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 user 2006-09-19 at 11:19:00 am Views: 29
  • #16473

    INK-QUISITION: Lexmark plans to weaken competition by rewarding customer’s loyalty
    Lexmark fired a new salvo last week in the war for consumers’ ink allegiance.
    an industry first, the printer maker announced that one of its newest
    inkjet printers will use cartridges that can come with an upfront
    discount if the consumer agrees to return them to Lexmark, not
    remanufacturers or refillers.”This is big news for this industry. It’s
    huge,” said Jim Forrest, a senior analyst at Lyra Research, which
    follows the imaging industry.It’s the newest chapter in a long
    unfolding saga that pits printer makers against remanufacturers and
    refillers in a struggle for the lucrative ink market, the most
    profitable piece of the printer industry.Lyra Research estimates that
    consumers will pay $32 billion for inkjet cartridges in 2006. Of that,
    remanufacturers and refillers have about 21 percent of the market.Lyra
    estimates the market for inkjet cartridges that go in Lexmark printers
    is about $4.3 billion. Third-party companies, such as refillers, take
    $790 million of that revenue, or about 18 percent.Forrest said
    refillers and remanufacturers have been steadily gaining on Lexmark and
    other printer makers.”It’s a matter of awareness and availability,” he
    said. “Five years ago, many people weren’t even aware there was a
    choice.”Lexmark’s cartridge return program offers a $4 discount to
    consumers who agree to return the cartridges to Lexmark when they run
    dry. So far, the program applies only to Lexmark’s new Z845 inkjet
    printer, a low-end device that sells for under $50.The suggested retail
    price for black and color cartridges that are part of the program is
    $17.99 and $18.99, respectively. Similar cartridges that can be sold to
    remanufacturers go for $21.99 and $22.99.The cartridge packaging is
    identical on the front except for a prominent band that reads “Return
    Program Cartridge.” On top, it tells buyers to read details about the
    program listed on the back.If consumers have the return-program
    cartridges refilled and then attempt to reinsert them into the printer,
    a chip on the cartridges will disable them, Lexmark spokesman Tim
    Fitzpatrick said.Lexmark likely started the pilot program on the
    low-end printer because its buyers are more price-sensitive and more
    likely to buy cheaper alternatives, analyst Toni Sacconaghi Jr. of
    Sanford C. Bernstein & Co. said last week in a research report.The
    company will “evaluate the program and its market acceptance” before
    deciding if it should be extended to other printer lines, Fitzpatrick
    said.The availability of remanufactured cartridges has exploded in
    recent years, as franchises like Cartridge World expand rapidly, and
    top retailers like Staples, OfficeMax and Office Depot offer
    self-branded ink and toner. Walgreens announced earlier this year that
    it plans to place in-store ink refill services at 1,500 stores.Refilled
    and remanufactured cartridges can cost up to 50 percent less than
    original cartridges, but some have had quality issues when tested by
    independent researchers.

    Consumer impact
    While Lexmark
    emphasizes its new program is meant to offer customers a choice, the
    head of a trade group that represents remanufacturers said consumers
    will suffer.”If you give the consumer two identical choices and one is
    $4 less, they’re going to take the one that’s $4 less … without
    paying attention to the details,” said Tricia Judge, executive director
    of the International Imaging Technology Council.She said Lexmark, in
    particular, goes “out of their way” to lock in consumers.”Lexmark sets
    out to confuse or contractually bind the customer or intimidate them.
    ‘You must return this cartridge’ sounds intimidating,” Judge
    said.Whether Lexmark’s $4 discount will reduce the appeal of refillers
    remains unclear. However, the company succeeded with a similar program
    offered on toner cartridges for laser printers.Sacconaghi estimated
    that Lexmark captures about 90 percent of the aftermarket supplies for
    its laser printers.In an interview earlier this year with the
    Herald-Leader, Lexmark CEO Paul Curlander said he believes Lexmark is
    “the largest remanufacturer of laser cartridges in the world, and we
    just do Lexmark pretty much.”A remanufacturing group challenged the
    legality of the laser cartridge return program in a lawsuit in 2001.
    The Ninth Circuit Court of Appeals upheld the program last August.

    Hoarding empties
    Despite its laser success, Forrest said he doubts Lexmark will remanufacture the inkjet cartridges and sell them.
    cartridges can be tough to remanufacture and have quality issues. The
    primary advantage to the program is that it keeps empty cartridges out
    of refillers’ hands, Forrest said.”Empties are the lifeblood of the
    remanufacturing industry. They can’t produce a product until they get
    empties. It’s the highest material cost they have,” he said.If
    Lexmark’s program is widely accepted, analysts say remanufacturers will
    have a smaller supply of cartridges to buy, thereby driving up prices
    on remanufactured cartridges and making Lexmark’s products more price

    Fitzpatrick said Lexmark hasn’t decided whether it will remanufacture or recycle the cartridges.
    is limited to a single printer, so remanufacturing would presumably
    require a substantial number of cartridges,” Fitzpatrick said. “But we
    really aren’t getting into predictions at this point. We will most
    definitively do one or the other.”Forrest said he doubts other printer
    makers will follow Lexmark’s move.”The rest of the industry hasn’t
    followed suit on the toner side,” he said.The return program beckons
    the question, though — will Lexmark succeed in luring back people who
    use refill services or will it just offer discounts to loyal Lexmark
    customers, thereby reducing the profit margins on their ink?”I assume
    they’ve done their homework,” Forrest said