KODAK SEES INK AS BLACK GOLD

[Anonymous]

Kodak sees ink as black gold

When
Eastman Kodak Co.
decided to go after a slice of the $50-billion computer printer market,
it identified a weak spot in the armour of the giants that controlled
the business: Consumers were grumpy about buying ink cartridges that
cost almost as much as the printers themselves.

The venerable film company, struggling to remake itself in a world of
digital photography, came up with a new line of printers that use
cheaper ink. Now all it has to do is persuade consumers to shell out a
little extra up front.

It is introducing its new Easyshare all-in-one inkjet photocopy
printers, already on the market in the United States and elsewhere, to
Canada.

The all-in-one printers are slightly more expensive than rival machines – prices range from $129 to $329.

However, Kodak is hoping that the prospect of paying $11.99 for
black and $17.99 for colour replacement ink cartridges will attract
consumers who are frustrated with high printing costs. Kodak says
consumers will save 50 per cent on printing costs with the new
machines.

“Seventy per cent of the folks we talked to realize how expensive it is
and limit what they print,” said Kodak executive Steve Billow.

“It’s because of the model that has been created by our competitors,
they can essentially give their printers away,” Mr. Billow said.

Ever since Hewlett-Packard Co. rewrote the rulebook on the home
computer printing game with the introduction of the inkjet printer, the
market has operated on the “razor and razor blade” model.

Vendors charge low prices for the hardware, in this case printers,
while making most or all of their profit on consumables, namely printer
ink.

Many inkjet printers require product-specific cartridges which can cost
from $10 to more than $100. HP – which controls about 50 per cent of
the inkjet cartridge market – and Seiko Epson Corp. each list more than
100 varieties of cartridges on their websites.

There are some analysts who believe industry leaders such as HP, Epson
and Canon Inc. actually sell their printers at cost because they know
the profits will come when consumers are forced to purchase expensive
printer-specific ink cartridges later on.

“They will never admit to that,” said Ron Glaz, an analyst with the
market research firm IDC. “They claim that they break even on the
hardware, but I don’t understand how you can break even on a $39
printer.

But they’re making a lot of money off of it [ink]. The margins are unbelievable on the ink and the cartridges.”

Analysts agree, however, that the major players will need to follow Kodak’s lead if the market is to change.

In Canada, the demand for multifunction inkjet printers – which usually
include scanning and photocopying capabilities – is rising, even though
the overall market for inkjet printers has taken a slight dip this year.

In 2006 there were 3.4 million inkjet printers sold in Canada, but
that number is expected to fall by about 200,000 in 2007, according to
figures supplied by IDC.

Total spending in Canada is expected to rise from about $1.7-billion
(U.S.) to $1.9-billion this year as consumers shell out more for
multifunction models but purchase fewer single-function printers.

Kodak is facing an uphill battle to convince consumers that they can
save money in the long run by purchasing more expensive printers,
Info-Tech Research Group analyst Michelle Warren said.

“Their success is going to depend upon how they get the message out,”
she said. “This industry does have to make a shift in this direction.”

However, as Kodak fights for shelf space at electronics stores, Ms.
Warren said it is likely the company will need to reduce their sticker
prices to remain competitive with the other brands.

She also expects the ink cartridges sold by other companies to drop in price.

Some financial analysts have expressed concern about HP’s fortunes as
they pertain to its imaging and printing group, the division
responsible for the high-margin inkjet cartridges, as Kodak enters the
market.

However, printer and ink cartridge sales have remained robust this
year. In the third quarter, the HP division posted operating profit of
$981-million, up 11 per cent from the same period a year ago, and
provided HP with nearly 40 per cent of the company’s total operating
profit.

Opinions about how Kodak’s move will be received by consumers vary
widely. But it would be safe to say CEO Antonio Perez knows something
about printer ink. Mr. Perez spent 25 years with Hewlett-Packard; five
of those were spent heading up the company’s inkjet imaging business,
during which time the installed base of HP’s inkjet printers grew from
17 million to 100 million worldwide.

When he came to Kodak in 2003, the revamping of the photo printing department was one of the first internal moves he made.

[Author]

September 20, 2007 at 1:13 PM