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AnonymousInactiveInk stain on Lexmark’s bottom
lineThe printer company failed to lock out its competitors
by legal means but hopefully it has been taught a deeper lesson about customer
retention
Lexmark’s books are still in
the black, but the market saw red anyway. Growth is down, which is not a
forgivable direction in a market going in the other way. Digital photography and
broadband access have warmed up consumers to colour printing, but aggressive
pricing from HP has hit Lexmark hard. It’s also not too happy on the way
independent ink jet cartridge manufacturers have grabbed a chunk of the refill
market.You can make an awful lot of money from consumables, but you
have to play it right. The classic model is Gillette, which uses a combination
of technology, design, marketing and distribution savvy to wrong-foot its
competitors and extract premium prices from its customers for stuff they’ll
throw away. Everything Gillette does adds perceived or actual value to its
products, or cuts costs without affecting the end result.Lexmark, on the other hand, tried to protect its market by
chipping its cartridges and then forbidding the production of compatible
products. There was the usual spiel about ensuring consumer satisfaction by
outlawing inferior products: the way to do that is through the brand, not the
courts. The courts agreed, saying that reverse engineering for interoperability
is explicitly allowed. Meanwhile, the consumers are happy to make their own
decisions based on price and qualityTalk to any printer company, and you’ll get a great tale of
enormously expensive research and development, followed by sadness over the way
third parties leap in and freeload. We feel their pain, but a business plan
based on customer lock-in rather than superior products is dangerous even when
that lock-in can be enforced.Sony’s attempts to reinvent digital music in its own image
by excluding the MP3 has hurt the company far more than it has impacted its
competitors: consumers are frequently brighter than marketing people assume. And
a company that can contentedly gorge on its customers safe in the knowledge that
they can’t go anywhere else is a company that will become reactionary and lazy.
If your products are good enough and your marketing and
business model are up to snuff, you won’t need lock-in. If your business depends
on it, your products are unlikely to be competitive in their own right — no
matter how expensively developed — and the competition will get through the
barbed wire in the end. Lexmark isn’t the first company to learn this lesson the
hard way, and we very much suspect it won’t be the last. -
AuthorMay 2, 2005 at 12:14 PM
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