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Printing Industy Blog

Price Wars Kill

By Adam Dewitz
Published: November 15, 2009

Kevin Keane, President and CEO of International Association of Printing House Craftsmen sent in a link to an article in the current edition of New Yorker magazine on price wars.

Does this sound familiar:

It’s easy to see how price wars get started. In industries where a lot of competitors are selling the same product—mangoes, gasoline, DVD players—price is the easiest way to distinguish yourself. The hope is that if you cut prices enough you can increase your market share, and even your profits. But this works only if your competitors won’t, or can’t, follow suit. More likely, they’ll cut prices, too, and you’ll end up selling the same share of mangoes, only at a lower price. From a game-theory perspective, price wars are usually negative-sum games: everyone loses. A recent study found that, if competitors do match price cuts, industry profits can get cut almost in half.


Keane writes, “I hope that all printing company owners, Veep's of Sales, Sales Diectors, sale reps and others who make their living from print, might ponder the simple point: Price Wars kill!”

Read the whole article.

 

Discussion

By Larry Bauer on Nov 16, 2009

Of course, there is an assumption that a company is willing to walk away from, say, its best client. The simple reality is that most can't afford to do that either, and will make the price concession. After 30 years of consulting with printing companies of all sizes, the only way I know to mimimize price pressure is to provide services that have a tendency to make you "sicky." If you're not providing services that are difficult to walk away from, customers will, sooner of later, walk away over price. You have to be able to sell the "total cost of ownership" concept to executives who have more than a "per m" mentality. Price wars may kill, but I think it's a little more complex than just saying, "no."

 

By Larry Bauer on Nov 16, 2009

Sorry for the typo. I meant "sticky." Though failure to provide "sitcky" services might also make your company "sicky."

 

By Thomas Parbs on Nov 16, 2009

I agree completely that selling on price is a good way to erode any profit and margins quickly- and eliminate the total ability to regain those levels ever again. Dr. Joe made a great point to the effect of focusing on price and not the value of the service provided can lead to a worse place than originally started. In fact, just adjusting a price on the "excel spreadsheet" is a great way to perpetuate a company's problems- not to mention when the competitors follow suit.

Great article, but if the owner knows this and the buyers (or other team members) do not- then it really is a moot point. Some buyers look for the cheapest price- not realizing that getting the cheaper price will probably cost more to use ("cost of ownership" per say). Which defeats the purpose of saving money in the first place (why save money on price just to spend more money in production, labor, waste/spoilage, etc.).

 

By Michael J on Nov 16, 2009

It's true that price wars kill. But sometimes what they kill is the competition. While it may sound good to "not sell on price" the reality is that for buyers in an environment of free information and open competition price competition is inevitable.

I think there are only a couple of ways out.

First the cost of production has to get lower and lower, without comprising good enough quality. It's not easy. But staying in business is not an easy business. That means a constant evaluation of the work process and always being on the look out for small improvements.

The other possibility is to realize that custom manufacturers - like printers - are selling non delivery insurance. Every print buyer is concerned about late delivery, not up to standard quality or un expected charges or other complications. To the extent that a printer's demonstrated practice can assuage that fear, it 's a value that the customer will pay for.

I don't see any other realistic strategy.

 

By Greg Imhoff on Nov 18, 2009

In our world today erosion of price is erosion of value so; one question might be how does a printer add value?

Rather than quoting price per M that is a cost and not a sell equation, printers might ask the end user what marketing objectives are sought from this job?

When looked at from the clients’ perspective then a printer may add value perhaps once again becoming a bit more “sticky” and or “tip their market” into favor.

Remember when printers sold quality first with pride?

 

By Michael J on Nov 18, 2009

Greg,
I think that just won't work in today's environment. No doubt a printer should understand a client's objectives. But for most clients, most of the time the objective is risk free production at the lowest price.

I think a better approach is for a printer to understand his/her all in costs. Not only the cost of production, but the cost of customer acquistion and the life time value of a customer. I'm pretty sure that lulu, mimeo, staples and vista look at through this lens.

The problem is that it can be really difficult to get those numbers, especially since they are always on the move. But that is the challenge.

Once you have the numbers it's relatively straightforward. Lower customer acquisition costs for high lifetime value customers and control the production, sales and delivery processes until they are predictable.

Once all these elements are measured, they can be measured. Lower prices can be offered during low utilization times and higher prices can be earned for the Rush job that needs a schedule change.

I spent 30 years in the business selling quality color reproductions and the ability to translate a designers concept or more likely a mechanical into the language of stripping, traps, spreads and imposition.

But those days are mostly gone. The technology can now do what what I was paid to do. In retrospect I'm glad I retired when I did.

 

By Michael J on Nov 19, 2009

This morning's Seth Godin post is about lifetime customer value. Of course, he makes the point much more lcearly than I tried to.

" Few businesses understand (really understand) just how much a customer is worth." http://ilnk.me/9e0

 

By Harvey on Nov 19, 2009

The constant urge to sell by price has made Vista Print a giant for commoditized products. Printers usually have 5-6 products that they can offer and the client can source them all over the place. What the print provider must attempt to become is a marketing services provider (read creative strategist/content provider/digital asset management/fulfillment entity). Without this aspect, they will be giving their products away, just like creative firms working for spec.
Clients are demanding more accountability for their projects, not price. The price war is a by-product of the failure of the current product mix to generate adequate response rates. And, the internet is just a cheaper version of broadcast media. It too, has failed to deliver (in most cases) cost-efficient response rates. And, if you don't think that 90% of print is for marketing, then you must be in book publishing and praying that you can sell your company before everyone goes Kindle.

 

By Michael J on Nov 19, 2009

Harvey,

I beg to disagree with a couple of points:

1.the print provider must attempt to become is a marketing services provider (read creative strategist/content provider/digital asset management/fulfillment entity).

The competition in the business of "creative strategist, content provider " is more ferocious than in print. Experienced well regarded and connected pros are having a hard time. I can't see why one would want to enter that arena.

I do agree with the "management/fulfillment entity." That's a natural outgrowth of what printers do as a part of their normal activity. The better we get at it, the more plausible that we'll have extra capacity that could be sold.

Consider that Amazon is now in the Computer Cloud business because they needed to build computers to streamline their core business.

The other path is to invent new uses for Print. We are experts at Print. It's easy for us. Hard for everyone else. Easy(4Me) and Hard(4U) is the best road to sustainable margins.

 

By Adam R on Nov 19, 2009

I have heard the Price Wars complaint from printers ever since I began my university degree in graphic communications management back in mid 90s - and if it did not occur prior to that within the industry than one can easily attribute it to the disruptive force of digital technology with the help of Windows and the Internet which happened to start at about that time in the public domain. The two, then, most widely provided solutions by experts and printers were "sell added value" and "become a marketing service provider". If since then a printer has not added value, he's no longer in business and really "selling added value" is a concept as old as humans themselves (think about the generally perceived oldest profession ;) the concept of added value must have been there or we would not have survived as a species) . If all printers suddenly became marketing service providers they would be: one, cutting a lot of their direct income because a lot of printing comes from Marketing & Advertising Service Providers; and two, they would increase the number of marketing service providers on the market and thereby create further Price Wars.

I'm sure many monks back in the early days of Gutenberg tried the "let me sell added value" approach and used a marketing gimmick such as "handwritten is better than pressed". Lets all be very happy that we still have Price Wars because there will come a day when that will disappear together with print.

A smart printer today is one who goes out and purchases an iphone and a kindle and figures out how to sell his customers the idea of printing dots on a mobile screen. After all, paper has evolved into a mobile digital screen and the Gutenberg press into a digital server. And the printing industry, if it would come together and market itself right, could be perceived as the top expert in serving dots on screens everywhere, afterall, that's what we do now.

 

By Michael J on Nov 20, 2009

Adam,

I was with you until the last paragraph. Printers selling dots on iphones? That means going into competition with Google. My rule of thumb is stay away from any business that competes with Google unless you can deliver massive scale and live on very small transaction models.

I thought where you might be going was to see how print works in the communication ecology of the web. A good example is Niiu, a new publishing paradigm, that went live in Berlin on Monday.

Based on Oce tech, users can choose content from over 500 social web portals plus a whole buch of newspapers and get it delivered in a 24 page tabloid the next morning for a subscrition price about about $1.50 an issue.

There must be hundreds of QR and 2d applications that are just waiting to be invented.

We are printers. Printers print stuff. It's a good thing to be. No one else is very good at it.

 

By Adam R on Nov 23, 2009

Michael,
as great as the Niiu idea sounds, there's no way that I want to wait until tomorrow to read what I can read on my mobile now and pay for it - even though I really like the feel of paper, I like newspapers a lot (I even publish one myself).

Yes, Google is huge. Yes, it delivers millions of pages to millions of people.
But Google does not create content it just sorts it and makes it searchable and in the process adds advertising to the pages. Content needs to be created. A mobile web site needs to be created. A mobile magazine page needs to be created in order for google to show it. Printers are the first to see a magazine page. They should be the first to say... Listen Mr Client. We're going to make this page look good on paper,look good on screen and look great on mobile because that's what we do - we have all the files we need, we know how to reformat the images, we know how to adjust RGB values, we know how compression works, we know how workflow works. Printers should take back control of the 'dot' - away from the web developer. Hire a web developer in house. That's not just added value, that's evolving as a printer.

 

By Michael J on Nov 23, 2009

Adam,
Fair enough about waiting the next day. The good news is that if Niiu works that means there is a market. If it doesn't, it means not yet. For them success is 5000 subscribers in three months.

As for the PDF piece, I have to disagree. The reality is that PDF is an interim product. The move is to collect data in XML. From XML delivery in any medium is straight forward.

Very, very few printers have the experience or expertise to honestly have the conversation you suggest with Mr Client. The fact of the matter is that for most markets that ship has sailed.

On the other hand, if printers followed the advice offered in an interview in Columiba Journalism Review, they have the advantage.

One step:
"think of a #newspaper as an interface to online information, I believe that the number of readers could grow." CJR http://ilnk.me/ab0

 

By Zack on Dec 03, 2009

While VistaPrint is offering some of the lowest prices anywhere, I don't really see a lot of customers asking us to price match with VP. A surprising number of people have used VP and decided their quality and service weren't really that great.

What worries me more for those of us selling print - is the unregulated dispersion of reseller websites by trade printers. This is turning all of their customers into clones that will soon have nothing to separate themselves except for price - which will then probably drive everyones profits down. I think these reseller sites should only be offered to qualified customers that have proven their worth. But I guess the trade printers are more concerned with the immediate dollar than the long term...

 

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