Crouser & Associates Performance Group program helps printers prosper through on-site assistance as well as twice yearly group meetings. Reply to this message for more information by Email or call (304) 342-5100. Crouser Report OnLine is the Copyright Thomas P. Crouser. Material may not be reproduced in whole or in part without written consent.

Crouser Report 1995

Copyright Thomas P. Crouser, October, 1995

Dear Friends. . .

Where do you come off trying to tell me how much I should sell printing for in my market when you re not here? Occasionally we get this question or a variation of it. And being as how we are now publishing the 1996 Crouser Guide, it s a good time to respond. The short answer is proper research and research techniques. The long answer is more complex.

Printing companies operate under conditions of monopolistic competition (see The Crouser Report, March 1995). By definition, one characteristic is no one company has any great cost advantage over anyone else. Right. Some may have cheaper rent, some more expensive labor, but in the long run there is no dramatic difference in costs among printing companies. We all buy our equipment from the same vendors, our paper from the same distributors and rent from the same landlords. A dramatic cost difference occurs when someone has a unique product or process which changes cost structures like a bulldozer versus hand digging. Patents and trademarks tend to do this as well as specialized production processes (Moore Business Forms original salesbooks for instance). For the rest of us laboring in the general printing market, our costs are very similar.

Now, let s go over to the statistical department. How do we know what printers costs are? Statistical sampling. That s how elections are called thirty minutes after the polls close. Even for those who tell how a poll was wrong; understand most samples are right. An ill designed poll occasionally is as common as a bad print job. But we don t stop using printing because one job was screwed up.

Now, remember the bell shaped curve your teacher told you about in school? That s normal distribution or a description of data points. Take 100 prices for 1,000 8.5x11 s. Plot the prices and you will find the central tendency. You ll also find some extreme prices higher and lower. Those are the lunatic pricing fringes.

There will always be lunatic pricing much higher or lower than the mid point, but generally they are not relevant. Why? Because someone screwed up or didn t know any better. Regardless, what is relevant for you is the range of numbers most of the time. That is what you must base your price level upon. And you must do it with the understanding someone will always be higher or lower (remember the bell shaped curve never touches the line).

With these specific prices, we use common research statistical techniques to describe data. Most common is the average (best of the worst and worst of the best). Although common, it is limited in usefulness when evaluating pricing. The average does not describe how much variance there is in the price points. Prices of 100, 50 and 1 will give an average of 50.5 as well as prices of 56, 50 and 45.

Variance in data points is extremely important in adopting a price strategy. For instance, our first set of data points can lead to adopting a price strategy of 70 while the second indicates 53. Why? Not all buyers know all prices (another condition of monopolistic competition) therefore some customers will be comparing prices of 100, 70 and 50 as some will be comparing 70, 50 and 1. If the printer can define the difference (product differentiation) between 50 and 70, then 70 will probably be purchased a great deal of the time. The 1 price is thrown out many times by the buyer as being unrealistic (even though some of you don t believe this). I m not saying the 1 will never win, I m saying that on average the 1 will not be purchased. And if it is, it takes an awful lot of 1 s to amount to one 70. Now, differences between 50 and 70 will have to be justified through sales activities and product differentiation. If you can t justify it, then you had better be prepared to sell for 50.

Anyway, contrast that market with the tighter data points of 56, 50 and 45. Again, some customers will be comparing 56, 53 and 50 and some with 53, 50 and 45. Same thing holds true about being able to differentiate the product. Difference is, there is less room to wiggle and that is what impacts your price strategy.

Another common measure, standard deviation, tells us about the variance in data points. Within one standard deviation of a normal distribution from the average price, about a third of all price points will occur. Within two standard deviations, about two thirds of all prices will occur, and within three standard deviations, all but a few prices will occur (remember the curve never touches the line for some crazy printer somewhere has just screwed up and given a price higher or lower than 99% of all other printers everywhere!).

We need not go into the theory behind standard deviation for it s boring and you can take a statistics class. Suffice it to say, that using deviations and sampling, we can calculate the average and project a low, middle and high value for any data point. And we ll end up with a more valid number than you will by calling the three printers closest to you pretending you are a customer.

Okay. We know our costs are similar by the very definition of monopolistic competition and we can figure a high, middle and low point using statistics. How do we find out what the costs are in print shops to assure we are passing them along? All one would have to do is find out the budget hour rates in print shops. Problem. Printers can t tell you what their budget hour rates are because most can t figure them. Hum. Stymied. Not so, faith healer. There is a direct relationship between direct labor and overhead in approximately a 2 to 1 ratio which means that you can approximate a budget hour rate by studying wage rates. Now, printers can tell you what they pay people. And because we at Crouser & Associates go all over the country and figure budget hour rates for people, we can keep you up with a high cost area wage multiplier, as well as the middle and low cost area wage multipliers.

All right. Summarize. Printers have similar costs, we can calculate high, middle and low values of data points, we can figure budget hour rates and then calculate high, middle and low values. What else do we need? Experts.

Delphi Technique: For our new pleasing color section of the 1996 Crouser Estimating Guide, we enlisted the help of owners of two color presses doing process. Now, a Delphi technique is where we first interview each without preconceived notions and with open ended questions such as, How do you price process color now? After awhile, a pattern emerged which says certain elements are key to the price pattern in the market.

Once identified, we are able to measure each element such as set-up time. A unique feature of a Delphi group is we are trying to achieve consensus not take an average. So, once we have answers to our set up time question; I allow the experts to see each others answers and to modify their response based on what others said. Sort of the old upon further consideration rule in NFL football. This way one individual s far off answer of 2,000 impressions per hour which dramatically skews the average, becomes a more realistic 5,000 and we generate a consensus of times and prices among a group of experts drawn from Florida to California and points in between.

Judgment: Now judgment enters into the equation. For instance, just because the average investment of equipment among our panel was $50,000 doesn t mean we will use $50,000 as the equipment cost component in our price equation. Why? We need to recover the $70,000 replacement value for the press, not the actual cost. The difference matters to only $4 per hour in a budget hour rate, but you ll end up with money to replace the press when it wears out.

Then, a first cut on prices: With a consensus on estimating standards, a first cut price can be calculated. Then, we modify to market. These numbers are then compared with market surveys to see where the prices can be increased and still allow a high probability of obtaining the job. Judgment is used, and a final price is determined. And bingo, a price guide with 206,000 individual price calculations plus the new color section is born.

In Summary: With this process found only in the Crouser Guide, we don t price below cost and yet we don t price on cost. Pricing on cost keeps printers poor. It costs similarly to print bond paper and letterhead. Yet, we can get more for letterhead. Additionally, pricing on costs results in lower prices. The faster we print and the more we invest in productive equipment to allow us to do it faster results in lower prices not better prices. Similarly, pricing on averages (like the Bill Friday price guide tries to do) introduces the lunatic pricing fringe which keeps your price strategy artificially low. You may ignore the lunatic pricing fringes in your price scheme and see your overall profits go up dramatically without loss of customer base.

All this for you for only $195 per year. Not a bad deal. Now, go ask Franklin or Friday to describe to you how they establish their prices. And while you re at it, ask them to tell you what their estimating (time) standards are for printing and exactly what budget hour rates they are passing along. Good luck.

Job Printers To Be Big Losers

The Bureau of Labor Statistics predicts job printers will be one of the top 25 categories of biggest job losers between 1992 and 2005 with a 35% decline. According to the study which was reported in the September 3rd edition of the New York Times, productivity in printing is rising more rapidly than demand which undermines employment. The study assumes a moderate economic growth during the period.

Performance Group Meets In Orlando

I met with our sold out performance group in Orlando in early September and to say the least, the meeting was very successful. Printers from Florida came, obviously. But we also had folks traveling from New Jersey, Michigan, Indiana, Chicago and Colorado for the festivities. While we don t have any openings in our Orlando group, we do have a couple of spaces in our Pittsburgh group. We ll be having another basic training session soon so contact us now if you have interest. Essentially our groups are opportunities for non-competing printers to join with us in dedicating themselves to providing: quality service to our customers; security and growth in an adult environment for those working with us; a life style of our own choosing for ourselves; and protection for our business so it may not only serve us as stakeholders, but also may serve future generations of each of our families. Difference between these groups and several printers getting together to compare notes every now and then is that we provide staff work to assure comparative financial information is being used as well as provide hands on management skill training at each session. Additionally, on-site visitations are made between meetings to assure you in achieving your goals. For more info, call Clark Workman at (304) 342-5100.

Happy Trails,

Tom Crouser

P.S. Swiss watchmakers don t rely on cheaper prices to gain a big trading advantage over their competitors. Nor do they rely on lower labor costs. Instead, the Swiss turn out a somewhat better product so they can charge a much, much better price. Mortimer Feinberg in Effective Psychology for Managers.

P.P.S. Remember the shoulder launched missile fired into the American embassy in Moscow, penetrating the exterior and blowing up a Xerox machine? I say we petition for the unknown Russian s pardon. Why? Who among us has not had the desire to do the same thing with our Xerox? Pardon Ivan! CELU& AR..

Happy Trails. . .Tom Crouser
Crouser & Associates Performance Group program includes two on-site evaluations by Tom Crouser each year along with two group meetings. Management training is held during the group meetings along with participation in a meeting with non-competing printers. Join others who have decided to run their business instead of the business running them. Reply to by Email to Tom Crouser for more detailed information or call Clark Workman at (304) 342-5100. Or fax (304) 342-5187 or contact crouser@ibm.net.
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