Ink wars spread: Another printer vendor to offer low-cost color ink

Kodak launched the first salvo last March when it introduced a line of ink jet printers with low-cost consumables. Now a second major player is preparing to launch a similar strategy - but this time in the midrange color printer market.

Following Kodak’s lead, a marketing vice president for a major printer manufacturer, who declined to be named, told me in a meeting this week that his company will announce next month a new color printer that uses lower cost color ink. But while Kodak focused on consumer-grade all-in-one printers with its new EasyShare line, this vendor is moving up the food chain into the more lucrative business color printing market. That move could be good news for business users that do a lot of color printing.

With this announcement, the crack that Kodak opened in the printer industry’s current business model could be widening. That model, followed by most players, dictates that vendors sell the printer at a lower price (and smaller profit) and make up the difference with the printer’s consumables, which carry very high margins. Once the customer has purchased a printer, the vendor usually has a captive audience for ink - and a quite profitable, quite predictable revenue stream for the life of the printer. That revenue stream more than makes up for the lower up-front margins on the hardware.

“The industry has driven the price of the units down at the expense of the consumables,” said a spokesperson at the company introducing the new printer.

While that marketing strategy has been very profitable for HP and others, it has also irritated many customers, who feel they’re being gouged on the price of ink. “The number one complaint for color printers is consumables cost,” the spokesperson said. He claims that his company’s new printer will generate color pages for office users at the same cost per page that customers pay today for monochrome.

But there is a catch: Customers will pay more for the printer up front. Presumably, they’ll make it back in savings from lower operating costs – if they print enough color copies to make up for the higher initial cost of buying the printer in the first place.

Kodak’s strategy in pursuing this marketing model was to gain a toehold in the multifunction ink jet market. This vendor, however, is already an established player. The strategy, the vendor admits, is aimed at stealing market share from the industry leader: HP.

The announcement could put additional stress on the market leader’s business model, not just because a second player has taken this tack but because this competitor chose to take the higher cost printer/lower cost consumables model up the food chain to more profitable business printer line.

Is this a good deal for buyers? Depending on the premium that the vendor charges on the hardware and the amount of color printing the user does, the total cost of ownership could be lower. That certainly was the case with Kodak’s consumer line when I tested it against a similar HP unit for printing color photos. But the price delta between the Kodak and HP units was only $50.

Will business users be willing to pay more up front? No matter how the complain about consumables costs, most businesses still buy based on the purchase price of the product, the spokesperson admits. Getting customers to pay a higher sticker price in the short term in return for the promise of lower operating costs in the long term may be a challenge, particularly for customers in the more cost-conscious small and mid-sized businesses.

If this vendor’s new printer is priced aggressively, it could be disruptive. But if the price delta is too big, only those with the highest volume color printing needs will benefit. I can’t tell you the pricing until the date of the announcement, but from what the spokesperson told me, the price delta will be substantial. This vendor is also hedging its bets by continuing to sell a comparable printer that uses higher cost ink.

The spokesperson acknowledged that the manufacturing cost of the printer and consumables between the two lines don’t differ. It’s all about where the vendor takes its margin.

One way or another, vendors will need to get a return on investment. Today, consumables subsidize the printer’s initial cost. “No one would stay in business without the consumables. You’d have to sell them for many times greater than what they’re sold for today,” the spokesperson says. The question is just how far the pendulum can swing the other way.

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