Long driven by a “commodity mentality,” successful paper companies in the future will identify what the customer needs and then fulfill those requirements

Changes in Retailing, Print Technology Will Force Focus on Customer Needs

The current strategy for many of the major paper and paperboard manufacturers is to become the low-cost producer of commodities, focusing primarily on tonnage produced. And recent consolidations, through acquisitions and mergers, have moved major companies even further toward concentration on commodities. It has also caused the industry to miss opportunities for development of new value-added products.

The challenge for the industry is to become more oriented toward marketing and fulfilling customer needs. There is a need for marketing orientation in paper companies that hope to prosper in the new millennium. The crux of the marketing concept is identifying consumer needs and making a profit by meeting them. The expectation is that profit contributions from value-added products will go to those companies that are marketing oriented and proactive.

One important thought is that some of the new grades mentioned below are in the early stages of the product life cycle and may not be economical to produce on large commodity machines. The key to profiting from the changes in the marketplace may be to rebuild some older, smaller machines by adding metering size presses and soft nip calenders.

DRIVERS, SHIFTS IN PRINT MEDIA. The drivers for changes in paper consumer needs include:

• Changes in retailing

• Changes in consumer demographics

• Time pressures and a sense of urgency

The majority of soft and hard goods sold at retail are now sold in “big box” stores such as Wal-Mart, Circuit City, etc. The roles of salespeople and print media are different from the days when department stores and specialty stores dominated retailing. There is much greater emphasis on use of media such as freestanding inserts, direct mail, and coupon promotions. The tighter margin markups in big box stores place an emphasis on reducing cost of marketing communication materials.

The majority of purchasing power is now in the hands of the color TV/MTV generation. Color and multi-media motivate them. They are primarily in two-career households with children in day care. They are characterized by time pressures and a sense of urgency. They have shorter attention spans and tend to multi-task. They look for quick gratification. They don’t have time to read a general interest magazine. Nevertheless, they are likely to make time for specialized magazines dealing with their specific areas of interest.

The result of this is a noticeable decline in traditional magazines as an advertising medium. The use of specialized magazines is increasing. Significant growth in freestanding newspaper inserts continues. There is also continued growth in direct mail and the use of coupons and other non-magazine media.

INTERNET AND E-COMMERCE. The Internet and e-commerce do not constitute “The End of the World as We Know It.” The advent of the paperless office and even the paperless society has been forecast for at least the last decade. There has been significant increase in the use of the Internet as an information and communication choice. There is also growing use of e-commerce and some consumer purchasing on the net. Email has become almost ubiquitous. But email has not taken much share from the postal service. Most of email’s share gains have come from fax and long distance telephone.

The result of increased use of the Internet has been an increase in the need for on-demand printing. Surveys have shown that the most common action when reading an Adobe publication on a web site or as an attachment to email is to print the file. The person clicking the “Print” icon is likely to be a member of the color-motivated generation, looking not only for color printing but high quality color printing. Ink jet and color laser printers are becoming tools for these users. Thus, there is a growing need for papers that will provide economical, high-definition color print on-demand.

PRINTING AND IMAGING. Computer-to-plate technology has significantly reduced make-ready costs for offset and flexographic printing. Heatset offset has become the dominant process for medium and long run printing. Quality improvements in web offset make it nearly comparable to sheet fed in many applications.

Gravure is a process that is in the maturity phase of its life cycle and not likely to grow significantly in North America. A number of major publishers that formerly used gravure have switched to heatset offset.

The quality capability of digital printing is increasing dramatically, to the point of being nearly comparable with offset. It is likely that digital printing will replace much of what is now printed by sheet fed offset. In digital printing, the costs of computer-to-plate and make-ready are eliminated. Digital printing is likely to dominate run lengths too low for web offset.

Flexographic is a process that has also undergone significant improvements in quality and reductions in cost. It runs with water-based, minimal-VOC inks. Viewed strictly from the standpoints of technology and efficiency, one would conclude that flexo would grow to dominate newspaper printing. However, this is not likely to happen in the foreseeable future.

Letterpress dominated newspaper printing for many years, but during the past several decades, letterpress newspaper presses were replaced with web offset at great capital expense. It is not likely that major expenditures will be made to replace offset with flexo for general newspaper printing. And flexo is not likely to challenge heatset offset in printing of inserts, where ink gloss and snap are important criteria.

NEW GRADES OF PAPER NEEDED. The previously mentioned market drivers and the changes taking place in printing and imaging equal a need for new grades of paper. For example, there is a need for economical heatset offset papers that are lower in cost than blade-coated lightweight coated grades. These new grades need to perform better than high-end supercalendered (SC-A+) grades on heatset offset presses.

There is also a need for digital printing papers that provide high-definition, high-quality color reproduction at a reasonable cost. In the small office/home office (SOHO) marketplace, there is a need for mid-range ink jet/toner bond papers that provide better quality than multi-purpose uncoated free sheet papers at a price significantly lower than silica-coated specialty papers.

It is likely that the line between coated and uncoated papers will become increasingly blurred. To be economical, these new grades will need to be made with lower-cost furnishes. They are likely to be surface chemically treated via metering size press. The surface chemical treatments are likely to contain new engineered kaolin and calcium carbonate pigments. And the new grades are likely to be hot soft nip calendered.

CHANNELS OF DISTRIBUTION. Significant changes are taking place in the way paper products are sold and delivered. The past decade has witnessed the acquisition of independent paper merchants by major paper producers. The traditional roles of the stocking merchant—carrying inventory and handling customer credit—are no longer dominant. Major paper companies now control the channels of distribution.

Acquisitions and mergers have led to further consolidation in the roles formerly served by these merchants. Unfortunately, pressures to increase efficiency in paper sales organizations has the potential to decrease the likelihood of actually listening to customers and prospects about their specific needs.

There has also been a decline in the role of traditional office supply retailers. Most office supplies are now sold in “big box” stores such as Staples and OfficeMax. These stores were originally intended to service the SOHO segment, but they have grown to service larger offices.

Another growing channel of paper distribution is the imaging center, such as Kinko’s. These copying and print-on-demand centers have replaced quick printers and now account for a significant share of consumption of cut-size grades.

The combination of these factors has led to an increase in national account management by paper companies. This approach doesn’t necessarily tend to identify emerging needs for new grades of paper.

CHANGES IN PACKAGING. In big box stores, there are fewer salespeople, therefore the package itself and point-of-purchase displays need to serve this function. This creates an even greater need for high quality color graphics.

The package on the store shelf is likely to be a corrugated container, and the corrugated container business is undergoing a revolution. The development of mini-flute and micro-flute are helping corrugated grow into folding carton applications currently dominated by solid bleached sulfate (SBS) and recycled multi-ply paperboard. N-flute corrugated can produce a 26-30 point combined board that will run in standard folding carton machinery. The resulting box weighs 40% less than the same box construction made from recycled multi-ply board, and it has better stacking strength.

The lightweight linerboards needed for micro-flute corrugated are actually produced in “paper” basis weights rather than linerboard basis weights. They don’t necessarily lend themselves to being made in a linerboard mill. There are also growing applications for litho laminating in the packaging segment.

Thus there are emerging opportunities for producers of communication and publication papers in the packaging segment. The required new grades may need to run well in direct/post print flexo without drying. They may also need to incorporate functional properties, such as recyclable barrier coatings. *

Charles P. Klass is president, Klass Associates Inc., Radnor, Pa. This article is based on a presentation at the Publishing and Communication Papers Conference in Montreal, Que., Sept. 26-28, 1999, sponsored by Pulp & Paper and Pulp & Paper Week.