The price of industrial printing services has fallen at an estimated annualized rate of 1.0% in the three years to 2016. From 2013 to 2016, a shift in consumer and business preference from print to digital products has led to demand declines for industrial printing services. Publishers have been increasingly distributing books through digital medium such as tablets, while marketing departments have cut back on print advertising expenditure in favor of online advertisements. In light of this falling demand, suppliers have been forced to slash prices to remain competitive with digital substitutes. While growth in the number of businesses has moderated the fall in aggregate demand, overall demand declines have caused prices to decrease in this market during the past three years.
The fall in paper prices from 2016 to 2019 has also contributed to price declines in this market. Faced with lower market demand for industrial printing services, suppliers have been compelled to pass on lower paper costs to buyers in the form of lower service prices. And while wage costs have risen slightly in the past three years, suppliers have been unable to pass these costs on to buyers because of falling demand. Rising paper costs, in conjunction with falling service prices, have caused supplier profit margins to decline during this period, which has made suppliers less willing to offer further discounts or to negotiate further down on price.
During the three years to 2016, suppliers have been consistently bringing prices down to grapple with declining market demand. The resulting low price volatility has benefited buyers by allowing them to budget more accurately for future costs, which allows buyers to delay purchasing decisions without risking significant shifts in price. Furthermore, buyers gain additional negotiation leverage with the knowledge that prices will consistently decline in the coming years.
Prices for industrial printing services are forecast to decline at an average annual rate of 0.9% in the three years to 2019. Price declines are expected to continue due to forecast sustained decreases in demand in the next three years. In addition, the low level of price volatility is expected to persist, allowing buyers to delay purchasing decisions without the risk of potential price spikes.
The shift from print to digital media for advertising, publications and business forms will continue to eat away at demand for industrial printing services. From 2016 to 2019, the percentage of services conducted online is projected to grow an additional 3.5 percentage points. Further declines in print advertising expenditure also attest to the decline of print as a publication and advertising medium. Gains in the number of businesses through 2019 will prevent what would otherwise be more severe declines in demand from occurring. Nonetheless, IBISWorld expects that declines in aggregate demand for industrial printing services will push market prices down. As demand falls, suppliers will be forced to reduce prices to compete with digital substitutes, such as e-mail advertisements, online banner advertisement and digital business forms.
Suppliers will also be required to confront rising input costs during the three years from 2016 to 2019. The price of paper is projected to grow at an annualized 0.4% during the three years to 2019, driven by gains in the price of wood pulp. Again, due to previously mentioned falling demand, market vendors will not be able to pass this production cost on to buyers and will be forced to absorb the cost. Absorbing this cost will result in lower profit margins for suppliers, which will, in turn, make it more difficult for buyers to obtain discounts without leveraging a significant volume purchase.