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 user 2013-06-23 at 9:12:34 am Views: 173
  • #2170

    Cartridge Price Wars, Outsourcing Present Challenges

    In Australia, HP (Hewlett-Packard) Has lowered their cartridge prices by 40%. Over the last 12 months, HP has lowered their prices by 20% in Europe. Some of this is due to the weaker dollar, but certainly not all of it. In Australia, there is an OEM sponsored group called Close the Loop, which is run by former remanufacturers whose new purpose in life is to recycle empties.

    The OEMs are making as much noise as possible in saying that remanufactured cartridges end up in landfills anyway. They are taking the environmental initiative.

    Dell has announced a price war with HP. They are offering comparable laser printers with cartridges up to 43% less than HP and inkjet up to 39% less than HP, according to the Hard Copy Supplies Journal.

    HP Korea and Samsung have issued a press release saying they are considering setting up remanufacturing. HP had the biggest failure in printer cartridge remanufacturing history with their Optiva program for terrible quality. It is unlikely that they will make that mistake again. I think Korea is a test market.

    Five years ago, 70% of the toner cartridges were composed of 20 printer models; today, that same 70% of the cartridges is composed of 76 printer models (Lyra Research). Nothing has spurred outsourcing more than this. Outsourcing creates its own benefits and risks. Quality and value is generally improved, but outsourcers stop selling direct. Their dealers stop or slow down remanufacturing and both become codependent.

    Outsourcers and dealers must split the available profit margin, meaning both have to make do with less. With an OEM price war looming and the typical remanufacturers discount at 30% less than new, who is going to buy remanufactured cartridges when new can be bought for less money? We can expect downward price pressure that will be severe.

    The remanufacturing industry has a personality crisis in [deciding] who it is. Many remanufacturers think they are manufacturers and don't understand that the OEMs are far more efficient in producing cartridges. Remanufacturers make a profit by capturing the residual value in cartridges. They don't have the costs of designing printers and cartridges or making the capital investment to produce those printers. That missing cost is the residual value.

    Far too many remanufacturers have fallen for the silly idea that remanufacturing "virgin" cartridges makes for higher quality. They know more about their own cartridges than the virgin cartridges. To survive the coming price war, it will be necessary for remanufacturers to recapture their own empties and look for multi-cycle components. Extracting the most from the OEM components without sacrificing quality is the only way to survive and even thrive.

    I don't know if the outsourcing/dealer business model will survive the next few years as it currently exists. I think it will need to change. Both dealers and outsourcers will have to work together. The industry cannot afford to pay $30 for an empty cartridge. I also think it is less important to be the first to market with the latest printer model. The empties are scarce then and the profits are very small. Looking at what is readily available is the way to look for profitability.

    Many of the suppliers are Pollyannaish (overly optimistic) about the future. We need to face up to the realities and deal with them. The remanufacturing industry is the second largest supplier of printer cartridges in the world. Lexmark is a distant 3rd. We have considerable power and we need to exercise it wisely and coherently. I believe that the trade associations and belonging to a trade association are more important now than ever before.

    * Post was edited: 2004-09-29 11:03:00