The Second Biggest Threat to the Office Technology Industry: What No Supply/Maintenance Agreement?

Andrew Ritschel

Last week Andrew Ritschel, president of Electronic Office Systems (EOS) in Fairfield, New Jersey, shared his thoughts on the three biggest threats to the independent dealer. As a point of clarification, he e-mailed me to say that these threats affect not only independent dealers but manufacturer’s direct branches as well.

To recap, the three threats include manufacturer’s irresponsible down-the-street pricing, customers declining to take supply/maintenance agreements on their equipment, and insanity when pricing MPS.

Most readers have read about pricing woes plenty of times by now so we’re not going to beat that dead horse right now. Instead we’re going to delve more deeply into threats #2 and #3 during the next two weeks.

As Ritschel said last week, customers who decline a supply/maintenance agreement on their equipment is one of the greatest threats affecting the industry even though many dealers may not recognize it as a threat just yet. The reason customers are foregoing the supply/maintenance agreement is because the equipment is more reliable than it’s ever been.

“People are looking to save money so when those supply/maintenance agreement invoices come up, if they’re not tucked away in pass through leases as part of a lease payment, they’re apt to say ‘We’ll do without,’” says Ritschel. “A maintenance agreement is basically our cash flow and our profitability. [Not having one] unties them from us for supplies and allows them to go onto the Internet and start buying supplies at whatever ungodly price suppliers are selling the supplies for, possibly buying generic brand supplies and using them with the equipment that we place that eventually we might have to service.”

EOS is now asking its reps to work pass-through leases into proposals. “Here’s the retail price of the equipment, here’s the discounted price of the equipment, here’s your lease pricing, here’s your maintenance contract pricing,” explains Ritschel.

In his opinion, it’s a matter of survival.

“If all of our customers just bought the equipment at the discounted purchase price or leased it at the discounted purchase price we’d be out of business very quickly,” maintains Ritschel. “We, like everybody else are putting the equipment out there to capture the service and supply business. The amount of profit we would need to make if we weren’t selling maintenance agreements and supplies would have to be much greater than what we’re making right now.”

Ritschel is a member of Kyocera’s Dealer Council and recently asked Kyocera engineers who were visiting from Japan to incorporate some sort of ‘idiot’ light on the machine that dealers can program to remind them they need to schedule a service call for cleaning once every four months or once every six months as opposed to basing the service on the number of clicks.

“I told the engineers it’s because they feel the equipment is so reliable that we need to send a technician in periodically just so they think the machines are calling for service,” recalls Ritschel. “They said, ‘Why would you want to do that, they’ll just perceive that the Kyocera equipment is so good it doesn’t need service anymore.’” I said it’s not that they’re going to perceive the Kyocera equipment is that good, they’re going to perceive that all equipment has gotten to the point where it doesn’t need service contracts anymore.”

It comes down to positioning.

“Customers don’t understand the contract is not just an insurance policy,” states Ritschel. “Yes it is an insurance policy and yes it does cover the cost of your supplies, but it’s also the systematic payment of parts that are very expensive and consumables that need to be replaced in the machine, and you’re prepaying them down in small bits and bytes so when that expensive fusing section or expensive transport section needs to be replaced it’s not a massive $800 or $1,500 cost. When customers get that bill because they don’t have a maintenance agreement they hate you, hate the machine, and they hate the manufacturer.”

There’s another danger he sees in not having a maintenance agreement.

“They’ll put up with things that aggravate them, little nit picking things they’re not happy with but don’t want to call about because they don’t want to incur the cost of a service call,” notes Ritschel. “A lot of times those little aggravations are signs they need to get something resolved before it becomes a much bigger problem.”

What he’s seen is that if somebody doesn’t have a maintenance agreement and they have a service call and the issue is resolved, if another issue pops up one month, two months, or three months later, they try to tie that call to the last call blaming that next call, saying ‘We never had that problem before you came out and serviced it last time.’

“They always try to blame the new call to the previous call in an effort to get a freebie,” laments Ritschel.