The great printer ink rip-off

This weekend I went to my local Staples to buy an ink cartridge, and faced a wall of choices - all of which were HP branded. The generics have gone away, replaced by a wall full of blue boxes of HP consumables selling at higher prices. For my printer, the difference was about $10, or 20%.

Allegedly, Staples received a sweet deal from HP in return for quietly dumping its in-house line of generic ink products and selling only HP's pricier brand. On hand washes the other. Good for Staples. Good for HP. Bad for me. Staples' decision leaves me with few alternatives. The only other local business that sells the ink I need is Circuit City and they only carry one brand (Guess which?).

While this move may be good for Staples in terms of sales of ink, it's shortsighted. I don't like having my choices reduced and I don't want to pay more, so I'm ordering generics online. That's one trip a month this consumer won't be making to Staples. Since ink cartridge replacements were my primary motivation for going to Staples, the change means I have one less reason to go there - and fewer opportunities for the retailer to sell me other items. I've also sent a complaint letter to Staples' customer service e-mail. And I'm annoyed with HP and much less inclined to buy HP printer products in the future.

Why would Staples opt to restrict customer choice? Pressure from HP. And money. Here's the inside scoop on what's going on:

According to the story "Staples dumps own-label print supplies" in the industry pub Office Products International, "Staples' decision to stop selling certain non-OEM cartridges is being seen by commentators as a victory for printer makers in their battle for market share with third-party supplies vendors."

HP is thought to be negotiating with the other "big box" stores in an effort to force out the competition. Staples' 1,500 stores sell tens of millions of dollars of printer ink and toner products. For HP, which makes fat profit margins off of consumables, big money is at stake in driving out less expensive HP-compatible products from the market.

In the OPI story, Jim Forrest, a senior analyst at Lyra Research, explains how the payola (my word) might have been dished out. He says that Staples gets discounts, rebates and market development funds for all of its business with HP and that typically amounts to 2 percent. He speculates that the number may have been increased. "Staples have an annual turnover of about $18 billion. Everybody knows companies like HP give their retailers discounts, rebates and market development funds (MDF), which usually amounts to about two percent. "What do you think would happen if HP went to Staples and said 'we will give you five percent if you discontinue your own brand of remanufactured cartridges'? That means they will get three percent more on $2 billion, which is worth about $60 million," he says.

Currently Staples does $120 million with HP and gets 30 margin points, or $45 million in profit.

"This is the first time I can recall that one of the big boxes has yielded to pressure from one of the manufacturers," the story quotes Forrest as saying. But, he adds, OfficeMax and other big-box stores might not play ball. They might see this as an opportunity to increase sales of private-label products. They'll certainly get my business. 

HP isn't the only printer vendor playing hardball: Epson is apparently trying to sue its competitors out of existence to protect its own monopoly on consumables. In a recent story, the Wall Street Journal called the $45 billion consumables business an "ink oligopoly," noting that the price of ink is higher per ounce than perfume or caviar and that annual consumables sales are more than three times higher than are sales of the printers that use them.

For now, at least, you can still get generics at OfficeMax. Too bad there isn't one near me.

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Copyright © 2007 IDG Communications, Inc.

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