When it comes to purchasing a new car, many of us are guilty of making our selection based upon short-sighted criteria. We fall for the sexy looks, become attached to only certain makes and models, and even obsess about ancillary features that really add little to the overall driving experience. Some of us are even goaded by a pretty color.
Far too many consumers ultimately ignore or overlook the overall cost of ownership. Sure, gas mileage is a factor, but when you’re in the driver’s seat, taking a model for a test spin, that consideration generally gets pushed into the back of your mind. However, the savvy among us who take all of the important considerations into account are rewarded on the back end of the ownership process.
How does this translate into the world of office technology equipment? Well, we’re not here to advocate the benefits of one A3 or A4 device over another. But given that consumables account for 70 percent of total costs, it behooves dealers and their clients to be mindful of the unleaded and high-octane gasoline they’re pumping into these devices, so to speak.
It’s been an eventful period for the world of consumables. The last two years has witnessed a surge in acquisitions among OEMs, distributors and remanufacturers, both in the United States and internationally. The Supreme Court’s ruling in the Impression Products v. Lexmark case has cleared the path for the import and remanufacture of empty cartridges and redefined the rules regarding patent infringement, to an extent. Chinese investment in companies like Lexmark has further muddied the waters and truly turned the world of consumables into a global market.
With a dizzying array of choices for sourcing consumables, how can dealers adequately guide their clients in making the best possible decisions that factor in costs, quality and page yields? Car buyers may not have to fret about such decisions when pulling up the gas pump, but MFP end users certainly cannot afford to gloss over their choice in consumables if they want to get the most mileage out of their devices. To that end, we’ve assembled a wide-ranging sample of industry experts—OEMs, remans, distributors and consultants—to add their perspective to an often-unheralded segment of the printing ecosystem.
Changes to the Landscape
The most noteworthy evolution in the consumables world in recent years is less about technology and more centered on the players involved, notes Monte White, vice president of product marketing for Supplies Network. Apex Technology, which has invested in Static Control, has created an interesting dynamic with its acquisition of Lexmark, while the M&A activity in the reseller market impacts the manufacturers and distributors that serve those resellers.
Monte White,
Supplies Network
“It’s a maturing market for those parties that continue to have an appetite for growth; they’re looking for acquisition as part of that strategy,” White said. “That applies to manufacturers as it does to resellers. It’s creating pricing pressures, but with the consumables industry, there’s a great divide. There are those who sell on price, and low-cost Chinese product is prevailing with online sales. Then there are those selling a solution or MPS, which you see in the BTA market. They’re selling a solution, bundling supplies and service into a broader solution. They can mask the pricing pressures and sell on deliverables and solutions versus a straight product price.
It’s a maturing market for those parties that continue to have an appetite for growth; they’re looking for acquisition as part of that strategy.
Monte White, Supplies Network
“End users, whether they’re small- or mid-size corporations looking to buy things transactionally, get it cheaper online. The resellers that were making a living selling transactionally are just getting squeezed, so I think there’s kind of this divide between price and solution that’s also creating a divide of channels.”
Jim Loparich,
Pinnacle Sales
The acquisitions of Lexmark and Static Control have produced undesirable results in the form of price increases due to the control of certain market segments and products, according to Jim Loparich, president of Pinnacle Sales. He fears the acquisition of Katun Corp. by General Plastic Industrial Co. Ltd. of Taiwan will have similar results in the market. Loparich believes the federal government should investigate the ramifications of potential security issues stemming from the foreign business control over these products and technologies.
Joe Contreras, vice president of product and solutions marketing for Toshiba, feels the biggest developments in recent years entails the expiration of certain patents and the introduction of new compatible toner cartridges into the market, primarily from China. This adds a new wrinkle for manufacturers to work around in negotiating with dealers and resellers.
“This clearly brings about more price competition and pricing pressure,” Contreras said. “As a manufacturer, we must take a hard look at the competitive landscape, because it’s not just OEM to OEM competition, it’s other third-party manufacturers of toner and ink products.”
Separating Quality from Commodity
The continuing shift in attitude toward dealers and resellers viewing consumables as a commodity is somewhat disturbing and wholly inaccurate, notes Luke Goldberg, executive vice president, sales and marketing for Clover Imaging Group (CIG). Consumables are the cornerstone to any quality MPS program, and not all products are created equal.
“We emphasize to customers that there is a difference between high-quality consumables and what goes into producing those as opposed to a lot of the other products on the market,” he said. “Everyone says they have high quality, but there are big differences and we view it as a huge variable, one that dealers need to consider.”
Bob Willmes,
Supplies Wholesalers
Another notable trend in recent years is the acceptance of top-tier, high-quality and patent safe new build printer cartridges, states Bob Willmes, CEO and founder of Supplies Wholesalers. He also feels the growing trend toward consolidation is making it more difficult for the smaller players within the industry. Another challenge is the increased technology barriers for the aftermarket due to sophisticated, encrypted chips.
“Quality levels for our new-build laser cartridges have increased over the past few years, with overall defects down to 1 percent. We’re now seeing the quality is on par with the best North American remanufactured cartridges, with savings of up to 40 percent,” Willmes said. “Our top-tier China factories producing these cartridges have also proven they can successfully identify and design around the OEM patents and provide non-infringing cartridges, alleviating previous concerns for IP safety.”
Quality levels for our new-build laser cartridges have increased over the past few years, with overall defects down to 1 percent.
Bob Willmes, Supplies Wholesalers
Charles Brewer,
Actionable Intelligence
Charles Brewer, president of Actionable Intelligence and a 20-plus year veteran of the consumables industry, notes that 10 years ago, virtually any new build of an existing drum and toner cartridge—due to all the patented technologies involved in its makeup—likely constituted an infringement. But these manufacturers lay claim to workarounds that are not infringing, and according to Brewer few suits have been filed recently as the number of new-build toner cartridges has climbed.
“I’m not sure why we haven’t seen more suits. Perhaps the manufacturers who make the new builds have obtained cross-licensing agreements or maybe a lot of the technology has come off patent,” Brewer observed. “Or it could be that OEMs are just biding their time. I’m hearing lots of rumors that more lawsuits are coming. Perhaps it’s just a matter of time.”
This trend toward more and more new-build cartridges is big, and these manufacturers are going after the office equipment dealers.
Charles Brewer, Actionable Intelligence
There are a number of large new-build companies and they have launched B2B programs that they are selling to dealers. “This trend toward more and more new-build cartridges is big, and these manufacturers are going after the office equipment dealers. These companies are going after the installed bases where the end users print in a high-volume environment. That’s a real problem for the remanufacturers and the OEMs.”
Christian Pepper,
LD Products
In the early years of this decade, print volume decline was leaving its impact on hardware in the OEM community, and in recent years the trend has left its mark on the consumables aftermarket, notes Christian Pepper, president of the channel partner division for LD Products. That, in part, prompted the OEMs to become more aggressive in getting close to their customers in an attempt to better control the channel.
“Some resellers feel that they have benefitted from working closer with OEMs. Other resellers have felt constrained or uneasy about programs that require end user reporting information in return for lower consumable pricing and larger rebates,” Pepper adds.
Making the Right Choice
Given the endless options at their disposal, how can dealers and their clients successfully navigate the ocean of offerings from traditional consumables suppliers, online retailers and remanufacturers, both domestic and international, in sourcing product that is most tailored to their needs? Many observers find this to be a nearly impossible task.
Neal Becker,
Q2 LLC
“The short answer is, they can’t. Not without a good, reliable partner,” stressed Neal Becker, partner and co-founder of Q2 LLC. “We visit manufacturers regularly, and have personnel in Asia working with us on a full-time basis. The product choices and differences are very complex and difficult to understand and manage. We spend a significant amount of time evaluating quality up front and monitoring ongoing performance so that our customers can concentrate on where they need to focus—successfully running and operating their businesses. In today’s world, there are usually 20 or so more manufacturers of any given product. Knowing which one or two are good, and which are not is critical, and it’s something that can’t be left to chance. Dealers need a good partner to decipher the options.”
We spend a significant amount of time evaluating quality up front and monitoring ongoing performance so that our customers can concentrate on where they need to focus.
Neal Becker, Q2 LLC
Doug Johnson,
LMI Solutions
Much of the decision-making process is tied to a dealer’s go-to-market strategy and whether the dealer is selling the consumables outright or as part of a contracted, page-based MPS solution, notes Doug Johnson, chief strategy officer for LMI Solutions. For a pure product sell, dealers should ask themselves whether their value proposition evolves around high-quality, OEM-equivalent products or “good enough” quality. Contracted deals generally call for high-yield products with low failure rates.
Much of the decision-making process is tied to a dealer’s go-to-market strategy and whether the dealer is selling the consumables outright or as part of a contracted, page-based MPS solution.
Doug Johnson, LMI Solutions
While Johnson understands that it is difficult to test a range of products to validate these factors, there is a checklist of variables that can be used to mitigate risks. “First, they can ask potential vendors questions to better determine the fit with their business model,” he said. “For example, are the products offered IP free? What is their failure rate, and have them show you the data. Do they root cause test all returns? Do they offer a range of products—mono and color, multiple brands—or focus on a few? Can they demonstrate yields and quality via ongoing testing?
“Dealers should also call references provided by the vendor, as well as seek them out on their own, to get real-world feedback,” Johnson added. “Of course, the most important criteria in gathering peer dealer feedback is ensuring the reference dealer has the same go-to-market model, and therefore the same key criteria in evaluating vendor options.”
Supplies Wholesalers’ Willmes boiled the process down to three talking points. The first is reputation, whether a company is known for standing behind its product and can back claims. A second is having faith in a new-build cartridge to perform to the level of an OEM’s, but at a significant savings. Lastly, Willmes urges dealers and clients to opt for a partner that has made significant infrastructure investments and boasts talented sales and customer service personnel.
Doing Your Homework
Pepper feels it is incumbent upon shoppers to become informed through testing and due diligence. This entails asking vendors to provide documentation that details the quality standards their product is built to, along with OEM IP compliance and protection/indemnification from future claims of infringement. It is also essential to know how a vendor manages its supply chain of components, assembling or finished product (depending on whether the vendor is a manufacturer or wholesaler).
“As downward price pressure in our industry continues, all vendors need to find ways to lower costs. In many cases, that involves supplying lower quality/lower cost product without informing a reseller of a change,” Pepper said. “In addition, the length and coverage of the product guarantee will give you a good indication of how good a product is. Average companies offer a one- to two-year guarantee, but the better ones offer three years. The very best offer a lifetime guarantee that covers the reseller’s costs to repair devices damaged by faulty products.”
Luke Goldberg,
Clover Imaging Group (CIG)
Clover’s Goldberg sees the sourcing challenge as being nearly impossible for the typical dealer, especially when it comes to finding a quality, re-engineered product versus an inferior one that is either a rebuilt compatible or merely a product that has been refilled. Few dealers, he adds, take the trouble to perform due diligence necessary to validate a vendor’s quality assurance.
If you really want to understand whether a company can produce quality or not, the only way you can do that is with a site visit.
Luke Goldberg, Clover Imaging Group (CIG)
“If you really want to understand whether a company can produce quality or not, the only way you can do that is with a site visit,” Goldberg said. “It’s impossible to take someone’s word for it, impossible to look at a video or to have someone send you a list of their so-called certifications. Where the rubber meets the road is touring the factory to view quality control methodologies, process controls, engineering infrastructure and capital equipment investitures—things you can only see with a site visit. Without that, to me it’s inherently impossible to really understand who the best in quality suppliers are.”
Mitigating the Race to the Bottom
Resellers who buy and sell on price further the winner-less race to the bottom, observes Supplies Network’s White, and trafficking in that business model requires an extremely efficient or low-cost product. He recommends dealers opt for subscription programs for supplies or bundled MPS solutions that offer more business certainty.
While Supplies Network has a legacy of serving transactional supplies resellers, it has gravitated toward serving the BTA market, a channel that has been successful in changing its business model to selling supplies in a contractual fashion. Additionally, White believes the OEMs have become more aggressive in maintaining aftermarket share.
“The OEMs have stepped up their game and HP is a good example of that,” he said. “The pressure to retain aftermarket supplies business for the equipment they have is of importance to them. We’ve seen HP take greater efforts to win back share with pricing programs that entice customers to come back to them under a longer term price contract with insulation from increases.”
Greg Chavers, Lexmark
One of the greatest challenges OEMs face given dwindling hardware margins is support programs for dealers that will enable them to secure consistent profits on the consumables end. Lexmark, for one, has provided dealer-specific hardware models with uniquely keyed supplies for nearly a decade, notes Greg Chavers, vice president, North America Channel Sales.
“This combination allows dealers to protect their profits from online sales and commercial models, as well as focus on workflow solutions as a primary talk track,” he said. “The Lexmark dealer program has continuously invested in new, device-based and cloud solutions that get the dealer out of the standard click discussion and raise their level to trusted advisor within their accounts. Solutions selling, along with dealer-unique models wrapped in a dealer program that provides incentives and resources, are the engine that enables Lexmark dealers to consistently grow profits and revenues.”
Joe Contreras,
Toshiba
Toshiba has programs in place on the aftermarket side to allow its dealers to be competitive when they target larger accounts in terms of special pricing. Beyond dollars and cents, one of the biggest keys is to enable dealers to become more operationally efficient through its MPS programs, according to Joe Contreras, vice president of product and solutions marketing for Toshiba.
Automatic toner replenishment, for example, can lower a dealer’s carrying costs with just-in-time replenishment. This aids a dealer’s operational efficiencies, as orders are generated and sent out directly to the end user. The replenishment also ensures that a dealer’s client isn’t burdened with a closet full of toner.
“In addition to pricing and operational efficiency, we’re also providing additional value through the solutions and the enablement programs that we’ve introduced,” Contreras said. “We’re working with all the industry leaders on print management and output solutions to help control and manage costs. From a new product perspective, we’re continuously looking at the material and the physical product itself, introducing things like longer life parts, longer duty cycles on the products and making sure they’re operating more efficiently and effectively in our clients’ environments.”
