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Exchange rates prompt huge price increases on Lexmark supplies – with big implications to Total Cost of Printing

Issue #0802/2 – In a highly undesirable move, Lexmark has increased prices in the UK on almost its entire range of supplies products by an average 6.4%. Yet again we see Lexmark increasing supplies prices immediately after reducing them – it was only in November of 2007 that Lexmark reduced supplies pricing in the UK by an average of 4%!

The exchange rate from US Dollars to British Pounds has been sliding but only in the last two-and-a-half months, with absolutely no likelihood that they will remain at their present level and no guarantee that rates will continue to slide.

Unfortunately, even before this slide against the Dollar began, the British Pound had started sliding steadily against the Euro early in September, with a massive 13.8% adjustment taking it to a record low during this last week.

For the UK, this is bad news. While house prices in the UK have levelled off, and even started falling, and with consumer confidence at a low point, the Bank of England has begun to reduce interest rates to try and prevent too dramatic a fall. The net result is that the UK is now not such an attractive place to invest, so the Pound becomes less attractive and exchange rates fall.

But, because of the exchange rate adjustment, the UK has to pay more for its printers and printer supplies, even if those supplies are manufactured in the UK (which Lexmark’s are not), because the manufacturers are not British and profit margins in the host currency (Euro/Dollar/Yen/Won) have to be maintained.

With the Bank of England expected to reduce interest rates further, the UK may be subjected to even deeper currency troubles and price increases from Hewlett-Packard and other manufacturers.

Returning to Lexmark, as UK pricing is pegged against the Euro rather than the Dollar, the drastic slide of the Pound against the Euro has prompted the company to take action.

On the inkjet side of the business, price rises range from 4.3% up to 6.6% with 99% of products affected.

In terms of business (i.e. laser) printer products, the range shows a slightly higher range of adjustments, mainly from 6.3% up to 7.1%. There are, however, a few products (5% of them) showing a much lower change than this, between 1.3% and 4.4%, and just 1% of products with no change at all.

Being subjected to price increases of this nature has major implications to the printer owner, whether private or business, even though the first reaction might be that an increase is not so significant, “after all, it’s only the consumables”.

If anyone thinks that way, how wrong they are! Let’s demonstrate how much.

Consumables costs are always the most important factor in the Total Cost of Printing. In the chart below, we see that in every category, the Cost of Printing increase caused by the Lexmark price rise is between about 5% and 6% – and this is when the average price increase on the consumables was 6.4%!!

Total Cost of Printing Increase

Lexmark UK Price Rises – January 2008


Perhaps we don’t fully appreciate the scale of costs involved in printing. We are looking at a spend on consumables that represents a huge percentage of the total spend over three years. The accompanying table shows the number of pages per month used in each computation, together with the percentage of the total spend represented by the supplies.

  Pages
per month
Consumables as
Percent of Spend
(Jan 2008 prices)
Low-end inkjet printer 50 92%
High-end inkjet AiO 250 77%
Low-end colour laser printer 500 84%
High-end colour laser printer 2,500 80%
Low-end mono laser printer 500 91%
High-end mono laser printer 10,000 81%

Needless to say, the higher the monthly page count, the higher the percentage of total spend that goes on consumables.

So, we see here the dramatic effects of supplies price adjustments and just how susceptible the UK is to interest rates, currency exchange rates and economic conditions not just at home but in Europe and the US (in particular) as well.

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