(Editor’s note: I wrote the following article for the May issue of Independent Dealer magazine. To read the complete issue or subscribe to this excellent publication targeting office supplies dealers, visit www.idealercentral.com)
Less than six months after Hewlett-Packed sent waves through the channel by changing from an “open” to an “authorized” distribution model for its inkjet, LaserJet, and large format cartridges, the company has once more stirred the pot with the announcement that it will again be raising the bar for its resellers later this year.
Under the model introduced last year, anyone wishing to sell HP cartridges must have an HP U.S. Partner Agreement or U.S. Consumer Reseller Agreement, otherwise they won’t be able to source product from distributors. HP cited the desire for better relationships with resellers, improved customer satisfaction, and a simpler distribution structure among the reasons for the new policy, which was also seen widely as an effort to help return positive growth to its supplies revenue, which, according to a GAP Intelligence article, has seen a steady decline (with the exception of Q2 2013) for almost two years.
Now, hot on the heels of the U.S. Partner Agreement comes the new “HP Qualified Supplies Partner Program,” which the company says will govern the distribution of HP ink and toner cartridges effective November 1.
Under the new agreement, resellers will need “$15K six months minimum shipments for HP supplies (PL1N, 5T, UK, K6 only), or $50K six months minimum shipments for all HP products (all PLs)” in addition to adhering to the previous U.S. Partner Agreement and meeting other requirements.
Companies operating under the existing Partner Agreement that may not currently be meeting the new Qualifed Suppliers Partner requirements will have a six-month grace period from HP to get with the program.
Meanwhile, according to a letter from HP to resellers they believe fall into that category, they have been “conditionally accepted” into the program. HP indicated it will use the April 1-September 30 time frame as the time period to verify program compliance.
Timing, as they say, is everything. Shortly before HP’s latest announcement, we talked to several dealers and other industry participants for their assessment of the impact of the initial Partner Agreement.
“This was such a ‘non-event’ for us,” commented Paul McKinney, operations manager at Eakes Office Plus in Grand Island, Nebraska. “Since we have been an HP authorized reseller for so long (20+ years), there was little to no impact to our business.”
John Givens, president of Source Office Products, suggested things had changed with last November’s program although not so much for him. “The majority of impact was on the online distribution model and really small people who were trying to do things in a manner that would not be reflecting appropriate business practices,” Givens contended.
“There were a lot of people selling HP supplies that perhaps don’t match the image, branding, and methodologies, if you will, that HP would like to have represented,” opined Givens. “That’s number one, number two, the Internet in many ways has been like the Wild, Wild West and a lot of people were using HP OEM as a bait and switch program and a loss leader to sell reman. By going to the authorized model, HP can make sure that those companies interested in the HP branded solution get the appropriate representation for that branded solution.”
As HP gains more knowledge of what authorized dealers like Source are doing, Givens feels they’ll be able to tailor programs more specifically to the various channels selling HP product, i.e., office products dealers, copier dealers, etc.
“Any time an OEM can provide some additional exclusivity to its partners, they will respond well,” adds Ken Stewart, an analyst with Photizo Group, who was commenting on the initial announcement. “Whether this be designating a specific market, product, or service, this move has a net positive impact on partners that want to ‘lean in’ more to their relationship. It also provides a more tangible way for providers (resellers and dealers) to differentiate themselves. In other words, increasing scarcity promotes loyalty.”
At the same time, though, Stewart added that he expects HP will continue to have problems controlling its distribution channels.
“In the end, this doesn’t have so much to do with whether HP authorizes its channel as it does with buyer motivations,” says Stewart. “If a customer wants price, they aren’t going to care about OEM vs. compatible. If brand, security, or other factors play into the decision, then this move by HP only helps its more loyal partners (and helps HP determine where to invest its channel resources).”
One of the groups most affected by the changes are the wholesalers and not too surprisingly, perhaps, both SP Richards and United declined to comment, as did distributor West Point Products. We didn’t receive a response to our inquiries for comments from Synnex or Image Star either.
However, Monte White, vice president of product marketing for Supplies Network, was kind enough to present a distributor’s perspective on the new policy. “If you’re a wholesaler that’s not authorized you probably think it’s not so favorable, if you’re authorized, it’s a mixed bag,” said White.
“There are resellers that we sold to in the past that we can no longer sell to,” explains White. “From that perspective, it represents a downside to our business. Is that a short-term downside that will come back to us is unknown because in that change there were also some distributors that were rationalized in this process”
Prior to the new policy HP had a Second Tier distributor program, which no longer exists and as a result, a few big distributors are no longer authorized.
“From that perspective we say there’s a piece of business, and that number varies by distributor, that we can’t sell to anymore and that’s not so good especially when demand on supplies as a whole has been challenged,” opines White. “We remain hopeful that the rationalization of those distributors as well as resellers will provide some benefits because we feel the majority of the partners we’re selling to are adding value, and theoretically those resellers should enjoy more business because the unauthorized channels no longer have access to goods.”
Of course even though those unauthorized parties no longer have access to HP products from a Supplies Network, for example, that doesn’t mean they can’t source them from the gray market. “It sounds great to tighten down, but if there’s plenty of product available in the gray market, then it’s a double whammy for us,” says White. “We lost business for partners we can’t sell to anymore and we are still competing with those distributors who have inventory and who may continue to have inventory. That’s the dynamic today.”
And, White suggests, it’s a dynamic that may not turn out to be limited to HP alone. “The concern that we as a distributor have and other distributors might share, is that other manufacturers might be looking at similar strategies,” he suggests. “In the supplies business a lot of people follow HP.”
