Pinpointing Profitable Markets

Successful managers take the time to analyze and monitor the key dynamics of the industries served by their clients and prospects. Learning about the size, structure, performance, growth potential, and trends in customers' industry segments helps managers pinpoint opportunities, uncover potential

Following are profiles of five key print-purchasing industries, along with reports on major trends and growth performance. Our goal is to provide printing managers with useful information on these important print-purchasing markets, provide a framework for further analysis, and present some model tools and approaches to help managers tackle other segments.

Automotive: economic engine

America's automobile industry doesn't just manufacture passenger cars and light trucks; it is also a key driver of the U.S. economy. According to the Alliance of Automobile Manufacturers, more than 3.7% of America's total Gross Domestic Product is generated by the production and sale of new light vehicles.

No other single industry, reports the alliance, is more linked to U.S. manufacturing or generates more retail business and employment. America's automakers are among the largest purchasers of aluminum, copper, iron, lead, plastics, rubber, textiles, vinyl, steel, and computer chips.

America's automobile industry is also one of the largest industries in the country, accounting for 6.6 million jobs, or about 5% of private sector jobs, and producing $243 billion in payroll compensation. These figures appear in a 2001 report, Contribution of the Automotive Industry to the U.S. Economy, prepared by the University of Michigan and the Center for Automotive Research.

For every worker directly employed by an automaker, notes the report, nearly seven spin-off jobs are created.

Financial Services: convergence

Core segments of the broad and important financial services sector include banking, insurance, and securities, although in today's marketplace it is difficult to distinguish between the segments as all carry similar products.

Life insurers have shifted their business from life insurance coverage to annuity products, a move that places them in direct competition with financial services firms. At the same time, banks offer investment products.

The motto of the banking industry is "bigger, faster, more," as in bigger corporations, faster transactions, and more products, such as insurance and securities. With ratification of the Gramm-Leach-Bliley Act in 1999, the U.S. joined countries in Europe and Asia in allowing banks to expand beyond their traditional roles of collecting deposits and writing loans. This has led to the creation of several financial behemoths, such as Citigroup, J.P. Morgan Chase, and Credit Suisse Group.

Internet banking has become more prominent, as both large and small banks offer Web sites where customers can access accounts and buy financial products. Several Web-only banks have popped up, including NetBank and Egg plc, a unit of giant British insurer Prudential.

To boost fee income, some banks have de-emphasized lower-margin traditional banking operations to focus on more lucrative technology-based activities such as transaction processing and account custody services.

Everybody's investing

Indeed, banks have been forced to find new products and services as consumer customers have moved their savings from bank deposits to investment products. Three-fourths of Americans' liquid financial assets are invested in securities-related products, such as stocks, bonds, mutual funds, and money market accounts, according to Federal Reserve data. In 1975, more than half of Americans' assets were in bank deposits (55%).

The number of U.S. households owning equities, either stock or stock-mutual funds, has grown, from 32.5% in 1989 (the first year data became available) to 49.5% in 2002, according to a survey published by the Investment Company Institute and the Securities Industry Association (SIA).

The steady growth in equity ownership over the past three decades has been fueled by a sustained period of economic growth, a record bull market, the baby boomers' need to prepare for retirement, and the change in employers' retirement programs from defined benefit to defined contribution plans.

SIA projects that the securities industry will earn record profits of $22.5 billion in 2003, more than triple 2002's $6.9 billion figure, largely as a result of deep cuts in expenses. Total revenues, notes SIA, narrowly improved mainly as a result of fixed-income activity, such as bond issuance and bond trading. The association expects total revenues to reach $154 billion in 2003, up 4% from last year.

For the third straight year, total U.S. underwriting exceeded $2 trillion.

Retail: registering growth

Retailers, part of the U.S. retail industry made up of more than 1.4 million establishments and employing some 20 million people, or about one in five American workers, rang up sales of $3.8 trillion in 2003. They had a very happy holiday season at the end of last year and are optimistic about this year, reports the National Retail Federation (NRF).

The group reports that holiday retail sales in the category it refers to as GAFS (general merchandise stores, clothing and clothing accessories stores, furniture and home furnishings stores, electronics and appliances stores, and sporting goods, hobby, book, and music stores) increased 5.2% in 2003 to $216.32 billion, up from $205.63 billion in 2002. This growth rate more than doubled the 2.2% increase seen during the 2002 holiday season, reports NRF.

"The holiday season turned out much stronger than many analysts had predicted, showing strength in the retail industry," reports Tracy Mullin, NRF's president and chief executive. "We feel that retailers will build on this success and keep this momentum into 2004."

NRF predicts that GAFS sales, which increased 4.3% in 2003, will increase 5.0% this year as a result of gains in consumer income and low inflation.

Cost containment will be the number-one priority for retailers this year, adds NRF. Other top priorities include private-label development, sales associate training, micro-merchandising, and multicultural marketing.

A recent survey of more than 100 retailers conducted by NRF and consulting firm BearingPoint, Inc. found that 83% of retailers expect to replace or upgrade point-of-sale software systems to provide real-time customer information at the time of sale.

"As the competition increases, retailers need to figure out how they can differentiate even more," notes Scott Hardy, a managing director of BearingPoint's retail/wholesale practice. "Retailers are looking to point-of-sale in 2004 to provide real-time information to have a better understanding of the customer."

Restaurants: cooking up sales

The National Restaurant Association forecasts that industry sales will continue to rise, reaching a record $440.1 billion in 2004, up 4.4%, marking the 13th consecutive year of real sales growth for the industry. This year the association expects the overall economic impact of the restaurant industry to exceed $1.2 trillion, including sales in related industries such as agriculture, transportation, and manufacturing.

On a typical day in 2004, reports the association, the industry will post average sales of more than $1.2 billion. The nation's 878,000 restaurant locations provide employment for approximately 12 million people, almost 9% of the U.S. work force.

The group adds that the Internet and e-mail are key venues used by potential patrons to find out information about a given restaurant.

The most popular occasions for consumers to visit a restaurant, in rank order, are birthdays, Mother's Day, and Valentine's Day.

Of particular interest to printing industry managers are trends in menu designs. Many restaurant owners are changing where items are located on menus to increase or decrease sales, and they are strategically pricing, says Gregg Rapp, a menu engineer and consultant known for increasing profitability through the layout, design, and pricing of menus.

When American Express recently offered its restaurant merchants a complimentary menu engineering review conducted by Rapp, more than 300 restaurant operators signed up.

As Rapp reports, one effective practice in an era of skyrocketing meat prices is shifting sales to seafood; a simple way to do this is to place the seafood selections at the top right part of the page, the first place most consumer look.

Psychology of pricing

Pricing has its own psychology, notes Rapp: prices ending in .00 are "harder" prices, while those ending in .95 are "softer." Meanwhile, he adds, prices ending in .88 or .64 reflect WalMart or discounted pricing. Restaurateurs should keep psychology in mind, Rapp advises, matching their pricing format with their marketing message.

Another topic of interest for restaurant operators is how to handle the low-carbohydrate diet craze; Rapp suggests a separate section or separate menu for such items.

Travel: booking trips

Just two years ago, the U.S. travel industry received more than $545.5 billion from domestic and international travelers. These travel expenditures, in turn, generated nearly 7.2 million jobs, with nearly $157 billion in payroll income, according to the Travel Industry Association of America (TIA). The group estimates that direct travel spending in the U.S. resulted in employment of one person of every 18 U.S. residents in the civilian labor force.

After years of little travel volume growth and low traveler spending, TIA reports that things are getting better for the industry. The association's latest forecast calls for overall traveler spending by domestic and international visitors to increase 4.4% in 2004 to $568 billion, up from $544 billion in 2003.

However, TIA officials believe that it won't be until 2005 that the level of spending, which is forecasted to reach nearly $600 billion, will finally surpass the record set in 2000.

Domestic leisure travel has slowly but steadily increased over the years, despite the aftermath of September 11, the lagging economy, and the war in Iraq. TIA is forecasting leisure travel volume to grow 3.2% in 2004, up from an estimated 2.8% increase last year. Bright star in dim constellation

"Leisure travel has been the bright star in a relatively dim travel constellation. However, Americans have remained reluctant to commit, so last-minute planning and booking will continue to be the norm," says Dr. Suzanne Cook, TIA's senior vice president of research. "We expect that the increased preferences for domestic travel, close-to-home destinations, and highway travel will continue, although I think as time goes on Americans will begin to go back to their more traditional travel patterns."

The outlook for two of the hardest-hit segments in the travel industry, domestic business travel volume and international inbound travel to the U.S., are bright, following 2002-to-2003 declines of 3.7% and 4%, respectively.

As for business trips, TIA forecasts that U.S. residents will take more than 122 million such trips this year, an improvement of 4.2% from 2003 and the first annual increase since 1999. The group predicts that 2005 will be even better, with business travel increasing 3.5% to nearly 127 million trips.

International inbound arrivals to the U.S., which fell steadily for three years, will likely increase 5% this year and next, says TIA, which translates into more than 42 million international arrivals in 2004 and more than 44 million in 2005. However, these numbers are well below the high of 51 million arrivals set in 2000.

First, Examine the Biggest Budgets…

Which industries are the biggest purchasers of print? The answer is that no one really knows.

To determine the top purchasers of print by industry, we looked at industry spending on advertising and promotion. The premise: industries that spend the most on advertising probably buy lots of print. While advertising is not the only factor driving print sales, it certainly is a major force.

We started our industry analyses by looking at the report, Advertising Ratios & Budgets, by Schonfeld & Associates, Riverwoods, Ill. We then compared the Schonfeld data to TNS Media Intelligence's annual listing of top ad-buying industries to identify which spend the most on advertising, and thus on print.

Given that each data set used for this analysis grouped industries differently, we had to make adjustments and regroup industries.

…Then, a Closer Focus on Printing

After determining and ranking the industries that spent the most on promotion and advertising, we looked at specific ad and promotion expenditures for print. This would help confirm which industries were indeed big purchasers of print; but this step alone was not enough to complete the analysis because magazine ad spending and direct mail do not account for a vast majority of the sheetfed printing market.

By analyzing all four data sources we identified five industries that we believe are top purchasers of print–-automotive, financial services, retail, restaurant, and travel–-covered in this year's article.