Production Print Growth Drivers: Why Some Dealers Are Cashing In

Growth is hard to come by in today’s document imaging market. Sales of many A3 and MFP models are flat, and clicks are declining. Dealers are looking for new, complementary product lines to boost growth and margins, and some are finding success with production print systems.

Production print has several points in its favor. Most dealers already have relationships with production print OEMs such as Konica Minolta, Canon, Xerox, or Ricoh. Hardware prices are high, which means a good profit is possible on the initial sale. Best of all, production printers consume supplies at a prodigious rate, ensuring high-margin recurring revenue.

So why aren’t all dealers selling production print? Like any worthwhile venture, it requires significant thought, commitment, and investment. Dealers who understand the production print market treat it like a new business, not just a new product. It’s significantly different from the copier business, and dealers need to ask key questions before leaping in: Who is buying and what’s their buying process? What are the expectations for support? What market trends are shaping the production print opportunity?

To help answer those questions and to explain what’s driving demand for production print, ENX has spoken with leading dealers, OEMs, and analysts in the market. What follows is an overview of what’s driving the production print market and advice on how best to leverage the opportunity.

What Is Digital Production Print?

Production printers are designed for high speed (60 ppm at the low end to 300 ppm or more at the high end), longer duty cycles, and large production runs. It’s not unusual for a single production printer to generate a million or more clicks a month. Prices range from about $20,000 to perhaps $1 million.

They can be monochrome or color, with color rising in popularity at the expense of monochrome. The light to mid-range production cycle models—those most likely to be sold through the dealer channel—are mostly toner-based. High-volume cut-sheet and continuous-feed systems are inkjet-based. They are typically sold through the OEMs’ direct sales organizations due to their complexity and support requirements.

“Production inkjet is still a new, emerging technology that is currently having a big impact on transactional, direct mail and book publishing,” said Bob Barbera, senior manager, production solutions division, at Canon’s Business Imaging Solutions Group (BISG). “[It requires] a lot of unique experience and knowledge with paper, media, inks, and workflows, and the Canon Solutions America organization has this experience from selling and supporting Océ-branded production inkjet printing solutions.” Canon markets a full range of production print systems from light volume production cut-sheet systems to Océ-branded continuous feed inkjet systems.

“Companies are creating devices that can do a lot in a smaller investment space,” said Amy Machado, research manager for imaging, printing, and document solutions at IDC. “You don’t have to buy a Xerox iGen. You can buy the next step down Xerox and get really good finishing, good image quality, and color management. They are moving features you saw in high-end devices downstream.”

Komax has been selling Konica Minolta production printers since 1999, most successfully in the last five years. Bob Maxwell, owner of Komax, attributes that in part to improvements in the capability and quality of digital production systems. Years ago, some of the manufacturers weren’t serious about production and didn’t do as good a job with it,” he said. “Now several manufacturers produce good production equipment.”

“Xerox had a stronghold [in production print], but now we have alternatives,” said Barry Simon, president at Datamax. Datamax sells Canon and Konica Minolta brands, and Simon says their products compete well and are very reliable.

“[Ricoh’s] Production Print Business Group started with literally zero customers and not a lot of products, and in 10 years we’ve built it to a very, very large business,” said John Fulena, vice president of Ricoh’s Production Print Business Group.

While Fulena credits Ricoh’s direct sales group for some of that growth, he sees a lot of opportunity for the dealer channel. He sees the annuity stream from that print volume as the most attractive part of the production print sale to dealers. “If it’s priced right, there’s a lot of upside and opportunity for the dealers.” All of Ricoh’s cut-sheet and wide-format production print lines are available to the dealer channel. Its continuous feed inkjet systems are sold direct only.

Production printers are commonly sold with finishing options that, for example, coat, die-cut, or bind stock. Those options, however, are typically sourced from third-party providers, and it’s common for both dealers and OEMs to partner with those providers for sales, support, and installation.

Production Print Market Drivers

To understand the total opportunity for digital production print, you have to look at the entire commercial printing market. Smithers Pira reports that the total market for printing equipment was $16.3 billion in 2016. The overall market has declined since 2007 when that number was $25.3 billion. Fewer newspapers, magazine, catalogs, and so on are being printed, and they relied heavily on offset presses. Digital production systems provide more flexibility, capability, and ease of use, so they are not only replacing offset presses for many jobs, they are being used in applications offset simply cannot do.

“Eighty to 90 percent of all printing today is still offset and gravure printing. The transition from offset pages to digital pages is driving a big part of the growth we’re seeing in the market,” said Barbera. “The application range and capabilities that digital printing devices can now serve is significantly growing from a user perspective between the quality, the types of substrates and media they can print on, the types of finishing they can do, and the types of workflows they can use. This combined with the market transition to shorter run lengths, print on demand and color are all helping to fuel the transition from offset to digital.”

There are two primary markets for production print: in-plant and pay for print (P4P). Companies with their own print production facilities or centralized reprographics departments (CRDs) make up the in-plant market. These organizations see in-plant operations as cost centers, but have enough volume or specialized requirements to justify their own printing operation rather than outsourcing.

The decision to support an in-plant digital print operation is driven by many variables depending on the application, which might be transactional (invoices), publishing (books, manuals), direct mail, packaging, labels, or marketing/promotional material. Variables include color capability and quality, volume, finishing needs, and page rate. It comes down to whether in-plant is more cost effective and best meets the requirements—not necessarily in that order.

Not just big companies have in-plant operations. Market research from a PRIMIR 2016 study “Digital Printing Technology’s Influence on the U.S. In-Plant Printing Market” reports that there are more than 10,000 in-plant operations in the U.S. with five or fewer staff running them. Barbera sees these operations as a great opportunity for Canon’s channel partners.

Businesses that outsource their printing do so to a P4P service provider. These are mostly traditional print shops that are adding digital systems to complement their offset equipment. If they don’t do so, they risk losing print jobs that are too small to run cost-effectively on offset presses. The main question for P4P providers is whether digital production print will make money for them. “[For P4P], what are the applications that you have now that you can move to a digital device, and what are the applications that you currently aren’t offering but could create? It’s about finding new markets and new customers that you can go after,” said Machado.

“The movements toward color digital printing and value-added services are key growth drivers within the in-plant segment,” said Lucia Perez, marketing manager, in-plant for Xerox Corporation. “However, the growth was blunted by a decline in black-and-white digital print volume. Furthermore, trends toward digital communications and media, print suppression, and outsourcing have accelerated in the past five years, negatively influencing the transactional in-plant segment, in particular.”

“There’s a four to five year cycle to in-sourcing versus outsourcing,” said Erik Holdo, senior vice president Production Print Solutions at Konica Minolta Business Solutions U.S.A. Inc. “We’re currently in a period of more outsourcing, but that’s just today. It will continue to flow back into the in-plant and the CRD as well.” Konica Minolta sells both toner-based cut-sheet and high-volume inkjet systems, all of which are available to its dealer channel.

A key reason companies shut down or scale back their in-plant operations is the cost to staff them with skilled personnel. “[Digital production systems] are not as difficult to operate,” said Simon. Datamax has sold to a few churches, for example, where volunteer members run the production printers with a little training.

Some key market factors behind the demand for in-house digital production printers are as follows:

The ability to print color in volume. Dealers are finding that some customers with color copiers or MFPs are running jobs larger than what the machines were designed for. Those dealers are upgrading customers by showing how they can get cost-effective, faster, higher quality, and more reliable volume output on a production printer. Perez noted that some companies want more control over quality and color accuracy for the sake of their brand image.

Faster turnaround times. With in-house capabilities, you can send material when it comes off the printer, and you’re not on an outside print shop’s schedule.

Lower cost. This depends on a lot of factors such as print volume, print stock, and finishing requirements, but cost per page is generally good for digital production print, especially for shorter run lengths.

Print on demand. Digital production print allows a business to produce and stock only what’s needed. Hunter McCarty, COO at RJ Young, a Canon and Ricoh dealer, sees more in-plant customers adding digital production units for this purpose. “You print what you need when you need it, and then you don’t have a shelf full of documents you have to reprint three months later because they are outdated.”

Social media is driving some print-on-demand business where people create books from their Facebook, Twitter, or other social groups using several different specialty and book publishing providers. “You can order a Facebook book that creates a book from all your postings, your pictures, the things you like, and these things run 400 to 500 pages and are bound as your social media journal. Self-publishing or vanity press, traditional photo books, and even cookbooks continue to create explosive demand,” said Holdo.

Increased security. Having digital production in house better ensures data integrity and security. The full tracking and audit control it provides is highly desirable and needed in specific industry segments such as banking.

Automation. The ability to tie digital production systems into workflows via software eliminates many manual tasks. The value of that is lower overhead in support staff. Barbera cites the example of an in-plant operation where enabling a workflow solutions that streamlines order submission through production has allowed it to do five times the volume of work with the same number of employees as before.

Personalization to engage, influence behavior, and achieve the desired response. This is also referred to as variable data printing where the content printed changes depending on the profile of an individual or demographic group. “Folks are focusing more on using data to drive more targeted pages,” said Machado. She cited banking as a vertical that uses data to target customers.

The ability of digital printing to do variable data printing and customize content also enables integration with digital media. “It is exciting to see new integrated communications that leverage print and digital media such as cross media programs that utilize QR codes to drive [the reader] to a website or a link to a video that has more information,” said Barbera. For example, a printed training manual might point a user to a video tutorial. “Print is morphing to complement digital communications.”

Another example: Personalization has made direct mail much more efficient. “In the past, pieces were offset printed at high speed and it was a generic message for everybody. With the ability to apply some business analytics, data mining, and consumer profiling, you can make much more intelligent choices in how you market with direct mail combined with other media to create a complete omni-channel campaign. That requires digital,” said Holdo.

Growth of wide-format printing. More wide-format printing is moving from analog to digital production systems, mostly in the P4P space but also in some in-plant operations for applications such as sign printing. “We used to call it a secondary business. I wouldn’t call it that anymore,” said Fulena. “The move from analog to digital makes it much easier to produce these applications, and that’s a big driver.”

The Death of Paper Is Greatly Exaggerated

On the negative side, several factors are diminishing demand for production print within certain applications. “Print suppression is real within the transaction space,” said Machado. “The number of envelopes is going down.”

“There was the threat that transactional printing was going to go all electronic statements. Clearly there has been a transition, but the printed transactional statement is still one of the top page volumes applications for digital printing,” said Barbera.

In fact, the rise of electronic bill presentment may have helped digital production print. As companies cut back on the number of invoices they print, it becomes less cost efficient to run them on offset presses. “Many printers are starting to go back to color and monochrome cut sheet printers where they can produce a smaller set of these statements or other transactional documents like explanations of benefits in, say, the insurance market,” said Holdo.

There has also been concern that e-books would hurt the book and manual printing business. While there might have been some effect early on, Barbera sees growth opportunity for digitally printed books. “The printed book is still very healthy, very strong and actually growing because of digital’s ability to do on-demand publishing and produce out-of-print books.”

Similarly, many school textbooks have moved to tablet- or laptop-based course material, but Holdo cites research that shows more students want the traditional printed textbooks. “They want that physical book, to be able to annotate it. Textbooks are not as threatened by the digital side of things as they had been in the past,” he said. With digital production printers, publishers can print only the number needed with up-to-date content. “That’s driving some of that publishing from the traditional publishers to the more local companies, some of which used to be in the small-run publishing business,” said Holdo.

“The market has seen some interesting ebb and flow,” said Holdo. “When tablets and digital distribution of information became more popular, the death of paper was proclaimed by many. That has never held to be true. There are a few areas that have continued to grow.”

One of those areas is direct mail. “Back in the 80’s, we’d see 4,000 marketing messages a week. Now some estimates put it at 5,000 messages a day in the electronic space alone,” said Holdo. “That creates clutter, noise in the delivery of your message to your target audience. Direct mail is the only thing you can do as an advertiser or brand manager that can’t be filtered out.” You can opt out of email or be on a do-not-call list, but you can’t keep marketing material from appearing in your mailbox.

Vertical Markets and Applications

Other than traditional print shops, no single vertical stands out as big buyers of production print. Dealers cited education, healthcare, financial services, and public sector as their most important verticals, in addition to traditional print shops. In truth, dealers consider any company that produces print media in volumes that would stress a high-end copier as a prospect.

Machado sees verticals such as finance and insurance moving away from toner-based systems to higher volume inkjet systems bought directly from the OEM. She sees the best opportunity for dealers in government, education, healthcare, and banking (marketing materials more than transactional documents). “An opportunity for the dealer channel is selling devices that can be used for more than one type of document or application,” said Machado. For example, a print services provider might want a machine that can print both documents and packaging.

A few industries that had not typically had in-plant operations are starting to buy digital production print systems including creative agencies, architectural firms, designers, and retail. “There have been some changes in the marketing and creative space that have brought some opportunities to production print,” said Holdo.

“We’re also starting to see some true print-on-demand in manufacturing,” said Holdo. Manufacturers use production printers to produce labels, inserts, operations manuals, and other items that go with the products being made.

Advice to Leverage the Production Print Opportunity

Define your market. For most dealers, that’s mainly selling small- to mid-range production systems to the in-plant market. “The P4P market always had a reputation for being low margin and very time consuming from the service side,” said McCarty. Other dealers report that print service bureaus sometimes have trouble getting equipment financing.

Define your offerings. You want to start with products that you can support and are right for your market. As you learn the technology and market, you can always move up.

Develop a sales and marketing plan. Expect most of your production print business to come from new customers. McCarty said that 60 to 70 of its production print customers were clients they had never sold to before. All the OEMs offer support to help sales have conversations around production print with both new and existing customers.

Hire or train specialists. This applies to both sales and service. On the sales side, you need people who think like analysts and act like consultants with clients. You’re not selling a box. You are selling a solution that includes hardware, software, and services. Your service department will be held to a higher standard than for copiers, so they need specialized knowledge and ability to respond quickly. “Most if not all our successful dealers selling production have dedicated people,” said Fulena. “To Ricoh, that’s really a prerequisite. We’re always there as a safety net, but if they are not self-sufficient, it’s very hard to maintain and grow the business.”

Be prepared to invest. The higher up the production print market a dealer goes, the greater the commitment. “It’s really up to the dealer to make the investments needed to attack the market,” said Holdo. That investment includes specialized staff, demo equipment, ongoing training, and perhaps facilities upgrades.

Bring a solutions focus to sales. Selling production printers requires a more consultative, solutions selling approach. “The prospect is looking to the dealer for business services. ‘How are you going to help me make money with this device. How are you going to streamline my business. How are you going to improve my workflow,’” said Machado. Simon added that sales need to be able to speak to things like media substrates, finishing capabilities, and color correctness.

Be ready to react to new opportunities. Dealers who understand their production print customers’ businesses and workflows can often find ways to add value for them and sell more products and services. For example, McCarty said that RJ Young offers what it calls a morning walk-through where its techs test equipment every morning to minimize downtime. Other dealers have decided to offer printing services with the equipment they sell with the idea that their service customers might eventually buy equipment. RJ Young also provides facilities management for some in-plant customers who want an in-plant operation but don’t want to staff it.

Future Outlook

The dealers we interviewed all expect the strong growth for production print they saw in 2016 to continue into 2017. McCarty said that RJ Young’s production print business grew 38 percent in 2016, and he sees that growth continuing for the next few years, some of that coming from copier customers. “As [customers] reduce the number of convenience copiers or printers they have, they start looking at jobs that should be going to higher volume or higher speed machines.”

Simon expects at least 20 percent growth in Datamax’s production print business. “It could be a big number. Hit a big order and we could double our business,” he said.

Fulena sees more growth potential in focusing on complete production solutions, from workflow automation to finishing options. “It’s not just a hardware play anymore. It’s software and services.

So, how do you pool that all together and become that one-stop shop?” said Fulena. “And if you create a document, what happens to it on the back end? Every document has some sort of finishing, so we see growth with dealers getting more into finishing.”

For Xerox, inkjet will be its main priority for production print. “We want to make inkjet accessible to all types of customers, helping them produce high-demand applications like transactional, direct mail, and catalogs,” said Perez.

What will drive the production print business for dealers going forward is what’s made them successful to date: dedicated resources, providing value-add solutions to customers, and a keen eye on the market for new opportunities.