STATE OF THE INDUSTRY: Your 2015 Forecast
The struggle is real for small and mid-size printers facing hungry conglomerates and shifting consumer habits. They've put up a good fight so far, striking quickly with multichannel strategies and service-based models, but there's one battle where they always fall short-and not surprisingly so. How do you go up against a faceless adversary that doesn't follow the rules? In other words, how do you defeat—or even coexist with—the economy?
The U.S. economy has always been prone to mood swings and last year was no exception. Just ask Dr. Ronnie Davis, senior vice president and chief economist for the Printing Industries of America (PIA), Warrendale, Pa. There were a lot of ups and downs over the course of 2014, according to "Industry Briefing: Competing in Print's Dynamic Marketspace in 2015," a report prepared by Davis and his Center for Print Economics and Market Research. As mentioned in the study, there was "a negative first quarter followed by strong growth in the second quarter and more modest growth in the third." Davis explained that for the full year, growth should total around 2 percent, which he referred to as "weak" for a normal recovery phase.
But there's plenty of good news to go around. In addition to more than 45,000 establishments and 900,000-plus employees, PIA measured over $155 billion in estimated shipments last year, highlighting the industry's large economic footprint. "Currently, the printing industry is fairly healthy overall with slightly increasing sales," Davis said. "This pace generally matches my expectations from last year as I expected a modest improvement in the economy and print."
Over the years, Davis has observed a connection between print's function and the direction of sales change. For tracking purposes, PIA divides print into three functions. The first function is print that "informs and communicates" and includes magazines and periodicals, newspapers, books, financial and legal, business forms and greeting cards. "Product logistics," the second function, refers to converters, labels and wrappers, along with package printing. The remaining function "markets and promotes." General commercial printing, quick printers, direct mail and signs/signage are a part of this category. Davis is particularly optimistic about digital and ink-jet processes, packaging and labels/wrappers, and marketing-related print. Unfortunately, the same can't be said for print that informs and communicates, which he calls a "cold market."
Looking ahead, the overall forecast is encouraging. Davis expects the U.S. economy will be a general positive in 2015, experiencing modest growth, though he predicts a weaker performance in Europe. Because this industry takes its cues from the economy, Davis also expects print markets to fare well this year, with total industry shipments finishing about equal to 2014. "On a functional basis, we expect marketing/promotional print and print logistics to grow in the low single-digit percentage range," he added. "In contrast, communications/inform print will continue to decline."
The upward trend applies to the long-term forecast as well. "Over the longer-run—next 10 years or so—our outlook remains optimistic, with total printing shipments staying about even," Davis said, reminding critics of print's $160 billion per year footprint.
So what can printers do to succeed in this evolving environment? All signs point to ancillary products, communications solutions and integrated outsourced print management services. (Note: PIA defines print management services as the practice of a customer outsourcing all its print needs to a commercial printer versus a job-by-job basis.)
"Printers need to become more specialized and at the same time offer more ancillary services to their customers no matter what sector they are in," Davis remarked. "They also need to continue to focus on productivity improvements to cut cost and, most importantly, reduce their fixed costs."
Davis doesn't believe the problem is an issue of not knowing what to do, but rather an issue of putting ideas to practice. "[Printers] may have seen many [proven strategies and tactics to increase sales] discussed before, but not implemented in their firm," he commented. "Maybe the time is right."
Print+Promo wanted to see if this was true, so we reached out to experts in four major market niches. Read on as they talk about what the industry is getting right and where it needs to improve.
ON PRINTED FORMS
The Participant: Steven Osterloh, vice president of marketing, Ennis Inc., Midlothian, Texas
Print+Promo (P+P): What are your thoughts on the current state of the business forms sector?
Steven Osterloh (SO): The business forms sector continues to see shrinkage in demand as well as consolidation in the distributor, wholesale manufacturer and direct manufacturer segments. This shrinkage, along with the consolidation, makes this a time of extreme competitiveness amongst the remaining members of our industry.
P+P: In your opinion, what will be the biggest changes this year, and what will drive them?
SO: There are several companies within our industry that are currently working through some financial difficulties. What happens with these companies could dramatically change the landscape of the industry.
P+P: How is Ennis disproving the claim that "printed forms are dead?"
SO: How can something be dead when there are hundreds of millions of dollars being produced in our company alone? Printed forms, their demand and their usage have evolved dramatically. I'm not suggesting that we haven't seen a shift and that there isn't pressure on our products from alternatives, but saying they're dead is far from true. Printed forms are here to stay, but how many and how profitable they are can be influenced by our industry. If we don't spread the message that forms aren't dead, then why should our customers believe anything different.
P+P: How have your company's recent acquisitions strengthened your position in the business forms market?
SO: The recent acquisition of the five plants that constituted Sovereign Business Forms has been a positive impact on Ennis this year, adding approximately $27 million in sales. The integration has gone and the results have been better than expected. The acquisition strengthened our position in Knoxville, Tenn., adding manufacturing in the Northeast and brought us back to a strong market in Houston.
P+P: How can the forms sector do a better job of attracting millennials, especially as the baby boomer generation continues to retire?
SO: Being attractive to millennials both from the products we sell to the way we sell them continues to be a challenge. The forms sector is seeing more color, more marketing messages and more special features such as integrated labels, which are attractive to millennials. The days of drab transactional documents are declining faster than documents that carry marketing messages and serve multiple solutions to problems.
P+P: Based on past trends, what are your expectations for the future of business forms?
SO: Continual overall gradual decline. Certain product types will see faster declines while others may not decline much. The demise of the business forms industry has been predicted for years, but our problems are easily narrowed down to: 1) Technology alternatives-a new disruptive technology could make drastic changes overnight. 2) Our customers are aging and more wholesale manufacturers-to succeed we need to find replacements for this channel. The Great Recession brought some younger talent to the industry, but we must find more resellers to fill this coming void. We are having successes through several reseller channels other than the traditional print distributor. 3) As our customers become younger, we must sell the benefits of print. From forms to commercial print to labels, print sells and we should be proud of what we can offer a customer by complementing their other strategies and needs.
ON LABELS
The Participant: John Shanley, president, Labels West, Woodinville, Wash.
Print+Promo (P+P): What are your thoughts on the current state of the label market
John Shanley (JS): It is an exciting time to be involved in the label business. Advances in flexo technology (the primary method for producing pressure sensitive labels) are allowing label manufacturers to produce higher quality work than ever before. Advances in pre-press and plating, manufacturing equipment, finishing and inspection technology are allowing manufacturers to be more efficient and provide customers a better quality product at a better price. Other print methods like digital offset, waterless offset and inkjet are also providing opportunities for manufacturers to better tailor their offerings to specific market segments providing those markets with better solutions to their specific challenges.
P+P: What do you think the biggest changes will be this year, and what will drive them?
JS: As label production becomes more technical and specialized, finding good, qualified employees with the specific skills required for the job is becoming more and more difficult. Dealing with raw material price increases has been a challenge over the past few years. As printing equipment becomes more sophisticated, the cost of these pieces of equipment increases as well. Smart label companies will make the effort to identify which customers have a need for (and are willing to pay the proper price for) the types of labels that these new technologies allow them to produce. Spending a ton of money on the latest and greatest technology is worth nothing if you don't have a clear vision and plan to identify and go after the markets that each technology best supports.
P+P: As business continues to take cues from the economy, what kind of plan or growth strategy has Labels West implemented to stay relevant and profitable?
JS: We don't spend a lot of time paying attention to the overall economy, as it hasn't seemed to have a direct relationship to our growth and profitability. During the Recession, between 2006 and 2010, Labels West doubled in size, for instance. At Labels West we pay attention to three core areas when we plan for growth and profitability. The first is equipment. We continuously seek out the latest advances in technology and determine if they can do either of two things: increase quality or reduce cost (or both). The second is to seek out the best people for the specific job required. The third is to invest in any technology that allows us to be more responsive to our customers' needs. Anything that will allow us to respond faster—and with greater accuracy—is an investment we will consider making.
P+P: Is sourcing overseas becoming less of a threat?
JS: Overseas sourcing for label products has not been a significant problem for us. The amount of person-to-person interaction required to produce a quality label that meets a customer's specific requirements is very difficult to achieve from an overseas vendor. Remember that most labels are a custom product that requires a fast turnaround and consistent quality. I can't think of one instance where we have lost an order to an overseas vendor.
P+P: Based on past trends, what are your expectations for the future of labels?
JS: The future is bright for companies in our industry. We believe constantly improving our production methods, making sure that we are financially healthy enough to make the proper investments in people and equipment, and always searching for ways to better meet our customers' unique challenges will allow us to continue to thrive in the very competitive label market for many years to come.
ON PROMOTIONAL PRODUCTS
The Participant: Paul Bellantone, CAE, president and CEO, Promotional Products Association International (PPAI), Irving, Texas
Print+Promo (P+P): What are your thoughts on the current state of the promotional products market?
Paul Bellantone (PB): Our industry and share of the overall advertising spend is healthy and continues to grow, and from what I've seen and heard so far this year, there is positivity in the promotional products industry and the economy in general.
We've experienced stable, consistent and measured growth in the industry—an average of 6 percent per year over the past six years—and this too boosts confidence among distributors, suppliers and promotional products buyers.
Because promotional products are one of the best media to generate engagement and build loyal relationships with customers and consumers—and we have the research to prove it—the industry is in a good position to generate ongoing growth in the foreseeable future.
P+P: What do you think the biggest changes will be this year, and what will drive them?
PB: Our industry, like all business-to-business product and service industries, must continue to evolve to meet the needs of a younger, increasingly online, tech-savvy customer. Industry companies will need to provide a seamless, efficient online presence and buyer experience and deliver value-added services to separate themselves from the competition and avoid pure price commoditization. There are certainly tools, education and product opportunities available—many through the association and our business services members—for companies to provide these selling and service platforms and create compelling experiences for their customers.
I am very excited about the integration and cross-channel diversification I'm seeing throughout the industry. Many supplier and distributor companies are working together strategically to create real product and service innovation to fulfill customer needs on a level never reached before. The industry is growing and delivering diverse products, services, purchasing and delivery channels to meet the needs of a demanding consumer-driven market.
Regulatory compliance and product safety will continue to be factors to be dealt with by members and the industry as a whole. It is not unreasonable for buyers to demand and expect safe, compliant products, and PPAI has taken a leadership role in this area. Again, I am encouraged by the number of companies participating in PPAI's Product Safety Awareness Program and I know having all PPAI exhibiting suppliers becoming Product Safety Aware will elevate the level of discussion and expertise in this area.
P+P: Promotional products are arguably one of the most powerful advertising mediums out there, as you know. Can you provide an example of how these items impact consumer perception and influence purchasing behaviors?
PB: You're right, but let's let the facts speak for themselves. According to PPAI's most recent benchmark study, "Buyer Insights: Ad Agencies & Advertisers," 74 percent of buyers at advertising agencies and large corporations consider promotional products effective or highly effective and are strong influencers of brand recognition, brand/product awareness and corporate identity. And in "The Influence of Promotional Products on Consumer Behavior" study, 88 percent of consumers recalled the advertiser from a promotional product; and, before receiving promotional products, about half of the consumers had done business with the advertiser (55 percent). After receiving the promotional products, 85 percent did business with the advertiser. This is proof positive that promotional products work.
P+P: How is PPAI educating members on the importance of corporate responsibilities (i.e., social/product/environmental)?
PB: In 2014, PPAI initiated the Product Safety Awareness Program as part of a larger PPAI initiative to create confidence in promotional products as an advertising medium at every level. In conjunction with Promotional Products Work! Week, May 18-22, 2015, and PPAI's end-buyer/user research, the Product Safety Awareness Program helps position the medium as a powerful and safe marketing strategy.
PPAI also recommends that all members-suppliers, distributors and business services companies-adopt a voluntary code of conduct. It is the tangible presentation of what industry companies are doing to meet the expectations of the end-buyer for product safety, and social and environmental assurances.
P+P: Based on past trends, what are your expectations for the future of promotional products? Or, if you'd rather not guess, what is being done to shape the future?
PB: Good question. We are certainly not waiting around to have our future shaped for us. PPAI is leading and working in conjunction with the industry to bring the benefits of promotional products to the forefront. In late 2014, PPAI launched the "Product Persona" campaign to inspire and inform advertisers and media buyers like never before by changing their perception of promotional products from inanimate commoditized objects to imaginative, strategically designed promotional advertising campaigns that transform any environment by delivering experiences and impressions no other advertising medium can through the five senses of sight, touch, taste, smell and sound—and the sixth sense, a sense of ownership.
The business-to-business campaign targets media buyers at corporate advertisers and ad agencies and is designed to raise awareness and increase traffic to PPAI's buyer-facing website, (PromotionalProductsWork.org) and trade-show booth, to educate buyers and drive business to promotional products distributors.
ON DIRECT MAIL
The Participant: Grant Miller, vice president global strategic product management, Pitney Bowes Document Messaging Technologies, Stamford, Conn.
Print+Promo (P+P): What are your thoughts on the current state of the direct mail sector?
Grant Miller (GM): Overall mail volumes are gradually declining, but not to the extent many have predicted. As it relates specifically to direct mail, many in the industry expect this market to moderate and return to a relatively flat long-term trajectory. In fact, according to the Direct Marketing Association, the overall volume of direct mail increased slightly to 87.3 billion pieces in 2013 (the most recent year for which statistics are available) and the total U.S. marketing spend on direct mail increased to $44.9 billion year-over-year.
I would argue that innovations in data management, document design, mail production and presort services will help to ensure that direct mail remains a critical part of the marketing mix for years to come. Successful marketers are leveraging these innovations to increase the return on investment from their direct mail spend in terms of cost per order and cost per lead. They are creating higher-impact, more targeted and personalized mailpieces at a lower cost, and creating tighter integration with the digital components of their marketing campaigns. As part of an integrated campaign, successful marketers are using direct mail to drive consumers to websites and mobile devices to directly influence sales.
P+P: In your opinion, what will be the biggest changes this year, and what will drive them?
GM: We live in a connected and borderless world of commerce. The proliferation of mobile, Web and video-based communications necessitates smarter integration of physical and digital marketing channels and creates opportunities for those who do it well. In the year ahead, there will be more pressure on direct marketers to be even more creative with their mailpieces in order to keep up with competition. As a result, I think you'll see more interesting and more effective direct mail campaigns leveraging technologies that were unimaginable just a few years ago.
Adding personally relevant messaging and creating tighter integration between the mail piece and websites, mobile applications or other digital channels using things like QR codes and PURLs is just the beginning. More progressive marketers are pushing the limits of physical and digital integration even further. Innovations like augmented reality are allowing retailers to use their catalogs and direct mail pieces to trigger powerful consumer experiences. Using this technology, a consumer can choose a piece of furniture from a catalog, render an image of that piece of furniture on their smartphone, and then use the smartphone's camera to generate a composite view of exactly what that furniture would look like in their living room.
P+P: From rate increases to legislative constraints, the USPS continues to make headlines. Now that Megan Brennan has taken over as Postmaster General, do you think this presents any opportunities for the direct mail sector?
GM: Pitney Bowes is the USPS's largest workshare partner, presorting more than 14 billion pieces of mail annually, so we understand the importance of having an efficient processing network that provides consistent, reliable and affordable service. Postmaster General Brennan is an experienced postal operations executive who led the USPS's network rationalization plan and is committed to making the postal service more efficient and more accessible for all mailers. Her dedication to keeping the USPS focused on delivery and service, and improving those areas through strategic investments and innovation, is welcome news to direct mailers.
P+P: What does Pitney Bowes hope to accomplish by implementing a new brand strategy? What factors influenced the company's decision?
GM: The new brand emphasizes the interplay between physical and digital communications and highlights our role in the changing world of commerce. We present our solutions in five relevant areas: Customer Information Management, Customer Engagement, Location Intelligence, Shipping and Mailing, and Global Ecommerce. This strategy will help to differentiate us from the competition, makes us more relevant to a wider audience, and ultimately increases awareness, consideration and preference for Pitney Bowes solutions.
We believe the branding highlights our expansion into high growth markets, including digital commerce and software, and our continued innovation in our core mailing and shipping business.
P+P: What are successful marketers excelling at and how can other companies follow suit?
GM: 90 percent of all the data in the world has been generated in just the last two years.
Successful marketers are leveraging this data to create a more complete and accurate 360-degree view of each customer, so they can deliver targeted, personalized communications to each individual over their preferred medium at the best time to influence a desired behavior.Successful marketers, and those who aspire to be successful marketers, must deliver this experience over both physical and digital communication channels in order to maximize open rates, response rates and ROI. In fact, the more channels you add, the better the results. An InfoTrends study found:
• Response rates increase 27 percent when direct mail is combined with a Web landing page or an email address.
• Response rates increase 37 percent when direct mail is combined with a Web landing page and an email address.
• Response rates increase 45 percent when direct mail is combined with a Web landing page, email address and mobile marketing.
Elise Hacking Carr is senior production editor for Print & Promo Marketing magazine, and managing editor for PRINTING United Journal.