How can Ink Manufacturers Differentiate in Today’s Market?
There has been a market shift for inks in recent years, the previously dominant market segment of print media continues to decline. This has been offset by the growth of packaging applications for inks that are generally higher margin and higher growth with room for innovation and a service oriented approach to creating customer value. The forecasted longevity and market outlook for packaging inks makes the segment attractive to existing and new investors and convertors. Digital printing presses however continue to grow at twice the market growth rate for packaging inks, leading to continued penetration of packaging inks with digital technology. This market penetration by digital will be the subject of a future blog post.
Most of the printing market is served by a limited number of large multinational ink companies. Consolidation over the years has reduced the number of competitors however the market remains highly competitive. Although the market continues to grow, investors demand returns sufficient to require growth above the market growth rate.
In most B2B markets, competition between similar sized companies relies on focused differentiation that can include product range, product quality, innovation, service performance, price and relationships. In some markets the value of some key attributes is diluted by their necessity to even play in the game. The inks industry is one of those markets.
Product performance is not a differentiator
As a supplier of inks to the printing market, attributes that would normally bring competitive differentiation are excluded, simply because without achieving them, ink companies are unlikely to be able to win or maintain significant share. This is not exclusive to the ink market but ensures that without a suitable level of product quality, performance on press and range, ink producers will not get a seat at the table.
Color consistency and accuracy are examples of this. While there can be discussion about which ink company is the most ‘accurate’, if they are in the spec range then they make the grade. More importantly, any performance above that standard is unlikely to win additional share of wallet. The same goes for ink performance on press, unless there are failures business is not won or lost through press performance.
If you list the key technical performance attributes of an ink system - color consistency, color accuracy, viscosity, robustness, all the major ink companies are able to provide this. Some are more capable than others which helps in the assessment of their competitiveness. However, if one particular manufacturer is known for their excellent color strength, it may not be enough to compensate for poor performance in another critical attribute, such as service reliability. While this limits differentiation opportunities for established ink producers it still provides a significant hurdle for potential new entrants.
So how can ink companies differentiate in order to grow?
Lets look at potential ways that ink manufacturers can differentiate, and to what level that can drive their future growth success:
Pricing. Commercial costs can be used as a differentiator, but not significant in a market where the product, in this case the ink, is not one of the top three portfolio spends for the buying customers. Substrate, energy and labor in a convertor’s facility are larger cost groups for packaging producers than the ink. Moving to a different manufacturer’s ink system, or moving away from one already established, creates a lot of risk and transition time/cost for the converter. Share of wallet does move between suppliers, but ink market share is rarely won or lost on the basis of price being the sole driver.
Product performance. While not a significant differentiator for the key existing players as we have already stated, this remains a very powerful barrier to entry for potential new players seeking to get established in the market.
Relationships. The relationships between an ink company’s team and those of the convertor are important. Business that would otherwise be lost can be maintained with solid personal relationships without which business might move away more quickly. This might be a way to hold on to existing business for longer, but less likely to lead to business wins. A poor relationship however, or one that lacks trust or confidence, can see business disappear very quickly.
Innovation & product development. Innovation exists in the ink market, but not to the level that causes demand shifts from one producer to another. Much of the innovation today is focused on greater sustainability features; improved LED / EB curing, the ability for an ink to remain with a package at the end of its life during recycling, or the ability for it to wash off the pack in the same recycling process. While these are laudable benefits that should be rewarded, they are unlikely to lead to share shifts between suppliers unless legislation or consumer buying choices impact the choice.
Customer Productivity Programs. Customer productivity is often overlooked when we look away from customer/suppler relationships between major global entities. Currently it is not commonly offered by the ink producers to the convertor market. CPP’s and their potential impact on competitive advantage will be looked at in a later blog post.
Brand value. The global ink suppliers are consolidated, with powerful brand reputations supported by solid infrastructure, values and products. While there is an opportunity to differentiate through the brand and associated value, it is less likely to drive significant share shifts than perhaps desired.
All of these are valuable subjects for ink producers to focus on, and to promote to their customers. A combination of these factors can help to grow business or at least maintain it, but it is unlikely that any one of them on their own will achieve growth above the market.
So if many sources of competitive differentiation are eliminated when comparing the top ink producers, how can the market choose between them? In the market today there is one source of differentiation which drives the majority of share shift between major suppliers. A spot check on reasons for significant business being won, or lost, by the large global ink producers shows that the primary cause of that move was either better service performance from the new ink provider, or a significant service failure by the incumbent leading to a loss of confidence in their ability to meet the demand.
This is defined in the service level that the manufacturer provides, particularly the confidence in that supplier’s ability to consistently meet its stated service performance.
Service capability is a key differentiator in today’s ink market
Ink consumption is a complex web of demand and supply. Having a baseline performance of service capability means consistently and reliably providing inks on time in full in accordance with a stated service capability. This may not be the most competitive, but by meeting what you say you will achieve, confidence grows and business can be won or at least retained.
In order to use service as a competitive advantage, this service performance needs to progress from consistently achieving your own stated service levels, towards meeting those of your customers regardless of how realistic or not those service demands become. Achieving what your customer wants and being able to do so consistently and reliably creates a room filled with confidence. Confidence builds trust, trust leads to longer term partnerships and business growth.
A key component of service capability is ensuring you invest in and operate a solid Route To Market Strategy. This can be a combination of your own physical stocking locations, third party distributors and well managed consignment stocks at your key clients. What inventory you hold is just as critical as where you hold it which drives the need for a successful supply chain model.
While not every route to market option has to be made available to every customer, having a physical presence in a market creates value in demonstrating commitment to a region and the long term supply integrity of your customers located there. If you have an existing owned distribution network that is not performing, fix the performance or divest it to a partner with a long term supply agreement, but do not close it down. Recognize it is an asset not only to your service model but to your image and commitment to the market. Whatever your service strategy entails, it should not rely solely on an express shipping partner.
With a solid relationship customers will manage occasional missed delivery dates but when it starts to damage your reputation confidence is lost and customers will consider alternative supply partners.
Although this post uses the example of the ink industry, the approach can be applied to many B2B consumables markets. We can support you with baselining your current competitive performance in a B2B market. This includes product offer, value creation and route-to-market/service capability to drive competitive advantage in your markets. We can help to build a strategy to create competitive advantage backed up with your identified strengths and focus needs. Contact us here for a confidential discussion.
Julian Cass
October 2023
This blog post represents thoughts based upon our experience and observations. It is written to be thought provoking and not intended to be acted upon directly. If you would like to discuss your specific scenario or would like to know more about how we can help with industry expertise contact us here
