OFFSET PRINTERS ARE coping with business realities like the rising cost of oil and employee health care as they try to stay competitive in today’s market.
And while some predict the postage rate hikes implemented last month won’t affect them much, they’re worried that the substantially higher postal increases projected for 2007 and beyond could hurt their businesses and their direct marketing clients’ bottom lines.
These are among the findings of Direct’s annual printing roundup. But the news isn’t all bad. Even given the rising costs, many printers report that business is good. And most agree that paper prices have become stable in the near term and that plant overcapacity — a big issue a couple of years ago — is not as much of a factor now.
Moreover, printers argue that they have good systems in place through which clients can maximize postal discounts.
But back to the bad news.
“The biggest problems we have are the increase in employee health-care costs and rising fuel prices,” says Tom Wicka, executive vice president of sales and marketing at direct mail firm IWCO Direct, Chanhassen, MN. “We can’t always pass them on to customers, and they can end up eating into profits.”
Michael Allen, president of Banta Print Group in Chicago, points out that oil, the price of which has been rising more or less steadily since Hurricane Katrina last summer, is a key ingredient in ink.
“We have to stay focused on making sure that printing does not become a commodity product as we deal with rising costs,” Allen says.
Most printers were not all that concerned about the recent jump in postage prices. Wicka terms them a “non-event” and adds: “Nobody really changed their behavior.”
But most are wary of what might come down later this year and next. Some reports indicate the U.S. Postal Service may file its 2007 rate case as early as this quarter.
And that’s not all. Those proposals probably will include changes in mail classification and the way the USPS attributes costs, says Gene Del Polito, president of the Association for Postal Commerce: “It’s been awhile since the postal service has addressed the technological, operational and economic developments that change the cost base for many services, and the manner in which those changes should be reflected in pricing.”
Several printers point to their abilities to help mailers cope with postal increases. Eric Blohm, direct marketing director at Quad Graphics in Sussex, WI, is preparing clients for upcoming hikes by hosting a customer conference with USPS officials to discuss ways to maximize volume, work-sharing and other discounts.
DM/catalog consultant Katie Muldoon argues that the ever-increasing postal costs “are eating away” at direct marketing firms’ bottom lines, and their only recourse may be to put more resources into online marketing.
Won’t that hurt printers? No, they say: Just as television failed to kill off radio in the early 1950s, online marketing hasn’t replaced paper direct mail (and printing). But they concede that the relationship between the two has changed.
“I remember back during the dot-com boom in the late ’90s one marketer cut back on printing, just put everything on the Internet and lost business,” says Banta’s Allen. “When he went back to printing more catalogs, business picked up.”
The Internet, he adds, has become a new means for generating orders, but people still want to have a catalog around to refer to.
Peter Gargano, executive vice president at Quebecor World’s direct group, notes that “the Internet hasn’t really cut into our business as much as it has become more integrated into our clients’ overall marketing strategy. Online marketing has become a driver for increased catalog sales. Our clients are using more targeted, personalized direct mail to supplement their overall multichannel marketing strategy.”
At the same time, digital printing and other technologies are continuing to grow and offer “complementary” avenues for direct marketers, the printers say — but only up to a point.
Despite the inroads made by digital printing, printers believe it’s most useful for precise targeting in larger marketing campaigns, and that it has limitations.
On top of an inability to print in huge quantities and at high speeds, digital presses have other drawbacks, says Ted Gaillard, senior vice president at Vertis, a Baltimore advertising and marketing firm. Unlike conventional presses that can use any color ink, digital presses are toner-based and can only print in four colors — although, he adds, technology now exists that permits five-color printing, he adds.
But digital presses have still more shortcomings. They’re limited to 20-inch-long sheets, while offset presses can accommodate sheets as long as 60 inches, says Gaillard. He predicts it will take a few years before digital presses will be able to churn out pages at same volume as Web offset presses.
Nevertheless, “digital printing actually presents opportunities for us to provide clients with the more targeted vehicles they’re seeking through use of variable imaging and versioning,” says Quebecor’s Gargano. And it’s increasingly being used by non-traditional direct marketers.
For example, York International, a manufacturer and marketer of heating and air-conditioning systems, has for more than a year run a Web-based system for its dealers that saves them time and money compared with the direct mail it used previously, says Andy Fracica, marketing manager for the York brand in Norman, OK.
York dealers use this system to send postcards to surrounding neighborhoods to let residents know about jobs they’ve just completed. JG Sullivan Interactive Inc. of South Bend, IN developed the system.
Depending on their sales volumes, the system costs York dealers no more than $150 a year.
Sullivan’s system uses variable data imaging and digital asset management, technologies that have been in use for several years. These processes let companies store all their images and text on magnetic tape and create templates that can be easily and inexpensively used and reused for different purposes.
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