What Business Are You In?
Even if you think you know, it may be time to look again
Sales at PIP Printing have never been higher. The company remains the undisputed market leader. And PIP's commercials -- long sandwiched between late-night spots for Ginsu knives and Kraftmatic adjustable beds -- are finally running in prime time.
So why isn't Tom Marotto smiling?
Why is Marotto, PIP's president, in the midst of scuttling the marketing plan that made PIP a success and allowed its 1,169 franchised stores to rack up $250 million in sales last year? Why is he talking about 15% to 20% of his franchisees falling by the wayside in coming years? And why is he making a bet-the-company decision to change most of the things that made PIP a winner?
In short, things look swell, so why is Marotto changing everything? What's wrong with this (rosy) picture?
Everything, says Marotto, as he sits down in his office in Agoura Hills, Calif., outside of Los Angeles, to explain why PIP has to change.
To begin with, says Marotto, who bears more than a passing resemblance to Michael Dukakis, being a market leader isn't all that wonderful if you -- like PIP -- have just 5% of the market. That's bad enough, but what's worse is that holding onto that sliver of the pie is not going to be easy. Anybody with $20,000 can buy a couple of photocopiers and become a competitor. And since they can buy the same machines PIP does, odds are they're going to compete on price.
In a town with more than one copy shop, it quickly becomes like the old gasoline price wars. If you make copies for 10¢ each, I'm going to put a big sign in my window that says "Copies 9¢." You respond with "Copies 8¢," and so it goes until margins start to be recorded in mills. When you have some 24,000 competitors -- there are 25,000 copy shops in the United States -- all scrounging for the same customer, margins are the first thing to go.
Marotto's solution? Move to higher ground. He says he has no other choice.
Marotto is a 21-year Xerox veteran who joined PIP in 1985 as president and chief operating officer. He became the chief executive about a year later, and the first thing he ordered was a massive consumer survey that showed customers thought there were two parts to the printing market. At the low end: copy shops. At the high end: commercial printers, the people who do annual reports and intricate four-color work.
"The customer was lumping us in the low end," Marotto says. "He didn't know that most of our shops had the ability to do two-color work -- things like fliers, invoices, training manuals. In fact, there are only about 20% of printing jobs that we can't do.'
But you can do the other 80% only if the customer knows your capabilities. And PIP's didn't. Says Marotto: "Our customers were taking 60% of their printing work elsewhere.'
That was work that Marotto desperately wanted. Competition was already beginning to nibble into his margins, and as more and more business customers buy fancy photocopying equipment and desktop publishing systems, they have less and less need for "mere" copy shops. In the future, Marotto feels, the market will belong to the folks who can do sophisticated printing, the very jobs that PIP's customers were taking elsewhere.
To get that business, Marotto decided, PIP would reposition itself as "the world's largest business printer," a slogan that now appears in its ads, company letterhead, and business cards. The purpose of the marketing campaign -- which is only now hitting its stride -- is to expand PIP's market and at the same time increase margins. You can earn more printing business forms than you can selling "Copies 6¢," and you can have a shot at much greater revenues as well. Marotto thinks the business-printing market could be $15 billion -- or three times the copy-shop business alone.
Now notice what is going on here. Concerned that the market was changing around him, Marotto sat down and asked himself the most fundamental business questions of all: what business am I in now, and what business do I want to be in? (See "Keeping Ahead of the Game," below.) Marotto's answer: PIP should be in the business of fulfilling most of a company's printing needs.
That simple repositioning statement dictated every marketing decision that was to follow.
If PIP was going to take on more sophisticated jobs, its franchisees would need more sophisticated (and more expensive) equipment. The company loaned franchisees a total of $8 million -- at 2% below prime -- to make sure they could purchase it.
Moving upscale meant the franchisees would have to provide more customer service, so Marotto arranged for in-depth training.
To emphasize that PIP was changing, the stores were redesigned. They are now futuristic looking, with lots of glass, molded plastic counters, and electronic signs. Says Marotto: "It will be transparent to our existing customers that we are capable of doing more than they gave us credit for." For potential clients, new ads were created.
Since would-be customers didn't know about its capabilities, PIP's ad agency developed a campaign with the slogan "PIP can do it." In addition to strutting the company's stuff, the ads pointed out in a humorous way the horrors that might befall you if you didn't take your printing jobs to PIP. Things you wanted printed red and blue could come out black and white; reports that were to be collated could come back stapled shut. To drive home the point, the voice-over said: "If you are not using PIP, you should also know that PIP prints résumés.'
"We wanted to let people know printing was important, and that PIP knew it was important," says Bryan Birch, creative director at Batten Barton Durstine & Osborn Inc., PIP's ad agency.
Fine, said franchisees. But some wondered if the ads were "too negative," too blatant an attack on the competition. Others asked if the ads were too subtle. "Would they break through the clutter of the surrounding commercials?" So the commercials were changed, and so was the time when they aired.
The new ads feature a fictional, screaming "motivational" speaker, who makes the point that how your printing looks says a lot about you and your company. The new slogan? "We print success stories." And to tacitly underscore that PIP is the place for quality printing, the ads now run in prime time, a far more prestigious slot. Says Birch: "We used to be on late at night surrounded by ads for Veg-O-Matic. ['It slices. It dices.'] Now, we're right next to IBM.'
The new ads are the most visible part of the repositioning. But what is more important to making his plan work, Marotto says, is something far less visible: franchisee involvement.
Consider PIP's new store layout. While a high-tech look is wonderful, franchisees noted that the initial design didn't have enough storage space to hold finished jobs. The final version has lots of counters -- hidden from view -- to store completed work. The net result is the franchisees are happy; they got a chance to contribute to the repositioning through their suggestions about the commercials and store design. Marotto is happy because franchisees, by being involved, believe in his plan.
Now none of this guarantees that the new approach to the printing market is going to work. It is possible that the new, slick stores will turn off old customers, or that the market for new ones won't be as big as Marotto thinks. Indeed, some franchisees have their doubts, Marotto says. There are indications that 15% to 20% of the franchisees won't change, and the company doesn't want to force the repositioning.
While disappointed that some franchisees are fighting his repositioning plan, Marotto says that their stubbornness will ultimately doom their stores. "The market is changing, and we have to change with it to survive." These are more than just words. Marotto is putting his money where his mouth is. In February he led a $70-million effort to take PIP Printing private.
We'll keep you posted.
KEEPING AHEAD OF THE GAME
How to change the business you're in
What was once a perfectly fine idea -- say, making state-of-the-art buggy whips -- can be obsolete in the time it takes to start a car engine.
Since things change, you must too. Here are the key things Tom Marotto, president and chief executive officer of PIP Printing, kept in mind while repositioning his company:
* Stop, look, listen. Who knows better than you what is going on in your industry? You have access to vendors, trade-association data, and your customers. But all that information is worthless unless you use it. The idea is to anticipate where the market is going. Being left behind is fatal. When was the last time you bought a buggy whip?
* Get there first. Once you've spotted a trend, you have to get there ahead of the market. You have to change your product -- or your product's positioning -- to fit the demands of the changing marketplace.
* Let your employees know what you are up to. Employees spend most of their time trying to please their immediate boss, not you. If their department head thinks what you are doing is silly, his staff is not about to follow you to the ends of the earth. Let your key employees know ahead of time what you are up to. They'll be flattered. And they might be able to spot potential problems you missed.
* Change everything. Change your brochures, your trucks, your stores, your packaging, your advertising. Your repositioning is a big deal. Make sure the world knows it is. Sears recently closed all its stores for two days, and bought up what looked like half the commercial time in the free world to announce its decision to have "everyday low prices." You don't have to go that far. But try to come close.