Time to reconsider commodity mentality toward fulfilment

I don’t want to shock anyone, but I’ve observed that publishing management doesn’t always regard fulfilment as the sexiest part of the business. In fact, at least in the US, fulfilment has too often been viewed by higher-ups as one of those operational necessities whose specifics are best left to middle managers.

Except when it comes to pricing. Here, top management doesn’t hesitate to jump into the fray, pushing circulators to negotiate rates as if their very lives depended on it. Publishers may not be able to halt the upward curve of paper prices or postage rates, but they derive some solace from knowing that they’re paying virtually the same prices for fulfilment that they paid a decade or more ago.

Someone, unfamiliar with our industry, might well ask how this can be possible — particularly given that the fulfilment houses have expanded their services greatly during this same, long period of flat pricing.

Volume based model

Part of the answer lies in a fiercely competitive environment. The major bureaux’ systems were, of course, built for volume, and their business models depend on realizing a small margin per unit after fixed costs, across hundreds of millions of transactions per year. But the prospect pool of high-volume publishing clients is limited, and overall circulation volumes continue to decline because of advertising slippage and pressures to decrease publishing operating costs.

So, although there are now just three dominant fulfilment players in the major consumer magazines arena — Communications Data Services (CDS), Kable Fulfilment Services (which acquired the EDS - formerly Neodata - bureau in 2003) and Palm Coast Data (PCD) — it’s still a buyer’s market, in which a price-based, ‘fulfilment as commodity’ mentality often prevails.

However, importantly, what’s allowed major fulfilment houses to maintain viable margins amid flat pricing, while improving their offerings, is brilliance at leveraging technology and automating their operations wherever possible, while streamlining functions that are still most efficiently performed manually.

Yes, big bureaux have maintained ‘legacy systems’ where these continue to represent the most cost-effective means of meeting clients’ core needs. But, in addition to enhancing existing systems (in Kable’s case, integrating the core Kable and former EDS systems), they have continued to build and acquire new systems, modules and interfaces to support each emerging client need, including internet marketing / customer service and inbound upsell / cross-marketing capabilities. They also continue to develop new services that represent value-adds for clients and opportunities to broaden their own revenue bases.

Here’s a summary of key, recent initiatives at the three major US consumer magazine bureaux, as reported by their presidents during a recent Fulfilment Management Association panel:

* PCD has created a customer-centric fulfilment system, enabling publishers to integrate a customer’s activities on a single file — including multiple consumer and B2B magazine subscriptions, memberships and events — to support upselling and combination promotions. Next big thing (to be launched in second quarter 2006): a complementary, cost-efficient marketing database that will enhance analysis of customer relationships, including the ability to append data and bring in outside files that are not fulfilled by PCD.

* CDS’s renewal data mining project is designed to enable clients to identify and leverage customer response patterns to reduce mail efforts / costs while maintaining (possibly improving) response rates and increasing overall profitability. The basic ideas: eliminate early renewal efforts to subscribers who consistently respond to later efforts, and use customer data to tailor the content and price offers in renewal messages, as well as make add-on product offerings, where appropriate. Next big thing: developing a new enterprise architecture strategy that enables a single file for consumer and B2B magazines, products etc, plus increased, faster client access to data to support more timely, strategic marketing decisions.

* Kable has rolled out imaging capabilities that enable: automatic validation of term, source key and other order-processing elements (virtually eliminating data entry error); instantaneous retrieval of original order documents for customer service and circulation auditing purposes; media tracking; accelerated deposits, and other benefits. Next big thing: developing a state-of-the-art data warehouse with web-enabled, on-demand reporting on a transaction level, for customer-specific analysis and marketing strategy enhancement.

All major undertakings, requiring significant capital investment. Meanwhile, fulfilment bureaux’ labour, employee healthcare, data security and financial auditing costs are jumping significantly.

The big three consumer bureaux aren’t alone here: all fulfilment bureaux and in-house fulfilment system vendors face growing pressure to stay ahead of the curve, yet somehow remain price-competitive. This dynamic will only intensify as digital media drive business model changes at traditional media companies and their vendors.

Publishers, struggling with their own mounting financial pressures, aren’t likely to exhibit a sudden urge to pay higher prices for basic fulfilment services. But it’s certainly in their own interests to ensure that they have viable vendor choices (a point driven home during the initial, nail-biting period after the EDS operation went on the block). And, while magazines will remain a staple, smart bureaux are diversifying into new markets for future growth.

At a time when magazines need all the competitive advantages they can muster — including enhanced customer service and honed marketing capabilities — many publishers (perhaps not just US companies) would seem to have much to gain by taking advantage of the value-adds being offered by fulfilment vendors — and by considering at what point hardball negotiations may become self-defeating.

CDS president Chris Holt put it this way: ‘each of the fulfilment bureaux has a value proposition. A commodity orientation benefits publishers in short-term costs, but will work against you in the long term if we can’t invest back into the business — in technology to help you drive new revenue streams and sources.’