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Show me the customer benefits

Mar 1, 2005 12:00 AM


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Gorelick’s Management

This column deals with the emergence of so-called "consolidators" in the graphic arts industry. We’re not talking about run-of-the-mill mergers and acquisitions, but roll-up companies that were in active acquisition mode during the l990s and believe the size of a firm holds appeal in an avaricious marketplace.

Before going further, let me mention that my consulting firm has not done business with any of these consolidators. In retrospect, we’re hard-pressed to believe that consolidation, especially by public companies, was a quantitative, not a qualitative, concept. The CEO of a prominent public consolidator publicly boasted that his company would never consider investing in a firm that was a financial basket case or a union shop. That company’s actions believed its claims. The operative concept was that "bigger is better."

Market-driven success
Every seller to a consolidator has offered a different justification. Some believed that consolidators were the wave of the future in a booming stock market. Some entrepreneurs felt it was time to get out, after witnessing people they respected leave the business. I believe many entrepreneurs who proudly and intelligently built businesses have cashed in, selling their companies solely or mostly for stock in an inflated stock market. Today, they have little more than memories to show for their efforts.

The notion of leverage in American business seldom materializes in practice. One plus one doesn’t equal three. In business, it usually equals about 1.3. Cultures, personnel, suppliers, account bases and even salesforce compensation plans must be reconciled.

Tight accounting controls and the world’s brightest MBA cannot successfully address the fact that the marketplace, not the stock market or excessive cost reduction, eventually will determine the success or failure of consolidation. Size alone is not a basis for meaningful competitive differentiation. It’s comparable to the healthcare industry: Despite the size and resource of a clinic or hospital, a patient just wants to spend 20 minutes with a concerned physician.

Illusions of power
Early in the graphic arts consolidation phase, buying power was the rationale offered to the marketplace. Discussion about the deals made with press manufacturers and paper companies had small and midsize independent printers worried about their ability to compete. The next phase involved the concept that by dealing with a consolidator, a print buyer has access to a dazzling array of products and services. This wasn’t a persuasive argument: The buyer who needs a two-color instruction sheet in two days doesn’t care about the ability of a supplier’s sister company to die-cut rounded corners.

The lesson of the consolidation experience is that nothing has value—not equipment, not company size, not a reorganization—unless it can be converted into a perceived customer benefit.

Within a print company’s account portfolio, there might be as many different perceptions and business needs as there are customers. There are few all-purpose solutions in the industry today. It’s reminiscent of the comment Baron Hilton made when asked to relate what he’s learned after fifty years in the hotel business: "The only universal truth is, when taking a shower, put the curtain inside the tub."

Customer benefits trump size factor
The industry’s love affair with consolidation, equipment and pat answers to sales management is finally being tempered with an understanding that virtually everything is customer-driven. A faster piece of equipment might not have the same perceived value as having a visitor parking space adjacent to the front door or a delivery person who carries boxes up a flight of stairs with a smile.

Consolidation is not inherently a bad idea. It was largely driven by a stock market that made people euphoric and emboldened acquirers, and by a body of acquirees who were faced with changing technology, the prospect of substantial investment and a marketplace in which they felt less comfortable. The focus was largely internal and, in the case of several consolidators, shareholder-driven.

Lessons of the past haven’t been instructive for everyone. A profitable sheetfed commercial printer was acquired by a consolidator whose headquarters directed it to sell web work because a sister company had idle press time. A great theory—but these customers, with a few exceptions, don’t buy web printing. Headquarters didn’t even consider the existing customers.

A graphic arts company can cut costs and improve efficiency, but those are short-term (if not academic) solutions unless perceived customer benefits are addressed. Certainly, price is an important issue. But in the absence of any other benefit, price soon becomes the only issue in the buyer-seller relationship.


Dick Gorelick is president of Gorelick & Associates and the Graphic Arts Sales Foundation. He can be reached at info@gorelickandassociates.com.