At HP’s recent Analyst Securities briefing, the company revealed plans to expand the availability of its Ink Advantage program for emerging regions from 10 countries to 82 countries, though a time frame was not specified. So far, HP has rolled out a new line of Deskjet Ink Advantage devices across a number of developing regions. The devices appear to address long-time consumer concerns about high ink prices, and HP claims that the systems can print twice the number of pages for the same cost as a comparable device.
The newly introduced Ink Advantage line includes a handful of devices that use a four-color ink system, which offers black and color cost per page (CPP) values of between $0.01 and $0.02. HP also introduced several lower-end products that use a two-cartridge system offering slightly higher CPP’s of $0.019 for black and $0.062 for color. However, the company just this month also launched two new “high capacity” printers in Asia based on a two-cartridge system that can offer a 1,500-page yield for the black ink cartridge, which translates to a CPP of less than 1 cent. Because the achievement of such a low CPP is rare outside of Continuous Ink Supplies Systems (CISS), HP’s new addition is significant.
Based on this, it’s hard to ignore the company’s new emerging market strategy, which is likely to play favorably with consumers in these regions. Considering that the OEM plans to expand this program to 82 developing countries demonstrates HP’s belief that there is likely a high potential for success. Emerging markets are becoming an important area for OEMs to achieve growth, and in order to progress in these regions, manufacturers need to develop sales strategies that work for their target customers. HP’s Ink Advantage program is the company’s attempt at gaining share in these regions, where third party alternatives present a larger threat than in more developed areas.
Historically, manufacturers have worked to bring down hardware prices, while making their money on ink. However, high ink prices have led consumers to stray from originals and welcome lower-priced non-OEM options from alternative brands to save some cash. But HP’s new Ink Advantage program is based on offering the hardware at a relative premium (roughly 20%) while dropping ink prices by 30%-40%. The hardware premiums and ink discounts were verified by comparing the new Deskjet Ink Advantage devices in Brazil with non-Ink Advantage counterparts in the US, though hardware premiums were significantly higher in Brazil.
Aside from the fact that HP ink cartridges are now much more affordable in emerging markets, it seems that there is also an element of perception that is likely to capture the interest of more consumers. My perception is that printers should cost more; I would rather not spend only $60 for a printer and then upwards of an additional $15 or $20 each time I need to replace a cartridge. I would however, be up for paying an extra $20 or $30 for a one-time purchase of a printer that uses cheap, high yield ink cartridges that allow me to achieve a cost per page of less than one cent. And although the Ink Advantage printers are priced at a relative premium, lower-priced options are still available. HP claims to offer devices at different price points to serve a variety of home user and small business customer needs. By looking at the distribution of Ink Advantage devices in the Brazil ecommerce market in terms of price, HP offers three devices in the lower-end segment, as well as two others in slightly higher-end segments. And the story is the same in other regions.
Looking at the lowest CPPs for standard capacity inkjet supplies in Brazil*, the only printer that offers a CPP of less than 1 cent is Epson’s L200, which is based on a continuous ink supply system. It is worth noting though that the L-series CISS printers are Epson’s answer to the same issue of high ink costs, but the company opted to take a different approach. However, HP noted that its Ink Advantage program specifically targets the quality and reliability issues expressed by users of ‘alternative’ print solutions, specifically third party CISS. According to HP, its higher hardware costs are justified when customers consider CISS’s hidden costs that include cost of repair, reprints due to poor quality, and cost of time to maintain CISS printers. It is likely that the company will continue to use this holistic advantage message to highlight the Ink Advantage benefits across its target markets.
Further, not only does the program benefit consumers, but Ink Advantage devices can also provide benefits to the OEM itself. Discounted ink could be enough to sway consumers to deviate from lower-priced alternative options, thereby returning sales to the OEM. The lower prices on the Ink Advantage supplies could help close the price gap between original and aftermarket supplies to a point where consumers are willing to sacrifice a few extra dollars (rather than $10-$15) to get an original cartridge. HP can also tout that by opting for original supplies (which now come at a lower price point), consumers can avoid the overall unreliability of aftermarket products, which can include leaks, spills, clogged cartridges, and potential damage to the printer.
This seems like an excellent opportunity for HP to pull ahead while other manufacturers are discovering whether to adapt their own emerging market strategy. So far, HP indicated that the Ink Advantage program has helped the company increase ink usage 30% between 2009 and 2011, and that its ink market share has increased 15% due to the addition of 2.5 million ink customers and an increase in customer satisfaction.
It should be noted however that HP has not outlined any plans to bring the Ink Advantage program to the US and other developed regions, and judging by case studies of a similar model from Kodak in the US, the concept would likely prove unprofitable for HP. However, consumers in emerging markets continue to seek ways to reduce costs and HP shifting its pricing model to that of the Ink Advantage seems like something printer manufacturers should have promoted more heavily in these areas a while ago. That being said, the Ink Advantage program will likely contribute to a rise in printing across emerging regions, as it caters to customers in a variety of environments from home users to small office organizations, and could win back customers that have cut back on printing as a result of increased ink costs.
* it should be noted that the comparison assumes that regional versions of the Deskjet 2020hc/2520hc (which offer the CPP of less than 1 cent) will be placed in the Brazil market and that the cartridge will cost roughly $12. However, the devices and ink cartridges were recently found on one Brazilian site outside of the gap intelligence panel, indicating that they could reach the region in the near future.