A lot of people compare printers to PCs – the actual cost of the equipment is nothing in comparison to the cost of ownership. Just as PCs cost their owners a fortune in
running costs they never envisaged – such as support, security and management – so a printer is like a Trojan horse, only in reverse. It looks like a splendid gift, but once attention is diverted, it helps all the money to escape out of a budget.
From a VAR’s perspective, the more telling parallel with PCs is that while volumes of sales are up, revenue is in decline. Though printers are mass-market devices, the margins are getting slimmer. That explains why Hewlett-Packard is selling more of its printers direct. Worse still, Dell is getting involved. Though most of its printer sales are related to sales of its PCs, you have to worry about margins when the direct-selling behemoth gets involved. It makes you wonder if soon the only people who can live on the margins on printers will be the manufacturers, or the mass market box shifters and retailers.
Perhaps this is a bit unfair. Things can’t be that bad can they? Well, yes they can, as Jason Harcourt, analyst at Context, explained: “In general, last year was a disaster for the laser printer market, and that’s the main one VARs would want to profit from.”
What was especially cruel was that there was a general mood of optimism as we entered 2005. The first half of 2004 had been particularly strong for laser printer sales, though this had tailed off, but many people thought that was a seasonal trend. They had expected sales to launch forward, but it didn’t happen.
Why? The major factors behind the decline in printer revenues are that both mono and colour printers have come down in price by around 15 per cent, and that there’s a general decline in investing in business in the UK, said Robin Edwardes, TallyGenicom’s worldwide marketing vice-president.
Despite this, Edwardes argued that it’s not all gloom and doom. “If you are clever you can still make money in a market that’s going down. You just have to swim against the tide. The good news is that colour sales revenues were up for us, year on year, in the first three quarters of 2005,” Edwardes said. The key behind this success is in using resellers as the eyes and ears in the market for customer opportunities.
So what was the useful feedback from the channel that boosted these sales? What did customers want?
“Bundled sales of printers with application software and service deals,” according to Edwardes. This is how TallyGenicom intends to increase its market share through its reseller channel. “VARs must be very responsive to customer issues, be they technical or commercial.”
The main customer issue has been the cost of ownership. The purchase of a printer costs nothing, it’s the cost of buying all the consumables – the toner cartridges and paper – that’s expensive. Sometimes this suits an IT manager since they only pay for the purchase of the printer, while another department, such as facilities management or office supplies, has to pick up the tab for the consumables.
This is a situation that TallyGenicom has been trying to exploit, creating a channel programme that helps VARs cash in. Under its Commision for Life scheme, resellers can give end-users a free colour laser printer (CRN, 7 November).
TallyGenicom will install and configure it. They will even send people round to fix it as, we shall see later, resellers are very reluctant to get involved with supporting printers. The main idea is to get the printers into offices. Like fruit machines in a pub, they only start making money once they are part of the furniture and end-users are throwing money at them.
The deal is that, in return for a free colour laser, the end-user has to agree to buy all subsequent toner and paper from TallyGenicom. For merely introducing TallyGenicom printers into each site, the reseller then gets a cut of all the subsequent consumables sales. It obviously sounds tempting to end-users – we mentioned this deal to one IT manager at an insurance company and he immediately wanted more details. And even resellers seem to be happy with it. “We have signed up 50 resellers on our Care for Life programme,” Edwardes said.
But is it a good long-term strategy? There certainly seems to be no risk to the reseller. If VARs really are risk averse and resistant to change, surely this would seem to be the easiest option for them.
Peter Bromage, Epson’s head of business sales and marketing, conceded that the idea might work. “Most customers fail to appreciate cost of ownership and are driven towards best price available at the time of purchase. The difference being that Epson is very open on the whole life costs of its products,” Bromage said.
Tracey Rawling Church, head of marketing at printer manufacturer Kyocera Mita, doesn’t think this is a good long-term approach. “I don’t think giving away printers is the answer. What guarantee does the VAR have that the end-user won’t source the compatibles from a cheaper alternative? The problem with this sector is that too many firms are geared towards a quick profit,” she said.
Some might argue that that’s the IT industry all over. Critics point out that this is the industry where nobody saw the year 2000 coming.
Nevertheless, Kyocera Mita’s attitude, according to Rawling Church – forcing resellers to take a hit on hardware profit margins in the hope of making money on selling consumables – is all wrong. “This is the root of the whole problem with the printer channel. Resellers shouldn’t be forced to take lower margins on the sale of the printing hardware. We believe they should make some money on the sale of the printer, and a profit on the consumables. Mind you, we can do that because our toner is more competitive than everyone else’s, so the resellers are less likely to be undercut by the compatibles,” she said.
So TallyGenicom seems to be on its own in arguing that vendors should make it easier for resellers. Most other vendors argue that it’s down to the channel to adapt to changing conditions.
“We all have to change,” said Epson’s Bromage. It’s inevitable in a market in which convergence is constantly taking place, and new channels are being forced into the same market. Printers are being replaced, in many circumstances by multifunction printers (MFPs), with faxing and copying integrated into one device.
The MFP is not a difficult sell, argued Rawling Church. “We’re increasingly selling more kit through the copier resellers. VARs could learn a lot from the copier channel. Office product dealers never sell a product, they just lease it. That’s why they have become so adept at adding value.”
This is why Kyocera Mita, through its ClubKM channel initiative, is offering resellers the chance to sell lease deals. The vendor promises to take care of all the logistics of setting up a lease deal, like arranging finance and monitoring the usage of printers, which is the basis for the charges VARs will levy on customers. This then frees the reseller up to concentrate on more added-value functions, such as offering training, consultancy on how printers can be deployed and software solutions to the print management problems that dog end-users.
Software solutions are the answer to VARs’ disappearing margins, and they also let the user have the option of tackling rising costs, argued Eddie Hall, product manager at Ricoh.
Some end-users know they need to control costs, through setting up a deal with a supplier who can offer a contract that includes supplies and services for peace of mind, he said, but most don’t. “There are a large number of end-users who continue to buy consumables on an as-needed basis without realising there is a more cost effective alternative,” Hall said.
The answer? “Customers are realising that by controlling their printing output and subsequent costs they can save money, control who sends what job to which printer and monitor their print traffic with software,” said Hall. Which, he pointed out, Ricoh can provide. “This sends a powerful message to the purchaser with regard to efficiency with both time and cost savings.”
That’s easy for the manufacturers to say, but are they as close to the reseller as they think? “Many resellers don’t have the ability or the will to change,” said Alex Ward, commercial director with distributor Midwich.
“Obviously, anyone that has the vision to go to a customer, and consult with them on how they can set up printers, and control who gets to use the expensive resources, such as colour printers, and which users might be restricted to cheaper day-to-day products, will provide music to a financial director’s ears.”
Ultimately then, it’s more realistic to accept that the channel cannot change. Possibly it’s arrogant of vendors to force changes on VARs.
“We don’t like to tell people how to run their business,” said Mark Seaman, SME director at Lexmark. “We do really want to help them though. So if they come to us with an idea, or a plan, or a gap in the market they want to target, then we’ll help them. But it’s tough out there.”
Blackroc (01735) 213 777
Context (0208) 394 7728
Epson (0800) 220 546
IDC (0208) 987 7239
Kyocera (01889) 311 500
Lexmark (01628) 480 533
Midwich (01379) 649 200
Ricoh (0208) 261 4000
TallyGenciom (0870) 872 2888
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