Essential mail is digital printing’s enormous opportunity – magazine article

Every month Australians receive through their mailboxes more than 109 million pieces of ‘essential mail’—bills, licences, registration papers, insurance policies, bank statements and many more communications containing information they consider important to their well being. Personally addressed, of vital interest to the people who receive them, these letters represent the most effective form of communication between businesses and their customers, governments and citizens.

For many businesses the monthly statement is the most important form of contact with clients, the primary branding exercise of the company. The letters are a world away from ‘junk mail,’ being anticipated, interrogated, kept until acted upon and then often filed away as proof of a transaction. This monthly avalanche of ‘essential mail’ also represents one of the greatest digital publishing opportunities imaginable.

DM’s time is now

From the advent of digital printing in the early 1990s the technology has been in search of a market. Suppliers have invested heavily in promoting the virtues of the print market of one, print on-demand and personalised marketing, to a largely unreceptive marketing industry. Only in recent years have their efforts started to bear fruit and slowly, digital printing has emerged to take its place in the sun.
A lot has to do with improvements in technology with the arrival of ‘near offset quality’ printing and a wider range of papers suitable for digital imaging. However, it would be true to say that, despite the tireless promotion of inventive and creative digital printing applications, the technology has been pushing the market to fund its relevance, not the other way around.

This is about to change—big time.

The invisible elephant

‘Essential mail’ or ‘transactional printing’ may be compared to the invisible elephant in the digital printing circus ring—it’s huge, it’s there, but until now no one has seen it. To date the task of sending out statements and bills is regarded by most businesses as an unavoidable cost, something to be scaled back where possible. In recent years there has been a determined thrust from some of the biggest mail users to migrate customers from print onto the internet. Despatching an email to tell you your monthly statement is now available on the web is a lot cheaper than sending a letter.

It makes sense—in Australia more than $1.5 billion is spent on printing, processing and sending direct mail every year. It’s a significant sector of the printing and mail industry and constitutes a considerable expense to telcos, banks, credit card companies and a host of other businesses. The logistics are formidable, as are the security requirements. Someone else getting your bank statement and you receiving theirs is the stuff of privacy law nightmares. In addition there is a time frame for printing and mailing statements and bills that can often be as short as 24 hours for millions of items. No wonder companies are considering moving away from print.

Tough market, tough players

In Australia, the essential mail business is handled, almost in its entirety, by four outsourced business service providers—HPA, Salmat, QM and Security Mail, with the first two being by far the largest. They handle most of the ‘essential mail’ for the big banks, Telstra and Optus, credit card companies, health funds, governments, utility companies and the other major mail users. It is a growth area with volumes of addressed ‘essential mail’ currently running at 1.3 billion per annum and increasing by five to eight per cent every year. However, as in much of the commercial printing industry, increased volumes and revenues are not being matched by increased profits.

‘Essential mailing’ is a highly competitive market with customers focused on reducing costs. Unable to add value other than in the basic requirements of security and reliability, the companies are matching one another in the commoditisation of the process, a classic dive to the bottom with the average price per unit now in the low 20 cents and falling, a dive of almost 25 per cent in three years.

Most mail documents are laser imaged in one colour, usually black, on to pages where the company logo and details are already present having been previously printed by offset. The main suppliers in Australia of these high-speed laser printers are Fuji Xerox and Océ. It is a stable technology where the emphasis is on speed and cost per impression. In recent years there has been a tentative move towards highlight colour, where certain items on an invoice will be printed in, for example, red to attract attention; but any such extra expense has to be strongly proven to the document issuing company as a justified extra cost.

The stuff of marketing dreams

What has taken off is ‘envelope stuffing’ with ancillary brochures, special offers, application forms, and cross-marketing ventures of every conceivable kind. Often these additional pieces of printed communication outnumber the core documents as corporations try to capitalize on their necessary cost in the production of ‘essential mail.’

A credit card company will try to sell you another card, a medical fund will spruik travel insurance, a bank will invite you to apply for a loan; the brightly coloured glossy ‘stuffings’ tumble out of the envelope to an uncertain future. How many are read and acted upon? How many are consigned unexamined to the waste paper basket? This is the traditional anxiety of insert advertisers and there is no firm answer. Yet any marketing department worth its salt must attempt to leverage its company’s unavoidable expense.

Japan mines the data gold

On the 12th and 16th floors of the JAIS Nishi-Kujo print centre in Osaka, the first indications of the coming digital printing gold rush are apparent.

Distributed between the two floors are twenty-four Fuji Xerox iGen3 digital presses to print the credit card statements for parent company Sumitomo Mitsui Card, the largest credit card issuer in Japan with 13 million members. Last year Fuji Xerox Australia flew a bunch of industry types to Japan to take a look. The logic behind the venture is devastatingly simple; a digitally printed full-colour credit card statement can not only contain the essential transactional information, along with the issuing company’s branding and contact details, but can also include targeted promotional advertisements based on the credit card users’ profile.

If a Kyoto-based customer has purchased a set of golf clubs on his credit card, there is a special offer from a local golf shop on golf shoes and gloves on his next statement. A secretary in Tokyo has bought some hair product? Here is a discount from her local hairdressing salon. Just back from a trip to Italy? Why not eat at your local Italian restaurant?
It is a marketing executive’s dream; targeted, engaged, proven customers being addressed one-on-one through an essential interrupt medium. There is no way the customer can avoid seeing the full-colour advertisement. It may even occupy pride of place on the fridge door for many days until the account is paid. The advertiser is only charged for the number of times its business is showcased, ensuring no waste, no scattergun effect.

When I visited in November, Sumitomo Mitsui had signed up 500 businesses across Japan since the scheme began in July and was reporting unqualified satisfaction, with many more signing on every day.

Logistics to make your head spin

But it’s not all plain sailing. The logistics of the printing job are mind-blowing: the system is designed to print nine million pages (4.5 million duplex sheets) in 72 hours once a month. During this time it is easy to imagine the frenetic activity around the clock (although the Australian visitors were rather bemused by the fact that the company has no fulfilment capability, packing the statements into cardboard boxes and trucking them to a mailing house some distance away.)

Initially the management thought it would require forty iGen3s to do the job. The decision was based on the print quality of the press, which is Fuji Xerox’s top of the range imaging engine, as well as the stability of production in such a mission critical project. No one is going to talk investment dollars in a situation such as this, but if you reckon an iGen3 at around AUD$1 million each, it is obviously not a cheap exercise. Not to mention the development of linkage between the data and document management. When targeting such personal data, there is no room for error.

The company recognises that the cost of each digital print is higher than with previous methods but it is focused on increasing credit card usage in a country that is still, surprisingly, a mainly cash transaction economy.

There’s gold in them thar bills!

However, industry leader HPA is already deploying the technology in Australia. At its new corporate headquarters at Matraville, near Botany Bay, the first local installation of a Kodak Versamark is proving the technology of one-on-one digital business colour. Terry Daly, managing director, is a fine blend of pragmatist and pioneer when it comes to the new technology. He can recognise the marketing potential to the extent that he gave the nod for a $3 million investment, (Kodak is 50 per cent owner of HPA), while understanding the caution of his customers in migrating over to full-colour, inkjet-imaged transaction documents.

“The Australian industry is a world leader in innovation for essential mail, despite having some of the world’s toughest service contracts. Business colour just requires momentum, innovative marketing departments that realise the power of the statement in growing their business. I reckon it’ll take at least a year but there’s no doubt it will increase. We’re starting to get a rush on now,” he says.

Neil Brenner, chief operating officer says: “We’re positioning ourselves to where we think the market is going. We’re able to offer customers not only targeted marketing but the ability to save on offset print costs, and lead times.”

High-speed digital printing of ‘essential mail’ will eliminate a lot of offset printing—not only the reams of base stock that must be pre-printed and warehoused, but also the glossy ‘stuffings’ of brochures and applications forms.

“Imagine getting rid of all this,” enthuses Brenner, waving his arm at the high storage stacks of printed material. “So much of this becomes out of date before the customer gets a chance to use it. Offers may change, contact details vary, specials introduced. Digital printing takes care of it all.”

While iGen3s output is as good as toner-based imaging gets, some of the samples I’ve seen from the inkjet Versamark are amazingly fine considering the speed of the machine—152 metres per minute or 30,000 A4 sheets per hour (or 300 metres per minute/60,000 A4s per hour with modification.)

This is offset productivity. It leads Brenner to proclaim that HPA can now produce fully digitally printed statements for the same price as the more conventional combination of offset base with laser-overprint.

Finance and IT meets marketing

There are two schools of thought when it comes to the question of selling personalised advertisements on invoices and statements. The conservative camp cautions that major ‘essential mail’ producers such as banks are jealous of the integrity of their paperwork and will not easily allow even their own marketing departments to interfere with the primary role of presenting the brand and collecting the money.

The task of sending out the statements is usually not under the authority of the marketing department, who would be keen to leverage the possibilities. Rather, it is the accounts department or even the IT section who control the despatch of ‘essential mail’ and these have little interest outside their primary function and are even likely to prove obstructionist.
In the short term, it is unlikely that businesses such as banks will open up their mail stream to anything other than cross selling of their own products, but according to David Besson, divisional director of Salmat, there is no intrinsic limitation to the number and variety of advertisements that can go onto ‘essential mail’ pieces.

“Qantas contracts its magazine out to a publisher who sells advertisements that have nothing to do with the business of flying. Why would they not do the same with their frequent flyer statements? It’s the marketing people who will drive the decision,” he says.

A keen observer of the move towards digital colour Besson points out that while Salmat is yet to engage in the practice, it does have the largest number of researchers developing data stream and mail management systems. The problem he sees is that printing technology is not yet ready to take on the role. “As soon as someone comes along with the right machine that can match offset in price and speed it will happen. So far the digital engines are too slow and too expensive, but when the economics are right for speed and quality, yes, we’ll do it,” he says.

Not just for long runs

If there are technical constraints on digital colour to handle the massive runs required of telcos and banks, the same cannot be said for the myriad of smaller loyalty card programmes that are proliferating in the market. The trend is for businesses to promote loyalty programmes with the promise of discounts and special offers for members of the club. Everyone from bottle shops to pharmacies is getting in on the act.

Typically these are much shorter print runs and are eminently suitable for the current range of high-end digital presses. The marketing opportunity gives rise to the emergence of advertising brokers, who may also be digital printers. These entrepreneurs will own the loyalty programme and will generate revenue from both the initiating business and the advertisers. What major pharmaceutical company will not jump at the chance of targeting its new hayfever product in a personal address to a qualified hayfever sufferer?

The potential is vast for this type of one-to-one marketing and eventually it will consume more and more of the direct marketing dollar, currently running at over $14 billion per year. It is a bonanza waiting to happen for the digital printing industry at a time when printing is coming under pressure from other forms of media.

As the complete opposite of low-grade, commodity print, direct-marketed, variable and personalised ‘essential mail’ printing is the future waiting to happen.