SULLIVAN'S FSI BUSINESS A FATALITY OF PRICE WAR

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Buckling under the weight of intense industry price wars, Sullivan Marketing has sold its free standing insert business to competitor News America FSI, which will shut it down.

But judging from News America's willingness to spend to get rid of Sullivan-as well as 1993 numbers released by other FSI suppliers-the price wars have hurt competitors almost as much as Sullivan.

Sullivan's decision to leave the FSI market inevitably will be bad news for package-goods marketers, which have enjoyed drastic price cuts since Sullivan came on the scene in November 1992.

"Sullivan's exit will stabilize pricing-we won't see as much discounting," said Victor Imbimbo, ceo of the Hadley Group sales promotion agency in New York.

Founded by former News America employees, including President Paul Moschetti, Sullivan grew to hold just 10% of the $1.3 billion market, leaving the rest to News America and Valassis Communications.

Last September, Sullivan filed a lawsuit against its two competitors, charging the companies were conspiring to drive Sullivan out of business with the price cuts and disparaging materials about Sullivan's financial condition and business practices.

The turn of events prompts a return to what Sullivan categorized in its suit as the "profitable duopoly" held by News America and Valassis. Marketers have benefited from Sullivan's presence, watching the FSI price per 1,000 pages fall about 28%, from more than $7 to roughly $5 within the past year.

Other coupon media may also benefit from the return to a duopoly, though.

"If News America and Valassis price themselves too high, then other couponing sources, like ActMedia and other in-store services, will become more attractive," Mr. Imbimbo said.

Chris Sutherland, executive director of the Promotion Marketing Association of America, agreed.

Because FSI prices have been so low, marketers have been able to take advantage of them without really questioning the return on investment, Mr. Sutherland said, adding, "It's exciting because with fresh money going into alternative couponing methods still in development, we'll get a chance to see what they can do."

In 1993, Sullivan reportedly posted losses of $15.7 million on revenue of $84.7 million. But the FSI underdog wasn't the only one to take a hit.

Valassis last month released fourth quarter 1993 numbers showing profits slashed to nearly nothing-down 96% to $700,000 vs. the year-earlier period. Revenue fell 19% to $132.7 million. In a statement coupled with the earnings release, Valassis President David Brandon said the company would "aggressively work at growing market share," despite competitive conditions.

After Sullivan's announcement Feb. 17, Valassis' stock was up 51/4 to $17.

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