*NEWS*DOES KODAK CUT IT ? LOW COST INK STRATEGY 1 YR LATER

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Date: Friday April 4, 2008 03:14:55 pm
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    Does Kodak cut it? Low cost ink strategy one year later
    One
    year ago Kodak entered the multifunction ink jet printer market with a
    radical new concept: Sell the printer for a bit more and the ink for a
    lot less. So did the strategy work? Yes and no.Kodak’s approach with
    the EasyShare 5000 series (and the successor ESP series which launched
    this month) turned the generally accepted marketing wisdom on its head.
    While most vendors sell ink jet MFPs at a low margin and make up the
    difference selling high-margin ink and paper products, Kodak went the
    other way, hoping to tap into frustration among frequent printers over
    the high cost of ink cartridges.Its marketing efforts seem to have
    struck a nerve with some consumers who were fed up with the ink jet
    consumables prices, particularly those who print photos. “People don’t
    want to spend $50 for cartridges [but] $15 [for a Kodak color
    cartridge] is not that big of a hit,” says IDC analyst Ron Glaz.

    Interest
    in the low-cost consumables strategy appears to remain high among
    people who do online research before choosing a printer. Nearly a year
    after I first posted this blog on Kodak’s strategy, it remains
    consistently one of my most read postings week after week – as does
    this in-depth comparative review of H-P and Kodak MFPs last July. In
    cost per print, the Kodak unit came out on top.As to its success, Kodak
    says it shipped 520,000 EasyShare 5000 series units worldwide last year
    – a drop in the bucket when you consider that the total market shipped
    61 million ink jet MFPs in that timeframe, says Glaz.But Kodak isn’t
    trying to appeal to all consumers, just a specific subset. “Our goal is
    to sell to the ‘big burners’ who print a lot,” says Magnus Felke,
    Kodak’s ink jet product manager. Although some buyers experienced
    hardware and setup issues early on, he says those problems have been
    resolved and users are happy when they go to buy lower cost replacement
    cartridges. “Our customer satisfaction surveys are phenomenal. People
    love the fact that we’re not ripping them off on the cost of ink,” he
    says, repeating Kodak’s populist marketing mantra.(Then again, Kodak
    could use a mass market success, as revenues from its traditional
    film-based business continue to decline faster than revenues from new
    businesses are coming online. How ironic that the Goliath of
    photography now finds itself the David of the MFP ink jet photo
    printing business.)

    Several other factors have conspired to
    limit Kodak’s uptake in the ink jet MFP market. These include:Fierce
    competition. Kodak’s ink jet MFP strategy also ran into a strong
    headwind last year. In the U.S. the MFP ink jet market grew by 22% but
    prices dropped 13% according to NPD Group analyst Stephen Baker.
    “Unfortunately, their entry sparked renewed aggressive pricing from
    H-P,” as well as new competitors in the segment from Epson, Canon and a
    wireless printer from Lexmark. “That likely crimped their revenue,”
    Baker says, noting that Lexmark now sells an ink jet printer for $39.
    At that price, he says, we’re getting to the point where it’s almost
    cheaper (although not greener) to buy a new printer when you’re out of
    ink. (Although the industry practice of including a partially filled
    “starter” ink cartridge with new printers would preclude that.)

    People
    still buy printers based on price and features, and don’t think about
    consumables cost. “Nobody really puts the ink cost on the table when
    you’re buying a printer,” Glaz says, adding that sales people at
    retailers like Circuit City and Best Buy aren’t pushing the concept and
    that most buyers are still focused on the cost of the printer and
    features such as speed. “Kodak does a marvelous job selling the concept
    that their ink is cheap, but nobody else talks about that,” Glaz
    says.To date, not one competitor has countered with its own low-cost
    ink strategy. The approach seems to be to ignore it and hope that Kodak
    goes away.Most buyers don’t educate themselves prior to purchase. While
    car buyers may do extensive research online before stepping into a
    dealer showroom, IDC’s survey results show that most consumers do very
    little up front research before walking into a store and making a
    purchase. “There are people who do research online. The majority…say
    they’ve done very little,” says Glaz.Consumers don’t always get to
    choose their printer. Because so many home computers come in bundles,
    consumers often end up taking what they get, says Glaz. Typically,
    that’s not a Kodak product.Consumers aren’t using as much ink. “We’re
    finding that people are printing less,” says Glaz. Users have easier
    and more mobile access to the Web and so are less inclined to print
    everything out. And they are printing fewer photos at home, choosing
    instead to just take a CD-ROM down to their local Wal Mart, says Glaz.

    It
    appears, then, that Kodak will have the greatest success with
    knowledgeable consumers who do a lot of printing and are looking for
    good quality printing and the lowest cost per print – and who are
    willing to pay $30 or so more for a printer up front. If that doesn’t
    sound like a recipe for mass market printing success that’s OK with
    Felke. “People who don’t print a lot should stay with the alternatives
    because you get a better deal on the hardware if you only use one
    cartridge a year,” he says. (On the other hand, it doesn’t take a lot
    of photo prints to use up a color cartridge. Glaz estimates that the
    difference can be made up in cost savings after using 2-4 cartridges,
    depending on the models you’re comparing. See the review link above for
    a comparison of Kodak and H-P models)Even if Kodak doesn’t end up with
    a huge installed base, it could improve profitability at the expense of
    competitors by cherry picking away the most profitable group of MFP ink
    jet buyers: Those who do the most printing. It’s the old 80/20 rule.
    Consumables bring in the profits and 20% of users do most of the
    printing.”If these people print 40% more [than the average user], the
    revenue Kodak gets from sales will be pretty good for them,” says Glaz.
    At the same time, the industry leaders, such as H-P and Canon depend on
    those hefty margins on consumables to make up for razor-thin profits on
    the hardware. If they end up with a larger installed base but most of
    those users are using only one cartridge a year, they will be less
    profitable.From that perspective, Kodak doesn’t need to gain mass
    market appeal to win. Instead, its strategy could upend the system by
    dominating in just one important user segment.That’s the dream. But it
    will take more than a 1% market share to get there, and the competition
    has never been tougher.

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