The Blueprint

Cheap versus Free

I recently read the book "Free" by Chris Anderson the author of The Long Tail.  It is a good read and really makes you think.  I don't agree with everything he says nor do others, but the one point he makes that really made an impression on me is the huge difference between cheap and free.  One example he gives is an experiment that is done by Dan Ariely the author of "Predictably Irrational".  They placed a table at a university where they were advertising chocolates.    They had Lindor Truffles for 15 cents (a high end chocolate which typically sells for much more), and Hersey Kiss's for 1 cent.  73 percent chose the Lindor Truffle over the Hersey Kiss.  They then decided to lower the price of each candy by one cent.  The Truffle was now 14 cents and the Kiss was 0 cents.  69 percent chose the Kiss.  What Ariely came to understand through this experiment and others is that the brain is constantly deciding how to allocate resources.  When faced with a choice where resources don't have to be allocated (i.e it is free) the brain is relieved from having to do work.

How does this affect your market?  This is not just true for free goods, but also free services.  If there is no charge for deliveries or no penalty to ask for a faster turn around I will choose whatever I want because I don't have to allocate any resources.  This is not a new thought of mine.  This was actually in my first post on this blog.  Chris Anderson and Dan Airely just did a better job of explaining it.  More on this later...

What Everybody Ought to Know About Market Segmenting

In a previous post I talked about the difference between fidelity services and convenience services.  In the AEC reprographics industry this is mostly divided between design (A/E), and construction (C).

A/E = Fidelity

C = Convenience

For the industry to be successful it is important that the services provided to these two different market segments be differentiated.  They should be differentiated by service, quality and price.  Here are a couple of comments I have heard within the industry over the past few years.

"We don't sell to contractors because they are too cheap."

"I was forced to lower the price with my largest revenue customer [Architect], because he found the price I was charging to another customer [GC]."

"My customer would never accept the quality from that brand printer because they have high standards.  I don't understand how the other guy gets away with it."

"We are losing bids because we just won't lower our price to the ridiculous prices that are being thrown around."

"I can't service the GC's at the cost structure I have in place."

"Those guys don't understand the value we provide."

"I just bought a shop in another city and they were selling the services for too low of a price so we went in and raised the prices to what they should be."

"I can't believe the other guy won a bid at that price.  How can he do work at that price?"

When you take a step back and say what are the market requirements of each of these market segments and are you matching our services and price to those markets?  

Quality - Architects and engineers typically demand high fidelity.  The documents produced represent their work.  They want it to look as professional as possible.  Contractors don't care about the quality.  They just need to be able to read the dimensions and understand what is expected of them.  To satisfy architects you should be producing documents on the highest fidelity 600DPI printers(at least).  To satisfy contractors you could use a lower quality 400DPI printer.

Service - Most companies who service architects and engineers spend a lot of time going back and forth with their customers making sure that all of the required files are present; making sure the right revisions are in place; and sometimes providing proofs to make sure the quality is acceptable.  Contractors usually require you to simply print the documents that they gave you.  There is very little back and forth and double checking.

Price - An architect or engineer is willing to pay more to make sure that their work product is represented correctly.  Since it is their name on the documents they do care about the attention to detail and service that is provided.  They are buying fidelity.  They want a "triple shot, extra hot, no foam, caramel macchiato."  The fact that they are often not spending their own money is also a factor.  Contractors are looking for convenience.  They want the drawings printed quickly and cost effectively.  They are generally not willing to pay extra for the attention to detail, at least as it pertains to quality.  There is value in the content management and revision control, but that service needs to be separated from the printing as they see printing as a necessary evil.  They just want a cup of coffee and they can't understand why anyone would pay four bucks for a cup of coffee!

Those who understand that they are not providing simply printing to the AEC industry, but meeting the unique requirements of specific market segments can find hidden profits.  Those who cannot differentiate between these market segments will be either overpricing their services and loosing business, or underpricing their services and losing money.  Either one means decreased profits.  In some cases you should be lowering your prices and in other cases you should be raising your prices, but you must also describe in detail what the differentiated services are for that price (i.e. resolution/DPI, quality control, turnaround time, etc.).  There are many details to be worked out and expectations to be set or reset with customers.  You also must have the internal process to make sure you can execute.  Sure some say "it won't work in our market".   What's the alternative?

Why Not You?

This truck was parked in front of our office.  In cash you can't read the text on the photo taken from my iPhone.  They advertise Document Management Solutions, Secure Destruction Services, and Data Protection Services.  Sounds pretty good...maybe even strategic.  Could you offer document retention and document destruction services to your existing customers?

It's Not as Far Fetched as it May Seem

Here is a funny video published by TechCrunch showing a 1981 report on the news being delivered electronically.  Funny unless you work for a traditional news paper (i.e. New York Times or Chicago Tribune).

Most newspapers have and continue to hold-on to the old business model.  They have tried to change, but are too reluctant to break with the past.  Most news is funded by advertising.  In the 1980's, the newspaper was a good place to spend advertising budget. Today Google is getting more and more of that budget.  Companies are still spending money on advertising and people are still reading the news.  Its just a different business model.  I personally read the newspaper less and less.  I get more of my news digitally.  I don't think my children will read newspapers.

Imagine a news report recorded today about the construction document distribution industry being shown 20 years from now.  What would people in 20 years find funny?  My 16 year old son has never seen rotary phone (shown in the video).  20 years from now few will remember a diazo machine.  What will the business be like?  What will it be like in 5 years?

It's a Good Time to Bring About Change

When times are good people will work hard to protect the status quo.  Why take the risk?  Why take on another "project"?  

When times are tough everyone expects change - whether it is welcome or unwelcome?  Leaders who have the health and welfare of the whole company on their shoulders can be a little more authoritarian and others will be more receptive to the change.

Strategies in a Downturn

It is hard not to be bombarded by sensational news about the economy.  It is everywhere.  Most of it portrays fear, uncertainty and doubt.  It just so happens that during difficult times the most innovation occurs.  It is when old out dated ways of doing business finally die and new more efficient means emerge to become the standard.  This is good if you have been investing in moving in the right direction, bad if you are clinging to the old way of doing things.  I came accross an article which I thought gave some really pithy advice to anyone wrestling with what to do in these uncertain times

1. Get off the couch - Many will spend their time worrying and talking to others who are worrying.  Spend your productive hours figuring out how to compete.

2. Add a new flavor  - In tough times your customers change the way they buy and make decisions to buy.  This may exclude you.  Change your offering to fit the way they are making decisions.

3. Shift your thinking  - Tough times causes changes in markets to accelerate.  If your business was heavily dependent on the old business model (Repro 1.0), now is the time to update it (Repro 2.0).  Quickly!

4. Swim clear of the sharks  - In a downturn competitors often resort to a cost-cutting race to the bottom.  Now is a good time to become creative at how you make money and the value you provide.  I think this is a great example.

5. Invest in your base  - Attracting new customers always more difficult that maintaining existing customers.  Are there ways to be creative to add more value to your existing customers.  They trust you and are also looking for ways to innovate and make changes.

6. Innovate  - Now is the time to think outside the box.  How can you "break the rules" internally and externally.  Now is the time to challenge the status quo.  "Because we've always done it that way" should be a career limiting statement in your company.

7. Resist conventional thinking - It is easy to cut costs and "hunker down".  It is okay to cut the fat you should have cut before, but if you are considering cutting into the bone think twice.  Can valuable resorces be allocated differently?  When most people are risk adverse, a calculated risk could make a big difference.

You Are Not Alone

In my recent travels I've come across several business owners who feel they are behind the times in improving their operational efficiency.  I'm sorry to say that it is more the norm than the exception.  Even some of the largest most progressive companies have yet to develop consistent document operational process.  Some have them but they sit on the shelf and are ignored.  They have become out of date in this digital fast changing world, or they were created and never really used.  I see so many opportunities to improve.  The companies that can streamline their operations and develop a core competency in measuring and improving their business will have a strong competitive advantage.

Starbucks and Customer Analytics

Anyone that frequents Starbucks (I'm sure there are still a few people out there who don't!) will notice that there is a major push to get people to register Starbucks cards.  I have to admit I use one and I'll get or give Starbucks card gifts.  Starbucks is offering free "add-on's" for people who register their card.

Why is Starbucks putting on such a push and why would they be willing to cut into their profits to do so?  Its the information.  I use the cards often, but because I haven't registered I'm anonymous to Starbucks.  When I register they have much more information about me and my habits.  Corporate data crunchers can use this data to better target their customers and also to analyze trends that could lead to greater operational efficiency.

A typical reprographer knows the volumes they run on equipment per month, the monthly sales and profit by office, and the sales by customer.  These trends are useful at a macro level, but if you can dive a couple layers deeper you may be surprised what you find.

Quality Accountability

In my previous post I talked about the impact quality was having on businesses.  A production manager recent told me they put incentives in place to reduce mistakes.  Employees were rewarded on a reduction in mistakes.  Something strange happened.  The mistakes increased.  Employees tried for a period of time to reduce the mistakes, but when they found they couldn't reduce the mistakes they lost their motivation.  The more upset management became with the mistakes the more the teams morale declined.  Obviously this was not the results they were looking for.

When this company took a deep look at what was really happening, they found the root problems were with the process not the people.  The work orders were confusing.  Often customers were not providing a clear description of what they wanted, and there were not documented procedures for delivering the work.  Because there were no documented procedures the training of new employees was ad-hoc and inconsistent between shifts and between locations.  New employees learned through osmosis and trial and error.

Before employees are held accountable to deliver quality work it must be made clear what the process is and who is held accountable for each step in the process.

Without Consistent Quality Nothing Else Matters

I've been working with some customers to find new and different ways to measure their business.  Some would call this business intelligence.  With the right tools to gather information and right analytical methods interesting trends can be tracked and key performance indicators (KPI's) developed to measure the pulse of your business.  These analytical tools can help you make more informed decisions to become more profitable, competitive and to weather the storm of the changes affecting the industry.

One thing that has caught me off guard is the impact that poor quality is having on reprographers businesses.  If you are loosing face with your customers because of poor quality there is nothing more important to measure.  This impacts your profitability.  It affects your ability to retain customers, and your ability to attract new customers.

Advances in design technology are only increase the probability of errors.  To get out of this vicious cycle companies must document their workflows, set up systems to track errors, engage employees to find the root cause of the errors, and make adjustments to the workflow to ensure these errors are eliminated or minimized in the future.