“There can be no question that cut prices are the bane of the printing profession all over the world – Australian cities are no exception to the rule – and any honest effort towards betterment is of paramount importance.”
The above paragraph was published in August 1904, in what is probably Australia’s first trade magazine, Cowan’s. Alex Cowan & Sons was a renowned papermaker with origins near Edinburgh, Scotland. It became on of the world’s greatest papermaking enterprises, lasting for over 150 years before being absorbed into Spicers Paper in 1975.
Evidently, not much has changed at the heart of the industry over the past 110 years. Despite repeated business failures, unsustainable pricing continues to be, to use some later words in Cowan’s: “the canker that is eating the vitals of the trade.”
Whenever a printer gets in trouble, as is the case with Focus Press currently, a frenzy of accusations of ridiculously low prices emerges, blaming this as the root cause and wishfully hoping: ‘maybe now we can get back to sensible pricing.’ It’s akin to the Rudyard Kipling story ‘The Man Who Would Be King,’ made into a terrific film starring Sean Connery and Michael Caine. In it, two privateers played by Caine and Connery, progress up a valley somewhere high up in the Himalayas, rousing each village to conquer the next one up until reaching a rumoured El Dorado of untold wealth and power.
The main pretext for each village to attack the next one up the valley is that they keep urinating in the river and, being downstream from this is very unpleasant. Every village progressively conquered under the military aegis of Caine and Connery says the same thing. To put it crudely and analogous for the printing industry: “everyone is pissing in our profit river but it’s not me.”
It is too convenient and simplistic to blame cut-pricing alone for business failures. In June 2012, Focus Press appointed an MBA qualified Fellow of the Institute of Public Accountants, Alan Davis, to the position of CEO and a ‘Group Lean Accountant’ Lisa Duan to replace the role of Financial Controller. Such people should know how many cents there are in the dollar. In 2013 Lee Barnsley joined Focus as Group General Manager having spent 10 years with McMillan Printing/Blue Star and 18 with Moore Business Systems. That kind of experience does not suggest a cavalier approach to pricing. In any case, pricing is directly related to cost of production; some printers are more efficient than others.
Business is about making enough profit to create shareholder value and printing is one of the toughest in which to accomplish this due to the high capital costs, skilled labour and oversupply. Whatever has gone wrong at Focus Press can not be put down exclusively to price-cutting, it could be a combination of capital costs, gearing, cost of overly rapid expansion, plant issues, client loss or undercapitalisation. We will see.
Nevertheless, unsustainable pricing is rife at all levels of the industry, but it does not have to be. Look at the world’s most successful printer, Vistaprint. They maintained a 65% gross profit margin on sales of USD$1.02 billion last year. Press utilization is virtually 24/7 and they aim to reach $2 billion in sales by 2016. Vistaprint founder Robert Keane came from a business school, not a printing apprenticeship. Pricing is only unsustainable if it reduces your gross margin to a level where it can’t pay for overheads, wages, finance, utilities etc.
Interestingly, Alexander Cowan’s philosophy on business was summarized thus:
“In business, Alexander Cowan’s high standards demanded that all transactions must profit buyer and seller alike, no advantage must be taken of misfortune. Writing to his son Charles in July 1836 he said “I think that business is a delightful employment, when we can say that it is well managed, and when we feel that it is not carried on for personal exultation but for the advancement of human virtue and happiness.”
He was by all accounts a remarkable philanthropist – he once ordered the re-glazing of all windows in a poor Edinburgh Street having walked along it one winter’s day and noticed so many broken panes stuffed with rags to keep out the cold.
In the same 1904 issue of Cowan’s magazine, a Mr N Sapsford, President of the Queensland Master Printers Association writes on the topic of: ‘What’s the Matter with the Printing Industry?:’
“The cut-throat competition that has existed for years past has created a demand for cheap labour and material, which means the employment of unskilled workmen, and shoddy work. No doubt development of machinery has, to a large extent, been the means of cheapening and increasing production of all classes of goods, and in our particular line the supply is now larger than the demand, making the fight harder to procure what little work is going. The ordinary so-called up-to-date man who has purchased the expensive labour-saving machinery, is not content with being able to turn out better work and more expeditiously, but reduces his price and gives all the advantages gained by his modern plant to the customer, with the idea that it will bring him increased business. He finds, after a few years, he is no better off.”
How true is that today? We can not lawfully take the approach advocated in 1904, that associations of printers ‘get together’ to agree on pricing but there is no law that prevents the exercise of common sense in managing any business, setting prices that deliver shareholder value and protecting creditors from huge losses.
As Alexander Cowan believed: “all transactions must profit buyer and seller alike.” In 2014 parlance I guess that means win-win. Perhaps all players in the industry need to re-visit this philosophy?