by Robert Palmer
The printing business soldiers on despite a continued onslaught of dire predictions from pundits and naysayers — both inside the industry and out. A quick Internet search today reveals hundreds of articles forecasting the death of paper, the death of printing, or the paperless office. Most of these predictions deal with issues surrounding a rapidly evolving workforce that is increasingly younger, more mobile, and technology savvy. Digital and mobile technologies have fostered more efficient and effective ways for working with information, and knowledge workers have become less dependent on paper.
Despite these trends, printing remains a viable and important business function. While office print volumes are declining in some market segments and geographic regions, they are growing or steady in others. Most research firms are predicting single-digit declines in office print volumes over the next five years. So, print is not going away anytime soon … but it is evolving.
And there are other factors disrupting the office printing market: economic pressures, IT spending and implementation policies, the consumerization of IT, cloud services, and the shift from transactional printing to contractual print services. The impact of these trends shows up not just in a reduction in print volume but also in areas such as hardware design, go-to-market strategies, business model transformation and, yes, even consumable supplies.
Like most printer/MFP OEMs today, HP is continually updating and adapting its supplies business to keep pace with changes occurring in the printing environment. As we all know, supplies sales is the engine that keeps the printing business churning, and that certainly holds true for HP. Based on its third-quarter earnings released in August, supplies accounted for 66% of total revenue from HP’s printing business.
According to Michael Borg, portfolio lead and strategic business manager for HP’s LaserJet Supplies, the focus for HP has always been on the customer. “Our strategy has largely remained intact,” he explains. “It has always been to provide that overall value — to allow customers to focus on their business and not on printing.” Borg says that the core value proposition of HP supplies centers on five key areas: affordability, reliability, quality, environmental leadership, and consistency in each of those areas.
Protecting its aftermarket supplies business has always been a high priority for HP, as it is for all OEMs. The firm continues to stress the importance of genuine HP supplies, an issue that has become even more visible with the continued transition to MPS. HP cites data from Photizo suggesting that service providers conduct four times as many service calls when using non-HP supplies as compared to branded supplies. “They also found that one-third of service providers replaced maintenance kits more often,” Borg says of the study, which was commissioned by HP.
Reducing down time and service costs is crucial when it comes to building a successful and profitable service model. Of course, third-party supplies are a big part of the equation for many MPS providers seeking to reduce costs. Nevertheless, Borg argues that managed print providers need to consider the long-term impact to the overall contract value and profitability. “It may cost them less up front to go with non-HP supplies but it is just not worth it because of the extra service required,” he proclaims.
In some ways, it is interesting that HP does not seem to put as much external marketing emphasis on the importance of branded supplies when it comes to MPS engagements. According to Andy Binder, vice president and general manager of LaserJet Supplies and Installed Base, this is mostly related to the difference in customer engagement. Transactional sales require communications to the mass market, which typically involves a much broader PR campaign and communications effort. With MPS customers it is more of a one-on-one sales process — whether that is direct or through the channel. “Genuine HP supplies is a big part of the core value in our MPS offering,” he explains. “The reason you don’t hear a lot about that externally is because it is part of the sales process that exists with each individual customer.”
Qualified Supplies Partner Program
One of the more intriguing changes in HP’s overall strategy is the recent decision to transition its supplies distribution from “authorized” resellers to “qualified” resellers. According to Steve Sakumoto, VP and general Manager for HP Supplies Sales in the U.S., the move will become effective in November and is designed to address confusion in the market while improving the overall buying experience for HP supplies.
Sakumoto notes that HP’s Qualified Supplies Partner Program is actually an extension of a strategy that began a few years ago when the firm moved to its Authorized Reseller program. Prior to that, HP supplies were sold through open distribution, and there were basically no restrictions in place for reselling HP supplies. “All you had to do was call one of our distributors and you could set up to sell HP supplies,” Sakumoto explains. “Unfortunately, this had blossomed into a broad spectrum of resellers.”
According to Sakumoto, 80 to 90 percent of HP’s supplies sales was dominated by professional resellers, but the rest was comprised of “thousands” of marketers who often positioned third-party or clone products as branded HP supplies. “When it comes to the transactional business, what we had found is whether you shop at a local retailer, commercial reseller, or online, there is usually a sophisticated buying agent that is acquiring supplies,” he says. “But they were easily bamboozled by the broad array of supplies out there.”
Sakumoto explains that the abundance of products and pricing options has led to confusion in the market and buyers are often misled. “They might buy a product that they thought was HP but it would be a refilled product or a clone product,” he says. “They also might get a broad range of prices. The customer buying experience was awful.” As a result, HP moved to its Authorized Reseller program a few years ago as a way for resellers to at least register their business with HP. The Qualified Supplies Partner Program is designed to provide even further clarity.
Under the new program, resellers will be required to meet all of the following eligibility criteria in order to purchase printing supplies for resale purposes to end user customers:
• Must be an active reseller with a HP U.S. Partner Agreement (HP PA) in place
• Must have a minimum of $15,000 for six months shipments for HP supplies, or $50,000 six months minimum shipments for all HP products
• Must have a fully functional company website, a physical address for conducting primary business operations (i.e. no P.O. Box), and a phone number—all of which are reflected on the company website and matches the HP PA information.
• Must appropriately use HP brand trademarks, messaging, and marketing materials, and present the HP supplies portfolio to customers in accordance with such guidelines
• Must be in good standing with all other applicable HP policies
The $15,000 minimum is probably the most significant aspect of the Qualified Reseller Program. Clearly, this is a way for HP to guarantee that its resellers are purchasing branded supplies. Although this move might result in a thinning out of some small-scale resellers, HP is not concerned about restricting its distribution or geographic coverage. “The quota is so low we will still have thousands of resellers,” Sakumoto says. “We will still be well distributed to the farthest corners of the U.S. and with multiple resellers.”
The qualified reseller program could also be viewed as a means for HP to restrict sales of third-party supplies, but HP says that should not be the case. “This quota is so low it should not impact that,” Sakumoto says. “Reman is integral to the industry and the volumes have stabilized for that so we don’t see this swinging the pendulum one way or the other.”
Indeed, Sakumoto says that HP fully supports the sale of third-party supplies as long as resellers are not positioning those products as branded HP supplies. “If we thought that some would have to make dramatic changes to their business in order to sell HP supplies, we would have some concerns,” he says. “But the product assortment from genuine to third-party is already established, as are the buying run rates. The customer is the one who chooses if they want to spend a little more money to buy HP branded or whether they want to put up with the other potential issues for the right to purchase third-party supplies at a lower price.”
According to HP, the Qualified Supplies Partner Program should benefit HP, its supplies resellers, and the customer. The intent is not to further restrict the use of third-party supplies but rather to eliminate confusion in the market. “We feel there is no lack of choice or availability of product,” Sakumoto says. “We are just asking resellers to put their best foot forward if they are going to sell HP. We think that the whole experience — from using the supplies to procuring and buying supplies should be superior when buying genuine HP products.”
This article originally appeared in the October 2014 issue of The Imaging Channel.