DELL LOOKING FOR A SUPPLIES WAR ?
DELL LOOKING FOR A SUPPLIES WAR ?
2004-03-29 at 11:03:00 am #6772
Do Dell’s printers mean a supplies war?
Dell Canada has Made its long-awaited arrival in the printer market, and in bringing its direct approach to the market, it could be threatening the sole area of the printer business where resellers stand to make decent profits — consumables.
Printer vendors and analysts have long held out that the only way for a reseller to make decent money in selling printers is on the return sale, the ink or toner cartridges which printers run through.
The new printers include a personal all-in-one printer, scanner, copier and software fax machine, a personal laser printer, and a pair of departmental laser printers available in networked and not-networked configurations. All four printers are OEMed by Lexmark, but sold under the Dell name.
All four also feature a new printer driver authored by Dell which includes the Dell Ink Management System or the Dell Toner Management System, depending on whether the printer is inkjet or laser. It’s that driver which links the customer to Dell’s direct engine for selling supplies.
“Our driver not only advises the user of toner levels, but proactively reminds at certain levels when getting low and allows customer to click on an ink order link that takes them to the Dell web site for easy ordering of their consumables,” said John Tyler, product manager for software and peripherals at Dell Canada. “We don’t want any customer to be without consumables.”
Bill Fournier, printer analyst with Evans Research Corporation, told eChannelLine in a recent interview that its direct-only strategy for consumables could be its Achilles heel. The last-minute nature of most consumable purchases mean, he suggested, that Dell can really only succeed in two ways: the sale of printers bundled with Dell computers; and embracing the reseller, or at least office retail, channels, for distributing its ink and toner packages.
“They’re not going to sell a lot of consumables via telephone or Internet, or direct,” Fournier said. “When you need a cartridge, you don’t want to wait for an order to be delivered. They’ve got to move the Dell cartridges either into the retailers and office supply dealers, or you simply tell [customers] to go in and buy a Lexmark cartridge for their printer [at retail.]”
In all honesty, the software that allows supplies to be purchased over the Web when they get low are hardly new to the market. Xerox, HP and others have offered the technology in their printers for some time. In fact, on many Xerox printers, the solution provider can take over that function, allowing them to redirect the customer to their own Web store when it’s time to order new toner.
Still, Dell’s direct strategy concerns some in the printer business. It has established a reputation for selling at lower prices than others can manage, and there are indications that it will go that way in both the printer and consumables business.
“Dell can be very long-term oriented and will sell below their costs to penetrate accounts, planning on future business to make it up for them,” said Joseph Adriano, worldwide product marketing manager for monochrome printing at Xerox. “They will buy direct from their suppliers, they will negotiate for the best possible discounts, and will be in the best possible position to provide discounts.
While insisting that Xerox “isn’t losing any sleep” over the arrival of Dell into the printer market, especially because Xerox’s focus is almost exclusively on the colour printing side of things, Adriano said that Dell’s arrival could make consumable prices a serious battleground in the monochrome market.
“As time goes on, there are fewer and fewer things to compete over,” he said. “First it was speed, then DPI, then paper IO. It’s getting to the point where there’s not a lot to compete on in monochrome.”
Rick Reid, president of Tech Data Canada, said that Dell’s entrance into the printers and consumables business may serve as a wakeup call to resellers who have been complacent and have sold printers based on the idea that they’ll make their money elsewhere, on supplies. “Resellers and manufacturers have had their way for a long time, selling their supplies to the market at high margins,” he said. “We’re going to start seeing a lot of pressure on that now.”
John Trisic, vice president of the imaging and printing group for HP Canada, the largest printer vendor in the country, seemed less concerned about Dell’s arrival. He noted that the printers Dell is bringing to market don’t add anything new technology-wise because they are remakes of current Lexmark products, and added that Dell wouldn’t be able to succeed in the printer business the same way it has in the PC business, because of fundamental differences in the channels for the two classes of products.
“We have a different set of economics in the printer channel,” he said. “We don’t have some of the price-protection issues, the frequent product rolls, some of the low-hanging fruit that they used to revolutionize the PC channel. We’re very cost-effective, so they won’t have the same opportunities [to cost-cut] they did on the PC side.”
Reid said that HP would have to react swiftly to Dell’s entrance into the industry, and not repeat the errors it made in the PC side that allowed Dell to rapidly whittle away the PC dominance once enjoyed by Compaq and HP. “They’re not going to sit back,” he said. “They did that once on the system side, and I think they’ve lived to regret it, so they don’t want to do it again.”
On a positive note for the channel, Dell is not going down a road that is entirely new, nor entirely successful. Fournier noted that Lexmark has a history of doing deals to produce branded printers, including previous offerings with Compaq and Kodak, and an ongoing deal with IBM on laser printers. None of those branded deals have resulted in HP, Canon, Epson, et al. quaking in their collective boots.
“Dell’s a pretty big company in terms of PCs, but not a lot of Compaq printers ever shipped,” Fournier said. “People bought Compaq PCs, but not Compaq printers.”
Lexmark Canada declined to be interviewed on the deal, but did issue a statement from Simon Giggs, director of marketing and channel sales, saying that it was happy with the deal with Dell, but that it is business as usual for the printer vendor.
“Our primary focus as a company continues to be on growing the business through expansion of Lexmark-branded products,” Giggs said in the statement. “Lexmark has a strong relationship with its channel partners and we remain firmly committed to those relationships.”
Nevertheless, if the Dell business picks up, Reid predicted that Lexmark could see a backlash from its channel partners as a result of its close dealings with their direct rival. In a sort of reversal of roles, that could be a bonus for Hewlett-Packard. “In the past, Lexmark was attractive because Dell sold HP printers, so resellers would bring in [Lexmark] products instead,” he said. “In the long run, this could negatively impact Lexmark, as resellers may move on to other manufacturers’ products.”
He said already resellers are concerned that their existing Lexmark accounts may some day soon end up getting direct contact from Dell, and some are looking for alternative products to offer into that market.
While opinions differ on what exactly Dell’s entry to the printer market means, a failed attempt like other branded printer vendors have offered, or another chance for the direct-dealer to recreate and dominate a market, Dell clearly enters it with the kind of straight-ahead, take-no-prisoners confidence and cockiness which have made it the world’s largest PC vendor. “We never enter a market without hoping to succeed fully in it, and we are going to succeed fully in [printer] hardware and consumables,” Dell Canada’s Tyler said.