Dealers--More Than Middle Men
The role of today's graphic arts distributors is changing. They're selling products, providing the training and consulting printers on what's available.
BY ERIK CAGLE
The popular, traditional image of a distributor is an entity that acts as a link between the manufacturer and the customer—the "go-between" or "middle man" who finds a market for products and services.
The commercial printing industry was no different. Just ask Joe Demharter, vice president of sales at Pitman Corp., one of the industry's largest dealers.
"Historically, if you look back at the role that distributors played for the manufacturers, basically we were the warehouses and credit arms," he says. "We provided those services, and they provided a strong organization of sales-focused representatives who went out, delivered their product messages in the marketplace and, in fact, created sales initiatives for companies."
Conditions started to change in dealer circles, as manufacturers began to downsize and lean on distributors to assume the role of selling products. Dealers, Demharter says, are not only structured to have salespeople with strong customer ties, they also have an infrastructure of specialists who work with customers in finding solutions.
"Printers have become more dependent on distributors to act as consultants," Demharter remarks. "Our role as a consultant in the marketplace has become extremely important, and I firmly believe that our greatest value-added to customers is our ability to provide an objective view of what's available to address their needs."
Peter Brehm, president and CEO of the North American Graphic Arts Suppliers Association (NAGASA), agrees that manufacturers are leaning on distributors more so than previously. Thus, commercial printers now know who to seek out.
"Printers are turning to dealers more and more as sources for information and process [conventional and digital] integration," Brehm says. "For example—What is the optimal fountain solution, plate and ink combination? Printers are looking for technical process integration support of conventional materials, and increasingly, they're turning toward dealers."
In regards to technical services, manufacturers not long ago boasted their own captive, in-house technical service and support organizations and infrastructures. According to Tech Services International President Tom Faughnan, manufacturers enjoyed relatively high margins in both their consumables and electronic imaging offerings.
When consumable margins began to tumble, and a groundswell was created by the bundling philosophy and competition to bring down electronic imaging pricing, the ability of manufacturers to sustain these technical services diminished.
The Evolution of TPP
"Thus, the evolution of the third-party service provider (TPP) . . . This evolution, while still very young and not yet universally accepted, is also changing the way service suppliers and manufacturers are dealing with printers," Faughnan explains. "TPPs that generally service more than one manufacturer's equipment can now provide support to multiple pieces of equipment at a site, making it easier for a printer to protect its equipment investment. Previously, the printer would need to deal with multiple manufacturers for technical and applications support; they need now only deal with one, making consistency of delivery and ownership possible."
Some argue that when dealers' offerings of products shifted from consumables to include high-tech equipment and software, so did the needs of the customer and the complexity of the dealers' responsibilities. Robert L. FitzPatrick, a strategic planning facilitator, consultant, publisher and trade association advisor who specializes in marketing through independent distributors, is one of them. Since 1981, FitzPatrick has continuously published The Eagle, an independent journal that reports and analyzes distribution trends in the digital imaging field.
"For many dealers, about 25 percent of their products are composed of digital imaging and related products, which is a whole new field for them," FitzPatrick says.
As the field of dealers has gradually dwindled in number, Faughnan has noticed a marked change in the area of pricing, particularly with price equilibrium. Over the last five to eight years, he says, the balance of power has been with the end user, as overcapacity within consumables manufacturers was a reality. This overcapacity brought with it severe downward price pressure, as manufacturers looked to feed film lines and plate capabilities.
The price pressure also spilled over into developing electronic imaging products, as these ended up being bundled with consumables.
"As with any efficient marketplace, this situation cannot continue to exist," Faughnan says. "The situation is now being resolved by manufacturer and supplier consolidations and the resulting rationalization of production plants and infrastructures. Once this plays out, price equilibrium will swing back, stabilize and gain strength."
While the heavyweights rationalized themselves, it left an opening for what Faughnan terms the second-tier supplier. These suppliers are more focused on a particular technology or application and do not boast traditional consumables. These companies feature wares such as digital proofing products and computer-to-plate technology.
Consolidation has not played a large role in shaping the landscape of distribution, not yet at least. By FitzPatrick's estimates, Pitman and PrimeSource—the industry's two leading dealers—constitute less than a third of total business. With so much fragmentation existing, this could be what he terms the "calm before the storm."
PrimeSource—with roots going back to 1865—has made eight acquisitions since becoming a public company in 1993. "As we look ahead, there are several trends to which we are responding," states Fred Heinkel, vice president of sales and marketing at PrimeSource, noting the consolidation that's occurring throughout the industry. "Companies are increasingly seeking a distributor that can offer one source for prepress and pressroom supplies, timely deliveries and national coverage."
Heinkel contends that his company is uniquely positioned as the most geographically diverse distributor in the country. "Our customers and manufacturers expect PrimeSource to transition into a more consultative role in meeting their needs. As a result, we've positioned our company not only just to sell products, but also to provide solutions, support and training," he says.
Reshaped Role and Focus
If consolidation does not reshape the role and focus of the dealer, it's a safe bet that the digital age will. As commercial printers embark on integrating digital workflows, the distributor plays a pivotal role aiding in the installation of the system, as well as training printers on its mechanisms. It became an exciting time to be a dealer when the market shifted from proprietary workflows and architectures to a standard platform, open architecture, PostScript environment.
"Customers are no longer buying a single-vendor solution; they're picking and choosing from a number of manufacturers and integrating them in an overall solution to satisfy their needs," Demharter says. "Distributors are in the ideal position to handle that, because our role of handling multiple manufacturers puts us in the position to sell one single source of supply from a multiple manufacturer configuration.
"The challenge it puts on the distributor is that we now have to support that configuration," he adds. "Not only do we need to provide the applications and expertise to configure it properly, we also have to go in and install the components and train the customer to support the equipment in the long term."
In order to accomplish that goal, distributors increasingly have employed applications support staff and brought in service technicians and service engineers. In the process, dealers provide a broad spectrum of solutions, from pre-sale technical support to installation, training and post-sale support.
FitzPatrick counts London Litho, The Tripp Co. and IS&E as among current leaders in digital workflow integration. He believes there could be more participants in this facet, but the market has not yet financially accounted for these services.
"There has simply been an inadequate amount of money in the industry to provide the service," he remarks. "In some ways, the customers have attempted to get these services on the cheap, and they've done this by asking for it free."
Whereas rebates are available on the purchase of volume supplies—either as a front- or back-ended check, or as a credit applied to the leasing of equipment—the payment for services for the knowledge base needed of a systems integrator has not been provided for as it has been in other industries, FitzPatrick contends.
"The printing industry, up to now, has not been paying for this," he says. "As a consequence, there's a real lack of knowledge to support the customer base in making the transition to digital imaging. Survey after survey that's been done on this reveals that customers are unhappy both with the manufacturers and the distributors. They don't feel like they're getting adequate support, partly because systems integration is inadequately financed and, in some cases, not financed at all. It's being paid for out of existing profits, or is being provided at a loss. Nothing works well when it's financed that way."
According to Faughnan, there is a high degree of trust placed on dealers as the linchpin between manufacturers and printers.
"The supplier needs to understand manufacturers, and printers have placed their trust in their abilities and, as such, are an extension of the value chain for these constituents," he says. "They need to invest in the training and make sure continuous improvement programs are in place to continually elate these partners. We try to instill in our people that, while representing a manufacturer, in essence, we become that manufacturer. We need to act as if we are on videotape being viewed by the manufacturer as we carry out our responsibilities—sort of 'The Truman Show' concept of service delivery."