Adding Value in a Buyer's Market

Today's print market is dominated by harsh conditions: buyers rule; competitive price, quality, and fast delivery are conditions for doing business; and electronic media continue to steal market share.

This combination of competitive realities—along with the corporate trends of working with fewer suppliers, establishing preferred vendor programs, and reducing costs at all costs—is focusing printing managers' attention on adding services that their customers value as a way to differentiate themselves from competitors and cement customer relationships in a meaningful way.

"Business competition is so fierce today that printers have to find a way to divert the customers' attention away from the price. One way to do that is to provide services that make your clients more dependent on you, and therefore harder for them to leave," says Ron Seavey, managing partner of The Open Approach, Westmont, Ill., a consulting firm that works with printing companies and print buyers.

Seavey, who helps corporations organize their print programs, reports that print buyers are interested in forming relationships with printing companies that can manage the entire print process, from storing digital assets and warehousing printed materials all the way through distribution.

This desire, he explains, presents printing companies with an opportunity to build a more stable client base by offering services that build relationships, not just generate orders.

Printing has become a commodity, a fact that many printing company managers don't want to face, says Joe La Valla, president of Integrity Graphics, Windsor, Conn.

He says, "Commercial printers will argue that they produce a customized product, but my view is that the process they use to produce the product is identical—which makes it a commodity. Once we at Integrity Graphics came to grips with the reality that our finished product is nothing more than a commodity, we started adding services to differentiate ourselves from competitors."

The company was founded in 1988 as a prepress company; today, it has about 100 employees and $14 million in sales and offers e-services, digital photography, prepress, printing, binding, and mailing services.

"Our strategy has always been to expand into areas where are customers want us to be," says La Valla. "Each service we add is backed by a customer requirement."

Echoes Tom Playford, president and chief executive of Advance Business Graphics, Mira Loma, Calif., "Our philosophy has always been to listen to the voice of the customer and develop solutions that improve their processes, improve their efficiencies, and reduce their costs. And with the cost of technology coming down, it makes it more affordable for traditional print companies to do just that."

Playford's 300-employee company, which has annual revenues of $45 million, could be a textbook example of how to successfully add services. The company started out 47 years ago as a producer of forms and today offers document management and print management solutions, literature fulfillment and distribution services, e-commerce applications, inventory and warehouse management, and billing and mailing services.

By the way, the company also offers labels, business forms, business cards, short- to medium-run four-color work, and on-demand printing.

Managers of Sexton Printing, a St. Paul, Minn.-based producer of short-run magazines, publications, and newsletters, follows the same strategy. "You have to be in tune with your client base to offer new services successfully," advises Tim Sexton, president of the 75-employee company, which bills $10 million a year.

He adds, "How else can you know what customers' real needs are? You can develop what you think are wonderful services, but if those are not embraced by your clients, then you've just wasted time and money."

He knows his firms' clients have many responsibilities that require lots of technical support and products that go beyond ink on paper. As a result of customer focus groups, customer discussions, and customer research, Sexton Printing developed an educational program that includes seminars, a print newsletter, and an e-newsletter, and it added needed services such as design, digital asset management, and mailing.

"Knowing the responsibilities of our clients, we're able to get the entire job done, from front-end to mailing, in one place, which eases their stress and workload," notes Sexton.

Offering more services does make the company more valuable to customers, Sexton says, and doing so tends to offer some relief from market price pressures. Still, he admits, print pricing always must be competitive.

"We just can't expect that we're going to get a 20% or 30% premium on our printing by offering these other services," says Sexton, "but it can make big difference if quotes are within 5%."

The quest by La Valla, Playford, and Sexton to focus on offering services considered valuable by their customers demonstrates an important consideration when evaluating which services to provide. Industry watchers say that many printing firms mistakenly concentrate on adding services to diversify, when the emphasis should be on enhancing customer value.

"Value isn't determined by the printer; it's determined by the customer," points out Vincent Naselli, director of TrendWatch Graphic Arts, New York City.

TrendWatch recently released a research report titled "Value Added Services: Will the Real Value-Added Please Stand Up?"

The report defines "value-added" as products and services outside a shop's core product area that bring added value to the total customer relationship and strengthen the revenue stream for both customer and supplier, thereby encouraging repeat sales and driving purchases of additional products and services.

According to the 2001-2002 State of the Industry Report prepared by the National Association for Printing Leadership, Paramus, N.J., printing companies plan to offer a wide array of non-traditional and non-core services by 2003.

According to the survey report, many respondents have already diversified into art/design/creative services (57.7%), mailing (45.0%), and fulfillment (55.5%).

Future diversification areas include digital printing (49.6%), digital photography (20.9%), database archiving (39.6%), database management (32.8%), Web and Internet services (27.3%), and CD services (27.3%).

Printing company managers participating in the study recognize that diversifying will not be an easy task. They cite the following as the biggest challenges:

• Finding the personnel necessary to diversify, given that many of the new services require new skill sets (35.6%).
• Funding the cost of equipment (30.5%).
• Developing successful business and marketing strategies that yield sales and loyal customers (20.3%).
• Managing the learning curve (15.3%).
• Finding the right diversification partner (11.9%).
• Accurately assessing the costs, benefits, opportunity, and risks (8.5%).

Are most printing companies working to add new services? According to TrendWatch Graphic Arts data, not really, as firms are not purchasing the equipment and software necessary to make these services a reality (for more details, see TrendWatch Report on page 16).

Says Naselli, "Our research shows that there is a definite disconnect between printers talking about expanding into services beyond print, and actually doing it. Many companies are pretty much doing the same old stuff by expanding their printing capabilities."

Of course a minority of companies have been steadily expanding their service offerings. Toppan Printing Co. America, New York City, bases its business around what it calls its "value chain of services," which includes:

• real-time, Web-driven print management solutions;
• computer-to-press workflow;
• digital printing;
• inventory management, fulfillment, and distribution;
• Web-driven, 24/7 remote access to communications inventory, including on-line "shopping cart," on-line confirmation, and UPS tracking;
• secure and customized Web interface to allow customers to access their full libraries of digital resources;
• in-house binding and finishing, including UV coating, film laminating, diecutting, folding, binding, drilling, gluing, and shrink-wrapping; and
• strategic partnership to offer new media services from inception through implementation.

"We are building services around print because our goal has always been to be a full-service communications solution provider, not just a printer," reports Rob Sternau, manager of sales and marketing for Toppan, which has 180 employees and annual sales of $65 million. The company is a wholly owned subsidiary of Toppan Printing of Japan, which operates more than 80 locations worldwide and posts annual sales of $11 billion.

Sternau reports that most of the services his company has added are in response to customer requests. "More and more our clients are looking for full-service providers that can manage an entire project and delivery exactly what they want," reports Sternau.

For certain services, Toppan opted to partner with other companies, which is a departure from the company's traditional strategy.

Explains Sternau, "A common business philosophy in Japan is called 'evergreen,' which means to grow from within. Toppan is a 101-year-old company that historically grew from within by continually adding resources. But here in the U.S. we started partnering with companies because that made more sense than to build the capability ourselves."

Forming alliances with other companies is an excellent way to expand services, in the view of the consultant, Ron Seavey. He says that many printing companies wrongly believe that they can't afford to offer more services.

"Printing companies wanting to get into distribution can find organizations that specialize in print fulfillment, distribution, and warehousing," says Seavey. "Only a decade ago, a company would have to build this type of service itself."

He continues, "Digital asset management is another value-added service that is much easier to offer today because there are great off-the-shelf software programs that a printer can purchase. Sadly, the big printing companies that were early adopters of digital asset management spent a fortune to develop such systems, plus they're stuck paying even more for continual maintenance and upgrading."

Another benefit to forming an alliance, says consultant Clint Bolte, is that doing so can minimize investment risk. He says that investing in new technology to offer a service is speculative and can be financially painful if the service doesn't succeed as planned and/or the economy falters.

Bolte, president of C. Clint Bolte & Associates, Chambersburg, Pa., is the author of How Fulfillment Services Drive Print Volume, which is available through the National Association for Printing Leadership.

One important point to keep in mind when rolling out any new service, advises both Bolte and Seavey, is to start small and offer the service initially to a few key clients.

"You have to account for learning curves, additional processes required, and unforeseen problems. As the adage goes, you have to crawl before you can walk," says Bolte.