Buying print in a shrinking market

Focus on finding ways to participate in your printer's cost-reduction strategies and leveraging concentrated volume where possible.

Let's get the definition out of the way quickly. Oligopoly: the economic condition of few sellers-- e.g., the current long-run print marketplace. Recent mergers and acquisitions now make a publisher's choice of printers, at least for longer pressruns, a very short list. What does this mean to the print buyer?

One leaps first to pricing questions, and the outlook there is predictably dismal. As the marketplace contracts, we can expect the typical conditions of a seller's market: rising prices, with, in this case, a reasonably gentle ascent. The slow climb upward stems from two forces: long-term contracts that resist hair-trigger price jumps, and the symbiotic relationship between printers and magazine, catalog and book publishers.

Printers need products to print, and outright gouging will result not in higher printer profits, but in fewer publishers. We can, in other words, hope that some brakes are on. But we shouldn't rest easy, because the road ahead will test a publisher's ability to pass on higher costs to readers and advertisers.

The maturity of the printing industry has long meant that its annual growth reflects principally the steady but small increase in demand, and secondarily the few cost-reduction or revenue-enhancing strategies open to printers. One exception to that norm is precisely what we've been watching lately. Growth through acquisition solves certain pressing dilemmas for printing companies. There are limited benefits to the print buyer, but let's consider what bright sides there might be.

A strange, new world

Imagine a huge printing company, brilliantly managed. It would have the wherewithal to make large and sagacious investments in technology and R&D, and bring the results promptly to its numerous plants. These initiatives would reduce costs and cycle time, improve quality and accuracy, and delight customers. Because this hypothetical printer is so clever, these new developments would anticipate customer needs beautifully.

This smart printer would also deploy its equipment assets for maximum benefit, addressing the age-old capacity problems that seriously limit a typical printer's profitability today. With a network of plants and distribution hubs, work might be spontaneously assigned to different locations, all transparently to the customer, so the printer could keep its iron in full use throughout the month and throughout the year.

Finally, this "uber-printer" would benefit from some pleasant economies of scale and aggressive purchasing practices. The sales force and just about every back-office function can shrink to a compact workforce that assures that the profit-per-employee is vigorously high. But many jobs can't scale: In the manufacturing frontlines, yield per hour per employee doesn't budge based on the number of plants owned, but on technology that reduces crew size or increases output. Still, the giant printer has access to capital that allows it to trade payroll costs for technology debt.

Finally, as one of the few games in town, the printer can negotiate favorable deals with its suppliers for paper, ink, binding materials and freight. That explains the printer's interest in eliminating competition and improving profits through acquisition. But what's in it for the publisher? Very little, unless you find ways to participate in the printer's cost-reduction moves. Here's your action list:

1 Review your contract

Consider an advance renewal with your existing printer, whoever it may be, in anticipation of steady price increases that might make your next journey to the marketplace less than impressive. Understand that you're not negotiating from a position of great strength, but negotiate nonetheless. Anything you can do now is very likely better than what you can do in the future. Prepare for a shift toward using a contract to protect prices, not eagerly going out for bid every few years to reduce them.

2 Participate in your printer's improved purchasing strength

Your paper, ink and polybag prices increase or decrease based on the printer's actual costs--not contract escalation. Printers do not always volunteer news of decreases, so take it upon yourself to ask.

In negotiating materials prices, you are generally trying to reduce the printer's markup. However, if the printer has benefited from cost decreases, you may only be trying to hold that markup, as the printer's cost reductions have created a tidy little surplus. Be honest and clear about your goals, and encourage the printer to be honest with you.

3 Look for distribution savings

Some savings may arise from a printer's increase in freight purchasing strength, which requires the same type of negotiation as point number two. An additional possibility arises as printers tie together multiple plants using distribution hubs, or increase volume inside your plant.

Review your potential for offline co-mailing and check on co-palletization if true co-mailing isn't available. Finally, investigate zone-skipping, in which your printer trucks some of your mail directly to entry points. All of these sources of savings arise from increased volume, so ask early and often about the benefits for which you may be eligible.

4 Pursue new technology

As printers consolidate, we face a double-edged sword: A large printer's monetary capacity to invest in new technology increases, while the inclination to do so for competitive purposes may wane. Do your part to keep your printer committed to your business and the strategies that make you effective as a publisher. But bear in mind that printers are most interested in buying things that save them money, not necessarily things that improve your product. They also aren't eager to pass along savings, because they're the ones who just anted up the capital.

Negotiate slowly but steadily. Asking for all the benefits in the first year new technology is installed is nearly hopeless, but ongoing participation in falling costs is realistic.

5 Prepare for plant closings

The Quebecor World merger all but assures that some of its now combined plants will be shut down. Quebecor World will have done substantial planning to make the necessary movement of work as seamless as possible, but there will still be work for you to do. Even if your contract hasn't stipulated it, you're seeking not only the printer's responsibility for freight costs to move your paper, inserts and back issues, but also compensation for damage and loss to those materials. You may be able to negotiate a new schedule, with an opportunity to reduce cycle time.

A change in printing plant can seem traumatic, but it's also your chance to start fresh, sell your job and yourself to the plant contacts, and develop a productive working relationship--so make the most of it.

6 Rely on your printer/publisher relationship

Talk about your growth strategies to keep your printer invested in your success. Position yourself to benefit from new technology your printer may adopt, and do your part to keep the printer motivated to make such investments in a landscape of diminished competition. That motivation may come from maintaining relationships with multiple printers, or from committing greater volume to a single vendor--fostering the competition you can, or trying to bet on a single winner.

These six ideas are good principles at any time, but are critical now. Leverage the advantages of concentrated volume where you can, and hold on tight as the price balloon drifts upward.

Alex Brown is president of Printmark, a magazine production consulting firm in East Montpelier, Vermont.

Making the most of a symbiotic relationship

Printers need publishers, and vice versa. But noticing that it's a symbiotic relationship doesn't mean that passive publisher will reap benefits. Here are some practical ways to make it work for you.

Even as printer consolidations reduce the competitors for your business, printing capacity still exceeds demand--no matter who owns the presses. This problem will be with the printing industry until some smart marketer figures out how to make it Christmas at least nine months out of 12, and newsstand buyers conclude that the second magazine out of the gate is the one they really want to read.

The single strongest step a publisher can take is to address a printer's capacity problem by scheduling production at the non-newsstand peak in the month, or by increasing quantity or page count in off-peak months. Can a special issue or supplement move to a low print demand month? Can you boost page count at the very time other magazines and catalogs are dwindling? Above all, if you aren't using the newsstand or don't need to follow the common newsstand cycle, consider a schedule change that will even out your printer's monthly demand. You'll save money if these strategies fit your overall objectives.

Next, consider your role in the competitive landscape. If you publish multiple titles, you can choose to have a single printer or several suppliers. The strongest competitive posture here is to divide your printing into two slices of pie, one of which is substantially larger than the other. One printer wins the big slice, but stays hungry to secure the other piece. A second printer is ever-alert and diligent, working toward the big prize. Both stay eager to earn the missing piece, and you stay in touch with two styles of print service, technology and pricing. One fine day, all the pie may be on the same plate, but you controlled the competition to put it there.

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