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Beyond the Traditional:
Is the Industry Facing a Shift in Business Channels?

There is a question on everyone's minds these days, and it's a question that is gingerly discussed but deeply considered. That is how the business channels are changing—or need to change—in order for manufacturers to stay profitable.

The forms manufacturing industry is undergoing a radical change, not just transitioning to shorter runs and an increased percentage of digitally printed products, but more fundamentally, as customers re-evaluate how they handle all of their documents, not just forms, including corporate identity, marketing collateral, and publications. There is a shift away from traditional inventoried manufacturing to just-in-time production, centralized document management, and customized and personalized communications.

As traditional forms volumes shrink, this shift is accelerating. Forms manufacturers are pushing into the world of marketing collateral, direct mail, and other commercial print, where this transition has been underway for more than a decade. In this market, end users, especially large and mid-sized corporations, are moving away from traditional "quote and produce" models to program applications.

Applications like managed inventory, 1:1 print personalization, and enterprise-wide, tiered-access Web-to-print archiving, customization, and ordering require consultative and development services and long-term, program pricing that do not fit into the traditional sales model. Moreover, as end users make this transition, they are rolling all of their print needs under the same umbrella, whether commercial, forms, large-format, or increasingly, packaging. No market is immune.

The ripple effects in the forms manufacturing industry have been profound. Although manufacturers have historically been ahead of commercial printers in some areas, such as databases, fulfillment, and print-on-demand, this is not the case with these newer applications. As much as manufacturers might prefer to work around these market shifts, they can't. They must deal with the challenges of new product mix, capital investment, and employee skill sets, as well as the more profound challenges of business strategy, pricing models, and—perhaps most challenging of all—distribution models.

Ready for the Sea Change?

When it comes to selling these new products and services, there are no easy solutions. The traditional relationship between distributors and end users is based on price, service, and account management. But as we transition into this new environment, these criteria are becoming less relevant. Issues such as return-on-investment, brand control, and inventory management are the new tools by which the value of print programs are being measured.

The concept of measuring print by value rather than by price is a fundamental shift that is not readily embraced by the traditional distribution channel. It is as different from traditional selling as apples are from, say, elephants, and it takes a long-term commitment on the part of both manufacturers and distributors to implement. At the same time, manufacturers must transition to these applications if they want to keep their doors open. The result is competing and incompatible agendas.

Any Room for the Status Quo?

This isn't to say that no products can be sold using traditional sales models. Certainly, even as printed documents shift to digital production, there will still be straight "quote and print" work. But as run lengths continue to shrink, these jobs are becoming less profitable, both for manufacturers and distributors.

This is because it costs the same to quote, and process, and invoice a short-run job as it does a long-run job. Using traditional pricing models, the shorter the runs get, the less money manufacturers make per job. As The PERF Print Report discussed last quarter, the costs for our panel to process a basic unit-set form exceeded $500 not including production costs, and the costs to produce other types of jobs won't be appreciably different. Unless manufacturers have a workflow optimized for short runs (such as the 100% automated workflow established by VistaPrint.com), the more short-run jobs they do, the less money they make.

Although some manufacturers in high-volume environments will be profitable, short-run static work is not a sustainable model for the industry at large. Nor is there room for the value proposition brought by the traditional distributor-manufacturer relationship. Particularly as end users increasingly shop for static print production the way they shop for books and electronics—online. They can search for the cheapest price and have the job printed and delivered before the distributor can get back a quote.

This is also why the whole issue of distributors bringing digital production in-house isn't necessarily the threat to long-term revenues that many manufacturers fear. If static short-run digital print production isn't profitable for manufacturers, it isn't going to be profitable for distributors, either. And if distributors aren't willing to sell program applications for manufacturers, they aren't going to sell them for their own in-house production.

Where to Go From Here

Needless to say, manufacturers are in a difficult situation. There is widespread agreement that, for traditional forms applications, the traditional distributor relationship is invaluable. At the same time, manufacturers' business survival depends on making a switch to new applications—many of which are outside the traditional forms industry—quickly. Decisions that distributors make with regards to embracing these sales models can make or break a manufacturer's profitability, or even its ability to stay in business.

There are several models being proposed for dealing with this challenge. None of these solutions, in themselves, are new, but here is a distilled version of some of the best practices offered by some of the most forward-thinking minds in the industry.

1. No-cost training for distributors. Distributors can't sell what they don't understand. If they are thinking too narrowly about the new range of products and services manufacturers are delivering, manufacturers can sit back and wait for the lightbulbs to go off or they can begin an aggressive training campaign.

The phrase manufacturers often hear is helping distributors "develop an ad agency mentality." Distributors need to learn to think more like marketing experts than salesmen, learning the end users' needs, their challenges, and developing print programs that will address those needs. This isn't something that can be done in an afternoon seminar. An afternoon seminar may get the wheels turning, but this is a training effort that takes time.

The broader challenge is that it requires understanding, not just the customer, but the customer's customer—the end user. So manufacturers and distributors have to be prepared for the fact that, even if distributors get it, their customers may not. Many customers may not know anything about their customers, which is critical both to the ability to sell these applications and to the ability to implement them successfully, so the sales process includes multi-tiered training.

For this reason, the manufacturer's role goes beyond distributor training. It requires the development of sales and marketing materials for distributors to use to sell these products. This means producing case studies, white papers, sample programs, sales collateral, and educational Web site copy, among other materials.

Other strategies? One manufacturer has undertaken an aggressive training schedule in which executives are on the road at airport conference rooms twice per week, holding training seminars around the country, discussing products, applications, and markets. Last year alone, this manufacturer held seminars specific to its products for more than 3,000 people. This year, its schedule is up 20%. Another manufacturer is placing permanent staff in key markets, not to sell direct, but to develop long-term relationships with local distributors. These reps do training, development, and even go on sales calls with customers.

2. Charging for distributor training. One of the challenges, of course, is that just because you train your distributors doesn't mean they'll sell your products. Distributors are facing price pressure, too. They could just as easily use your training to sell someone else's products.

For some manufacturers, this is simply the risk they have to take. For others, it is an incentive to begin adding price tags to their training. One manufacturer, for example, recent introduced a program in which it will train its distributors in the marketing and sales of new applications like Web-to-print and 1:1 print marketing for a nominal fee and a $100,000-per-year commitment in future sales. It already has 30 distributors signed up for the program, and with a $100,000 yearly commitment each, that's an extra $3 million per year.

3. Finding new distributors. If many of your current distributors are resistant to learning new sales strategies, another approach is to recruit distributors who aren't. These distributors tend to be younger, more technology-savvy, have marketing backgrounds, and run their businesses more like agencies than traditional sales operations.

Some strategies for finding them? Some manufacturers are using the broad net approach, trying everything from buying mailing lists, Internet searches, and DMIA TradeMarts, to utilizing business locators like Hoover's and ripping Yellow Pages from local telephone books when doing sales calls in new markets. Some who are looking to penetrate the commercial printing market are even going after more marketing-savvy print brokers.

Marketing associations are also excellent resources. Not only will you pick up new techniques for product marketing, but you are likely to find like-minded and proactive resellers there, as well.

Another approach is to do an analysis of your existing customer base. Look to see which customers are selling the types of products you are looking to promote or who are selling to the kinds of customers most likely to purchase these products. Who's selling to the big national accounts like FedEx? American Express? Other Fortune 1000 companies? Those are the customers you want to target, because they have the customers most likely to embrace these strategies (if they haven't already). Then do a select training initiative for them.

4. Find new reseller channels. Traditional distributors aren't the only reseller channel to explore, and increasingly, manufacturers are looking wider. Who else might be a reseller of your products? Inplants? Commercial printers? Associations? OEMs of digital printing equipment? Quick printers? In-store copy shops like those in large office supply stores? These are all legitimate resellers, too.

One of the channels regularly mentioned by industry leaders is the commercial printing channel. Commercial printers have become increasingly "one-stop shops," but this also means that they can lack specialization. Eight-color web printing or the ability to do laminates, perfing, and die-cutting for membership cards are services that many forms manufacturers can do more cost-effectively than commercial printers, so it makes sense to develop partnerships.

For manufacturers used to the traditional distributor model, going in these directions can be a stretch, but as your product mix grows, someone has to sell the applications that are going to keep them in business. As one manufacturer says bluntly, "Will I sell direct? No. I've always used the traditional distributor model, but I will make money at digital printing. The typical DMIA distributor will be one of the channels we use, but we will be using other channels, too."

In other words: I need to stay in business. If I can't do that by using distributors exclusively, what would you have me to do?

Remember, as your product mix expands, particularly through the addition of commercial print, you will need access to new markets, many of which are not being touched by traditional distributors. In order to reach these markets, manufacturers must start looking at complementary channels.

5. Go direct. Selling direct is a taboo subject in this industry, but increasingly, this is a discussion that needs to take place. If distributors are infringing upon manufacturers' turf by bringing print production—particularly short-run digital—in-house, the ability of manufacturers to do direct sales for products distributors don't want or are not yet able to sell effectively is simply the other side of the coin.

Although there is fear that, if manufacturers irritate their distributors by adding direct sales, those distributors will refuse to sell any of their products; the fact is, many of manufacturers have gone direct already, even if they aren't publicizing it. According to Re-examining Roles and Relationships, a white paper published by the DMIA in 2002, 61% of the manufacturers surveyed at the time were doing some kind of direct sales. That number certainly has grown.

Selling direct can seem very intimidating, to especially smaller manufacturers, since hiring a sales team is the most expensive way to implement direct sales. But it isn't the only way. Manufacturers can explore direct selling through vendor programs or setting up a separately branded online store. Direct sales has many forms, some more obvious than others.

Whatever the choice, manufacturers risk alienating their primary sales force, so how to avoid disaster? First, distributors must recognize that their own channel has broken traditional taboos by adding in-house production. If manufacturers return the favor by adding direct sales, there really isn't much distributors can say about it. Another option is for manufacturers to segment the business, pigeon-holing direct sales into only the areas that distributors don't want to go. For example, a manufacturer who adds 1:1 print personalization might offer the ability to market and sell these applications to distributors first. If there aren't sufficient takers, it might consider adding a direct sales force only for these applications. Thus, its sales force is not competing directly with distributors.

Although any type of direct sales can make distributors nervous, it's important to remember that if manufacturers are going to survive, they must go in these directions. Otherwise, they face the very real risk of going out of business. While it's never comfortable when business models change, the option is losing even more manufacturers. In the long run, that's not good for anybody.

6. Use the Internet. You'd have to have your head in the sand to be unaware of the growing move toward print procurement over the Internet, but this is more than a niche movement. This is part of the sea change in the way end users are thinking about print.

In addition to basic online ordering, print procurement is moving online—period. This is occurring as print procurement is also moving from being an isolated function to being part of a larger document management strategy. Thus, what used to be restricted to ordering business cards and stationery online has become a larger movement to store, organize, and manage all types of print to reduce redundancies, eliminate inventory, reduce costs, and manage the brand.

This move is not restricted to short-run, digitally printed documents. Software and hardware manufacturers are adding functionality to their Web-to-print systems so that they can manage everything from forms to database-driven 1:1 print personalization to large-format output. Granted, it might be a long time before anyone sees four-part poly packets with transfer labels as Web forms, but re-orders can be taken over the Internet, and simpler types of forms have already migrated to the Web, if not gone entirely electronic.

There is also increasing pressure to integrate digital and offset workflows so that Web interfaces can manage all types of jobs, regardless of their source.

Although many forms manufacturers are just beginning to explore these interfaces, on the commercial print side, 26% of commercial printers already offer some type of Web-to-print system, according to "Web-to-Print: 2007," a special report released by The Industry Measure (January, 2007). While most forms manufacturers think of these systems as being used primarily for static documents, only 9% of commercial printers operate a Web-to-print system for simple online ordering of static documents, while nearly twice as many—15%—offer one for customizable and personalizable documents. Eight percent offer one for creation and distribution of print advertising. Growth is clearly on the side of more complex, program applications.

But this doesn't mean that printers (and forms manufacturers) aren't taking advantage of the Internet to offer basic online stores. End users are going to use the Internet to purchase printing from someone, and for plants set up to process high volumes of short runs jobs, it may as well be from them. Many manufacturers are rebranding these sites under new names to divorce them from their forms manufacturing operations, even though the same equipment is used to print them.

Not all Web-to-print sites (or online stores) are set up for direct sales to end users, however. Manufacturers are also encouraging their distributors to sell and maintain ongoing revenues from these applications. Once the distributor sets up the account, the customer goes to the distributor's site, clicks on his account, and is transferred to the printer's site, where the account is managed and products are ordered. To the customer, the shift is transparent—the portal that looks like he is still at the distributor website—but the distributor gets credit for the sale.

Watch Your Competition

As forms manufacturers move into these new applications, some of them will involve traditional forms, but in order to expand their volumes significantly, manufacturers need to move into commercial print. As they do, it's imperative that they do it with a well thought-out plan.

There are tremendous changes being wrought in the commercial printing industry—just as there are in the forms industry—but in many ways, commercial printers have a head start. Although it may appear to many manufacturers that many, if not most, commercial printers are still focused on long-run offset, this is a misreading of the industry.

According to The Industry Measure, at least 20% of commercial printers own some type of four-color digital production press, a figure that triples when black-and-white devices are included. Forty-seven percent have done some kind of database-driven job in the last 12 months, and of these, 44% have done the "archetypical" four-color, variable-image, variable-text job. This is not an industry mired in offset work.

The number of commercial printers that have shut their doors in recent years is stunning. Those who have survived have adopted new business models, new workflows, and new sales approaches. These are not your traditional offset printers. Are there traditional printers focused on long runs and old mindsets? Absolutely. Are they representative of the industry as a whole? Not anymore.

One of the reasons many forms manufacturers are misreading the industry is that they are operating in what would be considered commercial printers' secondary and tertiary markets. But if they were to move into commercial printers' primary markets—marketing minded businesses and corporation that drive the industry's volumes—they will find a different profile.

Successful digital printing selling organizations have long since ceased to be part of the offset part of the parent organization. They are either separate companies—start-ups run affiliated with traditional print operations or run by entrepreneurs—or they are separate, independently operated divisions of those companies. Many of which are being owned or run by marketing executives, business development executives, or entrepreneurs who have spent the last decade refining their digital printing strategies.

Another reason they are hard to see is because they are no longer called "printers." Many have names punctuated with "Cross Media" or "Marketing Services," and most would not consider themselves to be printers, even if the bulk of their volumes come from print. They are marketing services providers and program developers who happen to print on the back end. This fundamental shift often "hides" them from outsiders looking in, but the fact remains, they are the volume drivers in digital print.

This does not mean that there is no room for smart, marketing-oriented manufacturers. In fact, many forward-thinking manufacturers are already in an outstanding position to attack this market because the products they are currently producing, such as transactional documents, direct mail, and data center documents, dovetail into this marketplace. They just need to transition from workflow to marketing documents (see companion article, "Implementing New Sales Models."

Still, manufacturers need to explore and plan their attack on the commercial print marketplace carefully. They need to understand the competition, the strategies, the applications, the business models, and the vertical markets better than many of them do. Otherwise, they run the risk of vastly underestimating the competition and the needs of the market.

Make a Plan

This leads to the final point that manufacturers need to consider as they plan for 2007. Whatever changes they make, they need to do them as part of a larger business plan. This doesn't mean a single management meeting, or even two. It means putting together the kind of carefully researched, meticulously thought-out plan that you would create if you were starting up a new business, because essentially, this is what you are doing.

Notes Barb Pellow, of Pellow & Partners, an industry consulting firm, "You have to have a strategy. This means having clearly identified target markets (including vertical markets), the right product, marketed at the right price, using the right distribution channels for that market."

Any business plan should include, among others:

• Detailed analysis of where your sales volumes are coming from, including your most profitable clients and applications (your highest volume clients and applications aren't necessarily the most profitable).
• Product and service mix, both current and future, most likely to result in company growth.
• New prospect/customer base.
• Changes to distribution/reseller mix.
• New compensation strategies for resellers, including strategies that reward program sales and ongoing programs in a way that traditional sales models focused on one-off print jobs don't (see companion article, "Implementing New Sales Models").

There is not going to be a one-size-fits-all solution. Nor is there likely to be a "stretch to fit multiple sizes" solution. Rather, for each manufacturer, the blend will be unique. But one thing is for certain, if manufacturers want to continue to grow healthy, profitable businesses, for most, those businesses will look very different even 12 months from now than they do today.

And distributors, you need to get started on this now. You can't wait for demand to trickle down from your customer base. Commercial printers and many forms manufacturers are already way ahead of you. If you wait until you see the demand from your customer base first, you may very likely find yourself pushed out of the marketplace.

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