Probably no segment of the office technology industry has undergone as much upheaval in the past 10 years as the domestic third-party supply business. At one point there were over 1000 companies of every size and representing every state in the country. Margins were huge and the industry supported several tradeshows that attracted thousands of attendees.
Over the years, greater technological challenges such as color and chips, competition from low-cost overseas suppliers, IP considerations, and OEM strategies to regain market share have all contributed to a more mature market and led to greater consolidation. Many of the smaller manufacturers converted into dealers. However, despite all of these disruptions and the talk of the downward trend in print, American third-party toner has stubbornly endured.
We spoke to several U.S.-based third-party imaging supplies companies who have been leaders in the industry for decades. We wanted to learn more about the challenges they face, how they are finding success and what they have planned for the future. One thing is certain: their business strategies today are very different from what they were five years ago.
Overcoming Challenges with Innovation and Solutions
Clover Imaging Group (CIG) sprang from the giant Clover Technologies Group. It is a global billion-dollar business that services all facets of the imaging industry from manufacturing to collections, services, and parts. Over the last several years Clover has been very busy acquiring companies and expanding their portfolio of products and services.
Luke Goldberg, CIG
Luke Goldberg, CIG’s senior VP of sales and marketing, cited severaFl challenges that the company faces today, including the influx of what he called the “low-cost/low-quality” compatibles that continue to cause price compression in global markets. Goldberg refers to the heavily commoditized, price-based market in which these products usually circulate as the “red ocean.”
“Combating this for us is about not competing for the blood-red ocean for the small business we already have,” he explained. “Clearly, these products do not traditionally compete for the high-value OEM customers, and if they did then they would have more than the paltry share they have.”
For CIG and Goldberg, the key to capturing the quality-minded share is educating dealers and providing the products, services, and solutions that allow them to compete globally on value and quality.
“As evidenced by the OEMs’ more than 80 percent share, the quality segment is much larger and shows a sustainable path forward versus more of price-only competition, which can only lead to low quality/low value and an inability to keep customers,” he said.
Another challenge cited by Goldberg is the OEM strategy of offering low-priced white box programs. Due to market pressures, OEMs are understandably targeting third-party business and Goldberg said that CIG has developed some innovative programs to compete.
“Our response to that was our GreenSweep program [a rebate program for OEM conversion] and our ongoing endeavor to continually innovate and add value to our dealer services via new products, programs, and solutions such as cost-per-seat billing,” he said.
Cost-per-seat billing is a radical departure from the cost-per-page pricing strategy that has underpinned the industry for decades. Proponents of cost-per-seat argue that it will de-commoditize MPS by providing the mystery that allows for layers of cost. Goldberg expects their cost-per-seat billing program to revolutionize the industry.
“Anytime you can offer a driver of change like this, turning a 35-year-old commoditized model on its ear, you know you are leading the industry forward,” he said.
Another area of significant growth for CIG is the offering of computer and server parts, which provide access to the managed IT world as part of the convergence of the print and IT channel.
“This year we earned Hewlett Packard Enterprise Replacement Parts – Partner of the Year, and we are able to offer everything from parts to servers to laptops in this lineup,” added Goldberg.
Goldberg has long evangelized for the enduring viability of print and he insists that prevailing attitudes are too pessimistic. He maintains that too many dealers are so services-focused that they forget that print still represents a great opportunity. He cited studies from InfoTrends that indicate office printers in the U.S. will produce nearly one trillion prints this year, 600 billion of which will be printed on 30 million installed A4 devices.
“Services are critical to adding value to print, but we should not forget the print opportunity,” he cautioned. “Let’s not forget that OEM consumables produce nearly 80 percent of these prints, which is why programs like GreenSweep are so critical. We need to empower dealers to take advantage of these megatrends via OEM alternative products and value-add solutions.”
In 2013, Turbon AG, the world’s largest publicly held remanufacturer and collector of laser toner cartridges, purchased Southern California-based International Laser Group, Inc. (ILG), one of the larger US-based toner remanufacturers. ILG continues to serve the dealer community and operates independently from its California headquarters.
Jim O’Connor, ILG
ILG’s General Manager, Jim O’Connor, believes that the challenges faced by ILG are no different than any other company in the imaging supply space. He pointed to greater dealer consolidation and the increasing digital substitution for printing as two widely known examples. However, he sees the more common market challenges as a good opportunity to present the value of their products.
“As businesses continue to be pressured from a cost standpoint, our remanufactured toners offer a solution in reducing business costs,” he said. “Toner is one of the higher cost consumable purchases in the typical office today, and we provide our dealers a high quality alternative to the OEM. We are doing a better job at helping our dealers get in front of the customer, and provide a solution to their cost challenge.”
O’Connor is impressed by the bold dealers who are moving beyond traditional hardware and service. He sees the expanding solutions-based model as a good opportunity to build relationships and capture more market share.
“Dealers who are aggressive and selling solutions are getting larger, and are winning in the market,” he said. “They are expanding into new territories, and expanding their customer base. ILG is focused on partnering with these dealers and working closely to help them win.”
Continues O’Connor, “ILG is doing well, and we are finding success in helping dealers win in the market place. Recognizing that we are only as good as our dealer partners, our team is focused on developing market-winning strategies. Our offering includes appointment setting, MPS solutions, distribution leverage, and a high-quality product with a lifetime guarantee.”
Finally, O’Connor cited ILG’s ability to leverage their parent company’s worldwide distribution and manufacturing expertise to provide their dealers with additional opportunities.
“We are assisting our dealers to compete in market segments where they previously might not have been successful,” he said. “Essentially, when our customers win, ILG wins, and we are finding success in helping our dealers win.”
Steve McBride, Katun
For almost 40 years, Katun has been one of the world’s leading providers of OEM-compatible imaging supplies, photoreceptors, parts for copiers, printers, MFPs and other imaging equipment.
Katun’s General Manager of North America Business Unit, Steve McBride, sees market consolidations and acquisitions as well as the scarcity of new dealers entering the channel as the biggest challenges. However, despite these challenges, McBride said that Katun’s dealer channel business is growing.
“Success is being found with dealers needing to maximize their profit opportunities, particularly within their color portfolio for both copier and printer,” he said. “We continue to work with some of the OEMs, acquiring dealers to maximize our business and bringing more solutions and services to service the existing dealer base.”
McBride added that they are bringing products to market quicker and strengthening their partnership with different solutions providers, in particular the MPS space and their KDFM portfolio. They are also continuing to offer products outside of their core offering, such as Innovolt power protection that enables dealers to maximize their profitability.
Doug Johnson, LMI
Phoenix-based LMI has been a major manufacturer of aftermarket consumables since 1992. They have also been one of the more innovative and forward-thinking companies when it comes to value-adds and diversification. Chief Innovation Officer, Doug Johnson, said that one of their primary challenges today – an enviable one – is finding additional talent as they scale up their business.
“We have needs across most functions,” he said. “From sales to operations, and we are broadly networking to secure more talent.”
Johnson said that most of their investment today is focused on the talent and strategies to grow their MPS solution portfolio. LMI was one of the first third-party manufacturers to offer MPS programs and support and Johnson stated that they are continually updating their offerings to keep pace with the evolving market. That includes plans to be more involved in Business Process Optimization (BPO) and workflow.
“From a market perspective, we see many resellers who are now refreshing their approach to MPS,” said Johnson. “We are therefore re-engaging in core MPS business model discussions to help these partners re-imagine their MPS sales and operational processes and workflows for the next generation of MPS solutions. We have added significant talent at all levels of the organization, are investing in a broader range of products, services, solutions, and even software to ensure we are the long term, one-stop shop for all things MPS for our reseller partners.”
Ultimately, LMI’s goals are to provide all the products and solutions that help dealers be successful and grow their business. Johnson said that they are already reaping the benefits of this approach.
“The diversification of our solution and product portfolio has enabled further share of wallet gains within our existing customer base and opened up opportunities with new customers,” he explained. “We continue to find our primary success is with resellers who have invested in and are growing their MPS model. Our portfolio is focused on MPS, and we see continued growth and success in this market segment.”
Bryan Bonacum, Static Control
Static Control, the North Carolina-based distributor and manufacturer of aftermarket components and materials, has been a global leader for almost three decades. In fact, there’s probably not a manufacturer of third-party supplies in the world who doesn’t purchase some type of item from Static Control. For Bryan Bonacum, Vice President of North American Sales, keeping pace with changes in the market is always the biggest challenge, but he said that’s what Static Control is all about.
“Our ability to keep up with the OEMs’ technological advancements is unmatched,” he stated. “OEMs are using new technologies all the time, whether it’s in their toner formulations, OPC gearing, cleaning methods, chip designs, or sealing technology. Every one of these changes introduces a new challenge.”
Added Bonacum, “This is why we continue to invest in the people and equipment necessary to design and manufacture quality replacement products and cartridges for our customers. Our R&D and intellectual property investment is what sets us apart and allows us to continue to address the many challenges our customers face.”
Working Towards a More Solutions-based Future
Interestingly, there wasn’t a hint of pessimism from any of the companies we spoke to. All of them seemed to welcome the challenges brought on by an increasingly solutions-based industry, and all expressed optimism about the future.
CIG is very bullish about the future. Goldberg believes that there are great, untapped opportunities in the IT/VAR channel.
“There is no question as the print channel and IT channel converge that the IT channel will also look to get into the print channel as both a defensive and offensive move,” he stated. “For CIG, this means further growth in our IT and server parts business, a greater need for services to address this new emergent channel, and growth in our cost-per-seat billing model, which will be more palatable to IT providers than the cost per page.”
CIG also expects to facilitate even stronger relationships with their OEM partners and to expand their global reach with them and in the independent channel.
“As emerging markets undergo the same shift from commodity selling to solution selling, we will have a proven framework of successful implementation to draw on as we help facilitate this transformation,” said Goldberg.
Finally, Goldberg said that CIG is currently researching the ability to harness the industry’s big data from the Internet of things in order to transition to a predictive model of doing business.
“This is an area in which CIG endeavors to lead — and is no different from when we changed a 30-year-old model for cost per page to cost per seat,” he said. “We will continue to invest our resources, expertise, and time into this area to lead the industry forward.”
ILG’s O’Connor stated that despite the many challenges, the industry presents great opportunities for those who seek to create them. He believes in actively working with their dealers and providing the solutions that will help them achieve success.
“Our strategy is to continually drive growth by helping our customers win,” he said. “The imaging supply industry is moving at a fast pace, and we have to provide products and services to help our dealers move faster. Simply stated, our greatest opportunity is working with our dealers to help grow their business.”
Katun’s future endeavors will focus on helping develop their customers and ensuring that they have the most updated tools to succeed.
“We feel like our biggest opportunity is working with our lower volume Katun customers, assisting them in increasing their profitability and lowering their service costs,” said McBride. “This includes providing them with an end-to-end robust MPS model that allows them to stock less in their printer and copier supplies.”
For LMI, the future is in the services-based model. Johnson believes that there is still a growth area in all markets globally, and even within existing contracted end user accounts for value-add resellers.
“Our greatest opportunity is not just to maximize this opportunity, but to also leverage the competencies we’ve developed in delivering services-based infrastructure into adjacent markets beyond print that our resellers may engage in in the future,” stressed Johnson.
For a major distributor of components and materials like Static Control, R&D is essential. Bonacum said that he understands that OEMs need to protect their investment with intellectual property and advancements in technology.
“It is important to have a supplier who is able to come up with non-infringing solutions that work at an optimal level,” he said. “In order to succeed or add new business, it is vital to have a supplier who continually innovates. That’s where Static Control’s opportunity is – through innovation. Our deep commitment to R&D provides new solutions that can continue to help our customers succeed.”
Suffice it to say that third-party suppliers have come a long way since the days of simple transactional sales of monochrome cartridges. Yes, the products are still fundamentally identifiable, but with so much innovation and diversification being employed today, will we recognize these companies’ offerings in the future?
