The Five Most Dangerous Trends Facing Today’s Commercial Printer

Published: June, 2008

Author:

Tom Hackelman, Graphic Communications Growth Consultant

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Dangerous Trend:

The Increasingly Competitive Landscape

Here’s a snapshot of the current climate for doing business:

� A corporation fails every 3 minutes.

� A directorship changes every 32 seconds.

� A company changes control every 15 minutes.

� 96 percent of all companies fail within 10 years.

� 26,000 new products and brands are introduced every year.

� 16 percent to 30 percent of consumers change brand loyalty in one evening of watching commercials.

� 74 percent of consumers buy outside their favorite brands.

� 29 percent of consumers do not read a newspaper.i

The printing industry is in a state of transformation. The way we do business and way our customers expect us to do business has changed dramatically over the past several years. When an industry is in a state of transformation, two things tend to occur: industry consolidation and the disappearance of companies. According to Michael Porter and Jan Rivkin, “roughly half of the companies in an industry at its population peak disappear in the subsequent shakeout.”ii

Since 1990, the print industry has felt the impact of this transformation. The industry has seen a reduction in the number of printing plants in North America by over 20 percent. A.F. Lewis has reported that an average of 170 plants and 390 presses left the industry just between June 2000 and January 2004 alone. While some of this is due to mergers and acquisitions, it is imperative to recognize the seriousness of the situation.iii

Additionally, the web has created a whole new marketing opportunity for companies from across the United States as well as around the world to compete for your customers. Companies such as Vista Print and PrintingForLess.com are actively pursuing customers around the world through their unique loss leader marketing approaches. Using a “free” business card approach, Vista Print provides 250 free business cards to businesses (note that they require that their web address be printed on the back of every business card) as a way of getting customers into their web site. Internationally, countries with low labor costs such as China and India are actively pursuing customers for printing applications. In just one case alone, a yearbook publisher in Vancouver, Canada has chosen to test a company in China to publish next year’s printing of yearbooks.

The competitive threat to your business is increasing and isn’t expected to diminish any time soon. As a result, it is imperative that you actively evaluate your marketing strategy and your business plan. Are you

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differentiating yourself from your competition? What is your unique sales proposition? Do you have a direct sales strategy or do you rely solely on word-of-mouth? These are just a few of the questions that need to be addressed in order to appropriately face the competitive challenges of in our industry.

Dangerous Trend:

Faster Turnaround & Shorter Run Lengths

The dynamics of the printing industry have changed dramatically. The days of long run lengths measured in thousands of prints have literally vanished. The opportunity to turn a job around and deliver it to the customer within a week or two no longer exists. The way we do business with our customers has evolved to a whole new perspective.

Here is a quick snapshot of what the industry is experiencing:

� The speed of business is moving faster and faster.

o 59 percent of printers cite increased turnaround pressure.

o 33 percent of jobs are requested in 24 hours or less.

o It is expected that by 2010, all jobs will likely be expected to be turned within 24 hours.

� Shorter print runs are on the rise.

o 48 percent of printers cite shorter run lengths.

o 75 percent of four-color jobs have a run length under 5,000 impressions.

� Print-on-demand is increasing at an exponential rate.

o Digital color printing grew by 40 percent in 2006 to 21.7 billion pages and is estimated to be 114 billion pages by 2011.

o Digital printing revenue has tripled to over 21% as a percentage of the average printer’s total revenue.

The dynamics have changed; are you changing? That is the ultimate question we must ask ourselves. Are we adapting to the tight turnaround times that our customers are expecting? Are we prepared to shift from a long-run strategy to short-run, quick turnaround print cycles? Is our workflow strategy equipped to handle this evolving trend?

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Dangerous Trend:

The Lack of a Multi-Channel Approach

The forecast of how companies will market in 2008 will either cause today’s commercial printer to shudder or it will excite him. According to Target Marketing Magazine media usage forecast for 2008, the following is expected:iv

• Media fragmentation will be more pronounced

• Direct mail could become a casualty of costs that rise too greatly compared to its performance

• Few respondents indicated greater reliance on direct mail due to technological advancements—such as variable data personalization and personalized URLs—and targeting abilities, the majority of mail-related comments cited rising postal and paper costs as the reasons behind their media reallocations for 2008.

• The upside is that marketers are interested in multi-channel, integrated marketing and ROI more than ever, so they’re getting smarter about effective testing and measurement with each campaign.

To further illustrate, consider the overall media spend that is expected in 2008 versus what was spent in 2007:

The media budget of the businesses surveyed indicates that 79 percent of companies are going to either increase their budget or, at the very least, keep it the same as in 2007.

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Additionally, businesses are increasing their percentage of focus to increase their media budget on acquiring new business.

Lastly, when Target Marketing looked at the methods used to acquire new business compared to how businesses seek to retain existing customers, here’s what they found:

As you can see from these two charts, direct mail is the number one choice for acquiring new business because of the return on investment that direct mail provides. Email closely follows due to the relatively low cost of marketing and the response that is received. For customer retention, however, the two components actually reverse with email being the number one preferred method, but closely followed by direct mail.

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Interestingly, for customer retention, the gap between email and direct mail is only 4 percent compared to 10 percent for the acquisition strategy.

Unfortunately too many printers are ill-prepared to embrace these trends. Because the industry is, for a large part, still entrenched in a traditional print strategy, the ability to tap into this lucrative opportunity continues to elude too many printers. Until printers embrace a new strategy – to become a Communications Services Provider – this unique opportunity will become a trend that will be a dangerous one for their long-term profitability.

Dangerous Trend:

The High Cost of Labor

A key metric in the industry is Sales per Employee. In 2007, the average Sales per Employee was $148,228. While individual results have a considerable variance ranging from $118,806 to $220,693, it is the trend for each individual customer that is important. The biggest component that drives the Sales per Employee ratio down is the cost of labor. In 2006, the cost of labor was the number one issue for the industry. In 2008, while the overall economic picture is the biggest concern, the rising cost of wages and benefits ranks as one of the top five concerns. Employee wages and benefits constitute 42% of the total cost – labor plus materials – in the industry.

The printing industry is very labor intensive compared to other manufacturing segments. This will not change any time soon. The industry is expected to face increasing costs for labor as well as the prospects of a limited availability of skilled labor.

While technology is moving at a very rapid pace and will help offset some of the demand for highly skilled labor, recruiting and retention are key to successfully managing the human resource in this very labor intensive industry. Some of the factors at play include:

� The optimal workforce structure will vary from company to company.

� Local labor supply and demand will dictate the labor costs.

� The overall economy can strategically dictate the total number of employees as the commercial printer attempts to attain the most efficient utilization of labor hours.

NAPL reports that the number one investment objective for the commercial printer must be workflow: “…a more efficient workflow/improved productivity, serving current markets more profitably, and reducing labor costs/automation are the most frequently cited investment priorities. Among the reasons why:

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� ‘In the present market there is no room for error.’

� ‘Lot of money could be saved by spoilage control, more efficient movement of jobs from press to finishing.’

� ‘Our focus will be on increased speed at decreased cost. We are looking to convert routine human tasks into software functions.’

� ‘Customers are becoming more demanding for faster turns. Prices cannot be increased much. So profits must come from efficiency.’

� ‘Obviously controlling labor costs is critical, but we have a long-term, well-paid staff. So we need to look for cost control and productivity to increase margins because we won’t reduce staff.’

� ‘Improving productivity is something we can count!’

� ‘Aggressive reduction in waste, spoilage, rework, and errors is indispensable.’”v

With the dramatic increase in energy costs as well as the overall increases in the cost of goods and services, how is your company striving to improve the productivity rates of your employees and thereby increase profits? This will be critical to the success of your business.

Dangerous Trend:

Lack of an Effective Sales Process

One of the most critical challenges for today’s commercial printer, if addressed properly and aggressively, will positively impact many of the dangerous trends previously outlined in this report: An effective sales process. Unfortunately too many printers today either don’t have a sales force or fail to implement a sales process that will enable them to dramatically improve their company’s sales results from year-to-year.

Here is snapshot of many commercial printers in the industry:

� The owner is the only sales person for the company. As a result, sales are flat or declining because of the scattershot focus sales receives in relation to the many other issues a business owner must address daily.

� The company has one sales person that has been with the company a long time and he or she is focused intently on the traditional printing the company does. This also, over time, will lead to flat or declining sales efforts in direct relation to the areas previously discussed: Shorter run lengths, faster turnaround time expectations, and lack of a multi-channel strategy.

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� The company has one or more sales people but does not have an effective sales process in place to manage, lead and coach the sales people. Often this also includes the lack of defined sales territories and/or the lack of clearly defined productivity targets. The result is sporadic sales success – the roller coaster effect – leading to an inability to properly forecast results or gauge effectiveness in the sales efforts.

� Sales people are paid all or most of their compensation based on a straight salary instead of straight commission. The result is that sales people tend to be content with little to moderate sales success and the sales results of the company tends to be flat or declining.

� No accountability. Because the business owner tends to also be in charge of sales management, there is typically no accountability. As a result, when the sales performance is reported at the end of the month, there is no effective road map to indicate where improvement can be made or how effective the sales people are except simply for a “score board” report.

In an economy where every dollar is worth fight for and profitable business requires a diligent and effective sales strategy to acquire, it is more important today than ever to have a full time sales force coupled with an effective sales process in place. The inability or unwillingness to do so will increasingly hamper the success of today’s commercial printer and position them to be one of the 96 percent of businesses that fail every 10 years.

Dangerous Trend:

Where do we go from here?

We must address each of these trends in respect to where we find ourselves today. After a careful review of each of these five trends, how does your business match up? Where are you vulnerable? What changes do you need to make?

The following are some ideas and suggestions to consider…

� Address the increasingly competitive landscape.

o 80 percent of your business comes from 20 percent of your customers. Who are the top 20 percent of your customers? Using a specific roadmap, you should plan on meeting with at least three or more of these accounts and find out why they do business with you. Take this information and create a snapshot of what your ideal customer looks like based on what you discover.

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o Actively pursue your ideal customer and create more “top 20 percent” accounts for your business.

� Adapt your business to address the shorter run lengths

and faster turnaround expectations of your customers.

o Digital technology is, first and foremost, the most profitable way for your business to adapt to this growing trend. Regardless of run lengths, you can produce any volume – on demand – to meet the expectations of your customers.

o Ensure that your digital solution is a productive as it should be. Too many digital solutions are rated as “fast” but, when the proverbial rubber meets the road, they really are 45 percent slower if not worse. What paper stocks to you run? Is it typically coated or uncoated stock? The answers to these two questions will dramatically affect production speed of today’s digital solution.

� Develop a multi-channel approach to meet the needs

of your customers to acquire and retain new business.

o The multi-channel applications for acquiring customers include:

� Direct mail – variable information and personalized URL’s

� Email

� Search engine marketing

� Telemarketing

� Search engine optimization

� Catalogs

� Advertising on websites

o The multi-channel applications to help retain customers include:

� Email

� Direct mail – variable information and personalized URL’s

� Telemarketing

� Catalogs

� Advertising on websites

� Transactional promotional advertising

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� Insert Media

o Train your staff, especially your sales people, to transition from a traditional sales approach to becoming a “Communications Services Provider.” This shift will enable your staff to have conversations with a wider range of contact points within businesses throughout your market as well as position your company as much more than a printer.

� Identify ways to automate, integrate and

continuously improve in order to better manage rising

labor costs.

o The workflow needs to be evaluated and automated where it can in order to squeeze as much of the labor cost out of it as you can.

o Development of a web-to-print strategy will help automate the workflow and provide a faster-to-print time for your customers.

o Evaluate the return on investment of expenditures to ensure that the solution best fits your business plan to manage labor costs.

� Develop and execute an aggressive sales strategy to

increase your sales success.

o The NAPL State of the Industry Report for 2008 states: “Beefing it up – ‘attacking the marketplace’ – is what several companies we surveyed plan. But the plan is to attach the market by selectively focusing on profitable work and by avoiding ‘clients who never make us money,’ ‘low-profit clients and industries that tie up capacity and provide little return,’ and ‘spending too many resources on the wrong sales.’ Developing a sales force capable of cultivating the right relationships and markets was a big part of the discussion.”vi

o Sales personnel need to be added to effectively “attack” the marketplace. Less-than-high-successful sales personnel need to be weeded out quickly and replaced with highly motivated and action-oriented sales professionals.

o Sales compensation must, within the first 90 days of hire, be based on a straight commission plan or commissions plus a very nominal draw against commission.

o Sales compensation should be commensurate with the business you seek to develop. In other words, when a rep brings in a new account, pay them a much higher compensation for all of the business from that account for the first year; for example, pay a 14% commission rate. In year two, drop that to 10% for that same account; in year

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three and successive year, lower it to a base 7% rate for continued business with that account.

o Set the activity expectations. How many sales calls are your reps expected to make each day or each week? How many prospects do they currently have in their sales cycle? What is the value of their current prospects right now? How many presentations should they be making each week? How much business do you expect from them on a monthly basis?

o Inspect what you expect. Are you meeting weekly with each sales professional to inspect their activities and their results? Sales reps are like every other employee; they will do what they know you will expect and hold them accountable for.

o Plan to develop new business in an aggressive way. What tools are you using to grow the business? Do you have customer relationship management (CRM) tool in place? Are you providing value-add to your customers? Are you showing them ways they can increase their business?

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Dangerous Trends:

In Summary

Running any business is a difficult proposition for any business owner. Doing so in the economic conditions of 2008 is even more daunting. But success can be achieved and you have the unique abilities and resources available to do so.

The question you must ask yourself now is this: What am I truly prepared to do to grow my business?

At Xerox, we are committed to helping you achieve total business success in the printing industry by providing:

o The right business model.

o The right workflow.

o The right technology.

This includes providing the right tools from our Profit Accelerator Digital Business Resources to help you grow your business. Our goal is to help you grow your business in a profitable and sustainable way.

What are you truly prepared to do? We’re here to help!

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End Notes

i Holmes, Chet: The Ultimate Sales Machine, Penguin Group Publishing, 2007, page XVII. ii Porter, Michael E. and Jan W. Rivkin Harvard Business Review, July 10, 2000. iii AF Lewis. iv Target Marketing Magazine, March 2008. v NAPL State of the Industry: 2008 Strategic Perspective. vi IBID

Recommended Reading

� The Ultimate Sales Machine by Chet Holmes – Penguin Group Publishing

� The Answer by John Assaraf and Murray Smith – Atria Books

� Escaping the Price-Driven Sale by Tom Snyder and Kevin

Kearns – McGraw Hill Publishing

� The Game-Changer by A.G. Lafley and Ram Charan – Crown Business Publishing

This White Paper was created by: Tom Hackelman Graphic Communications Growth Consultant XEROX Email: Thomas.Hackelman@xerox.com Phone: 336-575-8349