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Thomas P. Crouser. Material may not be reproduced in whole or in part without written
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The Case of Price
Crouser Report OnLine February 14, 1996
Transmitted from Rochester, New York
The following article was published in the February 1996 edition of Quick
Printing magazine. Due to a mechanical problem, the end of the article was
omitted. Well, I have been called, faxed and e-mailed for copies so many
times that I thought I would furnish it to you on line.
Price. No wonder we have such a hard time competing in the printing industry.
Most misunderstand the role of price and the laws of supply and demand.
What s more, we make ourselves less competitive by not using the only short
term strategies which are available to us. This fact led me to publish the
following in the March 1995 Crouser Report. It fast became our most
frequently requested edition ever. Therefore, I am presenting it to you, the
entire industry, this month because of the widespread application of the
principles.
Price:
Most assume lower prices produce more business than higher ones. At
the same time, lower prices are blamed for low profits. To bottom line it,
most think all of our woes would go away if the slovenly printer down the
street would just raise their prices. It ain t that way.
Perfect Competition:
These assumptions come from our understanding, or more
appropriately, our misunderstandings of Economics 101. Most of us just don t
remember all we heard in class. We give full credit for the buyer s behavior
to price. When price is increased, volume is reduced, it is thought.
Conversely, decrease the price and most think economics tells us volume goes
up. This where we get messed up.
This describes the characteristics of perfect competition, one of the
theories of supply and demand, but this is not a characteristic of the
printing industry. We are not, nor have we ever been operating under the
conditions of perfect competition.
Perfect Competition assumes no one competitor has influence over price. While
that appears to fit printing, other assumptions are further from the mark.
Perfect Competition assumes the product/service is homogeneous (the same)
with wheat being used most often to illustrate the characteristics required.
One farmer s wheat is much like the next farmer s wheat although some
variations even occur here. Printing, however, is not a homogeneous product.
My printing is not like yours. Some printers print better, some worse. Some
are better at making it
look prettier
than others. Some have capabilities
others don t. Some printers print in a more timely fashion, some less. Some
printers change their product by having it available in many locations
(Kinko s, PIP s, etc.). But, usually, printers change their product by
changing their equipment and thus their capabilities.
Perfect Competition assumes everyone knows the prices being paid (perfect
information). All transactions are conducted in an open market and reported
immediately (stock markets and commodity exchanges). No way is there perfect
information within this industry regarding price. Time lags, mis-quotes,
mysterious formulas and an emphasis on
knowing your cost
with its resultant
deviant prices all contribute to misinformation. In short, if the stock
market doesn t have perfect information (it doesn t), then we don t even come
close.
Perfect Competition assumes no scarcity. There is the ability to get what you
want when you want it. Although there is plenty of press time in this
country, getting the time to produce the job by tomorrow morning in this
specific part of town leads to scarcity.
Essentially, under Perfect Competition, price is the only difference between
the producers. This results in a direct price-volume relationship. During
periods of shortages, price goes up. During periods of abundance, price goes
down. But that s not printing.
Monopolistic Competition:
So, if we don t have a homogenous product; and we
don t have perfect information; and if there s plenty of scarcity then we
don t have Perfect Competition. What, then, what do we have? We have
monopolistic competition. And that s significantly more complex than perfect
competition.
Monopolistic competition stresses the role of small product differences in
otherwise competitive markets. Each producer sells a product which is a close
but not perfect substitute for its rival s products. There tends to exist a
cluster of competing firms with similar products. Competition among the group
is feverish with entry into the industry virtually free or as free as in
perfect competition. Uniform costs of various competitors are generally the
rule and demand for each company s product tends to be the same for all of
the companies. And, finally, one firm s adjustment in price, product
variation or advertising is distributed evenly over the large number of
rivals quickly so one company s decisions have minimal effect on any one
other rival.
Now, that s the printing market I know. While there is no single theory of
this competition, there are three agreed upon short term and two long term
strategies which owners can use in this environment.
The short term strategies are as follows:
- Compete on Price. Like it or not, price is important in the printing
industry. I m not going to tell you to ignore it, you can t. But, price isn t
as important as most would believe. If it is, then cut your price in half
tomorrow and see how much your volume goes up. However, if the only thing you
are going to do is compete on price, then you had better be the low cost
producer with the best trained people; most effective equipment; and lowest
overhead. Most, however, drive their costs up by not training people, spend
too much on overhead, and buy ineffective equipment. They, then, complain
about the guy down the street selling it for less than what it costs to
produce.
- Change the product or service. Differentiate yourself from the other guy.
You can do this through time (quick vs. slow), place (locations vs. outside
sales), product knowledge (experienced workers), equipment (sizes,
capacities) or even the fine American tradition of advertising (influencing
demand).
- Change the sales efforts. Don t wait for customers to come to you. A
strong sales effort can make up for a higher price and a weaker product. Now,
I didn t say it could make up for a decisively inferior product nor will it
support an excessive price.
What is a revelation for the printing industry is a price strategy is a
strategy and not just an individual price. The three components of a price
strategy are: price; product; and sales activities. You choose how much you
put into each of the three to form your competitive strategy.
Now, some strategies are good and some are bad. You may choose your
competitive strategy from these:
Highest Income Strategy:
High price, better product and a heck of a sales
effort (Federal Express overnight letter). Or, low price, better product and
a heck of a sales effort (McDonald s).
High Income Strategy:
High price, same product and a heck of a sales effort.
Or, low price, same product and a heck of a sales effort.
Medium Income Strategy:
High price, same product and a good sales effort. Or,
low price, same product and a good sales effort.
Low Income Strategy:
Low price, same product and no sales effort. Or, high
price, same product and no sales effort. Or, low price, better product and no
sales effort. Or, high price, better product and no sales effort.
Lowest Income Strategy:
High price, Inferior Product and a heck of a sales
effort. Or, low price, Inferior Product and a heck of a sales effort.
(The strategies above do not include the
Same Price
option, for rarely can
two folks in the same shop come up with the same price from the same price
scheme.)
These strategies are a revelation for our industry. When we think price, we
should think competitive strategy. This includes all three factors of
monopolistic competition: price; product/service differentiation; and the
sales effort.
Unfortunately, many printers look for a silver bullet. They want a specific
price that will maximize their income without having to invest themselves in
differentiating their product nor having to sell anything to anybody. It
ain t gonna happen. It s not price. It s a price strategy.
Perspective:
Printers are told not to worry about price. But, price does
matter. Differentiation of product and sales activities are the only
non-price defenses against an aggressive price competitor. Even with these
defenses, printers must be judicious with their overhead expenditures and get
real value. Many printers find themselves spending their precious dollars on
bad equipment investments which increases their costs and then they complain
about the competitor selling it for less.
Strategic Thoughts:
And here are some strategic thoughts for you while
planning your short term competitive strategy. I make more sales calls on
printing buyers while with my clients than 90% of print shop owners in the
country. Most printers just don t sell anything to anyone.
The smallest company usually has the highest costs not the lowest. Quick is
not and has not been a product differentiation for ten years. Everyone is
quick. Even the so-called old-fashioned commercial printers deliver fast
turnaround. Most printers just do not print well, nor are they reliable.
Long Term Strategies:
Oh, what s the two long-term strategies available to
printers? One, change long term costs (reduce the size of plant, etc. to be
more cost competitive). Or, two, exit the industry. The exit can either be
voluntary or involuntary.
Tom Crouser is principal of Crouser & Associates, a printing management
consulting firm and publisher of
The Crouser Guide to Estimating Small Press
Printing,
as well as printing-specific software. Write to him at 235 Dutch
Road, Charleston, WV 25302, call 304/342-5100 or fax 304/342-5187. Message
him via e-mail at TomCrouser@aol.com and receive the Crouser Report OnLine
free!
Happy Trails...Tom Crouser
Crouser & Associates - Helping Printers Prosper Since 1985
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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Date inserted: Saturday, February 17, 1996 2:23:22 PM
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