As digital delivery proliferates within the customer communications market, service providers with a legacy in print have been challenged to devise pricing models that position their operations for long-term sustainability. As part of its recently published research study entitled, Pricing for Digital: Exploring New Models for Transactional Communications Delivery, Keypoint Intelligence-InfoTrends conducted over a dozen in-depth interviews with print service providers in North America to gain a deeper understanding of the greatest pricing obstacles they face in today’s changing market.
The first segment of this three-part examination of our findings explored procurement’s growing power over transactional customer communications strategy at the expense of business leadership. This second part of the series considers some of the difficulties print providers face when working to demonstrate value through services.
Procurement’s limited perspective into the intricacies of the creation, management, and delivery of customer communications and its rigid RFP practices have perpetuated policies that are disconnected from the realities of customer communications work. This makes it more difficult for providers to shift the value of their partnership away from submitting the lowest bid for the cost of delivery on any given channel and toward superior service offerings. Unfortunately, many enterprises consider services like message archiving, reporting, and analytics as the “table stakes” of a larger print outsourcing deal. As a result, they have become increasingly unwilling to pay for these value-added services. While such a mindset is troublesome, the providers we interviewed believe that their clients’ fear of losing control is much more pervasive and ultimately more problematic. Their refusal to part with customer data and an insistence on continuing to manage customer preferences is, in the words of one interviewee, “adding more fragmentation to an already fragmented process.”
Over the past decade, channels have multiplied and businesses have been forced to delegate delivery through a growing number of mediums to third-party partners. With delivery now out of their hands, many firms have compensated by holding tightly onto message creation and content through an investment in (often licensed) composition software. Nevertheless, some providers now believe that the growing complexity of these tools may convince enterprise holdouts to finally outsource composition. But the inclusion of composition in a print production contract does not necessarily guarantee a more lucrative arrangement—some enterprises consider composition to be yet another value-added service. In fact, providers who offer “hybrid systems” that enable their clients to electronically access and make changes to a document have found that many now expect the outsourcer to do this for them. Although these providers would like to charge a convenience fee, they are hesitant to do so since competitors often bury composition expenses in the total per piece cost.
On the other hand, some clients and prospects, especially those considering outsourcing composition for the first time, demand visibility into the separate costs. It can be challenging for providers to make a direct comparison between their composition cost and the salary, benefits, and work space expenses of a client’s employee managing composition through licensed software. In situations where providers do collect for composition, they usually charge for initial setup and then issue an ongoing processing fee. Some charge different composition costs for print and digital channels, but a number of our interviewees noted that their clients are keen to ensure that they are not paying twice for the so-called “double-dippers” who receive printed and electronic versions of the same statement.
For now, most print service providers are anxious to secure composition—not for the line item fee (which is often non-existent), but for the “stickiness” it produces between their business and that of their clients’. In situations like these, the provider’s financial risk is reduced because it becomes inherently more difficult for clients to switch to another vendor. Providers may experience a similar indirect benefit by offering real-time instead of batch data delivery.
The enterprises that we surveyed as part of our Pricing for Digital study indicated that while batch delivery remains the standard, real-time delivery is becoming more common. In fact, nearly three-quarters of businesses in North America expect the demand for real-time delivery to expand in the coming years and expect its greater complexity to command a higher price. Although few companies need real-time data pulls today, many are interested in “future-proofing” their communication strategies by securing contracts with providers that can offer the service. Unfortunately, while some of the participants we surveyed in a related study of mid-tier print providers do charge more for real-time data, most have found that clients are largely unwilling to pay a premium for these services. Despite the added cost and complexity, some providers have decided to capitalize on the growing demand by making real-time processing their differentiator. Even if they cannot charge for the value-added service at this time, winning new clients and expanding volumes can ultimately drive revenue and strengthen their position for tomorrow.
We expect that the acceleration of real-time delivery will be even more difficult for enterprises to quantify in a strict RFP process and harder for service providers to price given the increasing variability in volumes. This factor shifts more risk in the RFP process to service providers, making it all the more urgent for the market to address the required changes in industry pricing models. At the same time, however, a provider that is connected to its customers through value-added services like composition and real-time data delivery will stand a greater chance of winning forward-thinking clients, forming deeper partnerships with them, and revisiting pricing models during contract renewals.
To learn more about the pricing challenges that today’s print service providers are facing and the strategies they are implementing for future success, stay tuned for the third installment in our Pricing for Digital series, which will publish next week. For more information about our comprehensive Pricing for Digital research study, please contact Deanna Flanick at deanna.flanick@keypointintelligence.com.