Notable Insights from BPO’s Annual Dealer Market Survey: Consolidation and Increasing Color Clicks

John McIntyreby John McIntyre

Summertime at BPO Research means reviewing the highlights of the prior year’s dealer market survey and developing new questions for this year’s survey that explore major trends more deeply, or probe newly emerging issues that dealers are asking about. Looking over the 2017 survey results, a couple of revealing findings stand out as particularly interesting:

1) Increasing concentration of available market revenues in large dealer groups. The survey identified that while only 4 percent of dealer organizations report annual revenues of more than $100 million, those operations now garner about 30 percent of channel revenues. Further, the survey found that dealers reporting more than $50 million in sales now represent more than 50 percent of all channel revenues and approximately 73 percent of channel revenues are represented by only 21 percent of the dealers surveyed.

This concentration of channel revenues in an increasingly smaller number of dealer organizations shouldn’t surprise anybody; we read about a new dealer acquisition by a dealer group almost weekly. The key drivers of these acquisitions – including access to cheap capital, largely fragmented locally-based dealer demographics, the increasing technical complexity and sophistication of imaging products/systems, and high and relatively stable account retention rates among others – mean there are no apparent changes that would hinder this trend from continuing. As in most sectors in which industry revenues are increasingly concentrated among a few major players, the more concentrated the industry becomes, the greater the pressure on smaller operators to differentiate or exit. In addition, the copier channel is somewhat unique in that the primary original equipment manufacturer hardware makers are also often buyers of channel dealerships in an effort to control or retain market share. Thus, the number of “open” or independent dealers shrinks every time an OEM buys a dealership – again increasing concentration.

So, dealer channel consolidation is real and ongoing, and “megadealers” now control more than half of channel revenues.

Remember the 80/20 rule? In this survey, 73 percent of reported revenues are represented by 21 percent of the dealers – continued consolidation will no doubt move that 73 percent figure closer to 80 percent soon.

The long-term effects of a shrinking available dealer channel characterized by significant revenue concentrations in megadealers will trickle upward, and dramatically affect hardware OEM marketing strategies and programs. Assuming the consolidation continues for a while longer (until all the dealerships worth buying are already bought), it is entirely possible that 65 to 75 percent of dealer market hardware revenue dollars will be concentrated in the hands of perhaps 20 megadealers.

Homework Assignment: what kinds of pressure for special favors do you think those megadealers will apply to their OEM vendors when they control so much of their revenue lifeline?

2) Clicks. Our survey design was sharply focused on collecting data about the critical metrics that drive the health of the dealer business model – especially clicks. What 134 dealers told us about clicks paints a complex and multilayered portrait, including:

    • While 42 percent reported declining mono clicks, the majority (58 percent) of dealers increased (32 percent) or stayed flat (26 percent). We also saw that the mono click erosion was not the same among all OEM brands.
    • Of dealers reporting mono click declines, the average decrease was about 6 percent. Almost all vertical industries exhibited mono click declines except higher education and the communications and media/entertainment sectors. The highest reported mono click declines will worry many in this industry as they are significant dealer revenue generators – legal services, K-12 education and government.
    • The good news is that about one-third of dealers experienced mono click increases – with a healthy average increase of 6.9 percent. We also see that numerous dealers that are experiencing mono click growth are seeing double-digit increases. That comparison could possibly indicate that some of the dealers experiencing mono click declines are not the victims of a structurally declining market but are losing clicks to other dealers. That is what we think is happening, and it probably says more about how those dealers are running their businesses rather than secular market erosion.
    • Color clicks were a bright spot for almost all dealers – a majority of dealers increased or stayed flat. A mere 8 percent of dealers reported a decline in color clicks, which makes one wonder what those folks are doing wrong. Again, we also saw that color click increases differed among the OEM brands –  with HP, Kyocera, Canon and Konica Minolta all showing strong color click growth. The weighted average increase among dealers reporting color growth was a surprisingly strong 11.9 percent – which would more than compensate for a modest decline in mono clicks for most dealers. In contrast to mono clicks, color click increases were reported across all vertical markets, led by higher education, K-12 education, and the communications and media/entertainment sectors.
    • Since we don’t know specifically what the dealerships that are experiencing color click declines are doing wrong – or not doing – wrong, we contrasted the profiles of the two groups and found some interesting differences:

Metric

Color clicks increasing

Color clicks decreasing

Revenues

41 percent are $0 – $5M

82 percent are $0 – $5M

Renewal rates

91 percent

84 percent

Renewal rate has gone up

15 percent

10 percent

Offer seat-based billing?

Yes, 22 percent

No, 0 percent

% reporting mono click declines

36 percent

82 percent

# of brands carried

15 percent single brand

55 percent single brand

# of office locations

46 percent single location

64 percent single location

The differences are clear – smaller, single-brand and single location dealers are losing out on the growth in color clicks, and they have lower renewal rates and don’t offer seat-based billing. Further, 82 percent of those with declining color clicks also reported declines in mono clicks – compared to only 36 percent of the overall survey sample. Those dealerships are obviously getting their lunch eaten by larger competitors carrying multiple OEM brands.

The dealers losing out in the click wars also have different attitudes and opinions about key business and market issues.

This table below tells us that the dealers winning the click wars are interested in adding an assortment of new hardware and software offerings including wide-format, more A3 MFPs and refurbished copy/print hardware. The dealers losing out in the click wars appear to be unable or unwilling to adapt and change their business to an evolving market environment.

Dealers Looking to Add new Products/Solutions

Color clicks increasing

Color clicks decreasing

Managed Print Solutions

37 percent

30 percent

A3 print/MFP Hardware

20 percent

0 percent

Wide Format Hardware

22 percent

0 percent

Refurbished Printer/Copier/MFP Hardware

16 percent

0 percent

Have Customers asking for Security solutions

57 percent

40 percent

Cloud Storage Solutions

41 percent

20 percent

Document Management Solutions

38 percent

20 percent

If you speculate and combine the two market trends that we have just profiled, then it appears that it is resource-limited, smaller players who are losing the click and overall revenue battles to their better-equipped, larger competitors that offer a broader assortment of hardware, software and services. That conclusion should not shock anyone in this industry – every one of those issues has been fodder for industry prognosticators for many years. What this survey data shows is that many of those past market forecasts were largely correct, but the major shifts in the channel are likely driven by strategic business management decisions (mergers/acquisitions/product assortments) rather than reflecting macro changes in user copy/print behavior.

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John McIntyre
serves as a senior analyst for BPO Media. With more than 40 years of experience in the printing industry as an analyst, product developer, strategist, marketer, and researcher, he has covered the printing and supplies sectors for prominent market research firms such as Lyra Research, InfoTrends, and BIS Strategic Decisions, and served with major OEMs such as Samsung, NEC, and Diablo Systems/Xerox. McIntyre is the former managing editor of Lyra’s Hard Copy Supplies Journal and has conducted research and consulting engagements examining issues such as market and business strategies, product positioning, distribution channels, supplies marketing, and the impact of emerging technologies.
John McIntyre

John McIntyre

serves as a senior analyst for BPO Media. With more than 40 years of experience in the printing industry as an analyst, product developer, strategist, marketer, and researcher, he has covered the printing and supplies sectors for prominent market research firms such as Lyra Research, InfoTrends, and BIS Strategic Decisions, and served with major OEMs such as Samsung, NEC, and Diablo Systems/Xerox. McIntyre is the former managing editor of Lyra’s Hard Copy Supplies Journal and has conducted research and consulting engagements examining issues such as market and business strategies, product positioning, distribution channels, supplies marketing, and the impact of emerging technologies.