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 user 2010-05-24 at 9:48:50 am Views: 50
  • #24244

    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%.