Remedy Ailing Profits

With suppliers and distributors increasingly taking on functions once exclusive of each other, are the terms used to describe their roles still accurate? As a company acquires production capabilities, is there a point at which it ceases to be an independent distributorship? What about manufacturers with direct selling divisions? These are hotly debated issues, and will remain so as the industry evolves.

While the language describing emerging business models may be undecided, there’s strong agreement across the independent supply channel concerning the harsh realities of maintaining profitability. Add to this the fact that unique new challenges keep emerging, driven by technology and multimedia marketing trends. George Ryan, president of the Printing Association of Florida, Orlando, Fla., and Paul V. Reilly, a partner at Denver-based Compass Capital Partners and former CEO with Cenveo for 13 years, discussed some factors impacting the marketplace and their effect on serving needs for printed business products.

Effective Pain Relievers

End-users are dealing with multiple-marketing platforms where print is only one facet, observed Ryan, and they need to understand how everything relates in getting to market. Entrenched in what they’ve done in the past, many are reaching out for assistance when encountering difficulties with new areas, particularly direct mail and technology-enabled initiatives. “Customers are gravitating to those who have expertise in these areas,” he said. “If a sales person came in to my office right now, he or she better understand what I’m selling, how I’m getting to market, what I use print for and how that print helps me increase penetration and exposure.”

To find out what is keeping customers awake at night, Ryan suggested attending some meetings of business organizations they belong to. “Listening to discussions and doing a little research can help you get in the door,” he said. Ryan also recommended Frank Romano’s Marketing 4 Digital tool (available at www.gain.net). The Rochester Institute of Technology’s professor emeritus has done the homework on 24 market segments—including health-care, insurance and real estate—explaining particular issues impacting each one, as well as print applications and buying practices. Ryan noted that the materials go beyond digital printing to provide a sound strategy for selling into the markets.

Where It’s At

Distributors once providing forms and labels are now being asked for variably imaged marketing pieces, RFID solutions and a host of other value-added products. One product Reilly sees generating lots of excitement is customized messaging. “Direct mail, promotions and books customized on today’s digital printing machines are the future of our industry,” he observed. “Whatever distributors can do to get into this market space, they should do.” A related product space is Web-enabled ordering with an automated workflow. Reilly predicted both services will continue to grow by at least 20 percent per year.

“The technology is not replacing what is now produced offset or flexo, but the technology is creating products and markets for graphic arts firms that didn’t exist within our industry a year ago. Examples include printing of photos, customized children’s books and personalized real estate portfolios,” he commented.

Variable data printing is another area where Reilly sees growth opportunity, particularly for smaller companies with knowledge of the marketing aspects, that can partner with ad agencies and big consumer companies.

“Distributors well positioned to expand product offerings and services have continued to successfully deliver more to customers. This trend is a natural evolution of the entrepreneurial spirit,” said Reilly. However, both gentlemen believe specializing in a few product categories will lead to greater success than feeding into the marketplace’s one-stop-shop mentality.

Ryan observed that when distributors specialize in a few select product categories, the value-added proposition becomes easier. “The more knowledge and expertise distributors have in particular areas, the better able they are to suggest workarounds and other alternatives when problems arise,” he said.

Reilly recommended either becoming excellent at one product or service and delivering it to whomever needs it while progressing up the product learning curve, or becoming a customer/vertical market-excellent firm, delivering a broad product and service offering to that sector, while progressing up the particular customer/vertical learning curve.

“Large distributorships—due to their breadth of locations, products and services—pursue the customer/vertical-excellent strategy,” said Reilly. “Smaller companies tend to be successful pursuing product-excellent strategies, although they can pursue customer/vertical market-oriented strategies in geographically remote markets, and with small accounts not of interest to larger firms.” He added that smaller firms can even pursue a product-excellent strategy within a vertical niche marketing plan.

Smaller firms also have flexible decision-making very close to the customer, and should capitalize on this. Reilly pointed out that few larger firms are nimble—a situation that has only become worse since Sarbanes Oxley (the 2002 law which protects investors by improving the reliability of corporate disclosures).

Of course, changes and challenges extend beyond the actual products. Ryan commented on how the Internet has streamlined the request for proposal process, in some ways making it harder for distributors to get qualified and invited to bid on jobs.

Reilly noted the slow down of the industry consolidation phase, “due to the reality of integration and sustaining the one-plus-one-is-greater-than-two proposition,” but added that further consolidation “is inevitable in such a fragmented and mature market.”

Said Reilly, “Research across many industries has determined that strategic rollups only succeed in the long run when the combination of multiple companies brings a benefit to the customers. Today, printing (and distributor) industry consolidation has slowed down because of the presumed label of failure. Yes, there have been several well-publicized failures, [but] several are succeeding, and will continue to do so as they refine their business model[s].”

Newer business models will continue to reflect the fact that sales savvy is simply not enough—relieving customers’ pains requires much more. “Consultative selling is where it is going, and that is where distributors have to go,” said Ryan. “It will be a challenge as we morph into this, but it will be a lot more fun being in the industry.”

For Reilly, the key to success is working on understanding end-users’ businesses and identifying solutions to help them grow. “If these solutions allow the sales pro’s firm to make adequate profits as well, then we have a win/win situation,” he said.