Commentary & Analysis
Customized Communications: Don’t Commoditize, Price Based on Value Delivered!
Many companies feel the need to improve their &
By Barb Pellow
Published: January 15, 2009
Many companies feel the need to improve their “competitiveness” in a downturn, and they tend to think that the best way to do so is to drop their prices. Print sales may drop in a recession, but dropping your prices will cause your contribution margin will drop even further, making your company less profitable and possibly resulting in a loss of profitability altogether. Dropping your prices means that you are giving up and taking the easy road, but you need to fight back! You must utilize the recession as a way to improve your long-term business results.
Savvy graphic communications service providers are exploring business strategies that add value for customers and improve their bottom line. They are focused on providing customized communications service offerings that increase return on marketing investment and long-term profitability for clients and their businesses. These providers will become even more successful as the economy improves because they have increased their competitiveness by adding cash to their balance sheets and have continued to invest in their businesses. They realize that there are new dynamics that will drive their business models and pricing strategies.
InfoTrends surveyed more than 160 print service providers and also conducted in-depth interviews with eight companies that have extensive experience in offering customized communications to understand how they were pricing products and services in the face of a challenging economy.
Changing Market Conditions
New Consumer Requirements
Today’s consumers and B2B buyers are bombarded with messages from a variety of sources, including television, cable, print, magazines, text, mobile, e-mail, Internet, call centers, and face-to-face conversations. A once-stationary marketing target is now shifting across channels. To make matters more complex, each individual buyer has unique behaviors and preferences. Before making purchasing decisions, these buyers are searching Web sites and have the opportunity to assess product and service offerings. Add an economic slowdown to this mix, and this means that marketing executives are challenged with attracting buyers with relevant messages while being the most efficient at breaking through the noise. Delivering the right message to the right prospective buyer over the right channels is the new mantra for today’s marketer.
New Demands from the Marketing Executive
For marketing executives at companies of all sizes,the pressure of managing marketing budgets has never been greater due to the combination of the economy and today's proliferation of different media. Marketers heading into 2009 are facing the most difficult business climate in decades, with a global economic crisis putting pressure on costs, access to capital, and buyer confidence. To address these challenges, marketers are tightening their programs and operations with an eye toward realizing efficiencies wherever possible. They are also under extraordinary pressure to deliver identifiable ROI (return on investment) for every dollar spent. They need to more efficiently and effectively segment their markets, attract new customers with continuity campaigns that cultivate engagement, support multiple channels of distribution with comprehensive materials aligned to the specific channel, identify cross-sell and up-sell opportunities, and maximize the lifetime value of the customer.
Technology is tearing down barriers to the adoption of variable data, Web-to-print, and multi-channel communications strategies. These applications were historically too costly, complex, and risky for marketing departments and graphic communication service providers. Digital color technology that can affordably deliver 1:1 printed messaging is now readily available. There are entry-level variable data and multi-channel marketing tools available from a myriad of vendors, including Mindfire, Printable, Pageflex, Objectif Lune, and XMPie. For a complete review and comparison of the leading software solutions, see InfoTrends’ documents entitled The Ultimate Guide to Web-to-Print and The Ultimate Guide to Multi-Channel Communications. The Ultimate Guide to Variable Data and The Ultimate Guide to TransPromo will become available in early 2009.
With today’s technologies, communicating a personalized message across multiple communication channels can be implemented cost-effectively. These solutions enable graphic communications service providers to gain a foothold in the more lucrative marketing supply-chain and transition to high-value marketing service providers (MSPs).
A Need for New Value Propositions from the Print Service Provider
An economic downturn presents opportunities for graphic communications service providers that have the right solutions portfolios. A downturn provides the opportunity to collaborate more closely with customers and actually reduce the cost to serve. Customers become more receptive to techniques that reduce the “supply chain” costs in mutually beneficial ways. Single suppliers that can cost-effectively offer multiple services will have greater appeal.
Printers that have transformed into MSPs can print sales collaterals that are customized with relevant messaging to enhance their value and market reach. MSPs can offer to deliver a portion of the communications electronically, reducing print and postage costs. They can track ROI and recommend the most cost-effective communications channels by customer segment. Because MSPs have multiple customers, they might be able to reduce the cost of list acquisition for clients by aggregating volume. The benefit to the client is improved return on marketing investment. The benefit to the MSP is expanded share of customer wallet and overall improved profitability.
New Pricing Methodology Requirements
Market discontinuities such as downturns provide the opportunity to “change the game” in pricing. Because MSPs are offering a different portfolio of services, there is an opportunity to change the structure and approach to pricing and be rewarded for value-add. The key is to ensure that the price benefit delivered is closely aligned with customer needs in an economic downturn. In this difficult economy, a services portfolio that provides customized communications will deliver better results, including a lower cost per qualified lead and expanded share of customer wallet. These services can also help clients to affordably communicate relevant messages via the right channel.
Key Study Findings
InfoTrends’ full report provides insights from 166 print and marketing service providers that are currently using digital print technology as well as eight in-depth interviews with organizations that have been offering customized communications for more than two years. It provides recommended best practices and pricing strategies for print service providers (PSPs) that currently offer or are considering offering value-added services such as variable data printing, Web-to-print, and multi-channel business and marketing communications. It also provides mean values for the underlying pricing metrics used for project-based fees.
Service Providers Are Expanding Customized Communications Capabilities
Survey respondents were pre-qualified as users of digital print technology. For companies using digital print in today’s market, variable data printing has become part of the solutions portfolio. Among our survey participants, 88% offered variable data printing, 62.7% offered Web-to-print e-business storefronts, 54% offered multi-channel communications services, 24.7% offered TransPromo, and only 6% offered none of these capabilities.
It’s More than Print… It’s an Integrated Services Offering
When survey respondents and in-depth interview participants were asked about the customized communications programs they delivered to clients, it became evident that these offerings were more than mail merges or putting ink and toner on paper.
The services they provide or partner with others to deliver include:
- Complete project management
- Analysis of existing business and problem identification
- Location of prospects and mail list acquisition
- Campaign strategy, copywriting, and messaging
- Print design (creative, photos, art, graphics, layout)
- Web design and hosting, including unique URLs
- Data cleansing
- Postage, sorting, and delivery to post office
- Personalized home pages supporting direct mail offers
- Real-time e-mail alerts
- Mobile messaging
- Call center management
- Detailed response metrics
- “Best prospects” lists with opt-in marketing
A Movement to Bundled Pricing for Complex Customized Communications Projects
As print service providers extend their portfolios, the market is seeing the emergence of what is frequently called two-part pricing. The price of the service is broken into a bundled project fee and variable usage fees. This is similar to an agency fee structure. There is a basic retainer for clients that includes an assumed level of customer service against a pre-defined statement of work, a project fee for new projects that fall outside that retainer agreement, and hourly costs or transaction costs based on usage of specific capabilities.
Pricing for Value
Project-based fees are focused on aligning price with value delivered. They stand in direct contrast to commodity-oriented price per printed piece models. Value-based project pricing sets selling prices based on the perceived value to the customer, rather than on the actual cost of the product, the market price, competitor’s prices, or the historical price. The key challenge for the print service provider is that the price is dependent upon an understanding of how customers measure value through a careful evaluation of customer operations. It means that the metrics associated with the value of a customized communication program need to be clearly defined, and the print service provider must gain agreement and willingness to pay based on value delivered. This type of strategic pricing is far more challenging than cost per piece because it must directly correlate to the customer’s business strategy.
The overarching message is that service providers are beginning to price for value. The delivery of customized communications is not a commodity to the client. It is a strategy for developing new leads, better serving existing customers, and expanding share of customer wallet. An economic downturn is NOT the time to cut prices, especially when print service providers are enhancing value. It is the time to re-engineer your pricing strategy to survive the downturn and thrive more quickly as the economy improves.
The complete study with detailed information on pricing models and specific case histories can be ordered through the WhatTheyThink.com Store here