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 user 2007-06-06 at 2:18:00 pm Views: 94
  • #18298

    Are Printer Companies Chasing the Wrong Target?
    Lexmark International released information indicating that the firm is
    basing a significant portion of Executive bonuses on market share.
    While growing market share intuitively appears to be the right goal in
    this business where each unit placed drives highly profitable supplies
    revenues, this strategy may actually drive lower profits!

    One of
    the very subtle, but also very important aspects of the imaging
    industry is that not all customers are created equal. An ink jet
    printer placed in the consumer’s home for use as a personal printer may
    print as little as 50 pages per month. However, a workgroup laser
    printer with multi-function capabilities (fax, copy, or scan) which is
    connected to an office network can print as many as 10,000 or more
    pages a month. As a result, the multifunction laser printer can be as
    much as 100 times more profitable than the inkjet printer. And when the
    comparison is to color workgroup printers, or very high performance
    printers used in print shops (such as Xerox’s DocuColor line), the
    comparison can be even more dramatic.

    So a company that is able
    to chase more profitable footprints will ultimately be more profitable
    than the company chasing less profitable footprints, even if it ends up
    with a smaller market share. So, in short, our premise is market share
    is not equal to profitability. Our point can be proven by the two
    graphs listed below. The first graph shows unit share for laser
    printers, MFPs, copiers, and ink jet printers. HP  is the unit share
    leader, followed by Canon , Epson and Lexmark. However, when one looks
    at the the same firm’s share of industry operating income , the story
    changes considerably. Suddenly, Canon is the number one firm in terms
    of share of operating income, followed by HP, Ricoh  and Xerox .
    Lexmark – the number four firm in terms of market share, comes in a
    distant seventh in terms of operating income market share. Conversely,
    Ricoh, one of the firms with the least market share comes in as number
    three in terms of operating income share.

    Another way to
    evaluate this is to look at the difference between each firm’s market
    share and their operating income by subtracting market share from share
    of operating income . If a firm has greater operating income than
    market share, then they must be doing a better job of capturing the
    ‘more profitable’ customers and this equation will have a positive
    result. Conversely, if they capture less operating income than market
    share, they are capturing more of the less profitable customers and the
    equation will have a negative result. Based on this analysis, the table
    below how five firms, Canon, Ricoh, Xerox, Konica Minolta and Kyocera
    Mita  are gathering the most profitable customers.

    While we have
    identified Lexmark as one of the firms incentivizing executives to
    chase market share, they clearly are not the only firm which is
    targeting the wrong metric. Unfortunately, many firms (including firms
    outside the imaging industry) chase customers who are not profitable
    for the sake of gaining ‘market share. However, the smart investor will
    find those firms that are focused on capturing profitable customers and
    growing ‘profit’ share versus market share