The Cost Vs. Price Conundrum

My associate in Southern California, Bob Lindgren, has been extremely vocal through the years/decades about the myths of budgeted hourly rates, and he recently wrote these thoughts, “If we accept that we are revenue maximizers and also accept (regretfully) that we don’t have perfect knowledge, we ned a systematic approach to predict the maximum price that a client is willing to pay.

The first step is to think about the core of our present process, the estimating system, which turns around budgeted hourly rates (BHRs).  This rethink should involve the people in the firm who have experience with the outside world – usually the CEO (if he/she is involved with sales), the sales manager and the sales reps.  Note that this group does not include the accountant nor the plant manager as their experience is internal not external.  This task force’s mission is to make their best overall estimate as to the average rates in their market – about how much are competitors charging for a 40” 6/C, etc.?  Chances are that the answers are not going to be too much different from the numbers already in the estimating system.”

I would argue (from experience) that if the firm was to calculate their “actual” budgeted hourly rates, there would be no correlation to their existing BHRs. And here’ the heart of Lindgren’s argument, “An extremely important shift in thinking has begun – we now understand that the estimating package is not a cost prediction process, it is an available price prediction process.”

This is CRITICAL.  Most companies create a myth that the BHRs in their estimating system reflect costs of production – and entire processes are built to “try” to make the round peg fit in the square hole.  If we truly understand AND accept that our estimating system is used to create pricing palatable to the market place, we can then start using other methods to measure the costs of production and find ways to maximize our return on investment.

What are those other ways?  More to come. . .

It’s More Than Print

If you are not familiar with the largest marketing execution firm in the U.S. (they used to be the largest print management firm in the U.S.), you need to be.  InnerWorkings employs over 1,500 employees, and has 67 offices in 30 countries.  Last year they reported over $890 Million in sales and have been in business since 2001 – and are publicly held.

They recently made an announcement that they will “direct and manage the production of non-newsprint products including inserts, direct mail and select marketing materials purchased by Newsday and its advertisers.”  So as you can see they’re much, much, more than a Super Broker.

So, my first question is, if they are able to make this work for them, why aren’t more printing companies adopting a similar model? My second question is, what are you going to do to stop them from “directing and managing the production” of your customer’s work?

2 -2

It’s been a long time since I’ve watched a soccer match from beginning to end, but I joined millions of Americans in watching the U.S. play Portugal to a heart-breaking draw.  The draw gives them an opportunity to move forward in the World Cup, but Portugal scored within the last minute to tie the game and shatter the dreams of beating one of the world’s top-rated teams.

I had forgotten how much of the game is subtle positioning and wonderful athleticism and you can see why soccer fans get so excited when a goal gets scored — I almost kicked over my computer table when the U.S. team scored their second goal.  Fun stuff and although it was enjoyable to see Michelle Wie win her first major (watching her putt made my back hurt), the soccer match was much more fun.

I think I’ll be watching  futbol over the next few weeks.

Summer Doldrums

I realized it has been a while since I’ve posted — that’s good in that it means there’s not a lot going on in the world of print which I find discussion worthy.  But per the blogosphere, that’s not good since frequent posting is preferred.  Personally, I like to post when I find something worthwhile — and I’m drawing blanks.

I could talk/rant about the Republican Party’s platform in Texas, but that would just tick off my conservative friends and remind my liberal friends that I belong to “that” party.

I could talk basketball and remind folks that everyone said that LeBron and company were going to be a DYNASTY, but over the past four years it’s been Texas 2 and Miami 2.

Don’t want to talk about baseball — Rangers look like a minor league team right now due to injuries and Yu just got trashed last night by the A’s.

No need to discuss the mess in the Middle East.  That problem has been brewing for 1,000 years.  Sad but true.

Is Hillary going to run?  Nah, ain’t going there either.

So, let me talk about a few good things I’ve seen over the past month or so.

It was nice to see many of our industry leaders at the recent Print Leadership Summit which was held in Dallas.  Good attendance (but could always be better!) and overall very good workshops and speakers.  Everyone agreed it will be well worth doing again in 2015.  Location — TBD.

I’m excited to see the interest many of our businesses are showing in Lean Enterprise.  Many in our industry are realizing that they are manufacturers (who also provide services), and they need to find ways to reduce waste (labor, time and materials) to be competitive in our changing world of visual communications.

And it’s finally summer!  Yes, it’s Texas.  Yes, it’s already 90 degrees plus.  But it beats having six-seven months of cold dreary weather.  I think I’ll step outside and enjoy the sun for a while.

 

Patent Fight Gets Interesting

I wrote a Cup-a-Joe blog for our E-newsletter earlier this week regarding patent trolls and the havoc they could have/are levying on our industry.  One of the key issues I touched upon — and many in the industry have questioned — is the role that our technology suppliers should be playing.

That question was answered in spades this past Thursday May 22) when it was announced that Agfa, Kodak, and Heidelberg jointly filed for inter-partes review with the US Patent Office.  This is a critical move in battling the Trolls and their attack on the industry.

Kudos to Kodak, Agfa, and Heidelberg!  It wasn’t an easy decision — but it was the right one.

MPS Is A Bad Word

For the past year or two, I have eliminated the word Marketing Service Provider (MSP) from my print vocabulary.  It started with a conversation with Steven Schnoll at a conference as we discussed the changing industry landscape.  Steven was adamant that unless your firm has true marketing consulting experience that calling yourself an MSP doesn’t really make you one. There’s a recent article in Printing Impressions written by Erik Cagle that does a good job of outlining the challenges of being a real MSP (and includes commentary from Schnoll), or as Cagle puts it, being a contender rather than a pretender.

There’s also nothing wrong with being a PSP — print services provider.  As long as you realize that being a PSP is more than just putting ink on paper.  It’s about being an integral part of the customer’s communication chain, and more than ever before, the necessity of being a solutions provider, rather than just a print provider.

Wealth Is Good

Earlier this month the employment numbers were reported by the Department of Labor and at first blush they looked very good.  The best in years.  Yet there was a shadow cast in that the number of individuals who “gave up” looking for jobs has continued to increase, and the ugly fact that earning power for the majority of wage earners is still stagnant and is becoming a bigger and bigger issue.  This news is not positive for those of us in the business world since it creates more and more pressure for increasing the minimum wage (another argument for another time).  Yet, the topic that is coming more and more to the forefront with this type of news, and the one that drives me crazy, is the issue of wage equality.

The idea that there is some magic ratio that creates “fairness/equality” between the risk takers and the non-risk takers drives me nuts.  Over my forty years in business, I have held a variety of positions and worked with hundreds of individuals.  The folks who I have met who are “top” earners (the 1%) are driven individuals – and the vast majority are risk takers.  They’re willing to be paid on commission.  They are willing to cash in their 401K and start their own businesses. They will work for several years taking home very little to build equity in their businesses.  And success is not guaranteed.  That’s the risk they knowingly take.

Yet, the idea that we should limit (through taxation or some magic formula) the compensation of those who succeed and do “make it,” is foolishness.  Take away the “reward” to be a risk taker and your unintended consequences will be to reduce the lifeblood of what has made our country great.

It’s that type of drive which is the backbone of this country.  Yes, the numbers tell us that over the past 20 years we are seeing more and more wealth being transferred to the top earners – OK, maybe there is a disparity, and there may be a need for some changes in taxation – but let’s not react punitively so that we can be more “equal.”  Let’s remember that this creation of wealth comes when technology and society are being transformed by invention and creativity.  It’s a cycle that we’ve seen before (read “A Splendid Exchange: How Trade Shaped the World” by Bernstein).  In the long run this type of transformation provides the dynamic growth necessary for a country like ours to succeed AND provide wealth (the ability to live life as we see fit)  for the vast majority (I did NOT say all of us).

Beisball Been Berry Berry Good To Me

For those of you old enough to remember, that’s a line from an OLD SNL skit, but baseball has been very, very good to me.  It’s a sport I started to play when I was about seven.  I was never that good, but good enough to play in high school and dabble in a variety of places as an adult where I got to compete against players who had played minor league ball – but that’s a story for another time and place.

Baseball was the common tie with my dad – and my grandfather.  The love of baseball for my dad probably started in El Paso, Texas where he lived as a teenager.  I remember a photo of him as a young man dressed in a baseball uniform and the love of the sport is reflected in his face.  He injured his arm sometime in those days of playing sandlot ball, and that kept him from playing as an adult. But that didn’t change his passion for the game.  Over the ensuing years he coached little league and subsequently spent over twenty years as an umpire.  The diamond outlined in chalk was always part of him.

I don’t know where or when my grandfather’s love for baseball began, but he was born in the late 19th century in Mexico, and given the penchant for baseball south of the border, I’m sure he probably had the love instilled sometime when he was a young man.  That love of the game was obvious anytime time we visited him during the baseball season.  You’d always hear a radio tuned to the spanish broadcast of his beloved Dodgers.  And it was really a treat when all of us, my dad, grandfather, brothers, cousins (which were like brothers) made the pilgrimage to Chavez Ravine (never Dodger Stadium) to see the real thing.  Although my father and grandfather are no longer with us, their passion still lives in their sons, grandsons, and great-grandsons

Over the past six years, my brothers, son, and nephews have visited a variety of cities to catch a baseball game, drink a few beers, and remember the glory days (almost everyone played the game). Although all of us bleed Dodger Blue, it doesn’t matter who is playing.  It’s still about 18 players on a field of grass and dreams.  So, as you can see, beisball has been berry berry good to me.

It’s Been a While

I’ve realized that it’s been weeks since I’ve expressed an opinion.

It’s not that there are not interesting subjects. There’s the global politics of Russia and the brilliant strategic moves of Brother Vlad. There’s local news – good – for north Texas regarding the relocation of Toyota’s North American sales headquarters from SoCal. So sorry. And of course we could talk about the Mavericks taking the Spurs to game 7 – but I don’t want to jinx what might happen later today (it’s 3 hours before game time). And there’s not anything really interesting going on in the world of print; other than people are beginning to realize that there’s still a need for it in the world of marketing and promotion.

OK. I’ve written a few words and I feel better. For now.

Old School Is OK

You crowd the plate. You get chin music;  You run a six-yard sideline out and celebrate like it was a TD, and next time you come across the middle — you’re seeing stars; and youse gotta pay your dues before you get promoted.  Yes, I like old school.

And old school is OK for retailers per a recent Wall Street Journal article that John Barry, with ColorDynamics recently shared with me.

It seems that many online retailers are starting to figure it out.  In the WSJ article, Bonobos, the menswear brand built on the idea of better-fitting pants has seen the light.  Per the WSJ, “Bonobos mailed a test catalog just over a year ago to a small number of current and potential customers. Results prompted the brand to try several more, gradually increasing circulation each time. Now, some 20% of the website’s first-time customers are placing their order after having received a catalog, says Craig Elbert, vice president of marketing for Bonobos. They spend 1.5 times as much as new shoppers who didn’t receive a catalog first.”

And many traditional store retailers with a history of catalogs remain as committed as ever.

“It’s still a very, very important part of our marketing mix,” says Pat Connolly, chief marketing officer at Williams-Sonoma Inc., parent company to seven brands with catalogs including Pottery Barn and West Elm. Consumers “look through it to get ideas and inspiration. And if we do a good job, they get ideas for things they didn’t even know they wanted before they got there.”

And if you’re old school and numbers never lie, try these metrics from the DMA (Direct Marketing Association) — marketers mailed 11.9 billion catalogs in 2013, the first uptick in years.  Granted we’re not at the 19.6 billion level of 2007, but that was in a galaxy, far, far away.

Regardless, that’s a lot of print still out there — and with shorter and shorter runs and more targeted mailings, catalog printing is no longer just in the realm of the Big Boys — and that’s not old school.