HP… WHY OUR INKS IS SO EXPENSIVE

[Anonymous]

http://blogs.wsj.com/digits/2010/05/14/h-p-why-our-ink-is-expensive/
H-P: Why Our Ink Is Expensive
Tired of hearing customers whine that printer ink is too
expensive–and facing competition from ink-cartridge refillers–executives
at Hewlett-Packard’s printing division would like to buff up the print
giant’s reputation with consumers. So the company recently sent Thom
Brown, who specializes in “competitive media intelligence,” on a media
tour with a presentation called “Why Does Ink Cost So Much?” Opening a
bag of props including a trio of shot glasses, squares of foam and some
disassembled print heads, Mr. Brown earlier this week explained the
complex workings of H-P print heads, and the billions of dollars the
company has spent over the years developing them.He talked about the
challenges in shooting drops of ink at moving pages of paper, and the
perils of refilling ink cartridges rather than buying new ones from H-P.
Refilling involves poking a hole in an H-P cartridge and filling it
with a god-knows-what mixture of non-H-P ink–a process that can lead to
smudging and other poor performance, Mr. Brown said. H-P, he added, has
heard from plenty of customers who tried refilling. “A lot of them don’t
have good experiences,” he said.

In addition to
research-and-development, the expense of ink cartridges comes from H-P’s
high-tech testing of cartridges that break. The company uses electron
microscopes, Mr. Brown said, to figure out what made a printhead
malfunction. H-P has started what it calls an “Ink Amnesty Program” to
bring back customers who have left H-P for refillers. In exchange for
sharing your bad-ink story, the program will give consumers a 20%
discount coupon for H-P ink.Of course it’s not just R&D that makes
H-P’s ink costs so much. With more than 40% of the worldwide printer
market last year, according to research firm IDC, H-P doesn’t face
serious competitive pressure that would force it to drop prices.

Mr.
Brown said his area of knowledge is printing technology, not profits.
But
in the company’s last quarterly earnings report, H-P’s printing
division booked more than $6 billion in sales and more than $1 billion
in operating profit. Its operating profit margin was 17%, but Shaw Wu,
an analyst with Kaufman Brothers, said that includes sales of low-profit
printers. On ink alone, he estimates that H-P’s margin is somewhere
between 20% and 30%.

[Author]

May 24, 2010 at 9:49 AM