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 user 2007-09-20 at 1:12:00 pm Views: 35
  • #18777

    Kodak sees ink as black gold

    Eastman Kodak Co.
    decided to go after a slice of the $50-billion computer printer market,
    it identified a weak spot in the armour of the giants that controlled
    the business: Consumers were grumpy about buying ink cartridges that
    cost almost as much as the printers themselves.

    The venerable film company, struggling to remake itself in a world of
    digital photography, came up with a new line of printers that use
    cheaper ink. Now all it has to do is persuade consumers to shell out a
    little extra up front.

    It is introducing its new Easyshare all-in-one inkjet photocopy
    printers, already on the market in the United States and elsewhere, to

    The all-in-one printers are slightly more expensive than rival machines – prices range from $129 to $329.

    However, Kodak is hoping that the prospect of paying $11.99 for
    black and $17.99 for colour replacement ink cartridges will attract
    consumers who are frustrated with high printing costs. Kodak says
    consumers will save 50 per cent on printing costs with the new

    “Seventy per cent of the folks we talked to realize how expensive it is
    and limit what they print,” said Kodak executive Steve Billow.

    “It’s because of the model that has been created by our competitors,
    they can essentially give their printers away,” Mr. Billow said.

    Ever since Hewlett-Packard Co. rewrote the rulebook on the home
    computer printing game with the introduction of the inkjet printer, the
    market has operated on the “razor and razor blade” model.

    Vendors charge low prices for the hardware, in this case printers,
    while making most or all of their profit on consumables, namely printer

    Many inkjet printers require product-specific cartridges which can cost
    from $10 to more than $100. HP – which controls about 50 per cent of
    the inkjet cartridge market – and Seiko Epson Corp. each list more than
    100 varieties of cartridges on their websites.

    There are some analysts who believe industry leaders such as HP, Epson
    and Canon Inc. actually sell their printers at cost because they know
    the profits will come when consumers are forced to purchase expensive
    printer-specific ink cartridges later on.

    “They will never admit to that,” said Ron Glaz, an analyst with the
    market research firm IDC. “They claim that they break even on the
    hardware, but I don’t understand how you can break even on a $39

    But they’re making a lot of money off of it [ink]. The margins are unbelievable on the ink and the cartridges.”

    Analysts agree, however, that the major players will need to follow Kodak’s lead if the market is to change.

    In Canada, the demand for multifunction inkjet printers – which usually
    include scanning and photocopying capabilities – is rising, even though
    the overall market for inkjet printers has taken a slight dip this year.

    In 2006 there were 3.4 million inkjet printers sold in Canada, but
    that number is expected to fall by about 200,000 in 2007, according to
    figures supplied by IDC.

    Total spending in Canada is expected to rise from about $1.7-billion
    (U.S.) to $1.9-billion this year as consumers shell out more for
    multifunction models but purchase fewer single-function printers.

    Kodak is facing an uphill battle to convince consumers that they can
    save money in the long run by purchasing more expensive printers,
    Info-Tech Research Group analyst Michelle Warren said.

    “Their success is going to depend upon how they get the message out,”
    she said. “This industry does have to make a shift in this direction.”

    However, as Kodak fights for shelf space at electronics stores, Ms.
    Warren said it is likely the company will need to reduce their sticker
    prices to remain competitive with the other brands.

    She also expects the ink cartridges sold by other companies to drop in price.

    Some financial analysts have expressed concern about HP’s fortunes as
    they pertain to its imaging and printing group, the division
    responsible for the high-margin inkjet cartridges, as Kodak enters the

    However, printer and ink cartridge sales have remained robust this
    year. In the third quarter, the HP division posted operating profit of
    $981-million, up 11 per cent from the same period a year ago, and
    provided HP with nearly 40 per cent of the company’s total operating

    Opinions about how Kodak’s move will be received by consumers vary
    widely. But it would be safe to say CEO Antonio Perez knows something
    about printer ink. Mr. Perez spent 25 years with Hewlett-Packard; five
    of those were spent heading up the company’s inkjet imaging business,
    during which time the installed base of HP’s inkjet printers grew from
    17 million to 100 million worldwide.

    When he came to Kodak in 2003, the revamping of the photo printing department was one of the first internal moves he made