By Ed Crowley, Photizo Group August 24, 2006 -- How does this sound for a great business proposition? "I'm going to teach you to pay me less while I am adding more value to the products and services I deliver to you. And by the way, my competitors are going to teach you how to pay them less, too. So as an industry, we want you to give us less revenue!" In essence, the industry's main selling proposition is that we will give you more for less until our business model is completely broken! Does this sound familiar? Would you want to invest in this industry? Believe it or not, this is the basic sales proposition the imaging industry has been using for several years. Whether it is device consolidation (let me show you how to replace that copier and printer with a single multifunction device), or managed print services (let me show you how to reduce the amount you spend on printing and copying), our basic message has been "we are an expense, and you should try to reduce this expense." Almost everyone in the industry is selling based on this cost reduction proposition. Now, I go back to my earlier question. Would you want to invest in an industry that is, ultimately, trying to shrink its revenue (the ultimate impact of everyone trying to sell the customer less)? Would you want to invest in an industry that is trying to shrink its revenue? The impact of this has been a continual downward trend in prices and a reduction in the operating income for the industry. And it is just beginning. If the industry continues on its current course and speed of selling "cost reduction", we anticipate that operating income will fall by 1.5 to 2 percent per year until the industry undergoes significant consolidation, and there are only four to five major firms (versus fourteen today) left standing. This trend in declining operating incomes and the outlook for the industry are the most significant concerns my Wall Street clients have. The bottom line is they are asking should they invest in the industry? Is there any way that this could be a good investment, other than shorting stock? My answer is yes. And I answer yes because there is another selling proposition that holds great promise for the industry but is seldom used. The key to this alternate sales proposition lies in the fact that there are two ways to improve a customer's bottom line. The first is by reducing cost (the current sales proposition for the industry.) The second is by increasing revenue growth. For too long, imaging companies have just focused on their role as "cost" to the customer, not on their potential to drive revenue growth and thereby adding true value to the customer. Driving Revenue How can an imaging firm help drive growth? The answer is simple. By helping customers improve the effectiveness of their communications to attract new customers, keep existing customers, and compelling existing customers to buy more products or services. There are a host of new imaging technologies (both hardware and software) that can help customers improve their customer communications. For too long, imaging companies have focused on their role as "cost" rather than their potential to drive revenue growth An example is one-on-one mailing campaigns that use variable data printing and consumer purchase history to target a specific customer with a compelling offering for a highly desired product. The goal may be to keep the customer shopping at a particular store or to bring the customer back from a competitor's store. In either case, the imaging company can help bring more revenue to the customer. Another example would be a pharmacy that prints coupons on the back of a complex laser printed prescription that is printed at the time the prescription is filled. This coupon might direct the customer to complementary product that will drive incremental sales into the store. Another example is to improve the level of service. For example, in healthcare organizations, doing a better job of providing hard copy support to the "integrated" patient record (everything from printing picture id wrist bands to healthcare provider information) has great potential to reduce medical errors, avoid litigation and improve patient satisfaction. There are applications like this in essentially every industry segment. What's Your Approach? While some firms have taken this "value add" approach in the past, most have fallen into the easier "lower your cost" sales proposition. (Even though this may still be labeled as a vertical solution, in most cases this is just another form of selling a cost reduction.) There are many reasons for this, but I think the most basic reason is that it is easier to sell an "I can reduce your costs faster than my competitor" story than to invest in the marketing, sales and industry knowledge required to really understand the customer's business and create incremental value. And for an industry that loves technology and is historically led by technologists, it is simply more comfortable to just focus on reducing product cost (and prices), while adding more product features, than on creating additional value through true business process consulting, software and industry knowledge. I have spent most of my career in this industry and have watched it evolve, both as a consultant and as a manager at key imaging vendors. So I must raise my hand and say that I have been part of the problem. However, now that I am in a position to advise the industry from a more objective position, I feel compelled to issue the wake up call. We have developed great technology and capabilities. Let's find a way to sell these capabilities as true solutions that grow the customer's revenue and thus create real, tangible value the customer is willing to pay for. If we do this, then, we will see the industry actually grow and operating income improve. In my next column, I will look at highlights from the industry's second quarter results. If you have any feedback on this column, please feel free to contact me at [email protected] Ed can be reached at [email protected]