Pricing for Digital: Overcoming Obstacles on the Path to Profitable Pricing

Will Morgan
Nov 26, 2018

As digital delivery proliferates within the customer communications market, service providers with a legacy in print have been challenged to devise pricing models that position their operations for long-term sustainability. As part of its recently published research study entitled, Pricing for Digital: Exploring New Models for Transactional Communications Delivery, Keypoint Intelligence – InfoTrends conducted over a dozen in-depth interviews with print service providers in North America to gain a deeper understanding of the greatest pricing obstacles they face in today’s changing market. One of the primary issues these interviewees identified was a gradual but significant shift in enterprise transactional communications—the balance of power is transitioning away from business leadership in favor of procurement. In today’s world, heightened consumer expectations of personalization have made improving customer experience a paramount concern for providers issuing enterprise communications. Unfortunately, enterprise procurement’s fixation on reducing delivery costs often takes precedence over enhancing quality and value. The print service providers we interviewed paint a disturbing picture—when it comes to communication, procurement departments often employ antiquated methods that seem out of step with current consumer trends.

The Problem

In the course of day-to-day business practices, procurement’s growing influence has made request for proposal (RFP) engagements a fact of life. Procurement representatives are intent on using RFPs to standardize providers’ proposals so they can better compare bidder prices. Unfortunately, they often have a limited perspective on the intricacies of creating, managing, and delivering transactional communications. As a result, procurement policies have become disconnected from the realities of customer communications work.

Since the procurement department generally does not understand the details of an individual job, everything is homogenized. This ultimately produces a watered-down request that forces applicants to fill out RFPs in exactly the same way and disqualifies those who deviate from the formula. Providers face difficulties in packaging their specific offerings, demonstrating how their unique capabilities can meet a prospect’s needs, and synergizing services with their own corporate culture. Because these guidelines are so strict, it has become nearly impossible for service providers to accurately represent their costs. To make matters worse, procurement units often expect their outsourcing vendors to match the lowest bid in each category with no regard for the various ways that applicants may have bundled their offerings. This trend puts incumbents—which may include unaccounted costs in their proposals due to their in-depth knowledge of the real need—at a disadvantage against newcomers who will simply provide a price for the requested services. If a new provider wins the contract, that provider will often need to absorb additional costs that are obscured by the imperfect RFP process, shifting the burden of financial risk onto the selected vendor.

Enterprises often restrict bidder access to business leadership until the final stages of the RFP process. At this point, many providers assert that is too late to salvage a deal flawed in its inception. Rather than including C-suite executives in their RFP steering committees or empowering a single, qualified decision-maker to develop a cohesive communications strategy, enterprises spread the responsibility for individual channels across a half dozen business units. These restrictive RFP processes have forced providers to engage prospects before the requests are fielded (perhaps even helping enterprises draft the document) or address inequities at renewal, highlighting newly adopted technologies and innovative solutions to justify a reevaluation of the price.

Procurement departments are aggressively pursuing lower prices even as production costs (driven by consumer expectations for high quality, personalized, and secure communications) continue to climb. Fixed-cost pricing is becoming increasingly dangerous because the total number of impressions declines even as too many clients and prospects continue to attach a contract’s value to delivery instead of composition. To their credit, providers attempt to demonstrate value by highlighting their unique capabilities and strategic investments. Unfortunately, many enterprises—particularly those with the greatest volume of transactional communications—are only interested in transmitting their messages as cheaply as possible.

Possible Solutions

To secure a prosperous and sustainable future, providers may do well to set their sights on a smaller quarry. The biggest outsourcing deals are heavily weighted toward print since most of the large enterprises that already manage digital delivery internally prefer to keep these functions in-house. On the other hand, mid-sized organizations have fewer resources to handle their own digital delivery, so they are better prospects for comprehensive, multi-channel customer communications arrangements. Small and medium-sized enterprise prospects are also generally more willing to allow engagement with business leaders and accept their print service provider as a valued partner in developing a cohesive customer communications strategy.

When planning for the long-term, providers must clearly articulate the value of each communication channel. The actions that vendors and service providers take in the coming years will be critical for defining the future value of the customer communications market. Because digital communications are growing more complex, producing them has become costlier. If providers cannot clearly articulate the value of digital communications, enterprises will only expect the price per communications to decline from an already undervalued starting point.

To learn more about the pricing challenges that today’s print service providers are facing and the strategies they are implementing for future success, stay tuned for the second installment in our Pricing for Digital blog series, which will publish later this week. For more information about our comprehensive Pricing for Digital research study, please contact Deanna Flanick at deanna.flanick@keypointintelligence.com.

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