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McIlroy--Digital Printing - Are You Making Money?

June 1998
The challenges and rewards of digital printing were revealed more clearly by an informative panel during the recent Seybold Seminars in New York. In a session called "Digital Printing: Making Money at Last," the theme emerged that indeed some companies are making money with digital presses, but it hasn't been easy, and it's far from a sure thing.

Moderator Bob Rosen, a New York-based marketing consultant, set the tone for the session when he declared, "It's our informed guess that in the digital print area, about 20 to 25 percent of the firms are quite profitable, and the rest—about 75 percent—are earning little or nothing."

He pointed out that the 75 percent are not necessarily losing money. "But if you're making 1 to 2 percent, that is really not an economic return, given the risk of investing in a fast-moving technology," Rosen stated. He cast doubt, in fact, on the 20- to 25-percent figure, pointing out that the relatively few firms that are succeeding tend to be heard from more frequently and more loudly. "It's a self-selected sample," he said. "The people who talk about it have picked themselves out."

Creating Digital Demand
But what is the secret of success? What does it take to be in that fortunate minority that is succeeding in digital printing, whether it's 10 or 25 percent of the firms? "The profit leaders are winning due to how they market their services," Rosen revealed.

"They're building relationships, they're finding needs, and they are becoming a consultative resource. They are educating their customers and their salespeople. These three elements lead to high levels of utilization and the possibility of profit." Or, putting it more succinctly, Rosen said, "This whole thing is really about creating demand."

It became clear during the session that demand creation is not a natural talent of most graphic arts firms. They're too accustomed to focusing on equipment acquisition, not on building markets. "Most people believe that when they announce they have added digital printing, customers will magically appear. They're using the theory, 'If we buy it, they will come,' " Rosen said. It's the wrong approach.

"There is no natural demand or pent-up demand for digital printing," he declared. Rosen echoed the comments of market analyst Joe Webb, who has pointed out that digital printing is a need that most customers don't recognize.

Rosen introduced two panelists who are truly making a success out of the digital printing business. The first was Karen Kelty, vice president of marketing at XYAN Corp., outside of Philadelphia. The second was Susan Kinney, president of Castle Press in Pasadena, CA.

XYAN is a little-discussed, but very successful player in the digital printing market. The company has 1,100 employees and operates 74 production centers in 28 states. XYAN has grown rapidly through acquisitions. It offers a wide range of services, from offset printing to facilities management, fulfillment and digital printing. But, as Kelty pointed out, "Digital printing is our future and it is our hallmark."

"Very simply put," she explained, "we looked at the printing industry and saw that it was growing at the rate of 2 to 4 percent annually. We didn't think that that was good enough for us. Digital printing is growing anywhere in excess of 20 percent annually. That is where we wanted to be."

Why the growth in digital printing? "Companies are facing very stiff competition," Kelty attested. "There are a lot of issues around—consolidation, globalization, downsizing, rightsizing, business process re-engineering, you name it. Digital printing addresses those needs by allowing companies to cut costs, reduce their time to market, improve customer satisfaction and gain a competitive edge."

Like Rosen, Kelty feels that demand creation is the major challenge facing the industry. "Digital printing really solves a problem that people may not recognize they have," she said. Kelty used an analogy of ATM banking machines to illustrate her point. Automatic teller machines were not introduced in response to a market demand. People were accustomed to banking between 10 a.m. and 3 p.m. It took the banks several years to get their customers trained to use ATMs. And now no one can imagine living without 24-hour, worldwide access to their bank accounts.

Keys to Profitability
XYAN is carving success in the digital print market one small step at a time. It has developed a consultative sales strategy, and accepts that the sales cycle is much longer than for traditional printing. The company's 100 sales reps receive extensive training and support, as do customers. XYAN focuses on niche markets, such as legal and financial printing, and avoids trying to be all things to all people.

In concluding her presentation, Kelty offered another analogy. "The key to profitability for digital printing is a little bit like embarking on a home-improvement project," she said. "It is going to take you a lot longer than you thought initially, and it is probably going to cost you more than what you had planned."

Susan Kinney, of Castle Press, brought her company into digital printing to address her own needs. While the 60-employee company does nearly $7 million in printing, Kinney also operates a $1.5 million greeting card firm, Painted Hearts and Friends. In 1995, she bought a Xeikon/Barco press to create shorter and faster runs of her greeting cards. Digital printing has since become the fastest-growing segment of her business.

"Digital press sales are growing at 25 percent a year," she said. "Litho is growing at about 3 to 6 percent. Half of our new customers are on the digital press."

Kinney has found other benefits in operating a digital press. "It's easier to get new first-time sales appointments when you have a new technology," she pointed out. Castle Press employs a telemarketer who obtains a first appointment on half of her calls because of the technology.

Of significance, even though the digital press opens the doors, the sales reps still sell (by volume) 75 percent litho against 25 percent digital printing.

Equally important, digital printing brings Castle Press to a new group of buyers. "Instead of dealing with purchasing agents, we're now dealing more with CEOs, marketing officers, brand managers and production managers," Kinney said.

The lesson of digital printing is that it's digital, not printing. And digital is still a new business for most graphic arts firms. The digitization of your prepress departments allowed you to do the same old things more quickly and (eventually) more cheaply, but it wasn't really a new product. Digital printing is a new product, and new products require new markets.

Over the last decade, the graphic arts community has become digitally adept at a technical level. Now we've got to grow as marketers.

—Thad McIlroy

About the Author
Thad McIlroy is a San Francisco-based electronic publishing consultant and author, and associate conference director of Seybold Seminars.


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