Thursday, January 19, 2006


WHAT?? Printing Ink Now Linked to Computer & Peripheral Equipment?

Comparing the price changes in computer technology and printing ink may seem like a bit of a stretch, but it helps put some industry trends in perspective. The increasing use and decreasing costs of electronic media are putting significant pressure on the use of print. We've always maintained (and demonstrated, we hope!) that understanding the demand side of the communications business sheds light on what business conditions will be like for printers. Because of the declining costs of computer equipment, and also communications services (not shown here, but they are down), printing business owners are having trouble passing on their increased costs to print buyers.

The chart shows the producer price index changes for the costs of computers and peripheral equipment and printing ink. No one would have thought that these categories compete with each other, but we know in the "connected world," that they certainly do. The reasons for their price directions are quite different.
Computer equipment costs have continually dropped because the technology has been constantly improved, becoming more efficient, and less expensive.

Printing ink, while it has its own technological improvements, cannot match, nor can any hard goods commodity, the price declines of electronic technology.

As ink prices have remained essentially flat in a long-term perspective, so has paper, and so have the prices for which print is sold. Manufacturers have not been able to pass on their increased costs for raw materials, mainly because printers have no leeway to pass on their own increased costs to the ultimate buyers of printed materials.

Why? The costs of accessing electronic media keep going down because equipment costs keep going down. This has helped create a new media marketplace where consumers find that getting online and buying "gadgets" have great benefits to them, and, it seems, they want more. Other companies have faced this problem, where they can't create profits by selling price-sensitive goods. This is a primary reason why IBM made the strategic shift to services about a decade ago. Services, the selling of expertise that others cannot perform for themselves, has been an enormously profitable marketplace for IBM and others.Is printing a service or a manufacturing business? Changing strategy to become a service business is difficult, but worth it.

While printing can never shed its manufacturing core, what printing owners build around that core in terms of services is often the difference being a mediocre performer and being a great one. This is not the "value added" argument, which so often degenerates into a list of tasks that can be added to invoices or new equipment that should be bought. This is a major change in the strategy of the business. Our favorite strategy is the "communications logistics" business, where printers take their skills of handling complex workflows for print and use them in other media. We'll discuss this, and the other five strategies, in upcoming editions of PrintForecast Perspective.

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