Issue #0715/1 - Following last week’s announcement from Hewlett-Packard regarding its new strategy on printer supplies, this week’s issue of TCPglobal is devoted specifically to other supplies issues.
Firstly, a strategy that has caused some considerable debate over the years – Lexmark’s emotive ‘Prebate’ program – and, secondly, the value of inkjet photo packs.
An attempt to gain an advantage over its competitors does very little for customers, except to prevent them from paying over the odds for their printer supplies.
For most of its life, Lexmark has operated a supplies program that has solicited a mixture of consternation, anger and scorn from other printer manufacturers over the years. This is officially known as the ‘Return Program’ – a very ecologically friendly title – but is commonly referred to as the ‘Prebate’ (up-front rebate) program.
In this article, we look at the program, how it works, what it is intended to achieve and what it does to a customer’s Total Cost of Printing.
What is Prebate?
Put simply, Prebate is an up-front discount allowed to the customer in return for a guarantee from the user that the empty cartridge will be returned to Lexmark and only Lexmark.Prebate is a concept that springs from the rebate marketing strategy that is very common in the US but relatively little-known and used in Europe. One only has to browse US internet sites to find many promotional deals where the price quote reads something like “$499 after rebate of $50”.
In other words, the user has to pay $549 for the product but will receive $50 back when a special claim (or voucher) is returned to the manufacturer after purchase.
Lexmark’s initiative was to introduce that rebate at the point of purchase, instead of post-purchase when the user would have to spend time and money making the claim and accept the cash-flow inconvenience of waiting for the money to be returned.
How does it work?
Manufacturers have been pressurised into operating a cartridge return program of some kind for several years by the increasing onslaught of legislation such as the European WEEE directive and also peer pressure that springs from the social and ecological responsibility issue.These programs typically work in a variety of different ways – such as:
- providing prepaid return envelopes/labels within new cartridge packaging
- providing return bags to order
- enabling return label printing from the manufacturer’s web site
- contracting collection agencies to recover spent cartridges from organisations
Cartridges are usually disassembled and materials melted or ground down for recycling as other products. But, some printer manufacturers recover certain parts after quality inspection and may use them in new cartridges that are sold as ‘new originals’. In this instance, packaging usually contains wording along the lines of “… may contain remanufactured parts”.
Unfortunately for printer manufacturers, there is money in exhausted print cartridges. In every country under the sun there are independent companies collecting, remanufacturing and refilling these cartridges for resale as third party supplies. Indeed, such is the value that empty cartridges are bought and sold on the global spot market and shipped around the world as required.
Again unfortunately, the quality, reliability and respectability of third party supplies companies varies enormously from the thoroughly professional and legitimate corporations to downright illegal, immoral and seedy operations, whose employment conditions are little more than sweatshop in style.
This is another part of the hard copy industry that the OEM printer manufacturer base is unhappy with but has learned to live with. But, at least part of this third party industry has a social conscience – considerable sums of money are raised for charitable activities through the collection and remanufacturing of exhausted cartridges.
What Lexmark does with its Prebate ‘Return Program’ is to contract the customer to return the cartridge to Lexmark only after a single use rather than to rely on the customer’s sense of responsibility to place the cartridge into the recycling chain.
Each cartridge package contains a license agreement much as software packages contain a license agreement that is activated by opening the packaging. The user is obliged to return that cartridge to Lexmark, and only to Lexmark, after use. Any non-compliance – for instance: disposing of the cartridge to landfill; passing the cartridge to third party collection agencies or remanufacturing companies; or even just ‘not’ returning the cartridge – would constitute an infringement of the license agreement and could leave the user open to legal action.
Essentially, this means that the cartridge itself remains the sole property of Lexmark and the customer is buying just the toner or ink contained within the cartridge.
What does Lexmark achieve?
For Lexmark, as long as the customer can be convinced to buy into the Return Program, the benefits of the Return Program scheme are virtually incalculable.First of all, but probably least significant, it locks the customer in to buying Lexmark original supplies by offering an attractive price for an original product.
Secondly, it prevents the used cartridge getting into the hands of the third party supplies industry, meaning that the supply of raw material to the remanufacturers is severely restricted and, subsequently means that there are fewer remanufactured Lexmark cartridges available on the market to compete with Lexmark originals.
Thirdly, fewer exhausted cartridges will end up as landfill, so the program represents a responsible ecological approach.
Fourthly, for customers to be obliged to return the empty cartridge to Lexmark reduces the company’s administrative obligation and costs of persuading customers to return the cartridges for recycling rather than disposing of them to landfill or to the third party industry.
So, at the end of the day, Lexmark cannot lose.
How does the customer benefit?
Lexmark is known for its high pricing of consumables, riding on top of low hardware pricing. So for customers to have a lower cost way of handling their printing is no bad thing. The fact that they are obliged to return the empty cartridges to Lexmark is no hardship – after all, the cartridges have to be removed and dealt with somehow.Therefore, one of the benefits of Lexmark’s Return Program is that the customer does not have to think about how to dispose of the cartridges because the process is laid out under contract.
On the pricing issue, of course the customer does benefit from buying Return Program cartridges but it may be surprising to see how little impact the reduced Return Program pricing has on Total Cost of Printing. Where both mono and single-pass colour printers are concerned, hardware purchase prices from Lexmark are the lowest by a huge margin, particularly in the mono market segment.
However, when using Return Program cartridges instead of regular cartridges, we see the overall long-term CPP on the T640n dropping only to the level of the next most expensive machine – Xerox’s Phaser 3500N. And that is ONLY because of the low purchase price. The cost of the toner itself is still the highest in the group, despite the Return Program nature of the cartridge.
With the C532n, single-pass colour laser printer, Lexmark just manages to undercut the Konica Minolta printer on its overall Cost of Printing but only by a fraction and that really because Konica Minolta has imposed some fairly hefty supplies price increases in recent months – probably to counterbalance its relatively low purchase prices in the same vein as Lexmark itself. The cost benefit of the Return Program here is somewhat minimal.
On black toner for the mono printer used in this example, the percentage benefit of the Return Program to the user is 26% - quite respectable and attractive. With toner for the colour printer, the benefit is only 18% on toner and a miserable 14% on the colours.
| UK – Mono | Purchase | Print Speed |
Nominal CPP |
Long-term CPP over 3 years |
|---|---|---|---|---|
|
Brother HL-8050N |
£128 | 20 ppm | 2.03 pence | 2.23 pence |
|
Epson EPL-N3000 |
£288 | 20 ppm | 1.53 pence | 2.22 pence |
|
Hewlett-Packard LaserJet 4200n |
£286 | 21 ppm | 1.38 pence | 2.10 pence |
|
Kyocera Mita FS-3830N |
£270 | 22 ppm | 0.74 pence | 1.31 pence |
|
Lexmark T640n |
£87 | 20 ppm | 2.92 pence | 3.14 pence |
|
Lexmark (Return T640n Program) |
£87 | 20 ppm | 2.16 pence | 2.35 pence |
|
Xerox Phaser 3500N |
£309 | 20 ppm | 1.64 pence | 2.33 pence |
Note that for this group of printers, the long-term Cost of Printing over three years shown in the accompanying table is calculated on the basis of 1,250 pages per month; is based on the use of maximum capacity supplies; takes into account any standard, or starter, supplies shipped with the device; and also includes the cost of purchase. All prices are manufacturer’s recommended prices without tax.
Put these into the Total Cost of Printing calculation, printing 1,250 pages per month on the mono printers, and the benefit over using standard cartridges is 25% over the life of the printer – nice! But, for colour printer customers, printing 2,500 per month, the overall benefit works out at just 13.6%.
So, we come back to the key point that these discounts pull the Lexmark machines ONLY back into line with the top end of the group. They do not in any respect give customers an advantage over buying other brands and I would suspect that customers are effectively being duped into thinking that the program offers them a much more significant benefit over the competition.
Even against Lexmark Return Program cartridges, it is still possible to save a further 44% or 22% (mono/colour) by buying a printer from a competitor to Lexmark!!
|
UK – A4 Single-pass colour |
Purchase | Print Speed |
Nominal CPP |
Mixed mono/colour CPP over 3 years |
|
|---|---|---|---|---|---|
|
Epson C3800n |
£668 |
Mono Colour |
25 ppm 20 ppm |
1.40 pence 7.03 pence |
3.73 pence |
|
Hewlett-Packard Colour LaserJet 3600n |
£522 |
Mono Colour |
17 ppm 17 ppm |
1.39 pence 7.58 pence |
3.62 pence |
|
Konica Minolta magicolor 5430DL |
£410 |
Mono Colour |
20 ppm 20 ppm |
1.41 pence 7.68 pence |
4.04 pence |
|
Kyocera Mita FS-C5015N |
£595 |
Mono Colour |
16 ppm 16 ppm |
0.93 pence 5.13 pence |
2.96 pence |
|
Lexmark C532n |
£319 |
Mono Colour |
22 ppm 21 ppm |
2.03 pence 8.91 pence |
4.40 pence |
|
Lexmark (RETURN C532n PROGRAM) |
£319 |
Mono Colour |
22 ppm 21 ppm |
1.67 pence 7.66 pence |
3.80 pence |
Note that for this level of machine, the mixed mono/colour CPP over three years shown in the accompanying table is calculated on the basis of 2,500 pages per month; 70% pages in mono and 30% pages in colour; is based on the use of maximum capacity supplies; takes into account any standard, or starter, supplies shipped with the device; and also includes the cost of purchase. All prices are manufacturer’s recommended prices without tax.
Ecology
From the ecological standpoint, it would be hard to fault Lexmark’s Return Program.As mentioned, it helps ensure that the number of cartridges returned to the best final resting place is maximised: reducing the danger of them going to landfill; which in turn reduces the quantity of toxic substances entering the earth’s ecosystem.
Objections
Reaction from other manufacturers in the early days of the program was based around anger and a claim that the program represented unfair competition.More recently, they have come to terms with the competition it represents; learned to live with it; and realised that it is not going to destroy their own supplies businesses.
Summary
If we ask the question, “Why do the other manufacturers not introduce a similar contractual scheme?”, I suspect the answer would be something along the lines of “Why would we? We have a cost advantage over Lexmark as it is, we don’t need any more.”For the customer, the key driver must be “If you are going to buy Lexmark, you MUST take advantage of the Return Program or you are paying through the nose for nothing and, even then, you could do better”.
~End~
