The transactional print market is under intense price
    pressure. Organizations consider print operations to be a cost center that is
    not part of a core business operation. As a result, organizations evaluate
    internal operations with a goal of reducing costs or outsourcing the operation.
    Service providers, also under price pressure, seek to streamline production
    operations and support a broader range of services, such as multi-channel
    delivery. While many core applications, such as statements and policies, resist
    transition to electronic media, many of the ancillary applications that
    provided higher profit margins for print service providers have seen greater
    electronic delivery adoption rates. Yet, despite this transition, many large
    service providers cannot articulate standard pricing models for electronic
    services.


    Industry Trends

    Madison Advisors recently published the third edition of its
    "Service Provider Market Pricing Study," which examines pricing models and trends
    for a range of transactional print and electronic delivery services. Typically,
    service providers receive electronic files from clients, which they print and
    insert into envelopes. Most service providers also submit documents to the post
    office or a presort operation for co-mingling with other clients' mail to
    reduce postage costs. Service providers may also offer document archiving and
    electronic presentment of the printed documents to complete the document
    life cycle.


    Participants in the study included national and regional service
    providers in North America. The following table provides production statistics
    for the participating service bureaus.




      Table 1
    — Service Provider Annual Production Statistics





    During conversations with participants and discussions with
    organizations evaluating outsourcing options, Madison Advisors identified
    several trends evolving in the print and mail industry.


    Multi-Channel Delivery

    E-delivery mechanisms, such as email, web presentment and
    text messaging, enable organizations to communicate more efficiently. Nearly
    all of the participating service providers offer a number of alternatives to
    printed communications, due to demand for lower cost communications. For many
    print operations, postage paid on an envelope represent half of the overall
    cost to produce a document.


    In response to customer demand, print service providers have
    built robust electronic delivery systems that support high volumes of
    electronic presentment, as well as email and text message delivery. Madison
    Advisors' research found increasing volumes of email and text messaging,
    although they are still considerably smaller than existing postal mail volumes.
    On average, emails represent 12% of the communications sent by
    service providers and text messages represent three percent.


    Customer Portals

    Web-based portals allow clients to monitor the current
    status of jobs, generate production reports for evaluation of service-level
    agreements (SLAs) and control marketing content. In addition, customer portals
    provide service providers both an option for enhanced customer service as well
    as an opportunity for additional service offerings. The portal software routes
    customer communications to the appropriate individual and re-routes inquiries
    if the initial recipient is unavailable.


    Service providers offer value-added services through
    customer portals. For example, several document composition vendors provide
    web-based user interfaces that allow content owners, such as marketing
    departments, to create and embed messages into documents without disrupting the
    document's layout. Service providers embed these interfaces into their customer
    portals allowing clients to manage content and marketing messages through the
    portal interface.


    Job Workflow

    Several service providers identified changes to their
    workflow processes driven by an opportunity to expand their customer base
    down-market to customers with lower print volumes. Over the past few years as
    print capacity has remained strong and demand has decreased, service providers
    in general have been challenged to maintain growth.


    Madison Advisors found that service providers need to
    simplify workflow processes to lower overhead and offer production services to
    new customers with smaller print volumes. Oftentimes, service providers
    required large print volumes to offset the expense of implementing new customer
    applications. Simplifying the workflow and reducing the overhead enables the
    service provider to remain profitable with smaller print jobs.


    Madison Advisors expects more service providers to adopt new
    onboarding processes that will allow client files to flow into production
    without upfront programming. Madison Advisors' survey found that, on average,
    clients provide pre-composed files for almost 40% of the jobs
    received by the participating service providers. As more clients implement
    their own document composition tools and deliver pre-composed files, the
    service providers need to bring these customer jobs into a production factory
    without pre-existing factory controls.


    Market Pricing

    The transactional market consists of large-volume batch
    documents, including statements and invoices, which are typically produced on a
    daily, weekly or monthly production cycle. Transactional documents contain
    personal financial or medical data that requires secure handling and accurate
    delivery. Madison Advisors collected data for over 100 services, of
    which only a small sample are provided below.


    No one service provider offers the lowest prices for every
    category. Providers offer a significant range of prices depending on both
    volume and vertical markets with emphases on specific verticals. For example,
    several providers prefer to bundle the print and insertion pricing into a
    single price per sheet for a job.


    Continuous duplex printing
    represents the most common form of digital print for transactional
    applications. For the financial services application (statements), the per
    image pricing ranged from $0.0100 to $0.0473. The average price increased from
    $0.0169 per image in 2008 to $0.0226 per image in 2011. Madison Advisors
    believes that the increased price comes from increased regulations and security
    processes associated with financial printing.


    A number of service providers have implemented color inkjet
    printing systems. Again in financial services, the full-color inkjet print
    price per image ranged from $0.0153 to $0.02. The average price per image for
    inkjet hovers around $0.06 whereas the same images produced on color laser
    systems range from 20% to 90% higher. The price
    difference reflects the difference in consumables costs. Since inkjet systems
    have evolved to support non-specialty stocks, the materials costs for inkjet
    have dropped.


    Automated insertion represents the other core production
    service. While some service providers bundle print and insertion, most broke
    out pricing for our study. For example, automated insertion of a four-page
    financial statement ranged from $0.0250 to $0.1259, not including additional
    materials, such as marketing inserts or business reply envelopes.


    Many service providers offer manual flats insertion for
    documents greater than 100 pages and box insertion for very large documents. As
    compared to 2008 pricing, the range between the high and low prices for most
    categories have become tighter and the average prices dropped by 25%. Even the most highly automated service bureaus provide some manual
    processing for very high-page-count items or very small jobs, such as reprint
    runs.


    Madison Advisors collected data on a number of electronic
    delivery services. Most service providers use an implementation and monthly fee
    model. The implementation covers the initial system setup and the development
    of one or more documents. In some cases, this fee is calculated using a set
    number of programming/development hours.


    Madison Advisors found that pricing for the initial setup
    fee varied widely depending on the size of the client and the volume of print
    associated with the proposal. Although most providers do price electronic
    presentment services as a separate offering, these services come bundled with a
    print/mail proposal. These solutions may also include discounted programming
    services and set up of additional documents at a lower rate.


    Email represents the most common form of electronic
    delivery with prices ranging from $0.03 to $0.08 for processing and delivery of
    a PDF document via email. Most providers do not break out the charges into
    separate components but rather quote one charge for both. Loading fees
    typically go down as monthly volume increases.


    Overall, Madison Advisors found that prices for established
    services, such and print and insertion, remain relatively stable, while prices
    for newer services, such as messaging and multi-channel delivery, have less
    variances than in 2008.




    RICHARD HUFF is a
    principal analyst with Madison Advisors, an advisory firm that specializes in
    print and electronic communications. He provides project-based advisory
    services designed to assist clients with business strategy and technology
    selection decisions. For more information on Madison Advisors, visit www.madisonadvisors.com.