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 user 2003-09-09 at 11:11:00 am Views: 97
  • #4013

     catch up

    Dell has built a reputation on entering markets late and making an impact, but the printer market is a particularly tough nut to crack. Could it lead to a nasty case of indigestion for the Texas giant?

    Talk is cheap, especially if you’ve got almost $10 billion burning a hole in your pocket. So when Michael Dell stopped talking about entering the printer market and finally did it, the industry had to admire a clear case of putting your money where your mouth is.

    Dell’s entry is a dagger aimed squarely at the heart of Hewlett-Packard’s core market and it takes some guts to take on your arch-rival on its own patch where it rules the roost. Failure would be an humiliation, so things could get bloody, and the early feeling is that Dell may, just may have underestimated things.

    The company is no stranger to entering a market late and gaining a swift foothold before putting pressure on established leaders. In particular, it has done this in the server market where, ironically enough, it has caught up with HP and piled on the pressure.

    Dell has also been successful in entering the storage market late, where it put the frighteners on a number of vendors who activated ‘Dell-breaker’ deals to enable their channels to compete. Its success with its belated entry into the server and storage markets should have provided a worrying precedent for HP, Canon, Epson et al. However, the printer market is a different ball game to servers and storage and HP’s dominance is stronger than ever.

    HP imaging and printing group spokesperson Diane Roncal says: “HP is always facing competitive threats on a wide variety of fronts and we take them seriously but we are confident we can sustain market share against any new entrant that joins the imaging and printing arena.”

    The immediate problem that Dell has in catching up in the printer market is the importance of intellectual property – an area where Dell is found wanting. Tim Peters, VP and general manager of Dell imaging and printing, insists this can be overcome.


    He says: “Our intellectual property is derived primarily from our direct interactions with our customers. We take our customer feedback and partner with established technology/ manufacturing companies to develop products that meet customers’ needs both in terms of the experience they get from Dell and the performance of the products themselves.”

    Nevertheless, that must be a highly problematic area for Dell in the long-term.

    Another, major problem for Dell could be its high-profile partnership with Lexmark. Dell signalled its intent to make a serious attack on the market when it entered into an agreement to make and sell printers with Lexmark in September 2002. Earlier in the year Dell had even been linked with a takeover of the printer firm. The partnership would appear to create a restrictive effect on any efforts Dell may make to cut prices and influence technology.

    Tracey Rawling Church, head of marketing at document imaging specialist Kyocera Mita, sees the link-up as an uneasy fit. She says: “The relationship with Lexmark inhibits Dell from making too many price-based attacks on the market and further restricts it to following Lexmark’s technology roadmap. Major printer vendors spend a great deal of budget research and development to ensure that, in this very competitive market, products are as cutting edge as possible.”

    While not wishing to be drawn too specifically on the partnership, HP also expressed doubts over the partnership. Roncal says: “It will be interesting to see how aggressive Dell can be on its pricing, considering that Lexmark is manufacturing its printers.”

    Nevertheless, Michael Dell has insisted that his firm’s entry into the market will drive down prices but HP is not so sure.

    Roncal adds: “HP is always monitoring pricing to make sure that our products are competitively priced in the marketplace and we don’t thINK Dell’s entry will have a dramatic impact on pricing. While some of our competitors may offer products that have a slightly lower cost, we firmly believe that our products deliver superior results and offer greater functionality and at the end of the day, we thINK that’s a top priority for our customers.”

    Dell’s launch offering of one INK JET printer and three laser printers priced from $139 to $839, INK cartridges starting at $29.95 and toner cartridges from $75, did little to impress the doubters. It seemed to provide early confirmation of Dell underestimating the market and pointed to early problems with its partnership with Lexmark.

    The launch prices came in below Lexmark’s nearest equivalent model but they are not significantly lower as the two companies can not afford to compete on price.

    However, Kyocera’s Church adds: “This is bad news for Lexmark’s channel that will have to reduce margins on its Lexmark models to compete with the Dell offering. This is another example of the channel being marginalised by a major vendor.”

    Dell, as ever, remains bullish on its commitment on bringing down prices and its controversial partnership with Lexmark.


    Peters says: “The agreement with Lexmark is not one we would have entered into if it were problematic in any way. We expect to drive down costs to customers as we always do when we enter a market. We cannot comment on our pricing strategy. This is a new line of business for Dell, so we have chosen to enter the market in phases, with these four printers as our initial models.”

    One industry insider feels the way ahead may see Dell discounting quickly over the coming months. He says: “I suspect it will discount really quickly in the next six months and may even do bulk discounts for consumers and the corporate market.”

    A major part of Dell’s offering, which it hopes will provide the devil in the details, is its online replenishment system in which the printer warns when toner is getting low and instructs the user to order more online. As a sweetener there is no shipping charge.

    Of course, everyone knows that consumables are where the big money is and effectively this is the key to Dell’s route into that valley of gold. The firm believes its new system makes it easier than ever for customers to order cartridges but it remains to be seen if customers will want to go down the online route.

    Another factor affecting the success of this offering is that other vendors’ cartridges cannot be installed in Dell printers. Consequently, Dell is left in a position where it will have to compete with hardware before it can move onto the shining path of mass consumables sales. A not insignificant side issue here is if another manufacturer decides to make compatible cartridges itself. If that happens, Dell may be looking at a similar legal tussle to the one that its partner Lexmark has been involved in with remanufacturer SCC 

    Any way you look at it, Dell’s printer entry strategy seems to have holes in it. On the face of it, there appears to be a lack of technology and innovation in the opening salvo. Perhaps Dell entered the market earlier than it would have liked in order to take advantage of HP’s Compaq merger difficulties. After all, investors were initially concerned that Compaq’s unprofitable PC operation would weaken HP’s stranglehold on the printer market.

    Despite all the doubts circulating around the Dell strategy, the company itself seems soundly behind its tactics and is remaining calmly confident that it can take a piece of the pie.

    Peters adds: “Only time will tell whether or not we are successful in this market, but we would not have entered it if we did not feel that we could provide customers with a better purchasing experience, better value and better service.”

    Dell didn’t get where it is currently by not doing its homework but if it hasn’t on this occasion, it will find the printer market a seriously hard nut to crack.

    As one insider says: “In recent years, Xerox and Samsung have entered and failed to make a major impact in the printer market, so what makes Dell so special? Without a decent long-term strategy they will just be also-rans.”