OPINION ON HP's AND STAPLES INK AND TONER PAYOLA DEAL

[Anonymous]

http://blogs.computerworld.com/the_great_printer_ink_rip_off
The great printer ink rip-off
This
weekend I went to my local Staples to buy an ink cartridge, and faced a
wall of choices – all of which were HP branded. The generics have gone
away, replaced by a wall full of blue boxes of HP consumables selling
at higher prices. For my printer, the difference was about $10, or
20%.Allegedly, Staples received a sweet deal from HP in return for
quietly dumping its in-house line of generic ink products and selling
only HP’s pricier brand. On hand washes the other. Good for Staples.
Good for HP. Bad for me. Staples’ decision leaves me with few
alternatives. The only other local business that sells the ink I need
is Circuit City and they only carry one brand (Guess which?).

While
this move may be good for Staples in terms of sales of ink, it’s
shortsighted. I don’t like having my choices reduced and I don’t want
to pay more, so I’m ordering generics online. That’s one trip a month
this consumer won’t be making to Staples. Since ink cartridge
replacements were my primary motivation for going to Staples, the
change means I have one less reason to go there – and fewer
opportunities for the retailer to sell me other items. I’ve also sent a
complaint letter to Staples’ customer service e-mail. And I’m annoyed
with HP and much less inclined to buy HP printer products in the future.

Why
would Staples opt to restrict customer choice? Pressure from HP. And
money. Here’s the inside scoop on what’s going on:According to the
story “Staples dumps own-label print supplies” in the industry pub
Office Products International, “Staples’ decision to stop selling
certain non-OEM cartridges is being seen by commentators as a victory
for printer makers in their battle for market share with third-party
supplies vendors.”

HP is thought to be negotiating with the
other “big box” stores in an effort to force out the competition.
Staples’ 1,500 stores sell tens of millions of dollars of printer ink
and toner products. For HP, which makes fat profit margins off of
consumables, big money is at stake in driving out less expensive
HP-compatible products from the market.

In the OPI story, Jim
Forrest, a senior analyst at Lyra Research, explains how the payola (my
word) might have been dished out. He says that Staples gets discounts,
rebates and market development funds for all of its business with HP
and that typically amounts to 2 percent. He speculates that the number
may have been increased. “Staples have an annual turnover of about $18
billion. Everybody knows companies like HP give their retailers
discounts, rebates and market development funds (MDF), which usually
amounts to about two percent. “What do you think would happen if HP
went to Staples and said ‘we will give you five percent if you
discontinue your own brand of remanufactured cartridges’? That means
they will get three percent more on $2 billion, which is worth about
$60 million,” he says.

Currently Staples does $120 million with
HP and gets 30 margin points, or $45 million in profit.”This is the
first time I can recall that one of the big boxes has yielded to
pressure from one of the manufacturers,” the story quotes Forrest as
saying. But, he adds, OfficeMax and other big-box stores might not play
ball. They might see this as an opportunity to increase sales of
private-label products. They’ll certainly get my business.

HP
isn’t the only printer vendor playing hardball: Epson is apparently
trying to sue its competitors out of existence to protect its own
monopoly on consumables. In a recent story, the Wall Street Journal
called the $45 billion consumables business an “ink oligopoly,” noting
that the price of ink is higher per ounce than perfume or caviar and
that annual consumables sales are more than three times higher than are
sales of the printers that use them.For now, at least, you can still
get generics at OfficeMax. Too bad there isn’t one near me.

[Author]

December 12, 2008 at 11:09 AM