How do you make a small fortune in the printer market? Start with a large one, many resellers might mournfully respond. It is an apt phrase to describe the printer market, because the cutthroat tactics of some unscrupulous vendors at the high end of the market are enough to make anyone despair.
At the other end of the scale, the SME market has been on a slow fuse for a long time, but the rise of the digital camera has caused the colour laser market to boom. But that is not necessarily great news if none of the cash flowing about makes its way into the reseller channel.
The problem is, SMEs make you jump through endless hoops to get a sale, even though you are making pretty slim margins anyway. Many companies that consider themselves to be solutions providers, rather than box shifters, might consider it not to be worth the fuss.
If the corporate market has been 'done to death', the SME market remains mouth-wateringly unexploited. Figures from analyst Gartner show that sales of digital cameras rose by 81 per cent between 2002 and 2004 in the UK, with sales increasing from 1,041,028 to 1,879,186.
At the same time, sales of colour lasers rose by 33 per cent, which Gartner linked to SMEs needing a simpler, more effective and affordable way of handling and printing images.
And it's going to get better, according to research commissioned by Ricoh, which predicts a 50 per cent surge in demand for higher-speed colour lasers. Surges in demand are one thing, but a mass market does not always mean big money for resellers.
In the SME sector, most buying decisions are made on price. Many IT buyers for SMEs think the best solution is the cheapest, even if it means buying it from an 18-year-old who can't even read the product leaflets, let alone explain the value of the features.
So how do printer vendors help their reseller partners avoid being lured down a dead-end price competition?
They just need to be creative, says Helen Berentzen, Ricoh's marketing manager. Don't sell the hardware, sell a pay-per-use supply contract instead.
"The growth in the SME sector offers resellers the chance to sell click-based contracts, which can create customer lock-in," she says.
Promises of a lock-in might remind resellers of their experience in the corporate market, where some are drinking at the last-chance saloon. The great thing about SMEs is that no vendor will ever want to deal directly with customers.
Ricoh says the best foot in the door is an offer of an audit of a company's running costs. Then all Ricoh devices can be sold on a click contract basis, which means the user pays for the prints they produce at a fixed cost that includes the price of the toner.
"The benefit for the reseller is that they lock in valuable after-sales revenue by locking out competitor telesales consumable activity," Berentzen adds.
Everyone knows the real money is in consumables. But for years vendors have excluded resellers from this income by supplying consumables direct, with no reward to the reseller. Forget any vendors that talk about 'holistic creative solutions' and 'thinking outside the box'.
Resellers should seek out vendors that give a clear, unequivocal, buzzword-free indication of exactly where their money is coming from.
To paraphrase Gary Hunter of TallyGenicom, the new deal today is this: stick a box in your client's office, then tie them to a contract to supply them consumables. That is how you will make money.
TallyGenicom has devised a reseller programme that seems a lot more in tune with the realities of the market, if reseller feedback is to be believed. According to Tally's own figures, sales of its high-speed colour printers have shot up in the two months since the programme started.
"We've shifted 85 units before we even tried pushing the scheme in a big way," says Hunter.
Under the Rent Free scheme, Tally makes no pretence that there is any value in the hardware. Its resellers essentially go to their clients, or prospective clients, and offer them a free colour laser printer.
Many SMEs and departments of the public sector will have a buyer who does not appreciate that the true cost of ownership of a printer comes not from the purchase price but from all of the paper and toner.
Having signed for a free printer, the customer has to sign an undertaking that they will source all of the consumables from TallyGenicom.
The beauty of this arrangement for the reseller is that they automatically have a hook that excites customers. So they don't have to spend so much time and money going after deals.
Better still, they don't need to spend time installing the printer, because this is a job that can be outsourced to the manufacturer, along with servicing.
The reseller does not start earning money, though, until the customers starts to re-order consumables, but as any user of colour printers knows, the cartridges run out in no time, and they can cost an arm and a leg to replace.
End-users will not notice the cost so much anyway, because it comes out of the office stationary budget, which nobody cares about, unlike the cost of a printer. The money to pay for a printer comes out of the IT manager's IT budget, which, like all capital expenditure, is fiercely guarded and closely monitored by the accountants.
It sounds great in theory. Resellers have a good proposition to take to customers, and customers get a deal that is more palatable. Surely there must be a catch.
This is not so, Hunter insists. "We've been racking our brains to come up with a scheme that suits the nature of this business and makes margins for our channel," he says.
"While some of our partners have been great at adding value, by making them more efficient, there have been others that have never been able to grasp the opportunities. This scheme is doing more to engage a lot of dealers that have been marginalised from the action."
The incentive for Tally resellers now is to help clients discover the full potential of printers. Teach them how to produce better documents, like more impressive marketing brochures and invoices and presentations. Train them in using the applications that enable these documents to be produced, urges Hunter.
"The more you can encourage your clients to use their printers, the more toner they are going to need, and the more you will earn from incremental sales," he says.
Kevin Spinks, director of Lexmark's SME business, applauds any initiative in which the channel gets creative, although he does not think it is necessary to give the hardware away.
"Resellers need to go to SMEs with a more creative proposition. They're not selling them printers, they're selling them productivity," he says.
The convergence of printing, scanning and copying from one device is not something dealers should fear. Don't worry about the competition from the other channels getting into this market; take full advantage of your own edge in this field.
"The multifunctional device [MFD] gives you the chance to become a document management expert," Spinks adds.
"That one device gives you the chance to control how a company scans and forwards documents right through their supply chain. In retail, for example, they are desperate for anything that can make their supply chains more efficient.
"If you can demonstrate you can make clients even one per cent more efficient, you will save them money."
According to Lexmark, then, you are not selling printers, or even MFDs - you are streamlining your clients' business processes.
Xerox has a plan that could have been, well, Xeroxed. It is all about selling services, according to Joe Browne, director of Xerox UK. "Xerox resellers can also drive revenue from services [such as the PagePack and ServicePack schemes] that are specially designed for SMEs."
There is something different about Xerox (apart from its reputation for making fantastic inventions then watching other companies profit from them). Under Connexions, Xerox's channel rewards programme, there is a sort of loyalty card scheme called Xerox Rewards.
This helps its resellers grow and develop their business by offering them more choice over how they are rewarded for their success. Accumulated points can be exchanged either for cash rebates or marketing development funds.
Is that so radical? "Contrary to popular opinion, there are still healthy margins to be made from the sale of printers and MFDs," Browne says.
One original asset Xerox offers is its Creative Wizard, an online tool that helps cut the cost of marketing by giving partners templates they can tailor for their advertising, direct mail or email programmes. So resellers, which do not usually have a creative department to design ad campaigns for them, can use a template created by Xerox, then rebadge the work as their own.
Sadly, we cannot tell you how good the Wizard is, because Xerox would not give CRN access to it unless it signed up as a reseller.
Tracey Rawling Church, Kyocera Mita's head of marketing, says what resellers really need is a supplier that takes a realistic view of the market. For too long, dealers have been misled. Vendors, such as Xerox and Hewlett-Packard (HP), may be 83 per cent channel-orientated, but that is not complete commitment to the channel is it?
Unlike Kyocera, which Rawling Church points out is 100 per cent channel- oriented. "Sadly resellers have been the victims of ferocious price competition between major vendors, that have left no margin for the channel, while collecting revenue on inflated toner prices. Resellers have been left out in the cold," she says.
Giving resellers a cut of the consumables action is a start but not enough. They need help fighting off the competition that will intensify when the sales channels for printers and copiers start going after the same business, Rawling Church warns.
"The servicing dealer channel knows that for every copier they put into a company, there are up to 10 printers, and they are keen to gain that business too," she says.
As businesses change their document management behaviour, from 'print and distribute' to 'distribute and print', pages are migrating from copiers to printers, reducing the number of clicks on which the copier dealer gets paid.
This is why the copier servicing dealer channel is under pressure to expand into printers.
The growing popularity of leasing IT hardware also helps the copier-servicing dealer. This channel is used to negotiating contracts and maintaining an ongoing relationship with the customer, which involves refreshing the technology before the end of the contract.
"Many people live in a paradigm that a MFD is a copier," says Chas Moloney, Canon's office solutions marketing manager.
But all is not lost for the IT channel. The main barrier to getting copiers and copier-based MFDs connected is the network gatekeeper, who is unwilling to welcome an unfamiliar device from an unfamiliar vendor onto his network. Also IT resellers are skilled in the issues around network connectivity and compatibility which cause customers sleepless nights.
There are some signs that the market will become polarised, according to the way the hardware is acquired, rather than by the type of channel partner that supplies it. Copier dealers are 'king of the click', and if the analysts are right, an increasing proportion of imaging devices will be acquired in this way.
This is why it is important for resellers to embrace the pay-per-use model. If they combine this with their network expertise, they can beat the copier dealers at their own game - and improve their margins at the same time, Rawling Church says.
"You know what they say: 'If you do the same as you've always done, you'll get the same as you've always got,'" she adds. "But in this case if resellers do what they've always done they'll get even less!"
Calling yourself an 'efficiency expert' will not be enough. Resellers will need to diversify far more in how they offer services to their clients. It is a long journey.
As the Chinese proverb goes, the most important part of a 1,000-mile journey is the first step. The first step in this case seems to be finding a vendor with a bit of imagination.
Brother (0161) 330 6531
Canon (01737) 220 347
Epson (01442) 261 144
Kyocera Mita (0118) 931 1500
Maxa Technologies (0161) 942 7850
TallyGenicom (0870) 872 2888
UniPrint (001) 416 503 1100
Xerox (0870) 241 3245
For Green Pages go to CRN's online directory at www.crnservices.co.uk.
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