in New York City, it’s unlikely Peapod will be entering that market any time soon.

Just as it is now viewed as a pioneer in online grocery ordering and delivery, Peapod may one day be seen as a pioneer in the outsourcing of print procurement and production, a business model that is relatively new to the US, according to InnerWorkings’ Belcher. The practice is more widespread in Europe, for instance.

In the US, the traditional method of buying and selling print, in which a large number of printing companies deploy their own sales forces to find work that fits their equipment and client capabilities, is inefficient, Belcher says. “We advocate that corporations outsource the function of procuring printed materials to companies that specialize in doing nothing but procuring print,” Belcher says.

InnerWorkings’ model seems to be working. The company was founded in 2001 and went public last year. Belcher estimates annual revenues for 2007 will be between $260 million and $280 million.

The company is also on something of an acquisition spree and it tries to spread out geographically. So far this year, InnerWorkings has acquired suburban Philadelphia-based Brown & Partners Inc., a provider of print-management services, and Spectrum Printing Systems, a print- management services company based in Irvine, CA. Last year, InnerWorkings scooped up Applied Graphics Inc., a West Coast provider of print-management and print-on-demand services and New York City-based print-production outsourcing company Graphography Limited LLC.

Optimizing creative
Matching printing jobs with printing presses isn’t the only way that InnerWorkings helps clients drive inefficiencies out of print procurement and production. It can also help clients optimize the design of a marketing piece so that it is ideally suited for printing.

“Oftentimes, the creative component of a company doesn’t consider optimal sizes for print manufacture,” Belcher says. However, by merely taking a quarter of an inch off one dimension, the piece may be able to be printed on an entirely different press than the one that was previously used and one that is less expensive.

“We find ourselves engaging in these conversations in the majority of our client relationships,” Belcher explains.

Peapod actually started designing larger direct mail pieces at InnerWorkings’ suggestion. Previously, Peapod’s average direct mail piece measured 5 by 9 inches. However, by switching to 6 by 11 inches, Peapod is able to better maximize the paper roll, minimizing paper waste and saving on paper costs. Another way InnerWorkings helps Peapod save on paper costs is by aggregating demand across clients.

InnerWorkings is also able to reduce a company’s mailing costs by helping it understand how deep to go into the mail stream. There are a lot of variables that go into determining the right mailing strategy for any one campaign, including where it is originating versus where it will hit, explains Belcher.

“We have between 20 and 30 direct mail buyers who do complex spreadsheet analyses to determine the optimal geography for a campaign to get that optimal reduction in total delivery cost,” he says.

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