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EXTENDING YOUR RANGE: VALUE-ADDED SERVICES

Aug 1, 1998 12:00 AM


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Sam Walton claimed to have walked into more variety stores than anybody in America. "I am just trying to get ideas," explained the Wal-Mart founder. "Most of us don't invent ideas. We take the best ideas from someone else."

The same can be said of value-added services. The idea-borrowing Sam Waltons of the industry are slowly eclipsing the Ben Franklins, the Goldblatts, the Woolworths and so on. Some graphic arts service providers are adding new services while others are putting their own spin on existing services. From fulfillment to facilities management to extended hours to educational opportunities, these value-added offerings generally are not based on original ideas. What is different about these services is that they bring prepress houses and printers much closer to individual customers. It's this collaborative relationship that ultimately enables many shops to classify value-added services as profit centers, rather than loss leaders.

Before we start exploring profit potential, however, we need to clarify what's meant by value-added. "Our definition of value-added services is different from most companies' description," asserts Lou Laurent, a Sarasota, FL-based consultant. "It's any product or service that distinguishes your company from the competition. It creates an edge that your competitors don't have."

A true value-added service promotes a partnership between you and your customer. "Somebody might call mailing a value-added service," explains Bob Rosen of R.H. Rosen Associates (New York City). "Well, it is, in a small way. But if you look at things such as fulfillment, warehousing and distribution, that's a higher level of value-added service, because now you're really becoming part of the way your customers do business. If you are just storing some skids and every once in a while sending out 1,000 copies of this to another location, you're really just a printer who offers storage.

"On the other hand, if you're responsible for creating customers' marketing literature or even distributing product samples, you've become part of the way they do business. You're no longer just a printer who delivers something in bulk to somebody else."

Rosen adds that this consultive relationship is the key to making value-added services profitable. "If your service truly broadens your relationship with a client's marketing department, it permits you to ask questions about a piece's intended purpose and audience," submits the consultant. "It can lead to many other things." For example, in addition to creating and printing a job, you might be responsible for its fulfillment, which could lead to database management opportunities, too.

How do you identify and implement value-added services? Consider the life span of the service, warns Laurent. "When people set-up value-added services they sometimes forget that the competitive advantage is fleeting. Two months after you begin to offer this product or service, your competitor might start doing the same thing. Value-added changes quickly."

"Setting yourself apart as a value-added resource means tying yourself more closely to customers, making it harder for them to go elsewhere," advises Rosen. "It's a real ingenuity in the way you design and deliver service--it's almost never due to equipment. Printers have broken their hearts simply by operating on a 'if we buy it, they will come' precept. Salespeople say 'if only we had another six-color 40-inch press with a coater--we'd get all the gravy jobs designers aren't giving us now.' Owners buy that equipment and find out a competitor has done the same thing. Competing simply on the basis of equipment doesn't work any more than just having a big warehouse works," observes Rosen.

According to Dennis Castiglione, Procom Management (Solon, OH), the seed of some value-added services are planted by a single customer's request. "A client might say, 'You're producing this stuff for me--I don't have anywhere to store it--would you mind holding it there and drop shipping packages as needed?' " submits the consultant. "That one event might prompt you to take your business in another direction."

That's exactly how it happened at Buchanan Visual Communications (Dallas). The $15 million sheet-fed printer's warehousing, distribution and kitting services came about three years ago as the result of one customer's request. In addition to manufacturing its promotional items, the client asked Buchanan to handle the distribution, too. "We learned on the job," recalls CEO Dave Johnson. "We had the space and it seemed like a good opportunity to help provide additional services for our customers. The more we did, the more they asked us to do."

How did the printer add more fulfillment customers? "We don't provide it on a unilateral basis, because not all customers are receptive to it," reports the exec. "Warehousing, distribution and kitting isn't required by all of our customers. We do some probing and profiling to see if there's an interest and then we put together a specific solution."

A typical job might involve putting together a software package--printing a manual, packaging the manual with the software and shipping it. While only a handful of customers use these services, Johnson is satisfied with both the revenue and relationship-building benefits. Because the printer furnishes customers with monthly shipping and inventory reports, "we become more of a consultant to our customers, especially on the reorder process," says Johnson. "It's a much more organized approach."

If customers aren't approaching you with requests for a potential value-added service, it's time to do some market research. A blind survey of customers and prospects conducted by an outside party ensures unbiased results while identifying new service possibilities. (See "Surveying Your Customers," american printer, January 1997.) "You quickly determine where the value-added opportunities are as well as if any of them are viable extensions of your existing business," says Laurent.

After surveying its customers and evaluating its existing capabilities, Port City Press (Baltimore) decided to expand its fulfillment efforts. "For the past four or five years, we've concentrated on developing a range of services that would set us apart from other book printers," explains Kris Koch, vice president, manufacturing and acting general manager. "One of the things that emerged was the number of books we were sending out for fulfillment--either at the customer's warehouse or a fulfillment center. We're already doing very basic fulfillment work for a smaller group of customers. We decided to expand that to include things such as list servicing, longer-term storage and pick-and-pack."

"Doing the entire project with us generally gives clients a shorter cycle time," adds Glenn Eddleman, manager of finishing services. "They are not losing time in the transportation of materials."

A year ago, Port City Press opened its mailing and fulfillment center, a high-bay facility with the capacity to warehouse 1,000 to 4,000 pallets of finished goods, including books, CDs and inserts. A sophisticated warehouse management system tracks orders, captures data and manages inventory. Port City also partnered with another firm to provide toll-free inbound order processing of credit card and check orders. The new system tracks the number of sales calls around the clock for domestic and international calls.

"We chose not to build this internally but to partner with a company called USA Fulfillment," relates Dave Briggs, director of client support. "They can handle 800-number processing on an international basis and ramp up from five to six operators to several hundred over a couple of days. That's a totally different competency from ours."

American Color (Brentwood, TN) has also successfully expanded existing services. Founded in 1975, American Color originally specialized in providing prepress services for retail insert customers. Today, it serves the catalog, publishing, newspaper and packaging markets and has added services that include design, digital asset management, facilities management and digital photography.

Facilities management and digital photography are particularly important to American Color's value-added effort. "By taking over or supplementing a client's prepress production, we not only save them money, but also a vast amount of process time which may be more valuable than just the hard-cost savings," relates Terry Ray, president. "So facilities management is important." For some customers, this means having one or two American Color employees onsite; for others, it means equipping, staffing and managing a complete onsite prepress operation.

Digital photography, according to Ray, is a valuable enabling technology "because it lets us get more involved with customers at an earlier stage of the graphics process. We now have more digital cameras than scanners--over half of our 16 facilities now have large, in-house studios. These are not just rooms with a camera and some lights, but actual studios."

Ray agrees that while keeping up to date with technology is important, there's no substitute for the human touch. "You have toknow your customers' needs and hot buttons," asserts the exec. "The old fashioned way to find out is to just ask them. You can do all the market research you want, but just talking to customers face-to-face is a good way to get to know them as people."

Another prepress operation, Katz Digital Technologies (New York City) has targeted Internet-based digital asset management as a logical extension of its services. Marc Mandel, director of managed media services, explains that Katz' Compendium Connection digital media management service allows customers greater (and faster) access to their data. Under a strategic partnership agreement between Katz and Bitstream, the asset management system features MediaBank software as part of its core technology.

"Suppose a retailer calls his Katz CSR and says 'Remember that shoelace picture we used six months ago? We'd like to use it again.' There might be 17 pictures of this shoelace. What Compendium Connection does is provide a means for the customer to immediately access that picture electronically. We call that client intimacy and that's a big plus."

To keep in touch with its customers, Katz conducts executive summit meetings. "We have to be in listening mode," says Mandel. "Our customers are our best salespeople--we live and die by referrals and recommendations. We do a lot of listening."

If such a title existed, Eagle Direct would be a strong contender for "King of Value-Added Services." Founded in 1956 by Gerald Harris, the $10 million organization began as a printing and stationery business. Today, Eagle Direct offers print, mailing and fulfillment services, plus database development, market research, modeling, test marketing and more. Clients include companies in the ski, resort, cable television, manufacturing, automotive, credit card and banking industries.

"We didn't transform ourselves, we just grew," submits Howard Harris, president. "We were always a company focused on listening to our clients and solving problems, hopefully with ink on paper, but not always. Being a small company, it's a little easier to get closer to your clients."

Harris, the son of founder Gerald, acknowledges, however, that there were some growing pains along the way. In the beginning, Eagle Direct had to combat the marketplace's perception of what a printer was supposed to do. Harris frequently found himself responding to questions such as "why is a printer doing database marketing?"; "why does a printer have so many computers?" and "why does a printer do research?"

"We had an early understanding of how the marketplace was changing and we changed ourselves to meet different segments of the market," reflects the exec. "We basically look like several different companies to the people who are buying our services."

As Eagle Direct extended its reach into nonprint services, it also faced a staffing challenge. "You just don't make press operators researchers," laughs Harris. "We asked people who knew more about it than we did for help. Some of it was dumb luck and some of it was trial and error."

If you aren't thinking about adding value-added services, you should be. If you don't have a marketing expert onboard, someone responsible for identifying and implementing programs to grow your business, you face an uncertain future, warns Laurent. "If you wait too long, the amount of money it's going to cost you to get back into the ring again will be more than you can afford to spend."

How do you set prices for value-added services? It's a thorny issue. Most graphic arts service providers are happy to serve as customers' resources, answering telephone queries or even visiting customer sites to perform maintenance or similar functions. Traditionally, the industry has championed gratis customer education. Smarter customers are more likely to submit cleaner files. Plus, technically savvy customers have a greater understanding of their graphic arts service providers' capabilities.

NEC (Nashville) has demonstrated its commitment to helping customers keep up with the latest printing technology with the creation of "NEC U." Based in Cranford, NJ, the digital learning center will help production managers deal with digital advertising related issues such as file formats and proofing options. The customer program might evolve as NEC's Montage preflight and file repair instructional program did--a customer-only tool that eventually became a standalone product.

At least one consultant believes the industry has been too generous with some of its services and expertise, however. "Our greatest concern when guiding organizations in diversifying their services is that they will treat the pricing and sale of these services as they have the printing industry for the last ten years," maintains Procom Management's Dennis Castiglione. "We have to recognize that in many cases there is a greater value to the customer than simply our cost. Some printers are already eroding the value of these services by making them an added loss leader. They're losing the opportunity to generate revenues that in some cases are far greater than the margins we've seen in the last 15 years in this industry."

One interesting approach to this dilemma can be seen at Heartland Press (Roseville, MN). Mike Egelston, president, explains that the company empowers all its employees to do whatever it takes to deliver the highest quality --even if this means doing something that was not specified or included in the quote. Working with Hagen Systems, Heartland has added a "Quality-Added" function to its plant management software system. All additional steps to enhance the quality of the finished product are entered into the system. When jobs are completed, Heartland's sales reps sit down with clients and review what was done and why.

"We say, 'This is what we did. We would like to get paid for it, but we're going to do it regardless,'" explains Egelston. "For example, let's say we have a job with very heavy coverage of black that isn't specked for varnish or aqueous coating. Without this though, we know it's not going to dry quickly enough to get it delivered on time. We might choose to put that coating on and enter it in our tracking system so that it shows up as an alteration under Quality Added."

Egelston notes that such decisions aren't made casually--whenever possible, customers are consulted before an alteration is made and such changes typically result in modest additional charges.

Externally, Egelston says the system enables Heartland to formally demonstrate how its ink-on-paper expertise impacts the final job. From an internal perspective, the exec says the system helps promote Heartland's commitment to quality. "Quality Added is right there on employees' computer terminals so employees know this is something we expect and want," submits the exec. "It's not something they're going to get at yelled at for--if it's going to take an extra hour to do the job right, we want them to take that hour."

Thinking about adding value-added services? Here are some pointers from industry pros.

It doesn't have to be expensive. "We had one printer client who recognized that 24-hour on-demand pickup and delivery was a value-added service," submits Lou Laurent. "That's certainly not a high tech or costly proposition."

Find a partner. If you are moving outside of your comfort zone or want to test the waters before committing to adding a new service, consider splitting the risk with a partner. Port City Press, for example, uses an outside firm to handle the toll-free ordering facet of its fulfillment services, while Katz Digital Technologies has tapped into Bitstream's software expertise.

Train early, train often. An educated salesforce is essential for succeeding with value-added services. Laurent suggests drilling the salesforce on common software programs (e.g., Photoshop and Illustrator) and providing them with the online tools for "instant" estimates and quotes so that "rather than coming back with a job in a day or two, salespeople can do an estimate on the customers' premises, complete with scheduling information."Katz Digital conducted training sessions to increase account execu tives' digital asset management knowledge. The company also hired dedicated Compendium Connection reps who work closely with the salesforce, including going on joint sales calls.

Get a little closer. Successful companies listen to their customers both informally and formally. NEC conducts a three-day symposium for customers every spring featuring a plant tour, technical presentations and customer-led roundtable discussions. "The printers that succeed with value-added services share one thing," relates Lynn Hagen a New Jersey-based consultant. "They react to customer needs, not internal perceptions or competitive pressure."

Beware of sibling rivalry. Eagle Direct's Howard Harris equates starting a new business venture with having a new baby in the house. "The new child gets all your attention," reflects the exec. "The older siblings can get pretty jealous." There's no easy way to deal with this inevitable internal stress, warns Harris. Be prepared for some sleepless nights spent walking the floor.