Pinpointing Profitable Markets

To know more about customers' communications needs, learn more about their industries.

By Lisa Cross, Business Editor -- graphic arts online, 3/1/2001

Printing company managers who take the time to monitor, analyze, and understand their customers' industries are finding that their efforts can yield an enormous competitive advantage. They've discovered that, by understanding the dynamics and trends in their customers' industries, they can develop unique products and services that elevate their firm's status from being merely a supplier of a commodity products to being a provider of unique and essential services.

A comprehensive understanding of customers' industries can provide an early alert to new opportunities or a warning of possible printing sales declines.

In this article, we identify six key print-purchasing industries and report on major trends and growth performance in these markets. Our goal is to provide printing managers with salient information on these important print-purchasing markets and provide a framework for further analysis.

We selected these industries based on their large contribution to the printing industry, not necessarily on their general growth potential (for details, see the sidebars on pages 42 and 44).

Auto Industry: Stalling Sales

The five-year boom in the $225 billion automotive market may stall as many analysts expect that sales will fall this year by 5.7%, or 16.5 million vehicles. But analysts have been wrong before; in fact, last year sales were predicted to fall by 4%, but instead car makers posted record gains of 3.6%, or 17.5 million vehicles.

The Internet is poised to transform many segments of the auto industry. On the consumer side, the Internet provides a convenient way for buyers to gather information about possible purchases, or about financing, insurance, and warranty options.

Auto manufacturers are using the Internet to improve production and purchasing efficiencies. For example, Covisint is a comprehensive business-to-business Internet exchange owned by Ford, DaimlerChrysler, General Motors, Renault/Nissan, Commerce One, and Oracle that links automobile makers to parts suppliers, OEMs, dealers, and others. Covisint is open to all participants in the automotive industry.

Auto industry analysts estimate that streamlining OEM purchasing may squeeze about $3,000 out of the cost of building a car.

For car dealers, the Internet is helping to boost profits by reducing marketing, advertising, and personnel costs per sale.

What does all this mean for printers? On the surface, the use of on-line tools to assist in the purchasing decision may spell trouble for firms that print brochures and other marketing materials for this segment. However, some printers are seeking ways to unite print and the Web, i.e. providing potential car buyers with tailor-made brochures produced by specifications entered on a car maker's Web site.

Retail: Purchasing Shifts

The National Retail Federation estimates that retail sales will grow 4.8% in 2001, compared to 7.3% last year, but many analysts note that this sector is vulnerable to stock market prices and the economy at large.

Retail is one of the largest sectors both in terms of revenues and concentration of firms. In 2000, sales of $3.1 trillion were recorded by the more than 1.4 million U.S. retail establishments, which employ a total of some 20 million people, or about one in five American workers.

Demographics exert a huge influence here. The aging of the baby-boom generation (individuals born between 1946 and 1964) is shifting purchasing dollars from retail to other market segments. Many consumers in this generation are now focusing on sending children to college, caring for elderly parents, and planning for retirement.

In addition, competition in the retail segment is fierce; the industry is called "over-stored" and "over-cataloged."

To win in this highly competitive marketplace, retailers are focusing on methods to build customer loyalty. One way is through individual-customer-driven marketing, using information collected about customers at the cash register or through sign-in forms on their Web sites.

The International Retail Association says that about 46% of the U.S. population belongs to a customer loyalty program through which retailers collect customer information.

This move to targeted promotions spells opportunity for printers that have invested in equipment and workflows that can accommodate variable-data print jobs.

Financial Services: Tough Time

If the economy slows, the financial services industry-a broad segment valued at $1.5 trillion that includes banking, insurance, and securities-may face a tough time. A robust economy combined with Internet access to capital markets has fueled growth and change here.

The advent of mutual funds and Web sites that allow common folk the means to invest like a professional have funneled millions of dollars from bank savings to the stock market. The number of all U.S. households that own equities jumped from 32.5% in 1989 to 48.2% in 1999.

In response to this flight of funds, and a relaxing of banking laws, many banks entered the securities market, which led to a sector-wide convergence of banking, insurance, and securities services. Now the process may reverse itself as economic conditions force firms to invest in high-performing business units and services and to eliminate the profit losers.

Providers are targeting new customers previously ignored, specifically, women and minorities with annual incomes above $100,000, a group expected to double to 1.6 million households by 2010.

Travel: Touring Growth

Travel and tourism is the nation's largest services export industry, third-largest retail sales industry, and one of America's largest employers. The industry directly employs 7.7 million citizens and has a payroll of $159 billion. Travel and tourism generates $92.5 billion in federal, state, and local taxes.

The Travel Industry Association of America reports that in 2000 travel expenditures jumped 7.3%, to $561.3 billion. The association forecasts that travel spending will increase 5.6% this year, to $593 billion, and increase 4.9% in 2002.

Still, U.S. hotel occupancy rates are falling about 1% a year, while average room rates are rising about $3.30.

Here, too, the Internet has been an instrument of change, spawning a new industry segment-on-line travel service-where consumers can buy airplane tickets, rent cars, and book hotels, frequently at a discount.

Still, the bricks-and-mortar travel agency rules. Retail travel agencies continue to sell 80% of all airline tickets, book 90% of all cruises, and make 25% of all hotel reservations, according to the American Society of Travel Agents. For this service, travel agencies generally are paid a standard commission that averages around 10% by the airline, hotel, or cruise line.

The industry is also undergoing consolidation, most pronounced among tour operators, hotels, and cruise lines.

Food: Serving Up Sales

Two of every five dollars spent by households on food is for meals prepared away from home. In 2001, the restaurant industry will post its 10th consecutive year of real sales growth, according to the National Restaurant Association. The association forecasts that restaurant industry sales will reach $399 billion in 2001, an increase of 5.2% over 2000. On a typical day in 2001, the restaurant industry will post average sales of $1.1 billion.

The restaurant association reports that:

• Even though the national economy is expected to grow at a somewhat slower pace in 2001, real sales (adjusted for inflation) should rise 2.7% compared with a 3.2% real gain in 2000.

• Sales at full-service restaurants are projected to exceed $143.3 billion and rise 4% in real terms this year.

• Sales at quick-service (fast-food) restaurants are forecast to reach $112 billion, while snack and nonalcoholic-beverage sales should climb to $13.2 billion.

Grocery stores, which account for the bulk of food sales, posted sales of $472.7 billion. This sector is facing increased competition from nontraditional large retailers, including Wal-Mart, Kmart, and Costco, that are stocking food products and selling them at a lower price. This new bread of retailer allows time-strapped consumers to consolidate their shopping trips.

Business Services: Booming

This industry is the domain for accounting, legal, management consulting, and public relations services. Analysts expect revenues to grow 18%, bringing 2001 revenues to close to $138 billion.

After years of expanding services with the goal of providing a one-stop shop for business needs, accounting firms are looking to divest noncore businesses. One such activity is consulting, because Securities and Exchange Commission rules make it more difficult for accounting firms to advise their audit clients.

To help recoup lost consulting revenues, accounting firms are considering legal services, although they may encounter regulatory roadblocks. Ownership of law firms by certified public accounts is not permitted in the United States, but is allowed in many other countries.

"The management consulting business has experienced unprecedented levels of expansion," notes the 2000 U.S. Industry & Trade Outlook. "According to Consultants News, combined revenues of the 50 largest firms experienced a 27% increase in 1998."

Electronic commerce, heightened competition, and business globalization are all boosting demand for consulting services.