By Rob Gray, Monday 29 October 2018
All I ask is the chance to prove that money can’t make me happy,” quipped the offbeat, hilarious Spike Milligan.
Money is one of the great themes of comedy and there’s no end of witty one-liners about how much things cost. But of course, in the world of business, pricing is a serious matter.
Set your prices too high and you’re uncompetitive, too low and you’ll be unprofitable. Like Goldilocks, it’s all about getting it just right.
As pricing strategy is such a commercially sensitive aspect of any business, a couple of print bosses we spoke to for this piece would only comment under condition of anonymity. Others were happy to comment on the record, but were somewhat guarded about certain specific points for fear of throwing away any carefully nurtured competitive advantage. So, what are the price-setting ground rules?
“We have always been firm believers in the value for money equation,” says DigitalPrinting.co.uk managing director Gary White. “The price paid is only part of the consideration in any purchase, as service and quality play equally as big a part in any buying decision.
“We always try to match the price we charge to be consistent with the service and quality we provide. We certainly have no desire to be the cheapest, nor do we ever want to be seen as very expensive. Our aim is to be seen as a service-driven, high-quality, print service provider.”
How, though, do you set about deciding what margins are achievable?
“Pricing is not a science, but an art,” says one print boss. “Margins are decided by a mixture of the technical knowledge of your client, along with the amount they depend on you from a creative and market intelligence perspective, combined with your capability of delivering a competitive product.
“Business-to-business price setting is the exact opposite of business-to-consumer price setting... Generally in B2B, the prices go up over time rather than down based on volume purchased.”
A rival, anonymous print company leader explains working out the margins you need to make calls for a comprehensive business plan, which identifies all overheads and direct costs. Then you need to understand levels of productivity, in order to ascertain levels of turnover at market rates.
“The problem with printing,” he says, “is that it’s very highly geared. Litho presses are at least a seven- to 10-year investment and payback. A lot can change in that time, technically and also market-wise.
“This then feeds back and affects the above plan. And if you cannot adapt and roll with the punches, you can find yourself without a business. There are however many, many ways of working and structuring your business in this industry.”
Matthew Parker, director at the aptly named Profitable Print Relationships, says margins should be based on what the market will bear. Therefore he advises conducting research into more profitable markets. “Talk to people in those markets to find out what they expect: you may be surprised at their budgets! This does assume that you are prepared to focus on profitable markets rather than pure volume.”
What about predatory pricing? Is this ever justifiable or prudent? Undercutting competitors is a touchy subject given that many firms have gone out of business because of the low prices of competitors. So, how should print companies approach this issue?
Matthew Camacho, managing director of PiP Associates (Profit Improvement Programmes), provides training to business leaders on improving commercial results. Getting pricing right is absolutely critical, he says, especially in low-margin or loss-making businesses. However, undercutting is seldom the correct solution.
“Undercutting competition on price can have its time and place, but typically, such action simply destroys margins – fast! – and pricing power in a product or industry, and hands competitive power to buyers. We would caution against such a move in most scenarios.”
He adds that, whatever buyers might say – that it’s always about price, apparently – “it clearly isn’t always about price. It is finding the small pockets of value that you offer to customers via a product or service that will allow a business to operate more effectively in a tough price environment.
“By understanding what value you offer customers, it should be easier to charge that little bit more, or stand firm when the pricing discussion gets tough.”
Equally, understanding the value you offer to individual customers is essential. Camacho points out that if a business is seen as best in class logistically, and failures in this area cause customers financial or operational pain, understanding that dynamic is essential to not only charging more, but also justifying doing so.
However, any number of factors affect a business and its ability to price a product effectively. The reality for a certain product line might be very unhealthy, and no amount of price conditioning, excellent marketing or outstanding negotiation skill is going to see a buyer pay an acceptable price for it.
“Don’t be afraid to accept this reality on occasion,” advises Camacho. “If a particular product or service is hard, or impossible, to price appropriately, it might be time to drop the product or service line and walk away. Equally, but less drastic, the same tactic should be used on occasion when a deal cannot be done at an appropriate price, or short-term market conditions are particularly unfavourable. Recycling that time into more promising customers, markets or products will almost certainly yield better financial results.”
Scott Pearce, managing partner of Hatfield-based marketing and print agency Datum says some client sectors have greater immunity to pricing pressures than others. Datum has found project-based work, such as event and expo production, along with digital services, to be fairly resilient. Marketing, however, is normally the first victim of economic downturn, but in Pearce’s experience it’s also the first industry to emerge from a recession.
Pearce stresses that Datum has never made a point of undercutting competitors, particularly in today’s market where clients can buy online if they are that price sensitive. Rather, Datum has always based its business around the added services to print, “whether it’s creative, digital campaign or project management”.
He doesn’t think it’s advisable to build demand for a new product by keeping prices artificially low to begin with. Or to use a loss leader strategy in other ways. However, he will “sometimes beta test products and systems” with clients.
Clearly, the broader economic context has an effect on pricing. Tied up with this is uncertainty relating to the dread ‘b-word’: Brexit. All of which is having a direct impact on print, as on many other sectors.
“The uncertain political climate is having an effect on confidence on the advertising spend across the board, which then puts pressure on pricing as there is less work to go around,” says Geoff Neal Group chief executive Sam Neal. “Couple that pressure with significant increasing consumable costs – finding a margin is very hard to achieve.”
That said, Neal is adamant that if a client is going to commit to a printing something, then it should be done right. And therefore the arguments in favour of a decent price are compelling: the lifespan of printed marketing is longer than digital; customer expectations over its design, content and production values are higher; consumers trust print more.
“Selling on price is not selling at all, it is just order taking,” says Neal. “At Geoff Neal we sell on innovation, knowledge, problem solving and going beyond the normal boundaries of quality and customer experience. As a result, we offer better value for money than ‘cheap print’ because what we produce delivers better ROI for the client, enhances their brand and we give them time back by shorter lead times and by just taking their pain away. Cheap print can go one of two ways – even lower or online.”
One of our anonymous print bosses is equally forthright on price squeezes and shoddy cheap print. Some buyers obviously make low price their number one criterion.
“We have actively diversified, so have gained some work from doing so. I would not say that prices are rising, quite the contrary. Some of the pricing would appear quite ludicrous to me, but then when you see the product that was produced you understand why. If fit for purpose is the requirement and the person doing the buying is happy with what they get, then there is little you can do but move on to the next opportunity and tell your story again.”
Communicating your ‘quality story’ well is vital in avoiding an undesirable and unsustainable race to the bottom on price. This is critical in an industry such as print, where it is often difficult to make swift business changes.
This piece began with a bon mot from madcap Goon Spike Milligan but ends with a more serious quote from price strategy guru Hermann Simon’s book Confessions of the Pricing Man. Sober in theme and tone it may be, but it’s a very useful slice of wisdom: “When a company tries to figure out the price it can achieve, only the subjective (perceived) value of the customer matters. The objective value of the product or other measures of value, such as the Marxian theory that value is defined by the human labour time invested, do not matter intrinsically. They matter only to the degree that the customer thinks they matter and is willing to a pay a price in return.”