Thursday, March 30, 2006
To Differentiate Your Business, Find Something Your Competitors Can'tor Won't Change
Last week, our discussion about the EFI/Staples web- to-print sale and the Donnelley acquisition of OfficeTiger led to a letter from famed printing industry consultant Dick Gorelick. I first saw Dick speak at an event in 1983, about the time he had been selected as the first profile in a major print magazine's “New Marketing Managers” series when he was at Braceland Brothers. Since then, he has guided many printers to profitability through common-sense marketing. Dick writes:
"In your most recent edition of PrintForecast Perspective, you ask, 'Where are the franchise printers?' in your discussion about distribute and print. As we've tracked in our client newsletter, the franchises cannot legally engage in some of the activities you discussed in the lead article. In the middle l990's, Xeikon tried to follow through on its promise to create a network of its installations after a critical mass had been achieved. Of course, only independent print companies were involved. At that point, the Justice Department raised the issue of collusion and price-fixing, intimating that only the U.S. Postal Service and Kinko's were within the law.
"Franchises are independently owned. It is clearly collusive if a franchisor tries to organize franchisees and establishes pricing. Since the mid-1990s, Staples, Office Max, Office Depot, and others have become factors. They do meet legal standards for a national distribute and print operation."
I hinted a little bit at this last week. Dick is absolutely correct. I encountered a similar situation in the late 1990s when working on a project with a major color printer manufacturer, explaining how they had to open new online and telemarketing channels for their equipment to sold to the then-hot graphic designers, small agencies, and commercial photographer markets. I was told “but that would invalidate our existing office equipment dealer agreements.” Epson promptly killed them using these new channels. The dealer agreements we left perfectly intact. The documents were happy, the workers became unemployed.
Of all of the 4 p's of marketing (product, price, promotion, and place), “place” is often the most difficult to quickly change. Prices can be altered with a stroke of a pen. Ad campaigns are approved over lunch. The laws regulating distribution and dealer relationships can often be complex, and are delineated in long-term contracts, agreements and organizational structures. When these are created, they all make sense at a particular point in time and for some years thereafter. Marketplaces change, and I find that “place” decisions lag behind the most. Sometimes "years thereafter" is shorter than hoped. This is often the main advantage of new competitors in any industry: they lack the baggage of history.
There's a marketing lesson here. In competitive strategy, you always try to create differentiation using an aspect of a competitor's business that they cannot and will not change. One of the best examples of this kind of warfare is the old Burger King “broiled, not fried” campaign, mistakenly abandoned by the company many years ago. Broiling was something that McDonalds would never do, because their infrastructure of equipment would be too costly for them to change, and the risk of admitting that broiling was better would be too great. Frying things is also perceived as "bad" from a health perspective, an extra reason for BK to choose the strategy.
Whenever you want to differentiate your business, you have to find something that will let you stand out, and something that is not easily duplicated by competitors. For the office superstores, their standardization and the sheer number of locations is essential to their strategy. This is easily used against franchise printers for the reasons Dick Gorelick explains. For the franchises and all independents serving small and mid-size businesses, what choice do they have? Many. The bigger problem is choosing a very small number of attributes (like ONE) and having the tenacity to keep usining it.
What's the positive side of the legal restrictions against standardization? Instead of being shackled by standardization, printers become unique businesses run by small businesspeople with minds and business strategies of their choosing, targeting the specific needs of their clients. Promoting "personal and knowledgeable service" is a weak start, because anyone can say those words and it's not likely people would believe them anyway. After all, office superstores could point to their copy shop workers and say they give personal service. But the positioning of "we know what you need because we're entrepreneurs, too” is something that the office superstores would never do, raising the bar from dealing with clerks to dealing with owners. Superstores make copies, even copies of their own stores. Entrepreneurs seek and create opportunities, not copies. Let the superstore clerks say "How many copies do you want?" We should be saying "Tell us about your business."
There are numerous tactical options in marketing, and whatever is selected has to be reinforced by credible and demonstrable customer experience. When it comes to advertising strategy, I'm not not the best one to listen to in this regard. Good ad agencies get paid well for a reason. If a discussion with an ad agency doesn't include the development of a meaningful differentiation for your business, they're not who you need, especially when your range of tactical options may be legally limited. The printing business may be bound by traditions and trade practices that don't always play well in today's new media marketplace, but that doesn't mean we just roll over and play dead. We need to stop being our own worst enemies and leave the "worst enemy" job to our competitors. There are just too many opportunities in this environment, and recognizing them is the first step.
Thanks to Dick Gorelick for permission to reproduce his letter.Gorelick & Associates can be reached at (610) 436-9778.
"In your most recent edition of PrintForecast Perspective, you ask, 'Where are the franchise printers?' in your discussion about distribute and print. As we've tracked in our client newsletter, the franchises cannot legally engage in some of the activities you discussed in the lead article. In the middle l990's, Xeikon tried to follow through on its promise to create a network of its installations after a critical mass had been achieved. Of course, only independent print companies were involved. At that point, the Justice Department raised the issue of collusion and price-fixing, intimating that only the U.S. Postal Service and Kinko's were within the law.
"Franchises are independently owned. It is clearly collusive if a franchisor tries to organize franchisees and establishes pricing. Since the mid-1990s, Staples, Office Max, Office Depot, and others have become factors. They do meet legal standards for a national distribute and print operation."
I hinted a little bit at this last week. Dick is absolutely correct. I encountered a similar situation in the late 1990s when working on a project with a major color printer manufacturer, explaining how they had to open new online and telemarketing channels for their equipment to sold to the then-hot graphic designers, small agencies, and commercial photographer markets. I was told “but that would invalidate our existing office equipment dealer agreements.” Epson promptly killed them using these new channels. The dealer agreements we left perfectly intact. The documents were happy, the workers became unemployed.
Of all of the 4 p's of marketing (product, price, promotion, and place), “place” is often the most difficult to quickly change. Prices can be altered with a stroke of a pen. Ad campaigns are approved over lunch. The laws regulating distribution and dealer relationships can often be complex, and are delineated in long-term contracts, agreements and organizational structures. When these are created, they all make sense at a particular point in time and for some years thereafter. Marketplaces change, and I find that “place” decisions lag behind the most. Sometimes "years thereafter" is shorter than hoped. This is often the main advantage of new competitors in any industry: they lack the baggage of history.
There's a marketing lesson here. In competitive strategy, you always try to create differentiation using an aspect of a competitor's business that they cannot and will not change. One of the best examples of this kind of warfare is the old Burger King “broiled, not fried” campaign, mistakenly abandoned by the company many years ago. Broiling was something that McDonalds would never do, because their infrastructure of equipment would be too costly for them to change, and the risk of admitting that broiling was better would be too great. Frying things is also perceived as "bad" from a health perspective, an extra reason for BK to choose the strategy.
Whenever you want to differentiate your business, you have to find something that will let you stand out, and something that is not easily duplicated by competitors. For the office superstores, their standardization and the sheer number of locations is essential to their strategy. This is easily used against franchise printers for the reasons Dick Gorelick explains. For the franchises and all independents serving small and mid-size businesses, what choice do they have? Many. The bigger problem is choosing a very small number of attributes (like ONE) and having the tenacity to keep usining it.
What's the positive side of the legal restrictions against standardization? Instead of being shackled by standardization, printers become unique businesses run by small businesspeople with minds and business strategies of their choosing, targeting the specific needs of their clients. Promoting "personal and knowledgeable service" is a weak start, because anyone can say those words and it's not likely people would believe them anyway. After all, office superstores could point to their copy shop workers and say they give personal service. But the positioning of "we know what you need because we're entrepreneurs, too” is something that the office superstores would never do, raising the bar from dealing with clerks to dealing with owners. Superstores make copies, even copies of their own stores. Entrepreneurs seek and create opportunities, not copies. Let the superstore clerks say "How many copies do you want?" We should be saying "Tell us about your business."
There are numerous tactical options in marketing, and whatever is selected has to be reinforced by credible and demonstrable customer experience. When it comes to advertising strategy, I'm not not the best one to listen to in this regard. Good ad agencies get paid well for a reason. If a discussion with an ad agency doesn't include the development of a meaningful differentiation for your business, they're not who you need, especially when your range of tactical options may be legally limited. The printing business may be bound by traditions and trade practices that don't always play well in today's new media marketplace, but that doesn't mean we just roll over and play dead. We need to stop being our own worst enemies and leave the "worst enemy" job to our competitors. There are just too many opportunities in this environment, and recognizing them is the first step.
Thanks to Dick Gorelick for permission to reproduce his letter.Gorelick & Associates can be reached at (610) 436-9778.
Thursday, March 23, 2006
A World of Change
There were two announcements this week that received much less news coverage than I thought they should. They both illustrate how the industry is changing, how competition is coming from new directions with greater intensity, and how communications technologies offer new opportunities for companies whose primary focus has been to put ink on paper.
The purchase of OfficeTiger by R.R.Donnelley combines with its prior Astron purchase to provide transaction services on an outsourced basis around the world. While the OfficeTiger purchase is more in the spirit of transitioning the old Moore-Wallace line of business from creating forms to capture data to actually collecting and managing the data on behalf of clients, there is a more important aspect to this deal. Both purchases put them in closer contact with all kinds of content creation, especially of the kinds that already and can use digital printing technologies more for a wide range of applications. By being in such close contact with the original data, they can offer more proactive and programmed implementation of communications initiatives, and can do so globally.
EFI made a major sale to office superstore Staples, designed to build their printing presence online, and to allow them to expand their offerings. While sending files to a printer is nothing new, for many of Staples new customers, all printing is a novelty, and they are shaping the perceptions and purchase habits of new print customers who think that printing is something you buy from an office supplies store.
Where are the franchise printers? A visit to the corporate web sites showed little capability to send files or tie in with the work habits of small businesses. FedExKinkos has aggressively pursued this on a corporate basis. Franchises still seem to be operating under the strategy that individual shops are where the action is, and focus on “find a location near you” as a means of directing sales to franchisees. In the process, the office superstores and FedEx, both outsiders to our industry, as many feel, are taking advantage of the most important trend that the Internet has brought us. First, that time is a scarce asset, and convenience is of great benefit to consumers. Consumers don't want to know the technical stuff, they just want their work. VistaPrint seems to be keenly aware of this in their offerings.
Second, geography and proximity are declining in importance. The idea of “a store near you” is good in many cases, but the Donnelley deals show that production and processing can be anywhere. The standardization offered by Staples and FedEx have a predictability that many small print users want. Too often “store near you” among printers means dealing with a different sets of personnel, different pricing, and different workflow preferences.
Ink on paper? Toner on paper? Sure, that has to be done well, but the business processes that get the jobs to that point are changing more dramatically than commonly realized, and often divert work away from commercial printers without them ever realizing it.
The purchase of OfficeTiger by R.R.Donnelley combines with its prior Astron purchase to provide transaction services on an outsourced basis around the world. While the OfficeTiger purchase is more in the spirit of transitioning the old Moore-Wallace line of business from creating forms to capture data to actually collecting and managing the data on behalf of clients, there is a more important aspect to this deal. Both purchases put them in closer contact with all kinds of content creation, especially of the kinds that already and can use digital printing technologies more for a wide range of applications. By being in such close contact with the original data, they can offer more proactive and programmed implementation of communications initiatives, and can do so globally.
EFI made a major sale to office superstore Staples, designed to build their printing presence online, and to allow them to expand their offerings. While sending files to a printer is nothing new, for many of Staples new customers, all printing is a novelty, and they are shaping the perceptions and purchase habits of new print customers who think that printing is something you buy from an office supplies store.
Where are the franchise printers? A visit to the corporate web sites showed little capability to send files or tie in with the work habits of small businesses. FedExKinkos has aggressively pursued this on a corporate basis. Franchises still seem to be operating under the strategy that individual shops are where the action is, and focus on “find a location near you” as a means of directing sales to franchisees. In the process, the office superstores and FedEx, both outsiders to our industry, as many feel, are taking advantage of the most important trend that the Internet has brought us. First, that time is a scarce asset, and convenience is of great benefit to consumers. Consumers don't want to know the technical stuff, they just want their work. VistaPrint seems to be keenly aware of this in their offerings.
Second, geography and proximity are declining in importance. The idea of “a store near you” is good in many cases, but the Donnelley deals show that production and processing can be anywhere. The standardization offered by Staples and FedEx have a predictability that many small print users want. Too often “store near you” among printers means dealing with a different sets of personnel, different pricing, and different workflow preferences.
Ink on paper? Toner on paper? Sure, that has to be done well, but the business processes that get the jobs to that point are changing more dramatically than commonly realized, and often divert work away from commercial printers without them ever realizing it.
Thursday, March 16, 2006
Growth & Change: Ready or Not, They Happen Anyway
The 2004 edition of the Annual Survey of Manufactures was recently released by the Commerce Department, and our analysis revealed some thought-provoking trends. The PrintForecast elves adjusted the data for inflation and calculated the annualized rate of change for the commercial printing business sectors. The way the Commerce Department classifies businesses is very important. More precisely, businesses are asked to choose the best description of their primary business, and the Commerce Department does little except to record the choice in their data base.
The way to read the chart above is to say to yourself "businesses whose primary business is commercial screen printing reported that..."
The star of this data compilation is the “digital printing” category. Those businesses' volume increased in the 1997-2004 period by an average +28.3% per year. Commercial digital printing businesses went from a miniscule 0.6% share of the commercial printing shipments pie in 1997 and moved up to a 4.1% share by 2004, with more room to grow. The pace of growth has slowed, and was a robust +6.8% for 2004 compared to 2003. Remember, businesses may have reclassified themselves from offset to digital, so it's not likely that the increase is solely from digitally printed jobs. It must also be noted that “digital” can mean almost anything.
Ultimately, these data should serve as a catalyst for change within individual companies and eventually ripple through the industry as more companies implement new strategies. It's time for printers to redefine their businesses, rationalize their equipment bases, clean up their balance sheets, invest in capacity that will be marketable three and five years from now, and finally come to grips with the industry's decades-old paradox of printing everyone's marketing materials but often averse to using marketing strategies itself. (How can we say printers should be in the "marketing services" or "communications" businesses when so few use those strategies in their own businesses?) Proactive organizations stay ahead of their clients and worry little about their competitors.
The new media marketplace is real, with significant opportunities. There are many notable roles open for print and printing companies to successfully play in it. That is, if we really want to. These industry times certainly separate the elite companies from the average ones, the best managers from the mediocre ones. Everyone looks like a business genius in a growing market. But today, it helps to actually be one, and open to new ways of doing business, with strong skills of implementation.
Interestingly, the relative share of other commercial print categories had only minor changes. Commercial offset businesses were 56.6% of the shipments in 2004; they were 56.8% in 1997. Gravure was 4.2% in 2004, and 4.7% in 1997. These don't seem like consequential changes, but the change in dollars is dramatic (or do I mean “traumatic”?). The report shows commercial offset as losing -$10.2 billion in annual shipments comparing the two years of 1997 and 2004. The size of that decline is more than 3.5x the total amount of shipments reported by commercial digital printers so it's not just a simple transfer of volume from offset to digital. Business went elsewhere, to non-print media.
Comparing 1997 and 2004 book printing shipments, there has been a decrease of -$2.1 billion in annual volume. We know that some shifted over to digital printers, though the bulk of the “loss” has moved largely to non-U.S. print providers.S
eparately, and not in the chart above, trade binding and finishing is growing at the rate of about 1% per year. Prepress services, a victim of desktop publishing well before there was an Internet bubble, has lost $2.4 billion in annual shipments, a -6.8% per year decline. Many of those businesses redefined themselves as digital printers, or moved into services such as graphic design.
What's all this mean? The industry continues to change. None of the segments noted are keeping up with GDP growth except for digital printing businesses. As the commercial printing industry headed into 2005, there was some reason for optimism, as the intensity of the downturn seemed to subside and looked to be bottoming. As we know, the downturn restarted in late Spring 2005 and culminated in a December that was down -9% to 2004. None of this matters to growing companies who anticipated these changes and moved accordingly.
I worry that there are still executives who look at data such as these and deny that they exist or claim that they must be wrong and otherwise dismiss them. (Data are always more “acceptable” and unquestioned when they show positive growth; cognitive dissonance has no place in the board room, but we know it's there). Anecdotal support for the trends above are all around us, and need not be documented now. In the end, data are just data, the residue of past business decisions, often by long- departed managers. Those past actions have played out in a marketplace in unanticipated ways.
It's essential to look ahead with an understanding of how one's company can thrive in a variety of future scenarios, not just minor yearly incremental changes. The question is not how to survive, but truly thrive. Managers need solid market information that reflects the marketplace as it is. It's their job to change the marketplace. Without good data, how can one know what needs to be changed and whether or not their attempts to create change have been successful?
Annual Survey of Manufactures
Thursday, March 02, 2006
Every 0.1% Increase in E-Commerce Causes -$1.8B in Commercial Printing Sales
There's a lot of "rules of thumb" about the relationship of GDP and print. Like many rules of thumb, they go out of date, and we've shown that for quite a while there has been no statistical relationship between GDP and printing. We even have a special "Data-to-Go" report about it.
What is valid, with an r-squared of 90% (for the statistics geeks in the audience who know that's quite good from a statistical business forecasting perspective; for everyone else, it's called the coefficient of determination, and a brief explanation can be found by clicking here), is the relationship of the percentage of retail sales that are conducted by e-commerce and inflation adjusted printing shipments.
E-commerce retail sales is now a mere 2.2% ($20.8B for Q3-05), but the equation generated by using that in a linear regression model is rather incredible, showing a $1.84 billion drop in commercial printing shipments for every 0.1% change in the share of e-commerce as a part of total retail.
Does this mean that e- commerce is the sole cause of prints decline? No, it doesn't. What it means is that this data series has a pattern that explains 90% of the direction of the printing shipments pattern. We do know that e- marketing has shifted ad dollars and business information dollars away from print.
So should we be surprised? The economy grows independent of e- commerce (it obviously grew for hundreds of years before it existed), but we know that sales information in all of its forms has been a mainstay of printing, and e-commerce strikes at its very heart.
Is e- commerce, then, sure death for printing? Not if you're a company like Vistaprint, or Printing for Less, or UDesignWePri nt, all of whom are counting on e-commerce to bring them into new markets and new audiences. We always say that you should strongly consider investing in what can put you out of business, and we also say to stay ahead of your clients and not your competitors. These companies may be doing just that.
What is valid, with an r-squared of 90% (for the statistics geeks in the audience who know that's quite good from a statistical business forecasting perspective; for everyone else, it's called the coefficient of determination, and a brief explanation can be found by clicking here), is the relationship of the percentage of retail sales that are conducted by e-commerce and inflation adjusted printing shipments.
E-commerce retail sales is now a mere 2.2% ($20.8B for Q3-05), but the equation generated by using that in a linear regression model is rather incredible, showing a $1.84 billion drop in commercial printing shipments for every 0.1% change in the share of e-commerce as a part of total retail.
Does this mean that e- commerce is the sole cause of prints decline? No, it doesn't. What it means is that this data series has a pattern that explains 90% of the direction of the printing shipments pattern. We do know that e- marketing has shifted ad dollars and business information dollars away from print.
So should we be surprised? The economy grows independent of e- commerce (it obviously grew for hundreds of years before it existed), but we know that sales information in all of its forms has been a mainstay of printing, and e-commerce strikes at its very heart.
Is e- commerce, then, sure death for printing? Not if you're a company like Vistaprint, or Printing for Less, or UDesignWePri nt, all of whom are counting on e-commerce to bring them into new markets and new audiences. We always say that you should strongly consider investing in what can put you out of business, and we also say to stay ahead of your clients and not your competitors. These companies may be doing just that.
