Adding Marketing Services? Minimize Your Risk

In my last article ("Should In-plants Offer VDP and Marketing Services?") I suggested that a better question might be, "Will this increase the value of the in-plant?" The answer, of course, is yes.

Following this, the next question is, "How do we proceed?" In this article we will discuss one strategy for adding new value-added services while minimizing your risk.

It's important to return to basics and confirm the fundamentals before embarking on any strategic plan. Therefore, the first step is to sit down with the people in charge (administration, auxiliary services, plant, procurement, etc.) and have a conversation about goals and expectations. Among the areas for discussion:

• What was the original motivation to create the in-plant?
• Has that changed?
• What are the current goals of the in-plant?
• How is its performance evaluated?

If you already know the answers, skip this step.

Tough Questions

I'm sure you have heard the expression "deer in the headlights." Tough questions can result in this look. In addition, some may say they don't understand the question, others that they don't understand production, and a few may even candidly admit they don't understand the department and need help.

But that is not always the case; there are just as many people in charge who are more involved and have a better understanding of the in-plant. When asked, these more knowledgeable people typically answer questions about in-plant goals with responses such as these:

• Faster turnaround and more convenience. "We want staff to be able to walk to the basement and get their stuff. We don't really measure performance, but we hear when people complain, especially the important people."
• Maintain brand consistency. "We need to make sure the logo color is the same on all our printed products. Again, we don't measure this but we see when people use the wrong logo."
• Make sense financially. "We expect the department to charge us less than most outside companies, and to pay for itself. We measure break-even at year-end and, of course, we hear if the pricing is too high."

It's also useful to talk about the original motivation for the in-plant operation. This can be an interesting exercise, both for those who are new in their position and do not know, as well as those with more experience who can provide helpful background information.

Typically, when the in-plant was created, it was built to fulfill an existing demand for business cards, forms, letterhead, signs, stationery, envelopes or other internal products. Buying the right equipment and building the workflow for that application mix was easy because there was a known demand. But when adding new products, the demand is often not so readily apparent, making the investment riskier.

Acknowledge the Risks

During these conversations about strategy, motivation and measurements it will start to become clear if the people in charge believe that investing to build new services is a good idea. Even those who support the new services and believe in their value should also acknowledge the risks.

Conceding that there are risks does not mean that offering the service is not a good idea; it just recognizes that there are potential downside possibilities to keep in mind. In fact, acknowledging and understanding the risks is important if you are to avoid them.

Year after year in the NAPL State of the Industry research, we see which value-added products and services are the most sought after. They change slightly in ranking order from year to year, but generally they include VDP, Web-to-print, digital printing for short-run color, workflow solutions and wide-format printing.

Basically, there are two ways to offer new products or services. You can buy the hardware and software or you can buy the service. When two priorities are in conflict, we say that they are at odds with one another, like in a tug of war. For in-plants, there is a tug of war between the motivation to invest in hardware and software and offer new products and services, and the risk associated with buying something that you may not have enough demand to cost-justify.

Cost Vs. Profit

If you can't cost-justify an investment, then you put yourself at a financial risk, and it may become a "robbing Peter to pay Paul" situation: If the cost for offering the new service is higher than what you are making in selling that service, then you have to supplement it with money from another area.

It may not be a major issue if the money involved is not significant or if the shortfall in utilization is occasional or lasts for just a week or even a month. But it is a problem if it stretches into a year or more. For example, if you invest in a new bindery line that runs only four hours a week, it would become a financial burden and could jeopardize a break-even at year's end.

Over time, you might find that demand is growing and you can cost-justify the investment. If, after three months, for example, the demand increased to 20 hours a week and it helped bring in additional work, it would most likely help you grow and prosper. But until you have enough work to run consistently at your break-even point, it might make more sense to buy the service rather than buy the equipment.

There are additional advantages to the "buying outside first" strategy. If you work closely with your outsourcing partner, you will learn important details about providing the service. For example, when offering VDP or other database services, you should watch how an experienced supplier builds the database. What are the names of the fields? How is the database created (bought or built)? What is the mechanism for cleansing the data? How can you add data (PURLs)? How is the VDP print job tested (PDFs)? Can you run tests with different groups? Can you enhance the effectiveness with cross media (QR codes, e-mail, etc.)?

A Conservative Strategy

In these challenging economic times, when in-plants are under more scrutiny to deliver financial break-even and cost-competitive pricing, no one can afford to lose money or try to increase pricing to overcome losses due to insufficient demand for a service. Therefore, we recommend a conservative strategy of buying new products and services from outside suppliers until you can cost-justify the investment.

One approach to offsetting the loss in traditional products is to add new products that have more value. Before you invest, however, you should calculate a return on investment to find out how long it will take before you can cost-justify the investment. If the investment is small and time to cost-justify is short—such as entry-level VDP software ($5,000) that could be paid off in three months—then the risk is low.

As risks become higher and ROI longer, outsourcing should be considered more seriously. This does not mean you can't offer and sell the service, but it might mean not buying the equipment at first, but partnering with an outside supplier until you have enough demand to cost-justify the purchase. As the demand increases and you learn more about how to deliver the product, then you can make the investment.