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Is it time to reverse the printer price war of the 90s and noughties?

Issue #1203 – Poor, if not frightening, first quarter results from market leader Hewlett-Packard, together with a not-so-good outlook for the printer industry as a whole, are a pointer that the printer industry absolutely cannot sit back on its laurels and expect to survive on past business models and product ranges.

For Hewlett-Packard, IPG (Imaging & Printing Group) revenue is down 7%, supplies revenue is down 6%, hardware sales in all areas are on the decline and operating profit has plummeted from just over $1.2bn in Q4, 2010 (~17% of revenue), to only $761m in Q1, 2012 (~12% of revenue).

One company seeming to buck the trend, to a degree at least, is Xerox. Back over a decade ago, when the company nearly lost its footing altogether, it rebuilt its business and reputation by adapting to a ‘Print Process’ business model. In other words, the printed page is merely a means to an end – the important part is the business processes that surround, or lead to, the printed page. This involves streamlining business processes and page creation, distribution, management and archiving, so that any actual hard copy page that may be produced is almost just a by-product to achieve the final goal.

Other printer manufacturers have also been heading in the same direction but none with quite the verve of Xerox. And – although the revenue trend is not at all as positive as it was five quarters ago (when Xerox posted 42% revenue growth!) – Xerox financial results show:

  • Overall revenue flat (=better than HP)
  • Hardware revenue -3% (=better than HP)
  • Operating profit 10% or revenue (=better than HP and NOT falling)
  • Annuity =80% of revenue!

Even Lexmark is not posting results as poor as Hewlett-Packard.

But, what I really want to ask is “is it time for a return to printer hardware prices reflecting their real value as opposed to being loss-leaders?

It was back at the beginning of the 90s that Lexmark was spun off from IBM and, soon after, embarked on a concerted programme of destroying profit from printer hardware by cutting prices so aggressively that all other manufacturers had to enter the price war just to maintain some semblance of a decent market share.

I well remember the days in the mid-90s when printer hardware pricing was falling by several percentage points EVERY MONTH!

End result? Printers being sold at a loss just so that the printer manufacturer had a market for its consumables – the only profitable part of the business!

What other industry sells its primary product at a loss? Many users over the years have said to me, “I’d be very happy to pay more for the printer in order to reduce the cost of consumables”. After all, printer hardware is a capital expenditure that can be written off against tax over several years but printer supplies are a running cost to the business.

So, if the balance is right, both manufacturers and users benefit.

Again Xerox – is the only company on the market today to have essentially the same printer hardware for sale where the user can choose either to buy a cheap printer and pay a lot for the supplies or pay a realistic price for the printer (~33% higher) and then take advantage of lower cost supplies (~66% lower).

Also, the rise in popularity of business inkjet multifunction devices, particularly from Brother, Epson and Hewlett-Packard, suggests that printer hardware is no longer entirely being seen as the loss-leader. Prices on these devices do not reflect ‘dirt cheap’ but are showing a trend towards the recovery of sensible pricing on hardware. It is even very noticeable that supplies prices on these products are the lowest in the industry (see for more information. Watch also for an article due shortly, comparing these business inkjet products with laser-based AiOs for small businesses)

Clearly, this industry cannot expect not to have to adapt to new market conditions. A number of hardware manufacturers either folded or merged over the last decade – and that was even before the current harsh economic conditions began in 2008. Already this year Kodak has announced that it has filed for Chapter 11 protection and we’ve seen the dire financial results from the likes of print giant Hewlett-Packard.

To broaden the scope of the cheap printer concept, I personally believe that the internet is largely responsible for a massive increase in the ‘something for nothing’ mentality that is rampant in the developed world – especially information and software utilities:

  • No longer do we need to go and buy a newspaper to read the news (or gossip). Online services provide all of this information free of charge.
  • Nowadays, if we want to find information, regardless of the nature of that information, we ‘expect’ to be able to get our hands on it without paying for it.
  • When we’re looking for some computer utility to view our photos, maintain our computer’s system or control our home media systems through our smartphone, etc., etc., we ‘expect’ not to have to pay.

Seriously, this is not a healthy situation and is likely to lead to an increasing global malaise as time progresses. For printer users, the ‘expectation’ is to be able to obtain a printer for next-to-nothing but then expect not to have to pay for inks or toners either. This is not sustainable.

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