In January of 1998, we took a small Denver mail company doing $2 million in annual revenue and completely repositioned it in the market. At the time, it had half a dozen inserters, three inkjet printers, some minimal lasering capabilities and two two-color presses.
Two years later, revenues were nearly $6 million, forecasted for $9 million the next year, and the company was sold to the largest consumer fulfillment company in America. In those two years, we had accumulated the following Who's Who of Fortune 1000 customers: Microsoft, Sun Microsystems (yes, in the same building together), TAP Pharmaceuticals, Johns Manville, Veritas, Seagate Software, Global Crossings and a few others. It wasn't voodoo, luck or existing relationships that did it. We simply stopped seeing ourselves as a small mail shop and started selling ourselves differently. If you can make the same transition, your brochures can have the same names on them. Here's how we did it.
Changing the Buying Question
The first thing we had to do was address the buying question. Sales people generally hear two buying questions that end up determining the price:
1) How much does it cost?
2) Can you do it?
If the work is unique or unusually difficult, the customer is likely to focus on your ability to complete the project, which bodes well for your margins. But if the work is something everyone can perform, the customer will focus on price, effectively lowering the margins.
Unfortunately, in the mail industry, we have a maturing or even fully mature industry where innovation and new technologies are universally available. While we may see big differences between the way our inserters and lasers are set up and the way our competitors are set up, the customer is, for the most part, only asking, "How much does it cost?" He doesn't see the difference.
Companies that provide great service have an edge, those that can successfully differentiate themselves have an even greater edge, and those that can combine these two things with unique products/capabilities are on the top. But does this model work anymore in our industry?
The Profit Path
Number One Service
Number Two Market Differentiation
Number Three Unique Products/Capabilities
Let's look at these three in reverse order, as they apply to our industry to see if they provide what we need to increase our margins.
#3 Unique Products/Capabilities
Technology and equipment are a significant requirement in providing mail and fulfillment services to a customer. · At the same time, there is very little unique technology that your company can get its hands on that your competition can't get as well. Equipment is also expensive and can't be laid off during slow periods. The best you can do is try to buy the latest technology before they do, or engineer some unique in-house technologies and hope you can get the market's attention before everybody has the same features in their facilities. Using technology to stay ahead is a very tough road to hoe in a mature industry.
#2 Market Differentiations
Perceived and real differentiation used to be ways we could set ourselves apart.
Apple Computers had real differentiation early on that led to huge profits. Today, many consumers don't see the difference between an Apple and a PC, and Apple's margins are correspondingly lower.
Sometimes, equal product offerings can be given perceived differentiation by great marketing. Ivory soap has been "99.99% pure" for decades. Does that really make it any better than the next soap? Or is its market position and branding just more convincing than the next guy's?
Differentiation is not the only answer for a mailing or fulfillment company anymore. Real differences are hard to come by, and while you can make some headway by perception branding, ours is not a $2 subjective purchase at the grocery store. The buyers are savvy and hardened, and they are directed to save the company money. If they can find three suppliers with similar technology, both real and perceived market differentiation are nearly eliminated, and the only thing you have left to fall back on is service. But is service even enough anymore?
If your company gives better service, you will many times win business even if your prices are a little higher. But because the market is maturing, you can't afford to be appreciably higher or you'll get knocked out of the bid. Even if you win at high margin through unique sales relationships, the business is always in jeopardy of being challenged by lower-cost providers or by your contact moving on.
So if the traditional one-two-three punch of service, differentiation and unique capabilities is a struggle, how do we continue to increase both our top (revenue) and bottom (profit) lines? How do we get our customers past cost?
There is one other solution that can re-energize profits and provide new opportunities to grow our businesses. It's not new, and if we apply it, we can re-energize our industry.
Think, Sell and Operate More like an Ad Agency
What is the key profit element of the ad agency business? Simply this these agencies are more often asked "Can you do it?" or at the very least "Can you do it better than the next guy?" How do ad agencies keep the discussion from degenerating into "How much does it cost? A big advantage is that they are selling services, not products. And services are harder to pin down on an "apples to apples" comparison than products. But herein lays a key to our own success.
While our industry "manufactures" products (printed pieces, mailpieces), the equipment list approach is no longer enough to gain our customer's business. We have to stop selling products and start selling services. We don't have to stop what we're doing, but we must see it differently and include it in a bigger value-added message to our customers.
We, as an industry, can turn our "products" into services by applying the following three concepts: comprehensive, integrated and consultative.
In applying these three, it's important to understand the following. Ad agencies are your customers' strategic partners, helping to create advertising and marketing programs that outline the best way to get their product or service to market. Once the ad agencies (or in-house marketing departments) have a plan, they turn to us to execute it.
We are our customers' tactical partners. We execute the plans and carry out the strategy. Our tactical implementation puts feet to the strategy.
The ad agencies provide a comprehensive approach to the strategic (and in most cases even the tactical) marketing effort. They also add value by integrating all the tactical management. (We'll manage your printing, direct mail, call center and database vendors for you.) Finally, they are highly consultative and present themselves as broad experts in the strategic side of marketing. We need to help our customers and our ad agencies to see us as the same three things on the tactical side of marketing the support side.
Wrapping our "products" in this message will increase our profits as customers see more added value. Without this, we are relegated to being product manufacturers in a mature and highly price-sensitive market.
Chuck Blakeman is responsible for marketing and business development for Holden Marketing Support Services in Denver, Colorado. For more information, you may contact him at cblakeman@Holdenmss.com. For more information on The Mailing & Fulfillment Service Association, visit the Web site at www.masa.org.