Special Report

---

Part 1 | Part 2

---

Direct mail growth Direct mail holds a strong portion of the market, with 50% of survey respondents participating in this growing segment. And direct mail sales are expected to grow in the years to come. An important trend is the displacement of mass media and mass marketing with more focused and targeted direct-marketing activities. Database marketing and data-mining techniques have the ability to significantly improve direct-mail targeting, resulting in increased response rates and more productive mail.

Direct mail is experiencing above average growth. In fact, a recent study by PRIMIR (formerly GAMIS) (www.primir.org), indicated a growth rate of 5.6% per annum until 2010. In comparison, the real annual growth for all advertising during the same period is 4.8%.

By 2010, says the PRIMIR study, direct mail is projected to increase its share of print media in the U.S. to 29% of all print advertising media expenditures.

Diect mail advertisers, according to the PRIMIR study, wish to improve targeting through database management and related analytics to reach specific individuals, groups of types of customers. Secondly, they wish to employ variable content to deliver more personalized and customized direct mail. High targeting and variable content is seen as “they way to go” in direct mail.

Highly targeted and variable content, however, will increase demands on production. Volumes per campaign may be lower and print runs shorter. Each piece will require more handling and more integration—and will cost more.

Direct mail advertisers will demand more “strategic integration” from the combined creative, production and delivery processes, in terms of the amount of variable content, the number of versions per campaign, the capability to execute it all smoothly, and the ability to keep track of the results. Printers will increasingly be judged by their contribution to the advertiser’s strategic agenda rather than the technical quality of their work.

How printers are responding
Recognizing these changes in the marketplace, the majority of web offset printers in the AMERICAN PRINTER survey saw digital printing (toner-based, variable data) as the greatest threat to web-offset volume. To better compete with presses that can do variable data printing, some web offset printers are starting to incorporate hybrid technologies into their press lines.

In the Transcontinental survey, one-third of respondents now incorporate inkjet technology into their personalization processes. These inkjet users are well-established catalogs with high mail volumes and high catalog page counts. This finding indicates that there is significant opportunity to help catalogs adopt this cost-effective personalization technique.

In addition, the mix of total revenue in a web offset establishment is changing. In the AMERICAN PRINTER web offset survey this year, 50% of respondents indicated that 1-19% of their total revenue is derived from ancillary services (anything except ink on paper). Only 3.8% of respondents said all of their revenue came from print. Interestingly, 11.5% admitted that between 40-59% of their total revenue was now coming from ancillary services, and an equal number (11.5%) stated that 20-39% of total income came from ancillary services. These web-based companies have started to realize that success lies in being more than just a printer.

Web offset printers also are responding to a changing marketplace with the purchases they plan to make in the coming 12 months. Although 23% stated they are in the market for heatset web offset presses, an equal percentage is interested in purchasing digital presses capable of handling variable-data. Other equipment high on printers wish list includes computerized management information systems (30.8%) and computer-to-plate systems (30.8%). Mailing/distribution capability was also popular with 11.5% of the respondents.

When asked if integrated automation was useful in their operations today, 34.6% of respondents said it was extremely useful, and 30.8% said it was somewhat useful. But 19.2% did not answer the question, leading us to believe confusion still surrounds computer-integrated manufacturing (CIM) and its benefits within the printing industry.

In spite of the confusion, 61.5% of respondents believe that an integrated and automated process will be “extremely useful” in three to five years, and 19.2% termed it “somewhat useful” in the same time period.

Nonetheless, with the maturing of technologies and the ongoing adoption of industry standards, printers’ attitudes appear to be changing on the subject of CIM. This technology allows printers to speed makereadies, achieve more consistent color and operate presses with fewer people—all desirable goals. “The Job Definition Format (JDF) represents a further step toward automation, so that printers will be able to handle more jobs in a shorter time, with fewer manual operations,” says a recent PRIMIR study. “In the same way that PDF has become standard for the description of documents and their contents, JDF will become standard for controlling individual processes and the workflow as a whole in the printing industry.”

According to experts cited within the PRIMIR study, “The only way to increase printer margins now is to reduce costs. To do that, printers must find ways to cut downtime and automate as much as possible. To succeed today, isolated aspects of the production chain need to be fully integrated. JDF is a further step toward automated.”

Improving operations
When asked the best way to improve operations, the majority of respondents to the AMERICAN PRINTER study chose improving plant efficiency. As noted earlier, this appears to be part and parcel of an effort to further automate and integrate processes within the printing plant. Toward that end, 38.5% indicated that they were installing new production equipment to improve operations, and 34.6% were looking to improve the front-end link from customer to prepress.

There may be a correlation between improving plant operations and the increased interest in purchasing computerized management systems. In the study, 26.9% of respondents said they would like to obtain better data on plant productivity, which can be achieved through more efficient use of MIS systems and the data they provide.

Improving postpress efficiency was stated as a priority for 26.9% of respondents, which is an increase from earlier years. And, of course, it comes as no surprise that 26.9% of respondents set a priority on speeding press makereadies to improve their operations.

The AMERICAN PRINTER study went on to ask web printers the best way to improve profitability within the company. The answers to this question were more varied than others. The largest group of respondents (26.9%) indicated that profitability could be improved by improving the cost of manufacturing. But 23.1% said that profitability would be improved by increasing sales in new markets. This is a big change from earlier studies in which increasing sales in current markets was seen as key to improving operations. This year’s study shows a general acceptance of the fact the long-term profitability rests on a combination of increasing sales in new markets and improving internal operations.

There was interest in other areas for improving profitability as well. Slightly more than 11% of respondents stated that becoming a “one-stop shop” was the way to a better bottom line, and 11.5% believed that specializing in a targeted market niche was the key to higher profit margins.

The biggest challenge
Commodity pricing was said to be the biggest challenge facing web printers by 23.1% of respondents—not surprising in this marketplace. But perhaps more surprising was that 23.1% of respondents also said that production inefficiencies were the main challenge they faced.

Again, challenges are many and varied to web printers. Almost 8% were challenged by finding the capital to invest in new technology. That’s not surprising. With all the emphasis on improving internal operations as a way to improve profitability, it is undoubtedly a challenge to find the dollars to keep up with new technology.

As in past years, web printers also are challenged by lack of skilled employees, overcapacity, increasing paper prices, environmental issues and, as one printer put it, “survival.” During 2006, it will be vital for web offset printers to continue to define themselves as “more than printers.” They must serve as consultants and be willing to offer services that customers believe are important. Customers are trying to do more with less, and are often open to new ideas from printers. As a result, there is an opportunity to develop closer partnerships with clients, understanding their needs and working together to develop products and services.

---

Jill Roth is director of brand development and special projects editor for AMERICAN PRINTER. Contact her at jroth@primediabusiness.com.

---

---

Postal Concerns
By H. Don Landis

Someone once said, “What you don’t know can’t hurt you.” This certainly doesn’t apply to those in the mailing and printing industry. In our case, what we don’t know could drastically hurt our business and customers—especially in the pocketbook.

With the next rate case being called the “mother of all rate cases,” talk about implementing flat sequencing systems (FSS) as well as implementing evolutionary network development (END), there’s a lot to be nervous about. How large will the rate hike be? How will FSS affect drop shipping? Will END result in closing facilities? We don’t have these answers yet. No wonder the mailing and printing industries are apprehensive about the flux and constant change within the postal industry!

Consider the 2007 rate case
It is anticipated that in the next rate case, some classes of mail could see the largest increase ever. Although the mailing industry is anticipating a 5.4 percent increase effective in January 2006, we need to start focusing on what might happen in 2007. The next rate case has the potential to be expensive as well as complex for some mailers.

Currently it is unclear what exactly will transpire. There is a real possibility with this rate case that we could see the beginning of an entire new postage rate structure based on more work sharing. A major concern for catalog and direct mail printers is cost saving in respect to production and work sharing. An increase of work sharing could raise production costs for the printer, including major changes to the existing infrastructure. It is also anticipated that this next case will force mailers to become more efficient in co-mailing, co-palletizing and drop shipping. Co-mailing, both inline and offline, will most likely become the norm. Discounts are currently available in the periodical world for co-palletizing titles that would normally be placed in sacks.

Those printers that do not already offer mailing to their customers will find it extremely difficult to start once the rate case goes into effect. Because cost-savings will favor larger mailers with large mailing volumes, those attempting to start mailing programs with smaller volumes will find it difficult to justify the return on investment.

Flat sequencing system (FSS)
The Flat Sequencing System (FSS) was designed and announced in 2002 by the USPS as a research and development program to decrease mail delivery costs. As defined by the USPS, FSS would automate sorting flats into delivery sequence. While this will not merge flats and letters into one package, its goal is to place flats in delivery sequence within one or more five-digit zones. Essentially there would be a machine designed to perform three key functions—induct flats at high speed, automatically manage trays throughout the process and sequence flats to delivery order.

FSS has not yet been deployed and may not be until 2008. But there are questions to help us prepare for the change. Would catalogs have to be packaged in different containers or pallets? Could zip codes be commingled? And what does this mean for drop shipping? There are thousands of routes throughout the country. Would FSS be implemented for all routes?

Evolutionary Network Design (END)
Although we haven’t heard much about the plans for evolutionary network design, now called the END program, there are some issues we can start addressing. The USPS is looking to transition single-product networks to a more efficient network designed to handle multiple products. These new Regional Distribution Centers (RDCs) will be created from existing facilities, but this consolidation will close some USPS processing facilities throughout the country.

In addition to other responsibilities, RDCs will consolidate parcel and bundle distribution to take advantage of shape-based efficiencies. With multiple unknowns, questions arise. How many USPS facilities will be closed when forming RDCs? Will this affect facilities closest to me and create inconvenience? How will this affect drop shipping?

We’ve heard that END could become a reality by the end of 2006, so until then, all we can do is continue to stay abreast of new developments in order to effectively counsel customers.

Precautionary steps
There are steps that our industry can take to prepare for the changes:

---

About the author
Don Landis is vice president, postal affairs, at Arandell Corp. (Menomonee Falls, WI). An 18-year veteran of the USPS with stints in mail processing and delivery, Landis became Arandell’s vice president postal affairs in 1986. Since then, he has regularly used his expertise to develop sales and marketing strategies for customers. Landis is a member of the PIA postal committee and is involved with USPS Work Groups that deal with product redesign, the PostalOne electronic commerce platform and presort optimization. See www.arandell.com.

---

Part 1 | Part 2

---

---