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 user 2006-10-05 at 11:21:00 am Views: 37
  • #16696

    Disposable Color Laser Printers:
    A Case for SMB Pay-per-Print Programs
    How the Industry Can Fight the Monster It Created
    OCT 06
    The dramatic price reduction in desktop color laser printers has caused a frenzy in consumer purchases, and the previously elite color models are now affordable for all. Color laser printers have always been viewed as the Cadillac of the printing industry and have been considered a machine that only a select few could afford. Thanks to dramatic hardware cuts and retail exposure, however, the color laser printing segment has changed forever. Now that the doors are open for all to experience color laser printing, a new set of problems has cropped up for manufacturers and consumers. In order to make up for the reduced margins on the hardware, manufacturers are increasing the cost of supplies, which takes the customer by surprise and also leaves small and medium businesses unable to predict their color printing costs.

    The increasing cost of printing in color shows no signs of slowing down. On average, the cost-per-page for color laser supplies is increasing roughly 15% per year. This increase is driven by the lowering of page yields while toner pricing remains steady. Manufacturers have learned that consumers are not printing very much in color in the SOHO or small workgroup segments. To help offset the margin losses on hardware, manufacturers have kept supplies pricing stable but have decreased page yields in order to boost replacement purchases. The biggest pricing pressures are occurring within the SOHO and small workgroup segments, but Current Analysis is also finding gradual cost-per-page increases in the small and large workgroup settings.

    The recent wave of high-priced color laser supplies has created a family of disposable printers, for which the printer costs less than a new set of replacement consumables. Many manufacturers are shipping a full set of cartridges to offset the replacement sticker shock of consumables. In actuality, though, this is not a factor in purchasing decisions for consumers or small businesses. Consumers do not view the cartridges included with the printer purchase as a variable that can extend their printing capacity, but rather, they see the included cartridges as a standard purchase that comes with the printer. In their minds, the supplies should not cost more than the printer since their original purchase included supplies. Consumers and small businesses quickly caught onto the high price of replacement consumables, which in turn has dramatically reduced page volumes.

    Now, manufacturers are struggling to increase those page volumes within the low-end color laser segment, and this same issue will trickle into the workgroup segments if cost-per-page continues to increase at a steady pace. When the price of consumables is two or three times the price of the hardware, the manufacturer is left in a weak spot, and reduced market share and negative brand equity are just around the corner. History is repeating itself, as the page printer market re-enacts every misstep of the inkjet industry.

    While history repeats itself, many of the “disposable printer” offenders have never experienced life in the inkjet printing business and thus are going through the inevitable loss of supplies revenues for the first time. The biggest offender of disposable printers is Lexmark, and it should know better, considering that the company has already experienced the same problems on the inkjet side. More than 82% of Lexmark’s current products are considered disposable printers, which makes Lexmark the leader in disposable printers, followed closely behind Konica Minolta (see chart: ”Disposable Printer Share by Manufacturer”).

    There are several key players in the industry whose replacement cartridges cost two or even three times the price of the hardware (see chart: “Low-End Color Laser Printer Hardware and Consumables Pricing”). Manufacturers are struggling with these issues, and it will cost them more than supplies revenue in the long run, if they do not develop a solution for selling color printing to the SMB market.

    Opening the doors of color laser printing to the mass market has created a monster for manufacturers. Manufacturers that rank high in the disposable printing segment are creating several problems from which recovery can be very difficult. One of the biggest concerns is consumer loyalty. Without consumer loyalty, a rash of problems can occur, creating a spiraling downfall. Consumers and businesses alike need to be able to trust that their printer manufacturer provides the best cost alternative for their printing needs. This is one area that has been overlooked in the expansion of the color laser printer to the mass market.If consumers or businesses cannot trust a manufacturer to provide optimal printing costs for their needs, then brand image quickly falls, and market share follows. Consumers and businesses need peace of mind when purchasing a hardware product that they hope will drive their incremental sales and revenue. Consumers have quickly caught onto the high price of consumables, and this will have several negative impacts on select manufacturers if they do not deploy a solution that allows affordable color printing for all.One solution that manufacturers are starting to deploy to gain trust and cost benefits is cost-per-page programs. To expand upon a cost-per-page program, manufacturers need to explore offering leasing programs to all. The rising CPP will not go unnoticed, and consumers and SMB customers alike will no longer be fooled by low hardware prices. Manufacturers are caught in a catch-22 situation: lowering their hardware prices will not move any more units (ask Dell executives, they know), and price elasticity has been stretched beyond the point at which lower prices lead to higher sales.CPPs have risen so steeply that customers are prompted to question that cost. But, manufacturers that consider reducing CPP would start a price war that would jeopardize their very existence. If manufacturers undercut each other on CPP, profits will come tumbling down and will put the printer industry in its worst crisis ever.

    The Benefit of SMB-Focused Pay-per-Print Services
    SMB-focused pay-per-print services are emerging as the industry’s escape route from a building engulfed in flames. These programs are not new — they have their roots in the copier market and are quickly gaining in popularity for enterprise customers with printer-based devices as well. The long and difficult sales process has kept these programs at the enterprise level, but they are now beginning to head downstream to the SMB level as a means of saving the industry. Xerox PagePack is one of the latest programs of that kind, announced at this month’s analyst conference in New York, and OKI is scheduled to follow suit this fall. The European markets are spearheading these developments; European pay-per-print print programs for SMBs have been available from OKI, Epson, and Xerox since January, starting as low EUR 25 per month — as easy and cheap as a subscription to Netflix.The new SMB pay-per-print programs combine hardware cost, service and maintenance cost, and consumables expenses in one flat monthly fee. The programs vary in detail — page volumes and payment options differ across the board — but they all have one thing in common: They transparently tell the customer upfront what the total cost of printing will be each month. And, they offer pay-per-print contracts in an SMB-friendly way by not discriminating against low-usage SMB environments. Therefore, they resolve a problem that the manufacturers themselves have created: customers’ inability to predict their cost of printing.These programs are win-win situations: Customers get back control, while resellers that sell the contract no longer have to compete for supplies revenue for the life of their customer relationships; instead, they have secured it with the original sale. The manufacturer thereby reduces the focus on hardware cost and can offer higher-priced devices with lower CPPs in order to woo their customers. More importantly, they can now forecast profits from consumables based on these contracts, which investors and financial analysts will prefer over the current “crystal ball” method that many manufacturers seem to use, judging by their inability to meet profit goals, which has been apparent in recent financials. Manufacturers are on the fast track to replicate in the SMB segment the success that solution-based sales approaches accomplished with enterprise customers.However, one last remaining bump in the road will slow down the acceptance of these programs before they can accelerate again: For SMB customers, the most important aspect is the bottom line. Simply knowing the cost only solves the problem that the industry artificially created. The real problem is the cost itself, not just knowing it, and the solution is to offer cost savings and tell customers how much a business can save by switching to the program. Manufacturers’ complicated cost-assessment tools that are used for enterprise clients do not work in the SMB segment because these tools are too tedious for resellers and customers to use. Instead, manufacturers need to offer comprehensive cost-comparison tools that meet three key requirements:
          •     First, they must be easy to use.
          •     Second, they must be sourced by a third party in order to alleviate suspicions of subjectivity.
          •     Third, they must focus on hardware cost (including warranty) and finance charges, but must disregard productivity loss. (If the distance from the desk to the printer rooms needs to be made part of the calculation in order to show savings, or be a better deal than the competition, resellers would be well advised to move on the next account instead of spending valuable time micro-argumenting.)Until manufacturers give their resellers such sales tools, the programs will fail to reach their full potential. The first manufacturer to do so will kill three birds with one stone, by solving its customers’ needs and its resellers’ needs, while at the same time resolving its own profit problems. The rewards will come in reseller and customer loyalty and increased profits. In this situation, everybody wins. The combination of decreased hardware prices and increased total cost of printing through expensive consumables did not work for the inkjet market, and it will not work for the laser market either.A disposable laser printer alienates customers that were looking to laser printing as the more cost-efficient technology; subsequently, selling a disposable printer destroys brand image and creates a disloyal customer base. SMB-focused page-per-print programs are the solution that can lead the industry out of this dilemma, but manufacturers need to do more than just show the real cost. They now need to show the potential savings in order to close the sale and win back their customers’ trust and loyalty.