Thursday, April 27, 2006
The Hidden Industry?
When a person buys a car, for example, they see brochures, signage, postage, and they eventually sign forms, and see an owner's manual (I say “see” because I wonder how many people actually read owners manuals, but that's another matter). Is there any reason for them to say to themselves “those were made by a commercial printer, one of our country's leading industries, the 500-year old industry that changed the world and helped make Ben Franklin a wealthy man?”
All printing is assumed to be produced by the entity who hands it to the customer. Packaging? General Mills, Post, or Kellogg's makes that, in their minds. Printing is part of the product, isn't it? Yet we know that consumer packaging is created by a complex of specialists, from the trees cut down using heavy capital equipment, milled and processed in factories, transported though a logistics chain, and eventually printed, filled, and ending up on a store shelf. The images are envisioned and created by a different set of people from marketing executives, researchers, designers, printing companies, and others. This is the world of branding and image creation, and it's not a single task of individual effort. Each function of this web of creativity and implementation could lay claim to being "hidden" or underappreciated.
In the end, printers are just one component of a grand economic process, and claiming that our industry is not known is much like a New Year's Eve partier in Times Square demanding that everyone look at him instead of the ball of lights in its midnight descent. One voice can't be heard over the others at that moment; there are just too many people in the streets for it to be reasonably expected. As far as being a well-known industry, consider of the public perceptions of oil, pharmaceutical, telephone, utility, and other industries that have far greater visibility accompanied by significant and vocal consumer distrust. Being well-known is not necessarily a good thing.
What attracts workers and others to an industry? Good wages, good rates of return, and a sense of dynamism. The fact that most printing businesses are small means that they are not in position to hire workers with the same techniques that other industries do. Individual banks, retailers, and manufacturers will always be at the top of college recruiter lists. Our business has always been comprised of entrepreneurs and small business owners. We could benefit more from a booster shot of entrepreneurship right now than the recognition and awe of others.
What we say about ourselves and what others say about us is of minor importance. It's how we perform that matters more. Individual companies are responsible for that; it's not an industry thing at all. It's important that those who seek information about our industry have a convenient and reliable place to find it. There are already good organizations that assist the industry in the creation and sharing of information about itself and its markets. These tasks are necessary and good in and of themselves. In the long run, however, it is essential that we go about our business in a creative and innovative manner that helps clients improve the performance of their own businesses. This will earn us a more valuable form of recognition, that of being an indispensible value- creating partner, known to loyal and delighted clients, even if hidden to others.
We're not the only hidden industry. “I, Pencil” is a famous essay about the complexity of economic interrelationships and many anonymous workers and businesses behind the production of a mere pencil. This link also has commentary about the essay by Nobel Prize economist Milton Friedman.
Thursday, April 20, 2006
A Weakness of New Media We Need To Exploit
It is now common practice for purchasing department and other workers to search for information about anything they want to purchase from expensive capital goods to daily supplies on the Internet, often through a search engine. In the past, they would have pulled a directory like the Thomas Register off the shelf and then made some phone calls.
What's the difference? Searching on the Internet is anonymous to the company they are researching. The old phone call would have led to the capture of the inquiree's contact information, at least the mailing of literature, and potentially a visit by a dealer or sales rep.
This means that people are making decisions about whether or not to engage in a transaction without the company ever knowing about it. Sales prospects have access to a great deal of information yet the company has no contact with them at all.
This is a real problem for marketers because all they end up with are statistics about their web traffic but no sales leads. That's the fallacy of the “measurability” of new media. What good are statistics unless they lead to real transactions?
Is there has to be a way for our industry to tap into this phenomenon? Of course there is! Printers first need to help their customers understand that they are losing leads by allowing only anonymous delivery of information. They may think they are saving money by not printing brochures, may be undermining the sales lead development process. They may, in fact, be losing money in the long term by not capturing information about site visitors that they can use to follow up later. Printers need to communicate the value of that loss, or at least raise the spectre of that loss, to their customers.
There's more to that than just telling them to use more print. Helping them create a good lead capturing process and provide them with solutions to help them achieve it is a good strategy. Printers must follow up by calling out “here’s your problem” and offering a solution, “here’s what we can help you do about it.” Remember, most printers customers are small and medium businesses who feel overburdened with anything beyond their daily core and urgent activities.
Here are some thoughts as to what printers can offer. First, they can bring the problem to the attention of their clients and propose a good Internet prospect capture system. This includes recruitment for newsletters (which the printers can propose the creation and management of, even if they are e-newsletters), events, and promotions. Second, they can make sure their clients have well-made PDFs of their brochures on site. It's amazing how many PDFs are not optimized of desktop printers, viewing on screen, or even quick downloading. Yes, good reproduction matters in all media.
Finally, printers can ensure that sales prospect information collected on the Internet goes directly to their shop. One reason companies were more than happy to get out of the printing of brochures were that they were always short-staffed and never seemed to be able to send things out promptly in addition to the challenge of outdated materials. Last year's Phoenix Convention Bureau story was a good example of this. But requests for information could be diverted to the printer’s server or could be automatically sent to the printer’s shop, queued up and printed out on the latest digital printers, or grabbed from the shelf inventory and mailed to the prospect by the printer. That's one of the “value added” tasks we so often hear about in adding fulfillment as a valuable revenue generating service that printers can add to their operations.
Just because new media offer great opportunities for cost reduction and new ways of reaching customers it does not mean that good time-tested sales process management goes out the window. Helping clients ensure that customers get the right information at the right time never goes out of style.
Thursday, April 13, 2006
Capacity Utilization Up, Profits Down: Huh?
The recently released commercial printing profits data for the fourth quarter were expected to be down, because industry shipments were so disappointing for that period. Earnings reports from some large printers confirmed the situation. What was surprising is that industry capacity utilization had been increasing steadily for more than a year. How can that be?
Capacity utilization is computed as a fraction: capacity used divided by capacity available. It is often assumed that when capacity utilization is high, profits will be high. When printers get busy, and the capacity used increases, and it is claimed that profits will rise. Decrease the capacity available while keeping sales at the same level, and capacity utilization will rise. All you did was decrease the denominator. It's just simple arithmetic. Everyone knows 1/2 is more that 1/4, even though the 1 in the numerator is the same.
What's happened recently just doesn't make sense: even though capacity has been coming out of the marketplace as plants have gone out of business, profits have headed down. Profits are supposed to be rising. It actually does make sense, and here's how.
In the mid- and late-1990s, capacity utilization was declining, yet total industry profits were more than three times where they are today. In fact, many new presses were being added to the marketplace, increasing the industry's total available capacity. For the last six years, the statistical relationship between capacity and profits has had less forecasting validity than one could get by just flipping a coin.
Keeping presses busy in an expanding market hides a variety of business sins. Riding an industry-wide wave of growth masks managerial and operational inefficiencies and poor pricing strategies. When the tide goes out, the debris left behind becomes plain to see.
The long-held common wisdom of the relationship of capacity utilization and profits is seriously lacking. First, it ignores what the market prices for use of that capacity are. Producing the right things efficiently is essential to creating profits. Being efficient in the manufacture of unprofitable things is deadly.
Second, it ignores the nature of productivity and efficiency. Not all capacity is created equal. During the 1980s, capacity utilization was declining, but the industry was selling printing that had greater value than it did before: it had good quality process color rather than black & white images. It's often hard to remember that prior to the early 1980s having anything printed in color was incredibly expensive. Digital prepress changed the printing landscape forever. Process color exploded in the 1980s, and print buyers shifted to those kinds of higher value printed materials because they were more effective in meeting their communications objectives. While capacity utilization was steadily decreasing, higher selling prices more than made up for it, even when process color demanded investments in new prepress and press equipment, expanding the industry's capacity.
Third, obsession over capacity utilization assumes that only the "cost of goods sold" portion of the income statement is important. Everything is important. How foolish it is to run an efficient pressroom and squander it all on poorly designed administration, distribution, marketing, sales, and finance. Entire companies make profits, not just pressrooms.
Fourth, market access is ignored. The turnaround time and logistics of creating, printing, and delivering work is missing. There is a value to turnaround and other "value added" activities, which is why they're called "value added" in the first place.
Finally, competition is ignored. Industry capacity measurement has always been geographically based. That is, it was always U.S. capacity or North American capacity. Today, the world is connected as never before. All costs and selling prices in one world region are often affected by the characteristics in another. Commodities have had “world prices” for many years. Now, there are world “goods prices” and world “services prices.” Multinational companies have always shifted work between plants of different geographies to achieve their best costs. Today, all industrial buyers are gaining more power over the prices they pay.
So what does it all mean? Having the correct capacity for an individual print business is still essential. But producing profitable things is essential, too. Presstime is not necessarily generic capacity. That capacity must be able to produce the correct sizes, formats, and quantities that the market demands at a particular point in time. When there is a mismatch between the kinds of printed materials needed today and the equipment purchased years ago when the characteristics of those printed products were different, today's prices naturally fall and costs tend to remain the same. Hence, profits are squeezed. Knowing your customers, anticipating what they will need in the future, and knowing what kinds of new customers are likely to emerge in the future are critical elements of all capital investment decisions. Buying equipment requires a depth and breadth of market knowledge greater than just a few years ago. Today's dynamic media marketplace ruthlessly teaches this lesson.