According to the 17th century writer Francis Bacon, three discoveries changed the face of the world: gunpowder, the magnet and printing. Even Bacon, perspicacious as he was, could not have envisaged that three centuries later, printing would be within the realms of anybody who wanted it.
The PC revolutionised the office and with it personal printing technology. Machines like the laser printer, once large and expensive, began to appear as a commodity item and began to displace the dot-matrix printer as the standard desktop workhorse.
But the gradual demise of the impact printer brought with it new buying considerations for the reseller and the customer. The consumable product on an impact printer was a replacement ribbon or ribbon cartridge. Inkjet, bubblejet and laser printers require many more consumables. The ability to print in colour means that the quality of the paper also varies. And so the market for printer consumables began to boom ? two or three years ago there was a rumour that Hewlett Packard?s UK profits came entirely from the sale of printer toner cartridges.
While this is probably an exaggeration, there is no doubt that the sale of consumable products represents a considerable revenue stream for many manufacturers and resellers. It can also amount to a significant outlay for the customer if the user is involved in heavy-duty printing. One of the problems of assessing the market for consumable products is that printing tasks vary enormously. The widely accepted standard for laser printers, for example, is that five per cent of the surface is covered in print, roughly the equivalent of a standard A4 letter.
Printer supplier Kyocera claims in its latest series of ads for the Ecosys FS-1700 laser printer that the machine ?could represent a saving of #4,000 in consumables alone when compared with other popular lasers?. There is little doubt that by ?other popular lasers? Kyocera means the market leader, HP. The two companies have been in a long-running argument about the cost of consumable products in the printer market.
Kyocera?s case is that HP unfairly penalises its customers by forcing them to change the entire toner cartridge each time the toner runs out. Kyocera favours a policy of allowing users to refill their toner and thus save on the cost of a replacement cartridge, which usually costs about #50. According to Peter Maude, research manager for imaging products at analyst Context, the dispute between the two companies is ?still a very sensitive issue?.
Maude believes that dealers can make a substantial profit out of selling consumable products. ?Two years ago, consumables were being discounted by 25 to 30 per cent. But what we are finding now is that there is a huge divergence, with some dealers offering as much as 50 per cent discount on list price and others selling at 50 per cent above list price. Quite often the user does not even know what the list price of a consumable is and there is a lack of price awareness,? he says.
Maude sees the small office and home markets as prime sources of sales and profit for the channel. ?If a child is completing a homework project and has to have it in by the next day, when the cartridge runs out the customer goes down to his local dealer and pays whatever the reseller is asking for a replacement,? he says.
One small research company which produces six sets of 100-page reports each month, 80 of which contain colour pie and bar charts, estimates that it spends #1,500 a year on consumable products for its small bubblejet printer and #6,000 a year for a higher specification HP bubblejet printer.
Phil Goodman, marketing manager at distributor Metrologie, believes that the small dealer in particular can benefit from the sale of consumable products. ?There is not much margin in consumables for the wholesaler, but for the small dealer there is certainly profit to be made. If I were a dealer I would be looking to make my margins out of consumables,? he says.
According to Goodman, in the two-year period after purchasing a printer a user will spend as much on toner as he paid for the original printer.
Goodman believes that the dealers have several advantages when it comes to selling consumables. They are able to offer a lower price than the large office equipment suppliers which sell at, or almost at, list price. ?There is a good margin on consumables, and the dealer is in constant contact with the customer,? he says.
All manufacturers agree that the cost of ownership of a product is one of the increasingly important deciding factors in the sale of any IT product ? and printers are no exception. Kyocera, which confines itself to monochrome printing, claims it has developed the roller and other technology to last the lifetime of a machine. This in turn allows it to promote toner replacement as an alternative to total cartridge replacement. But other suppliers are not so convinced and argue that over the life cycle of a printer the cost of ownership is much the same.
The myth of the paperless office, propounded in the 70s and 80s, was never likely to come about. According to Trevor Dodsworth, senior manager for laser products at Canon, there are still many customers who are buying printers for the first time. ?I will never see the paperless office in my life time,? he says.
But what really drives the market for consumables forward is the existing installed base and the advances in printing technology over the years. The use of colour, particularly in the inkjet and bubblejet markets, has increased the volume of consumables used.
Terry Caufield, national sales manager for printers with Brother, says more and more users are using the colour features of printers in standard letters and forms. ?They will add a diagram, illustration or logo to their output.?
Caufield estimates the lifetime of a laser printer toner cartridge, which in Brother?s case is supplied separately from the drum, at 3,000 pages. The drum itself will need replacing after 20,000 pages. ?The retail price of the toner is #23 but the street price is nearer #20. The retail price of the drum is #110 but is more likely to be sold for #90 to #95,? he says.
Caufield believes that dealers can make substantial margins out of consumables, particularly since the price of printers has plummeted over the years. ?Where they have the capability it is a good way for the dealers to increase margins and offset the low profit on printers.?
His view is confirmed by Epson?s group manager for business products, Robert Clark. ?The consumable market is a market in its own right and as the price of hardware comes down represents another way in which dealers can make their margins,? he says.
Clark also sees the purchase of printers as strategic. ?In the large companies it is certainly strategic, but even when you are buying for the home market, a great deal of thought goes into the purchase of a printer,? he says.
According to Clark, it is the inkjet market that is currently predominant. ?It is forecast that next year inkjets will take 80 per cent of the total printer market, which has given rise to a whole new area of consumables,? he says.
Because inkjet technology is now capable of producing near photographic quality printing, there has been an increased demand for good quality paper. ?It is like anything else: if you want the best quality out you have to put the best quality in,? Clark says.
All the major printer manufacturers take the consumable market seriously because the reputation of their printers depends on the quality of their output. Choosing the right sort of printer, either for home or office use, is becoming more important. The discussions over the past few years about the cost of ownership of PC networks have focused the attention of IT and financial managers on just how much money is spent on the networks. Printers are an integral part of the network, and the cost of consumable products is an integral part of the printers. Lexmark, the former IBM low-end printer division, estimates that 10 per cent of all support costs on a network are attributable to printers and that 60 per cent of all calls to a helpdesk relate to printer problems.
There is little doubt that printing has become more sophisticated in the past few years. The ability to print colour, to print on both sides of the paper simultaneously, on foils or on high quality coated paper to achieve near photographic quality, means that there is a boom in consumable products.
While many large companies will go to a central supplier for their printers and consumable products, many medium-sized firms, small companies and home users still prefer to go to their local dealer. Many of the manufacturers claim that selling consumable products offers a dual benefit to the reseller. First, it provides them with a continuous revenue stream after the sale of the initial printer. Second, it keeps them in constant contact with the customer who, when coming to look for a new or replacement printer, is more likely to purchase from a supplier that has given him good service over the years.
In many installations the purchase of a printer was an afterthought. While the choice of PC, operating system and application software was viewed as strategic, printers were more of a haphazard purchase. Today, that view may be changing. A survey carried out for Compaq last year by Benchmark Research found that 73 per cent of IT managers or directors saw cost of ownership as an increasingly important issue.
The report, The Hidden Costs of PC Ownership, surveyed 250 IT directors and 250 financial directors. Fifty per cent of those surveyed had between 250 and 500 PCs; 19 per cent between 500 and 1,000; 11 per cent between 1,000 and 2,000; and 19 per cent more than 2,000.
There is little doubt that many of these machines will have a printer attached and those printers will need paper, cartridges and other consumable products.
That all adds up to a healthy market in consumables for dealers that are sharp enough to recognise it.
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