Monday, March 3, 2014

6 Challenges Facing the Commercial Printing Industry

The two largest American printing companies recently presented similar lists of the major challenges they face -- and similar strategies for growing in the face of declining demand.

“The highly competitive market conditions and unused industry capacity will continue to put price pressure on both transactional work and contract renewals across all segments,” R.R. Donnelley stated in its 2013 annual report. Translation: Underused presses + shrinking demand = lower print prices.

It was basically same blues, different tune from Number 2 printer Quad/Graphics in the annual report it also released last week: “The industry has excess manufacturing capacity created by declines in industry volumes during the past recession which, in turn, has created continued downward pricing pressures.”

Both annual reports are more straightforward about the companies’ challenges than the accompanying, and more widely reported, press releases that announced their annual results. (Note to business journalists: If you’re just republishing press releases, you’re not really practicing journalism, are you?)

Besides overcapacity and declining prices, the two printing giants spelled out four other key challenges:  
  • Postal rates: Both printers believe the recent 6% increase in most postal rates will put a significant dent in the amount of mailing their customers do. Thus, expect less demand for printing,  even more overcapacity, and weaker prices.
  • Digital substitution: “Digital delivery of documents and data” are cutting into demand for print in certain categories, especially directories, financial documents, and books. That's leading to more overcapacity and lower prices.
  • Erosion of print-based marketing: “Marketers and publishers [are] allocating their marketing and advertising spend across the expanding selection of digital delivery options,” Quad said. That means shrinking magazines and fewer catalogs being mailed, resulting in less printing demand, more . . . you get the picture.
  • Customers’ use of print management firms, which, as Quad noted,“look to streamline processes and reduce the overall print spend of the Company’s clients.” 
Both companies are responding to the challenges via aggressive consolidation, with RRD buying Consolidated Graphics and Quad getting Vertis last year. And both are expanding beyond their U.S. base.

The two are acquiring not only competing printers but also non-print media providers, such as a translation service (by Donnelley) and a maker of point-of-purchase displays (by Quad).

RRD says the motive for such moves is “to provide a larger share of its customers’ communications needs.” In other words, customers may be printing less, but they still need to communicate, so the idea is to become a broad-based communication enabler, rather than solely a printer.

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Anonymous said...

Interesting, isn't it? When there is excess capacity in printing, people expect competition to drive down prices. When there is excess capacity in postal, people worry that prices will increase. Maybe someone can map out the proper way to look at all of this.

Anonymous said...

Very interesting indeed, but it always is when the Federal Government is concerned. There is no proper way to look at all this because the USPS doesn't operate in the real world like printers do.

Unknown said...

I LOVE myself some Mr. Tree… but Im not sure what the "new" news is here. As a matter of fact, this is quite "old" news in the commercial world.

We now focus our attention on how to overcome these challenges, and work with each other, and our integrated marketing friends to create new opportunities.

Perhaps from on top of Print Monopoly Mountain RRD hasn't experienced such "common" problems, but Quad happens to be a great example of a printolopy that is always innovating and usually setting a great example for others to follow.

I guess both companies needed to offer some information to their stockholders, and "duh" was too short for anything other than a tweet or text… making them also complicit in #2 ;)

Sean McKenna said...

'Problems create solutions'. If the market you serve is shrinking then it makes sense that you would look to expand the products/services you offer to your clients. Both RRD and Quad are doing this successfully using internal resources. As Deborah mentioned there are plenty of opportunities for other print industry members to generate new revenues by leveraging other businesses as 'specialist' partners.
Just a matter of looking outside your own walls.

Teresa said...

I think part of the problem is also all the large printing companies buying up all of the smaller printers and running them all. I am a proud owner of a small family owned and operated printing company that has been in business for over 50 years. Customer Service trumps all majority of the time ..that is what we have learned and how we will continue to run our small business to compete with the big companies.

TATevis Company said...

Since 1995, the CEO's of all public printing companies have used the same line in each quarterly and annual report. Now there are just two remaining and still, we have this mantra part of any announcement. Both still generate significant cash flows and rather than test new communication segments, they buy up tired iron companies and drop their volume into a better print platform. Meanwhile, VistaPrint keeps re-making itself and generating true value for its micro business customers and shareholders as well. RRD and Quad bet small, they need to bet large or become extinct.

Terry Tevis

Unknown said...

So, how do we fix the nature of the beast? How do we continue to map out business and careers in a "shrinking" market? Diversification can lead to WalMart or Amazon style money-making. Is that good? Some say yes. I say no.

Money cannot be the reason we do what we do. It must come full-circle to PEOPLE, not machines. Technology can make things simpler and faster, but in the end we have to set our smart phones down and talk to someone face-to-face.

Unknown said...

Without flexibility you are standing at the tideline, swim or drown. It's hard to be nimble when you own iron on the floor. More like a ball and chain than an opportunity to be a change agent. For printers they are the man with a hammer: everything needs to look like a nail. (metaphors end here)
Sure there is still print business, but the value is less than it was because it no longer is the best solution for dissemination of information; it is simply a form of communication. Smoke signals, talking drums and carrier pigeons had their day, and so did print. It still serves a purpose, but is vastly reduced by comparison.
Just look at the packaging business, the package is the ad slick, instruction manual and shelf talker all-in-one solution. For retailers, it is a ‘killer app’. You need fewer subject matter experts walking the aisles (most of them look at the box anyway).Great for designers and layout artists. Study SGK and Matthews Brand Solutions, they don’t own presses.
If you are a printer, printing is what you are stuck with and must compete for. And there are many entities doing that. If you are a marketing firm, you use multiple forms of communication and business intelligence; can printers effectively balance the discussion of whether a client should use a Facebook page or direct mail? Not if they need to feed the press! And there you have the ‘iron’ handcuffs.
Printers need to re-adjust their perception of the market and what it can bring. Right now that means to grow you must take from another printer because print is not a growth industry. Eventually the market will adjust and the excess capacity issue will right itself. But there will be fewer providers and more specialization.

Unknown said...

I know that digital communication is growing in popularity and importance, but I don't think print is dead yet. We still use commercial printing to help us advertise, and it gets us a healthy chunk of our business. There is something about the printed word that I think is timeless and that people will always respond to.

Raphael Coccia said...

One of the biggest media for the onslaught on the print industry has been the rise of the smartphone, which in conjunction with Google, is really spelling a death to the global print industry. Today when consumers are in need of some kind of information, they will simply open a browser on their smartphones and Google the information. I hope marketer change there ways and go back to print

Anonymous said...

Very interesting post. There is a solution to every problem we just need to find out and implement the best.

Rick@Propago said...

I agree with Matthew. Print isn't dead, printers just need to evolve and pivot a bit. The days of just offering your clients a simple Web to Print storefront to handle only printed materials are gone. Commercial printers need to be able to provider marketers a solution that can serve up any physical products including print, promo and apparel, as well as a solution that can help distribute the brands digitally. Propago cut its teeth 15 years ago with Web to Print but evolved into a platform that can support any type of product with a brand pasted on it. We like to think of it as a solution to handle the most complex marketing portals with the back end resources to ensure printers can handle the shift in order patterns.