Printing is not a business for the fainthearted; everyone has seen just how ugly the business model can be. Low barriers to entry and an overcapacity create intense price competition and regular price wars. The result? Key customers hold all the power. But printers need to ensure buyers remain partners and not enemies in a price-driven war.
Printers never admit to price-cutting but are happy to accuse their rivals of slashing prices to win business. According to industry players, it’s getting worse. David D’Astoli, pre-press manager at Focus Press, spells it out. “Everybody is getting screwed; they all want something for nothing.”
Margin erosion affects everyone, from the little guys to the sheetfed and web giants. The most recent results from Blue Star and Geon paint a picture of low profit print. PMP, which last year reported a 30% slump in earnings before interest and tax from its printing division, blaming it on price competition. Significantly at the time, its competitors accused the company of trashing the industry’s margins by slashing the prices it offered to big customers like Coles. But PMP was responding to that price competition.
The price discussion is never far from the industry’s mind, but it has become even more intense over the past 18 months as companies rein in costs. Printers offering big discounts have gone out of business. If price-cutting is a short-term way to win that next job, then is customer service the long-term way to win a much greater gift: a longer life expectancy for your business?
Printers face constant pressure from buyers that each time a contract come up for renewal, they will push prices down or threaten to switch suppliers. Quote the lowest price or lose the job. But can printers retain and win customers not by being the cheapest but by offering the best service? Come to think of it, how good are printers at customer service anyway?
D’Astoli says his company provides service value-adds such as good support, fast turnarounds and knowing exactly what the customer wants. Focus Press is also rolling out a carbon neutral campaign to differentiate itself in a crowded market.
But some customers just aren’t worth servicing. Michael Palmer, managing director of Snap CBD Printing Group, says printers need to know where to draw the line when they are being squeezed on price. He says it’s been happening more over the last 18 months.
Print buyers simply want more for their dollar. Palmer concedes that Snap CBD has lost jobs because it refused to lower its price too far.
“That’s what happens,” he says. “We sometimes negotiate on price but there’s a point we won’t go below. There are plenty of other printers out there that will. It’s the reason many printing businesses are failing – they have dropped their prices too far.”
Palmer says that once the client has haggled down to his company’s best price and tried to negotiate down further still, “we will say sorry, we can’t do any better”.
He adds: “I think all printers have been forced to look at overheads and reduced margins but the printers that will survive are the one who will say sorry I can’t do anything better with the price.”
Because the industry has so many participants, it’s no surprise that there is no consensus on service levels or an agreement on the what’s the right answer to the customer service equation.
It’s clear, though, that many still have a lot to learn. There are principles of better business that many could brush up on, including a formalised customer service strategy, yield management and cost control. Another solution comes in the guise of niche sectors, from the widely hailed, such as wide-format digital, labels and packaging, to the more leftfield, such as digital wallpaper, fabric printing or printed electronics. But whether you instigate internal changes or drive niche products out of your press hall, building closer relationships with customers should be a tried and true way to protect yourself in a price-pressured market.
Print managers
Many printers say the reason the print management model has been successful is because brokers squeeze margins. But another school of thought says that print managers have succeeded because they provide customers with the right service.
Paul Freeman, managing director of print management company Ebisprint, is blunt about the industry’s shortcomings. “A lot of printers don’t put themselves in the customer’s shoes and provide the customers with what they really want.
“Your average commercial printers, the ones that are going out of business, certainly haven’t moved with the times. Customers now want an end-to-end solution. A lot of them want that one-stop shop. That’s the difference between a print manager and a printer.”
Freeman reckons printers should start working more closely with print managers, the middlemen between the customer and the printer whose business model is based on the transaction. (Of course, as the head of a print management firm, Freeman is not exactly a disinterested party.)
GASAA executive officer Garry Knespal is adamant that today’s printers are customer-focused. It’s just that they need to learn how to balance price with costs.
“Most printers today are quality printers – they can put nice images on paper,” Knespal says.
“It’s about being able to produce quality print at the lowest price within reason. There is a lot of emphasis these days on lean manufacturing, which is essentially about making sure there is
no wastage and duplication, that you print in a very systematic way while maintaining quality,” he adds.
“That doesn’t mean we expect printers to always match customer expectations on price. People will inevitably shop around for the best price for comparable service and goods. I don’t think printers can operate in vacuum and just say ‘that’s my price’. If they want to retain work, they have to be competitive.
“We have to get the balance right between the expectation of customers and the realities of ensuring there is sufficient margin in the work to maintain business. The last thing we want to do is sell dollar notes for 90 cents,” adds Knespal.
“You have to be brave enough to say no. In any business, whether you’re a restaurateur or retailer, if you are selling something you have to say no at some point when someone says they want it for less. It’s not rocket science.”
To address the problem, he suggests printers need to have some yield management in their operations. In the same way that airlines and movie theatres sell tickets for cheap prices when demand is low, printers could adopt a similar model in their operations.
“There is not enough yield management going on in the print industry,” he says. “Some have understood that if I print my job at 11pm on Tuesday night and deliver it in three weeks’ time, I can get it a little bit cheaper. Unfortunately though, most printers work on a model of ‘when you give me your artwork, I will turn it around in 24 hours’, irrespective of the price.”
To deal with price pressures, some printers go in for contracts and service level agreements. “A lot of printers try to lock clients into contracts,” Knespal says. “So if you give me X amount of work, I’ll give it to you at this price or for a 2% discount. I don’t think it’s a bad thing for printers to introduce certainty into what they’re doing. A lot of contract bidding goes on, but possibly too much.”
Another way to deal with price pressure is to offer additional services free of charge. These can include everything from paying for courier costs to proofing documents. One extra service printers find themselves forced to do day in and day out is fix problem files.
But print buyer Brett Griffiths reckons there’s no free lunch. As the print manager at Rapp, the direct marketing arm of ad agency DDB, whose clients include Audi, Red Cross and Austar, Griffiths is responsible for a lot of print. He says that even if it is not itemised, extra service gets put into the bill.
“I don’t believe any printer will offer extra service without charging,” Griffiths says. “They might say it will be free but you are paying for it in other places. I am quite happy if a printer says ‘don’t worry about extra courier costs’. I see that as value in a printer who will help you when you need it.
“But I am sure at the end of the day, I will end up paying for that somewhere. They don’t offer free services.”
More than price
Griffiths says printers are making a mistake if they focus too much on price. They cannot afford to sacrifice quality and service reliability. “Quality and time are just as important as price,” he says.
“You can always find a cheap printer but you can’t always find a printer who will deliver when you need it and do what you tell them to do. From my point of view, you always have to have a decent price but there is no use having a decent price if you can’t deliver the goods because that does more damage than coming in with a cheaper price. For me, it’s more trouble than my time is worth than to have to go back to a printer and say it should have been there at 3pm, like you promised.
“If I tell my client that I am going to have something for them on Tuesday and it doesn’t get there until Wednesday, that doesn’t make me look good in front of the client. I would rather deal with someone who may be a little bit more expensive as long as they can deliver. Price definitely comes into it but it’s more about having someone who can deliver the job on time and how the client wants it delivered,” says Griffiths.
Russell Montgomery, former head of production at DDB, adds that focusing too much on price can hurt quality because the printer is not earning the money required to maintain the appropriate level of service. “If you are not earning the money you need to earn and you have to spend money to upgrade facilities, you have to cut overheads and the quickest overhead stuff is staff,” says Montgomery.
Reducing staff is a surefire way to damage service levels. Other options, according to Montgomery, include reducing hours or re-engaging staff on contracts, putting them off the payroll and only bringing them in when jobs need to be done.
Some printers say the best way to deal with the problem is to create distinctive niche offerings, and charge a premium on that. Kenneth Beck, director of Sydney digital print house Carbon8, says that printers should not cave in to demands for lower prices.
“The question is whether the demand to lower your price is justified,” Beck says. “If somebody else is managing to deliver a quality product consistently at a lower price and if you can’t do it, you have to ask yourself whether you are the right person to be delivering to that client.”
Beck says the problem with the price being driven down constantly is that clients are not aware of the full offering and customer solutions. He says many potential customers who offer him jobs are just working off specs. “I tell them my price will not be as good but it’s a different service,” he says.
If they want to see a proof, for example, it will cost them extra. “The difference is I have a personal relationship with all my clients. I have no interest in having a faceless relationship. I have no interest in having a massive marketing campaign. I am charging a premium but I am also offering them insurance against the job failing. I am offering them insurance that if they want the job turned around in three or four days, it will be done and also, I will not sacrifice quality.
“I am growing. I don’t market and I get a lot of referrals. There is a reason for that. Most printers let people down. My mission statement is: don’t let people down,” adds Beck.
Look Print chief executive David Leach agrees that price is only one part of the equation. “Customers are looking for a value proposition and they do expect very good prices, there is no question about that,” Leach says. “But whether you get the work or not depends on whether you can provide them with the quality, the flexibility, the speed and the price that they require.”
His company focuses on growth areas where there is less price pressure. These include large-format digital, point-of-sale, visual merchandising and labels and packaging. “In our area, there are new products that weren’t available five to 10 years ago, and there will be more products in five years time,” Leach says.
The key for printers, he says, is to identify new and emerging markets where there is less price pressure. “Whole new markets are starting to emerge. You need to identify what the potential markets are,” he says.
He says customers who only focus on price will not provide repeat business. “If a customer’s only concern is price, there is always someone out there who can sell it at that price, irrespective of the consequences. If all the client wants is price and they don’t see the value in anything else, there would be no loyalty from that customer.”
Sadly, it seems some customers will only ever realise the true value of good service and learn to pay accordingly when their pallet of work is still sitting on the press room floor when the liquidators are called in.
TOP 10: CUSTOMER SERVICE
· 24-hour turnarounds
· One-stop shops
· Close relationships with customers
· Logistics management
· Storing the printed matter for further distribution as required by the customers
· Distribution services to several locations
· Online services, including online ordering and web services
· Digital printing
· Personalisation and targeted distribution
· Fixing bad files
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