Valassis--King of Coupons

Valassis Communications is the coupon guru, the originator of the free-standing insert—that four-color coupon booklet, which has become a household commodity, if not phenomenon, as a modern day, money-saving device. Now, it's revolutionizing the way consumers clip coupons by offering "virtual savings" online.

BY CHERYL A. ADAMS

If you've ever saved money with one of those Sunday newspaper coupons, chances are, you have Valassis Communications to thank.

And you'll be even more thankful in the new millenium, when, beginning this year, Valassis is printing and distributing a record number (44 weeks!) of free-standing inserts (FSIs) in Sunday newspapers nationwide.

And, that's not all. If you're an Internet user, you'll also be able to save the electronic way, as this communications and commercial printing giant futurizes—and revolutionizes—the coupon business by offering cents-off savings via the World Wide Web.

But don't put away your scissors just yet. Saving the old-fashioned way (with scissors and four-color coupons in hand), U.S. consumers will clip their share of an estimated $3.5 billion in total consumer savings in 2000. And Livonia, MI-based Valassis Communications Inc. (VCI) doesn't think e-coupons are going to change that any time soon.

How can a company predict the future failure or success of a trend—be it printed, four-color FSIs or a technology like e-commerce that's still in its infancy?

For starters, as a marketing and communications company, Valassis uses high-tech marketing and tracking techniques to target audiences and monitor how different coupons perform; therefore, it's the company's business to know how consumers respond to sales promotions and coupons—be it electronically or traditionally, in full-color print.

Second, as a marketing services company, Valassis commands 50 percent of the $1.9 billion FSI market. Valassis is the coupon guru, the originator of the free-standing insert—that 32- to 34-page, four-color coupon booklet, which has become a modern day, money-saving device.

In 1972, Valassis Founder George F. Valassis modernized—and nationalized—the coupon business by creating this unique product known as the free-standing insert. For the first time, coupon advertisers were offered a professional coupon program that had guaranteed publishing dates and market distribution (weekly distribution nationwide via Sunday newspapers). Also, because of the cooperative nature of the insert, it was now affordable for advertisers to run a national coupon program.

Modest Beginnings
From its modest beginning (as a rep firm in George Valassis' home) to its present status as the nation's 15th largest printer (as ranked on the Printing Impressions 500, December 1999), with revenues of $795 million, Valassis Communications is a company rich with history. It's a pioneer and innovator in marketing communications and commercial printing. And it continues to lead the way, blazing new trails in everything from Internet couponing to incorporating an all-digital, computer-to-plate (CTP) workflow to capturing headlines for its outstanding employee practices.

Selected as one of Fortune magazine's "100 Best Companies to Work for in America" and recommended by Wall Street analysts as a "strong buy," VCI is a company with a vision. It wants to lead a marketing services and graphic arts evolution. An evolution—and revolution—that has already begun.

Take free-standing inserts, for example. It's a market that Valassis not only created, but has grown to be worth nearly $2 billion, of which Valassis controls roughly half. And, amazingly enough, the FSI market is one that, according to Dick Anderson, executive vice president of manufacturing and media, will likely never have any more than two competitors.

But why, especially in today's highly competitive environment, would only two companies be vying for a slice of the nearly $2 billion FSI pie? "The practice in this [FSI] business is to enhance the advertising messages of our customers by excluding their competition," explains Anderson. "As a result, no two competitive products will appear within the same version of any free-standing insert booklet. With many competitive brands in our customer base (e.g.: toothpaste, coffee, cereal, etc.) this, then, dictates that more than one company be in the business.

"However, because the industry currently has a good balance of supply and demand, it does not require more than two competitors to service the need," Anderson emphasizes. "Additionally, business is booked by long-term contract, and is 'spoken for' for a two-year period, making it very difficult for a third competitor to obtain the critical mass needed to survive."

Collaring a Commodity
Valassis is also very unique in the way in which it deals with its paper suppliers, according to Larry Berg, vice president of purchasing. "Of our total paper consumption—170,000 tons—75 percent is covered by long-term, price-collared contracts. These three-to-five-year deals prevent rapid escalation or deceleration of paper pricing. Through this collared arrangement, we have been able to take out the peaks and valleys of our highest cost of goods component. Not only does this inject stability into our pricing strategies, it creates a sense of predictability in the public investment marketplace. No longer do existing or potential stockholders have to worry about wild variations in the paper market creating extraordinary pressure on our bottom line.

"In fact, we are innovative in the way we deal with all of our suppliers," adds Berg. "We have proven that long-term, single-source supplier relationships, like the one we have with Flint Ink, can be not only cost-effective, but provide many additional tangible benefits for both parties, including a better bottom line."

That bottom line at Valassis includes the operations of six separate divisions (in order of size):

Valassis FSI: delivers the Sunday co-op promotion piece;

Valassis Impact Promotions (VIP): handles individual ad accounts, including daily and Sunday inserts, and other advertising approaches;

Valassis Sampling: delivers a broad range of sample products like tea bags and shampoo that can be bundled into Sunday newspaper promotions;

ROP (run-of-press) Solutions: prints ads directly onto the pages of a newspaper;

Valassis of Canada (VOC): provides free-standing inserts, database marketing and mail order merchandising; and

Promotion Watch: offers chance promotion security and accountability services, as well as legal services and winner clearance investigations.

Valassis operates state-of-the-art printing facilities in both Livonia and Plymouth, MI, as well as in Durham, NC, and Wichita, KS.

"We are known for our state-of-the-art facilities, but the unique aspect is that the newest of these is more than 15 years old," says Anderson. "We are the benefactor of great forethought in the mid 1980s and the ability to apply unique materials handling and automation to our process because of its repeatability (same size document time after time). Many printers are just adopting wire-guided vehicles and robotics. We started this journey in 1983."

An Army of Robots
Today, Valassis employs a small army of robots to meet its extensive materials handling needs, including wire-guided vehicles that automatically deliver paper to the pasters, as well as end-of-press robots that skid-stack the signatures. The company also uses high-density storage in its warehouses.

Such automation is also apparent in the pressrooms, where Aaron Trager, plant manager of the Livonia, MI, facility, says Valassis has obtained "world-class figures in the areas of waste and productivity." By retrofitting existing web offset presses with the latest in technology and by enforcing an extremely rigorous, predictive maintenance program, Trager says VCI's plants average less than 6.25 percent total waste (including makereadies and non-run waste).

"Also, we average in excess of 83 percent run time," Trager says, noting that non-run time includes makereadies, breakdowns, etc. "We also provide variable imaging for our clients and are setting new records, as it pertains to speed and the amount of unique information available to them."

VCI's clients include all the large consumer package goods companies, such as General Mills, Colgate, Clorox, etc. In addition, the company does a substantial business with franchise retailers, such as Pizza Hut, KFC, LensCrafters and Blockbuster Video. It has also begun to build a base of grocery retail customers, such as Food Lion, Kroger and Hannaford.

Free-standing insert clients such as these represent 70 percent of Valassis' business. And considering that FSIs require—as Blaine Gerber, vice president of the Printing Operations Division, describes—"significant amounts of step-and-repeat work to create unique versions" for individual cities across the United States, "it lends itself well to an automated, CTP workflow."

Thus, Valassis is transitioning to computer-to-plate, and although it's only one-third complete, Gerber says the company is already on track to reduce prepress costs by 25 percent. "Across the board, we are experiencing time savings from CTP, and the press areas prefer the sharper print reproduction of CTP."

In prepress, Valassis operates both Mac and PC platforms, using a blend of standard and customized software. Its server network is Intel-based, and proofing is accomplished using DuPont Digital WaterProof units (for high-res proofing) and HP plotters (for content and imposition proofing). Creo Trendsetters are used for digital plate production at each printing facility, while film plotting is accomplished using Purup-Eskofot plotters. Page films are pinned to match the step-and-repeat platemaking equipment located in each plant.

Capacity: 92 Billion Pages
Between its three printing facilities, Valassis runs a total of 16 web presses, either Heidelberg (including two M-600s) or Baker Perkins models. Overall, it has the capacity to print 92 billion pages annually.

VCI's finishing capabilities include folding, cutting, diecutting, gluing, shrink-wrapping, small package production, paper banding and mail sortation. Particularly proud of its bindery operations, Valassis has not only invested in new equipment, but also in new bindery employees, a new three-phase bindery operator training program (that half the bindery operators have already passed) and a new employee orientation program specific to bindery workers.

Valassis extends the same type of emphasis on its employees across the board—all 1,400 of them. In fact, Lynn Liddle, vice president of investor and public relations, says it's VCI's ability to attract, motivate and retain a great workforce that was part of the reason it was selected as one of Fortune magazine's "Top 100 Companies to Work for in America"—an honor it has received four times.

Valassis Communications has been a pioneer in most of its employee practices, Anderson maintains, noting that it was among the first companies to offer stock options for all employees, 12-hour/four-day shifts for plant employees, flexible work hours, enhanced facilities with cafeterias, workout facilities and, in some cases, a hair/nail salon and doctor's office.

"We spend tremendous amounts of time in training and development, have a non-union, direct communication approach, and employees have always been treated with trust and respect," Anderson says. "When employees feel that their company gives so much to them, and allows them to share in the wealth they help build, it motivates them to move our initiatives forward. We've been top performers, as a result, as both a private and public company."

And as a top performer in the communications and printing businesses, Valassis has recorded a running list of accomplishments and industry "firsts." Since opening its doors in 1972 and immediately setting out to revolutionize the coupon industry (with the introduction of the free-standing insert), the company has been an industry visionary.

In 1986, it acquired a run-of-page (ROP) newspaper couponing business, which printed coupons directly on the newspaper page, reportedly making it the only firm capable of providing both color inserts and on-page newspaper couponing.

Then, in 1992, Valassis introduced a rural version of its already successful national FSI product, called the C&D County Insert Program, which distributes FSIs to some five million rural households at key times during the year.

Continuing in its pioneering strategy, the company launched a new product sampling program in 1993, when it acquired Newspac from the Newspaper Association of America and the Chicago Tribune. Now called Valassis Sampling, this division of VCI delivers manufacturers' product samples and advertising messages via the home-delivered newspaper.

In 1997, Valassis developed its own trademarked products, Brand Bag and Brand Bag+, which are polyethylene newspaper bags imprinted with advertisers' messages that can include a tear-off, weather-resistant coupon.

Sampling has been a "huge" success for the company, according to Liddle, who points out that market analysts expect the sampling business to grow as much as 30 percent in the next year.

Valassis is also responsible for numerous other innovations that have greatly impacted the coupon market, one of which includes the employment of a new bar code that can capture 240 different pieces of information about a consumer in one small, printed square. A big advancement in database marketing, Liddle claims the new bar code will enable retailers to have easy-to-use, highly detailed information about their customers, so they can mail more customized, personalized special offers that would appeal to those customers.

Furthermore, Liddle reports that Valassis has fine-tuned its FSI strategy with a "formula" that divides the country into 100,000 zones, thereby allowing clients to target demographic groups by ZIP code and distribute different advertising inserts to different parts of the country. The bar codes also allow Valassis to track redemption patterns for each area.

Pretty amazing stuff, but not near as amazing as what Valassis plans to do in its immediate future. For example, sharpening its Internet focus.

"We see numerous opportunities to leverage our off-line media assets, like our broadly distributed free-standing inserts and plastic sample bags, for online opportunities," says Anderson. "We are already selling programs in these traditional media to dotcom companies like Petsmart.com, espn.com and many others.

"Additionally, we see ways to leverage our asset of strong customer contacts with consumer goods companies and retailers by offering them venues for advertising and promoting on the Web," Anderson concludes. "We're currently involved in two of these ventures: Save.com Internet couponing and Independent Delivery Services online grocery shopping."

As Valassis Communications sets new courses in the relatively uncharted waters of Internet couponing and online grocery shopping, how will this virtual trend affect the traditionally printed coupon?

The two technologies will coexist, if not complement, each other, Valassis executives claim, pointing to the long lasting strength of the FSI market. Even though e-commerce opportunities are growing, they believe the proof is in the hands of coupon-clipping consumers who will, via scissors, continue to contribute to Valassis' success each week, as part of their newspaper-reading ritual.