On-demand Printing--Delivering Digital Dollars

Customers are finally beginning to recognize the added value in embracing targeted, digitally printed communications that incorporate variable data, personalization and on-demand turnarounds.

BY ERIK CAGLE

A better understanding. That is the repetitive phrase on-demand printers are using to describe print customers' attitudes toward the digital market. Customers are becoming more particular about their needs, about the audience they're targeting and how they're targeting that audience.

With that better understanding is a better appreciation for digital printing, and a sampling of the nation's leading on-demand printers couldn't be happier. Well, that's not entirely true—they could be happier. There's still much to be accomplished in terms of spreading the market's gospel.

The perception remains that digital printing is too expensive in comparison to traditional offset output, according to Karen Kelty, marketing director for King of Prussia, PA-based XYAN, the nation's leading on-demand printer. Some companies do not consider total costs to create, manage, inventory, ship and discard documents and, instead, choose to look at the cost per page.

"Successful suppliers must view themselves as solutions consultants, not print providers," Kelty notes. "Today, customers do not simply buy printing. They buy increased sales, additional memberships, improved customer satisfaction, regulatory compliance or the attainment of specific business objectives. This represents a paradigm shift in the industry. The sales cycle is longer for this type of consultive selling."

Kelty says specialized marketing—targeted and one-to-one, is having a tremendous impact on the growth of variable data printing. "Printing individual documents digitally, on-demand, with variable text, photos and graphics, is not something that can be done using offset print technology," she notes. "As companies experience the increase in response rates using documents that are customized or personalized, variable data printing will grow exponentially."

Even with some misconceptions, the on-demand market is still thriving. According to Skip Dyer, executive vice president of Graphics Express, in Boston, the market is not only growing, it is presently taking shape.

"We're seeing tremendous growth on the variables side and on non-variable," he says. "We're seeing more and more companies adopt this technology—it's seeing a wider range of acceptance. The quality has, and continues to, improve and technology continues to improve from both the production and market sides.

"Market awareness has caught on at the user end and people are starting to see where variable data can change the way they're doing business. We've seen a number of different industries, from financial to consulting to real estate, embrace it," Dyer adds.

The segment is not without its drawbacks, however. David Brooks, president of Brooks Litho & Digital Group, in Amityville, NY, feels the fast pace of changing technology can place a financial burden on printers and thus have an effect on the market.

Technology Evolution
"Some of us bought our presses for $525,000; today the same equipment can be had for $200,000," Brooks points out. "Yesterday it was the PowerMac 9500 and today it's the G3. Every few months it's another upgrade here and another upgrade there. It's a leapfrog industry right now; you buy [product] 'A' and 'B' comes out six months later—faster and cheaper."

Despite significant drops in the cost of consumables from a few years ago, Brooks believes they remain high enough to limit the run lengths at which digital printing can compete with conventional printing.

The heightened awareness within the market promises to create an even more competitive atmosphere. Andrew Kohn, president of The Jerome Group, in Maryland Heights, MO, stresses the need for digital printers to differentiate themselves from the remainder of the pack. His company, for one, offers highly specialized, value-added products.

"In order to maintain an advantage and stay ahead of the curve, companies have to continue to invest and look for unique applications," Kohn stresses. "The meaning of value added changes constantly, so you need to add more and more services. The Jerome Group has been able to distinguish itself as personalized, one-to-one marketers."

What does the face of competition look like these days? According to Kelty, color is much more a necessity than a business luxury—people are 78 percent more likely to remember information that is presented to them in color—and print on-demand allows for color even on shorter runs.

Time to market is a critical issue for many companies, Kelty remarks. Digital prepress and in-line finishing allow suppliers to reduce turnaround and supply documents on-demand. Another key element of the quicker turnaround is the allotment of time for eleventh-hour changes, a major plus in terms of new product launches.

Window of Opportunity
"Large multi-site or global companies are driving the demand for distribute-then-print," Kelty stresses. "By distributing digital files electronically, then producing documents closer to the point of need, companies eliminate shipping expenses and reduce production cycles. The ability to distribute time-sensitive information, simultaneously to multiple locations, is a real benefit."

Despite the constant technological advances that can render equipment or accessories obsolete or inefficient, it would be difficult to find an on-demand printer who has reservations about what the future holds for digital work. Dyer, for one, entrusts variable data but supports Kelty's view of the complete solution.

"In our view, it's not just short runs, not just fast turnaround, not just variable data. It's really a complete solution," Dyer says. "Customers need service providers who can provide the complete range without having to go between vendors."

Brooks believes that the much-anticipated growth explosion in on-demand printing will take place over the next two years.

"When you've got all this iron sitting on your floor, you can't afford not to be positive about the future," Brooks points out. "I have always believed that variable data printing and one-to-one marketing would be the driving force in the on-demand market—and I still do. There are certainly a whole lot of success stories out there, which tends to prove that on-demand printing is here to stay."

Sound Data Buoys Variable Printing Market

(Editor's Note: The following sidebar was contributed by Bruce Ganger, managing partner at Digital Works, a training and consulting company that distributes Digital VIP. It provides a total program that enables commercial printing companies to build a profitable, sustainable variable printing business. Ganger can be contacted at (727) 781-6684 or digitalworks@digitalvip.com.)

All the current talk about variable printing and personalization centers around printing and other technology. Buy a digital color press and, poof, you too can be a part of this hot and rapidly growing market. If it were that simple you would all have one, and Xeikon and Indigo would be as big as Heidelberg. We all know it is not that simple. Just like a good golf swing starts with the grip, a good variable printing strategy starts with good data on who you are trying to reach. Technology becomes an enabler to help you accomplish your goals.

To enable variable printing applications, one needs good data. This goes without saying. The opportunity for marketing-to-one is grounded in the concept of taking what I know about my business and applying it to information I have about my customers or my marketplace. However, the question inevitably comes up on acquiring and ensuring that one has enough and good data. And once you have it, what do you do with it and how do you use it?

This new phenomenon of variable printing represents new business opportunities for commercial printing companies. However, to take advantage of it, you need to be willing to work on some different metrics such as process, programs and services vs. printing lots of postcards, newsletters or flyers. Let's take a look.

Many of your clients have databases that they are using today. They may only have a billing database, which is limited to customer account information, or they may have a marketing database with qualitative information about customers and prospects.

They may believe that putting a name and address on a marketing piece is enough personalization. It is not. If they need help in creating a marketing database, there are companies such as MCS Inc. (Ivydale, PA), which are in the business of creating and managing marketing databases.

The commercial printing company can now provide resources to assist in the creation and use of the customer database. The commercial printer is now offering program management and information services in addition to printing services. None of this is hard or requires adding a programming staff. The tools and resources are available today and fit into the printer's business process.

Let's look at an example of a regional grocery store chain that has a frequent shopper program or offers a check-cashing program. The consumer fills out an application for the program and gives the company a lot of good information, such as age, marital status, number of children, own or rent their home, income, employer and job responsibility. Then, as the consumer uses the card, the store accumulates more information on them. This is a great way to build a relationship, push the store brands of products, encourage visiting the floral department on an anniversary or birthday, utilizing the deli for those quick meals, etc.

The store can build an excellent inventory of information on each consumer and establish a relationship through its program that will build customer loyalty and retention. Marketing people know that it is more effective and less costly to compete for more business with their current customers than competing for a bigger share of the marketplace. This is all enabled by the accumulation and use of marketing data and demographic modeling. All enabled by technology, not dependent on technology. All available today. This example holds in many business situations.

These opportunities represent highly profitable jobs for the commercial printing company. Customers are willing to pay more for more relevant marketing pieces and those that are targeted. Customers expect more from direct mail today. They look for evidence that the originator has done his homework, and consumers are more willing to respond to direct mail that is more relevant to their situation. Also, the commercial printer is building some very necessary skills for the future.

Printing is not going away. In fact, many industry pundits have stated that there is an increase in printing due to the information explosion, and that the Internet will further push this trend. (Think about the fulfillment for Internet inquiries to a company's Website.) It is a different type of printing. One that requires the use of data to drive the content and characteristics of the printed piece. It is intentional printing targeted to an individual.

Commercial printers are uniquely positioned to take advantage of this phenomenon. Good design enhances good communication and makes these marketing pieces more effective. Those are skills found in the graphic arts industry, not in traditional data processing environments or service bureaus.

Successful Digital Printing Strategies

(Editor's Note: The following was provided by Dr. Mark W. Fleming, president of Strategies on Demand L.L.C., located in Naperville, IL He has managed product development and marketing, as well as several digital printing businesses. He can be reached at (630) 983-7746.

For those who have perceived digital printing as a technology-intensive business without much profit potential, the time has come to reconsider. The cost and productivity of the technology have improved dramatically over the last two years. Moreover, by 1998, digital printing had captured 9 percent of the mainstream publication and commercial printing market.

But what about the profit? The reality is that digital printing can be quite lucrative, but the profit does not necessarily follow from traditional approaches in managing the business. We benchmark digital print providers through comprehensive on-site audits, including the client's organization, marketing plans and execution, operational workflow and productivity, technology and detailed financial performance. The average operating income across this base of businesses is 13 percent of value-added revenue, with profit leaders achieving more than 20 percent. This profit level is significantly higher than the average conventional printing business, which yields about 7 percent operating income.

We have found that the more successful digital printing ventures share some common strategies:

Market focus. Market focus is more than simply developing a variety of innovative digital print applications and "selling the value of digital printing," as the equipment vendors and promoters exhort. Profit leaders target only a few industry segments within the reach of their sales channels—heavy equipment manufacturing, apparel manufacturing, professional book publishing, or advertising services.

Productization. The slogan "print-on-demand is a process, not a product," is misleading. In reality, print-on-demand must be productized to be profitable. The "product" includes digital printing and related services that together solve an overall production and distribution problem for a set of customers in a specific market segment. By productizing their services, profit leaders increase asset utilization and reduce their marketing, selling and administrative costs, thereby building competitive advantages against less focused print providers.

Linkage with distribution. Nearly all high-margin digital printing businesses are closely integrated within the distribution channel. For example, the value of digital book printing is much higher when it is combined with immediate, direct fulfillment to the consumer. The value declines rapidly when digital production is used simply to support an existing warehouse inventory management and fulfillment operation.

Heavier investment in selling. Digital printing accounts are long-term assets, in terms of both the sales investment and the return on that investment. Not only is the sales cycle longer for digital printing than for traditional printing, but the revenue stream is more like an annuity in the case of the more profitable recurring opportunities. Successful selling of digital printing requires a more comprehensive understanding of the customer's overall business.

Sales discipline. Profit leaders qualify prospective accounts and opportunities in terms of their size, potential profitability, and fit within their marketing strategy and operational capabilities—and avoid those that do not meet those requirements. This is particularly important in the sales and customer service areas, where small accounts or one-of-a-kind opportunities can become exceptionally costly.

Value-based pricing. Many print providers equate price with their cost plus a required margin. In digital printing, this cost-based approach can leave money on the table. Profitable pricing is linked not only to the cost of the manufactured goods but to the value to the customer of the services accompanying those goods. Fortunately, in this era of consolidation, outsourcing and the return to core competencies, there is a higher-price stratum of customers who recognize added value and are willing to pay for it.

Dedicated operations. For profit leaders, the marketing strategies drive the structure and management of the operations, rather than the converse. Because the more successful businesses are focused on only one or two markets, the operations can be dedicated and streamlined to meet the particular requirements of those markets. Since digital printing operations typically deal with dozens to hundreds of orders per day, they must be unrestricted by conventional production management methods that are geared to lower order frequencies.

Efficiency over automation. The more profitable operations are automated only after management really understands the requirements and most efficient workflow for the business. For example, some print providers have invested in the latest in-line finishing technology, only to find that it has limited their flexibility to accommodate changing print product requirements. Likewise, significant investments in production management systems should be considered only after the processes and workflow are stabilized at a high level of efficiency.

Market-driven rather than scale-driven. Two of the most visible early failures in digital color printing were driven by management focus on large scale rather than on markets. Among the businesses that we have audited, there is no strong correlation between size and profit. Ironically, some of the biggest operations show the lowest returns! The important differentiators are market focus and operational efficiency, rather than size.

Technology-enabled rather than technology-focused. "Technology leaders" often make headlines, but not necessarily profit. Technology leadership is frequently employed as a selling point, but this tactic is becoming increasingly transparent to savvy customers. Profit leaders invest in new technology only when it will provide quantifiable competitive advantages in service, cost and productivity. They calculate the return on technology investments—in capital equipment or product development—before they proceed. The fact that they are not necessarily operating at the leading edge of technology tends to move them out of the industry spotlight, but they are major players in their chosen markets.