Author Archives: Liana Greetis
Catching Up with the Aftermarket at the RT Imaging Summit
At the end of May, I had the pleasure of attending the RT Imaging Summit, hosted by Recycling Times Media (RT). The event was designed to discuss questions and issues faced by the North American remanufacturing market, and (hopefully) provide attendees with solutions. Around 100 people attended the event, a pretty respectable turnout for the first event held in North America, for North America (RT is also the host of the RemaxAsia Expo held in China each year). The exhibition room featured table exhibits for the gold and silver sponsors, including MSE, Mito Color, and Green Project, where you could visit with these companies during lunch or the mid-morning and afternoon breaks. While the majority of the attendees came from the remanufacturing side of the industry, there was also participation from OEM representatives who tried to provide a different perspective.
The content of the show was extremely informative, with presenters ranging from remanufacturers and patent attorneys to chemical producers and printer remanufacturers. Because my view of the remanufacturing world is very specific, it was refreshing to be among people that are living in it every day and have a more robust understanding. Attending provided me with valuable insights and a new perspective that I might not have otherwise had.
The show started with a discussion about how the aftermarket has changed over the past 5 years or so. Since 2009 and the global financial crisis, there has been an increase in low cost foreign aftermarket products, clones, counterfeits, a decline in quality, and an increase in ecommerce. OEMs have been responding by stepping up patent infringement litigation, introducing new and more complicated chip technology and more complex cartridges, as well as increased printer refresh cycles — all of which provide limitations to the aftermarket’s market share. In particular, with the rise in ecommerce as a preferred shopping method, remanufacturers are increasingly finding themselves and their dealers or resellers competing with other resellers that, for whatever reason, can afford to offer competing products for a much lower price point.
However, while low-price online resellers are an issue and cut into the sales of legitimate remanufacturers and their partners, one of the things that I really respect about many of the companies was their acknowledgement that a main issue holding back the remanufacturing industry is quality, not price competition. Many participants agreed that they are currently very limited by quality, especially with regard to color, because color customers have different requirements and standards, whereas most people using monochrome for everyday office documents don’t necessarily need the highest quality output. Remanufacturers typically don’t have the resources to support a research and production facility that would be comparable to an OEM, and I respected that these companies were so upfront about the fact that they haven’t been able to achieve 100% OEM quality, and that no aftermarket company should say they have.
The timing of the conference could not have been better, as it happened to take place shortly after Canon filed an intellectual property complaint with the U.S. District Court for the Southern District of New York against 18 aftermarket manufacturers, distributors, and resellers in January and took many of the same complaints to the ITC against 33 companies (including some of the same 18) in early May. Litigation pretty much set the tone for the first day of the summit, as we heard from Print-Rite, a large remanufacturer that was also named in the recent Canon lawsuits, and got a lesson in the art of reading patent claims by patent attorney Ed O’Connor. After all of the presentations, open forums, and lunchtime discussions, my insight and understanding of patent infringement lawsuits in general increased significantly, as well as the kind of reaction they generate and impacts they have on the aftermarket from the remanufacturers themselves. There was a lot of back and forth about whether OEMs are bringing these types of lawsuits to shut down the aftermarket or defend their intellectual property. However, regardless of whether these defendants are actually infringing, simply bringing a lawsuit against a remanufacturer causes customers to question their legitimacy and can have lasting impacts on that company.
Because there hasn’t ever been an easy and affordable way for the aftermarket to keep up with OEM patents, it’s been difficult for remanufacturers to even know when they are infringing – an OEM could be filing for a new patent during a remanufacturer’s development of a new cartridge. As a result, Recycling Times developed its own solution to that challenge, announced at the show as the forthcoming Patent Smart (or PatentSmart) portal. This was a solution that I was not aware of before the summit, but it is definitely something worth keeping an eye on. Little information is available, but as far as I know, it will be a subscription-based portal that will allow remanufacturers to stay up-to-date on patented OEM products and components.
In the end, it was determined that there was at least one thing that was mutually agreed on by both remanufacturers and the OEM representatives: the two industries should be spending more time working together to focus their efforts on targeting those that undermine their legitimacy, such as counterfeits and clones.
From follow-up correspondence, it was clear that the show was a success and that attendees came away with new ideas and inspiration about how to address commonly-faced issues in their industry. While there may have been undertones of fear and concern over the detriments caused by OEM lawsuits, there was also a lot of talk about opportunity. The market is mature, the technological solutions are here, and customers are still looking for value. Although the future of the remanufacturing industry is unknown, it is clear that it’s changing fast and that the aftermarket needs to continue to adapt accordingly to successfully capitalize on these opportunities.
Defining the Industry, One Cartridge Type at a Time
The aftermarket cartridge industry has long struggled with terminology. Cartridges can be called remanufactured (remans), reconditioned, rebuilt, compatible, new build, non-OEM… the list goes on. The BSA last month announced its approval of a new standard definition for a remanufactured cartridge to help with clarification, but will it be enough to generate industry-wide adoption and use and eventually ensure that all products are characterized correctly?
For a little background, the Business Solution Association (BSA) in October set out to define what constitutes a remanufactured cartridge and released a draft to elicit feedback from the general public. In January, the standard was approved, published, and made available to the industry.
At this point you may be saying to yourself, that’s great, but who is the BSA?
The BSA is a trade association that represents manufacturers, wholesalers, and manufacturer representatives in the business products and related industries. The group aims to develop industry standards, best practices, and technological advances to drive growth and success for its members through networking, education and innovative ideas. While the BSA itself is not instantly recognizable, several of its members are some big names in the cartridge industry, including Clover Technologies, Supplies Network, United Stationers, and SP Richards.
Why are they doing this now?
If you took a random poll asking people to define what a remanufactured cartridge is, you would probably get a hundred different answers. The overall theme of the definition would likely be the same, but there would be notable differences. Prior to October, the industry lacked a standard description of how to define a remanufactured cartridge, which has resulted in confusion and misuse of the word. With the new standard, the Association’s primary goals are to first and foremost to establish a definition that distinguishes remanufactured cartridges from everything else, while also eliminating terms that are interchangeably used to describe both remanufactured products and non-remanufactured alternatives. This should in-turn help producers understand how to market and categorize cartridges, reduce consumer confusion around what they are purchasing, and help prevent the sale of cartridges that may violate laws and GEOs (general exclusion orders).
So how did the BSA define a remanufactured cartridge?
The standard defines a remanufactured cartridge as “an original OEM cartridge that has been previously used and the marking substance consumed, and then is subsequently collected in the United States , inspected, cleaned, had new or reconditioned parts installed, re-filled with ink or toner, and quality tested so that its capability to print has been restored”. The standard also provides several guidelines on how to market a remanufactured product so that the message is explicitly clear.
Going back to the goal of eliminating the use of certain terms interchangeably, the standard dictates that a remanufactured cartridge should not be referred to as a “replacement, reconditioned, refurbished, rebuilt, compatible, new compatible, newly remanufactured, newly manufactured, newly built, newly refreshed, new build, new plastic, factory fresh, non-OEM, OEM compatible”. To simplify, the products described by many of these terms are most commonly known as compatibles, or clones, which can be defined as cartridges that are built by a third party using all new parts and materials.
Why is distinguishing the two so important?
There are many benefits to adopting a standard definition of what a remanufactured cartridge should and shouldn’t be called, but one of the largest is the intellectual property aspect (IP). Clone cartridges are an ongoing issue for the industry because they continue to proliferate, especially in developing regions and places where economic conditions are poor and regulations are enforced inconsistently. They can significantly undercut OEM and even remanufactured cartridge prices because they are much less expensive to make. Though it should be noted that even a remanufactured cartridge can only be rebuilt a limited number of times before it becomes unusable, they are much more sustainable than clones, which are newly-built, frequently from less-reliable materials, and are often not recycled responsibly. IP comes into play because many clone cartridges infringe on OEM patents, as they are often built very similarly to the OEM and can look almost identical.
In short, clones are risky. Many companies marketing clones online and in product catalogs have been known to misclassify them as remanufactured, and as a result, have landed themselves with a lawsuit. Similarly, companies that are reselling/wholesaling/distributing infringing clone cartridges could get pulled into the litigation as well if the OEM files an infringement lawsuit against the company making the cartridges. A recent example of this is Samsung, who went after resellers in Germany and the Netherlands for distributing compatible cartridges that infringed on its patents. OEMs are also not showing any signs that they plan to curb their pursuit of IP rights – Canon just this month announced its initiation of new patent infringement lawsuits against 18 aftermarket vendors in the U.S. Bottom line, if you don’t know exactly what you are selling, there’s a risk that it could be infringing. Adopting standard terminology (assuming it is used correctly) would certainly help reduce that risk for resellers and consumers.
Consumers and remanufacturers are similarly affected. Anyone that unknowingly purchases a low-quality clone cartridge, will have a poor experience and may choose to no longer purchase any type of non-OEM alternative. Good news for the OEM, bad news for the legitimate remanufacturing industry. Remanufacturers are similarly at risk of infringing if they source new-build parts and components. Additionally, as I mentioned before, the sale of clone cartridges impacts the sale of legitimate remanufactured cartridges, so it is also in remanufactures’ best interest on several levels to ensure products are labeled correctly with standard terminology.
Now that we know what it’s all about, is the approval of this definition going to have major effect on the industry?
While it’s certainly a step in the right direction and has the potential to effect change, getting an entire industry, especially one as highly fragmented as that for cartridges, to adopt and consistently use the terminology will remain an obstacle, especially on a global scale. Specific challenges include education, adoption, and ongoing efforts to ensure consistent use.
Approving the definition was the first step, but if no one is aware that it was ever created, the effort will largely be lost. There is going to have to be a major effort around educating the industry, including manufacturers, resellers/wholesalers/distributors, and consumers alike. After education, getting the industry to adopt and consistently use the definition will be another barrier to the standard’s effectiveness. Potential solutions could come in the form of signing an agreement, using special logos or emblems, or creating a separate coalition dedicated to enforcing its use. However, the third, and maybe more important element, will have to be based on continuing education and enforcement.
This is also not the first endeavor of its kind. Just last year, the International ITC published a resolution that that its members will refrain from buying or selling products they know or have reason to believe are clones, new compatible cartridges, new compatible cores, new remanufactured cartridges, or any cartridges that may infringe valid intellectual property rights. Similarly, the European Toner & Inkjet Remanufacturers Association (ETIRA) shortly after issued its “Guide to Clones”, while Italian website AcquistiVerdi.com published a post that helps distinguish between clones and remans, as well as tips on how to recognize a clone with regard to price, time-to-market, and wear-and-tear.
However, even with continuing education and adoption efforts, it’s unlikely that the approval of this definition is going to cause any significant change in the short term. Even in the long term, it is expected that there will be companies that are unaware of the standard, and even some who simply choose not to participate. However, regardless of the far-reaching effects of the standard, the BSA’s efforts should certainly be commended, as it represents progress toward a unified goal.
HP’s New Supplies Distribution Policy Goes into Effect
There has been a lot of hype recently around HP’s supplies distribution policy change, which went into effect on November 1, 2013. Ever since the change was announced in May, many have speculated about whether it’s going to disrupt the supply chain or not be as big of deal as others are making it out to be.
So, what’s changed?
At the beginning of this month, HP changed the classification of its Inkjet, LaserJet, and large format cartridges from “open” to “authorized”. What does that mean for anyone that wants to sell them? They are now required to have an HP U.S. Partner Agreement or U.S. Consumer Reseller Agreement, otherwise distributors won’t sell to them…or at least they aren’t supposed to. The responsibility for that verification now lies with the distributor, but we’ll get to that later. Because supplies are now classified as authorized products, the other BIG part of this change is that resellers can now sell only to end-users. This contrasts with open products, which partners can sell to any customer or reseller, as long as they are not an HP partner, distributor, or authorized HP reseller.
HP cites a number of reasons for its policy change, including better relationships with resellers, improving customer satisfaction, and simplifying its distribution structure.
HP continues to reiterate that the policy change is to improve relationships with the second-tier channel for its supplies, which will allow HP to provide better support and training, and ultimately a better customer experience. It is through those improved relationships that HP hopes to maximize its opportunities to push genuine HP supplies, including through the use of rebates or other incentives. Increased focus on getting customers to use genuine supplies could also be an effort to help return positive growth to its supplies revenue, which has seen a steady decline for almost two years (with the exception of Q2 2013).
HP states that another primary goal is to simplify its distribution structure and reduce the number of exchanges between the distributors and end customers. Although not expressly stated by HP as a reason for the change, requiring resellers to only sell to end users is expected to also help control gray market activities. Gray market supplies are often sold a number of times before reaching the end user, and the more times a product is sold, the more difficult it is to track its origin. By requiring resellers to sell only to end users, aside from ensuring that a greater proportion of supplies received by customers are genuine, there is also a greater chance they will be able to trace where any gray market items originated. HP will also exercise its right to end agreements with resellers that sell to anyone but the end user.
It is expected that HP will lose a portion of its reseller base due to these changes, as it is not likely that every organization previously selling genuine HP supplies secured an agreement by November 1. However, because HP’s partner network is extremely large to begin with, the company doesn’t appear to believe that it will cause a large enough impact to be concerned about. HP might even be trying to eliminate certain resellers. Although the company’s relationship with Amazon for printers and supplies ended earlier this year*, it may be targeting other online-only merchants, or resellers that make bulk sales to sites like eBay. Online channels are growing significantly and offering lower prices or lower-priced alternatives than consumers can find in store or from a physical reseller. By reducing the overall pool of resellers, especially ones that significantly undercut prices and/or offer huge selections of even lower-priced non-OEM alternatives, HP is reducing competition for its authorized partners. As a result, those resellers will able to improve their margins, as they won’t be competing with as many other sellers. Authorized resellers may even see an increase in business from customers whose genuine HP supplies reseller elected not to become authorized.
HP’s move could also have effects on the aftermarket, though at this point it is unclear whether those effects will be more positive or negative.
On one hand, you have resellers that will choose not to sign up as an authorized reseller. For their customers that have an installed base of HP printers, they will only be able to offer non-OEM HP supplies. This may not affect the reseller to a great extent, as many already prefer to sell non-OEM supplies over OEM because they are more profitable. For the customer, if they were not previously a non-OEM user, they will now have to decide between trying non-OEM or seeking an authorized HP reseller. This could ultimately result in the conversion of more customers to non-OEM supplies, thereby positively affecting the aftermarket.
On the other hand, an auditing clause in HP’s partner agreement gives the OEM the right to audit a reseller’s performance. Many are concerned that it will limit their ability to sell third party supplies, though HP states that it can only monitor the performance of HP products. The concern is not unwarranted however, as we saw in 2007 how HP successfully convinced Staples to remove its Staples-brand HP compatibles from shelves.
Lastly, as previously mentioned, distributors will now be responsible for ensuring that resellers wanting to carry HP supplies have a valid agreement with HP, whereas before they could sell to anyone. Although this may be seen as an extra burden for some, it hasn’t stopped new distributors from partnering with HP. Last week, the OEM announced a new supplies distribution partnership with technology wholesaler, Digitek, who has decided that any additional burden created by the extra verification steps are worth what it expects to gain from the relationship.
In the end, HP is following actions long in place by other vendors, such as Epson and Lexmark, who already require resellers to sell only to end-users. That’s not to say that we aren’t going to see some impact from this. We may see some effects on the aftermarket, likely more positive than negative as resellers without agreements increase their offering of aftermarket options. It’s also expected to benefit HP resellers, or at least their margins, as well as HP, who will be putting more effort behind its overall goal of placing genuine HP supplies into its installed base. Either way, it’s something that will continue to be monitored by the channel and ultimately, something that HP has decided will be of greater benefit in the end than any negative impacts reflected in the short term.
*HP cartridges are still available from Amazon’s third party reseller network, but not directly from Amazon.com.
The Effect of Consumables Structure in Low-Volume Print Environments
When it comes to choosing a laser printer, there several factors to take into account, including “How much does the printer cost? How much do the consumables cost? How many consumables do I have to buy?” The answers ultimately depend on factors including budget, expected lifecycle of the printer, and expected page volume. But the type of consumables can also play a significant part in the ultimate cost of printing over time and should be considered at the time of purchase, especially in low print volume environments where costs reduction is a priority.
Laser printer manufacturers currently offer two cartridge structure types: all-in-one (AiO) and separated cartridges. All-in-one units provide both the toner and the imaging drum in a single cartridge, while two-piece consumables offer the toner and drum as individual components. While some manufacturers choose to offer only one type of supplies in the low-end (SOHO and personal) monochrome segment, a trend recently emerged where others are modifying their cartridge strategy for these users.
A notable case is demonstrated by Samsung and its new Xpress and ProXpress printers and MFPs that specifically target lower-volume users. Most of the OEM’s devices for these users feature an all-in-one cartridge, but several of the latest SOHO-class models offer consumers a two-piece consumables structure. While Samsung offers this structure in a number of its other higher-volume devices, it is a first for the vendor in that segment. Interestingly, Samsung is also testing both cartridge strategies simultaneously by launching two versions of the same device whose primary difference is the use of either an AiO cartridge or separated consumables.
So what would motivate this type of change, and which system is better for the end user? There are pros and cons to both systems, depending on the intended usage, but selecting the correct system for the user’s estimated print volume can ultimately lead to greater cost savings.
All-in-one Cartridges – In general, all-in-one cartridges are more convenient, as the customer only has to stock and replace a single unit. For larger organizations with high print volumes, AiO cartridges can also eliminate the time spent on changing the drum separately from the toner. However, it should be noted that for SOHO segment customers that have a low print volume to begin with, the convenience of an AiO cartridge would not likely motivate a purchase decision as these customers would probably only have to replace a separate drum unit once or twice during the life of the printer, if at all.
Possibly the biggest advantage of an all-in-one cartridge is that it can provide a lower cost per page (CPP) (and ultimately a lower total cost of ownership) compared to separated cartridges. However, the user would have to generate a print volume high enough to require replacement of the drum cartridge to achieve the savings (if they instead had a comparable printer with separated consumables). Making that extra purchase of a drum unit can result in a higher total cost of ownership if the drum is replaced just once during the life of the printer. Even if the two-piece-cartridge-based printer configuration costs less up-front, the cost of the drum can erode the savings generated by purchasing a lower-priced printer.
This is demonstrated by comparing the total cost of ownership of Samsung’s recently launched Xpress SL-M2820DW (which uses the 3,000-page AiO MLT-D115L cartridge) and Xpress SL-M2625DW (based on the use of the 3,000-page MLT-D116L* high capacity toner and 9,000-page MLT-R116 drum). Although the Xpress SL-M2825DW has a lower up-front cost (based on Samsung’s ERP), replacing the drum cartridge just once during a three-year lifecycle of the printer (and 500 pages per month) results in a TCO of $622, which is roughly $46 more than the TCO of the AiO-cartridge-based Xpress SL-M2820DW**.
Separated Cartridges – On a purchase price basis, separated cartridges can be more cost effective for the consumer than AiO units, as the toner is sold separately and does not include the cost of the drum components. As previously mentioned, two-piece consumables are especially beneficial for low-volume SOHO users because these users typically have such low print volumes that they rarely replace the more costly items like the imaging unit. Additionally, most SOHO customers consider the purchase price as a primary factor related to a printer and/or cartridge purchase, so a lower-cost toner-only cartridge that also reduces cost per page over the life of the printer compared to an AiO cartridge (assuming the drum is never replaced), is likely to be more attractive.
This is again demonstrated by the same Samsung example as above. If the user of the Xpress SL-M2825DW never has to replace the drum and only purchases individual D116L toner cartridges throughout the life of the device, the total cost of ownership drops to $563, roughly $13 less than that of the Xpress SL-M2820DW.
An additional benefit of separated cartridges is the reduction in waste. If one of the components develops an issue, for example, if moisture gets into the toner cartridge and causes the toner to clump, it will most likely need to be replaced. Separated cartridges allow the user to replace only the affected component. AiO cartridges require the replacement of the entire cartridge, regardless of whether the yield of the other component is completely spent.
All-in-one Cartridges – For the manufacturer, all-in-one cartridges can offer several benefits. Because the all-in-one cartridge incorporates components of both the toner and the drum, they only have to produce one unit. This eliminates the cost of manufacturing an extra housing for the drum components. OEMs can also use the convenience message to attract high volume customers that replace consumables often, highlighting that an AiO cartridge can lead to greater productivity for the company.
Manufacturers can also capture a premium on each AiO cartridge from low-volume consumers, if the customer’s print volume is low enough that they would never have to replace a drum. The AiO cartridges can cost more than comparable separate toner-only units due to the added cost of incorporating the drum components, resulting in a small premium for the OEM every time the customer replaces the cartridge.
Separated Cartridges – Separating the toner cartridge (which costs much less to manufacture) from the more expensive components in the imaging unit allows manufacturers to be more cost competitive by reducing the end-user price of its individual toner, increase margins on each cartridge sold, and realize greater profit from the sale of any individual drum units.
Because the separated toner and drum cartridge can result in a lower total cost of ownership for low-volume home and small office users that would only ever purchase toner, the manufacturer can also use that low TCO message to target potential SOHO customers.
Samsung’s shift to two-piece consumables in the low-end segment was likely motivated by a number of decisions, including the desire to be more competitive in the SOHO market and to expand its potential customer base by offering a wider variety of consumable options to these customers. While the vendor’s strategy of offering two versions of the same printer model, each with a different consumables structure may create confusion as to why there are two versions available in the first place, it could also lead to shoppers becoming more aware of their print habits and seek out the best solution to lower costs.
*although a lower capacity D116S cartridge is available, the D116L cartridge was used in the comparison because it has the same yield as the D115L AiO cartridge, which is the only yield currently available for its compatible printers. Samsung’s D116 series is also compatible with the Xpress SL-M2625D, M2875FD, and M2875FW, while the D115L can additionally be used with the Xpress SL-M2870FW
**based on Samsung’s ERP for the hardware and D116 series consumables, and Staples retail price for the D115L cartridge, as Samsung’s ERP is not available for this item.
An E“value”ation of Value Pack Offerings in Brazil
An interesting trend has developed in the Brazil laser supplies ecommerce channel since the start of the year. Since gap intelligence began tracking the segment in mid-2009, the number of dual and value pack* offerings has increased from 2 to 24, with most of the growth coming in the past two years. The trend has become even more apparent recently. The arrival of more than a few products per month into the Brazil laser supplies ecommerce channel is rare, so it is especially notable that the number of dual and value packs available from Samsung has more than doubled since January. And Samsung isn’t the only OEM bringing value packs to the region. Since January 2012, seven new value pack offerings from HP and two from Panasonic have hit the channel. Currently, half of the resellers in the gap intelligence Brazil panel carry value packs from the three aforementioned OEMs.
The total number of available dual and value packs has demonstrated growth of at least 50% per year since gap intelligence began tracking the channel. In all of 2012, nine products entered the channel and so far in 2013, there have already been four.
With such impressive growth, specific factors must be driving the demand for such products. The most likely reasons include increased demand from consumers, as well as a rise in the use of ecommerce to purchase products. Starting with consumers, greater purchases of value pack products could reflect a change in the mindset of Brazilian shoppers. The purpose of a value pack is to give consumers a bulk discount compared to purchasing the included products individually. Shoppers have to pay slightly more up-front, but the final savings is usually justified through lower long-term cost and overall cost per page. Other benefits of a value pack can include a reduction in the number of purchases, though this mostly applies to dual packs where the consumer would receive multiple units of the same cartridge. Because Brazilians are known for having more price-conscious mentalities, increased acceptance of higher-priced products would be a notable change.
The increase in the number of value packs online could also be fueled by a spike in the number of consumers using the internet to make these types of purchases, leading OEMs to focus on expanding their presence in a variety of channels. Additionally, with the government’s push to expand broadband Internet access through the Programa Nacional de Banda Larga (PNBL) to those that do not yet have it, more Brazilians are gaining access to the internet, and as a result, shifting some of their purchases to this channel. However, because Brazil’s weak infrastructure makes transportation of goods difficult, the IT channel is likely to remain less-frequently used than physical locations, at least for now**.
Despite these obstacles, online purchases in Brazil are rising. The market volume of Brazilian ecommerce grew by 20% annually to $22.5 billion in 2012, according to Brazilian firms e-bit and Buscapé. According to the companies, the average ticket increased from R$338 ($170.39) in the first half of 2012 to R$346 ($174.42) in the second half of the year, attributable to promotional activities and greater sales of higher value-added products, such as smartphones, tablets, and notebooks, in the second half of the year.
One of the most notable examples supporting a shift in the Brazilian market is the arrival of a new Samsung dual pack in Brazil in IT channels roughly two months before the US. A new product debuting in Brazil prior to the US is quite rare, unless it is designed for that market, largely due to challenges with importing, taxes, and infrastructure. The fact that a higher-priced product was first pushed into a market where consumers have traditionally placed greater emphasis on price could demonstrate that there is actually a higher demand for these types of products, and that OEMs are looking to better support that demand.
*For all-inclusive purposes, any mention of “value pack” also includes dual packs
**It should be noted that physical storefronts remain the most popular shopping destinations in Brazil. In-store, consumers can find a much wider variety of extremely low-priced bottle refill options, so it is unlikely that a greater presence of dual pack products online (regardless of the discount) will be enough to completely transform consumer shopping habits, but at the very least could reflect a shift in the mindset of consumers.
Opportunity for HP’s HotSpot Printer in China
Wireless capabilities have made a big impact on the printing industry. The technology allows us to print documents to a printer that could be on the other side of the world, as well as print from our mobile devices from virtually anywhere in the world.
Now, HP has introduced a printer into the Chinese market that not only offers wireless printing as a primary feature, but is a wireless Hotspot itself. According to HP, its new 7-in-1 monochrome Hotspot LaserJet Pro M1218nfs MFP is the world’s first MFP with wireless Hotspot capability. The OEM positions the MFP as ideal for home offices and small businesses (SOHO), as well as business start-ups, as it could eliminate the extra expense of purchasing an external wireless router. Though the concept would likely be accepted in developed regions, the device’s availability is currently limited to the emerging regions of China and India. However, outside sources speculate that the device will eventually reach the US and UK regions. The printer currently has a product page on HP’s Customer Care site in the US, though that could be the company’s attempt to provide supporting materials for the device in multiple languages.
There are a number of factors that could contribute to the HotSpot LaserJet’s success in China, including internet penetration and mobile usage, as well as acceptance among SOHO and start-up business environments.
According to data from the China Internet Network Information Center (CNNIC), China and India had the first and third highest number of internet users in 2011, respectively, making them logical choices for the placement of the device. According to recent figures, China’s internet penetration is also rising significantly. The CNNIC reported that the number of total internet users in China grew by 11% annually in June 2012 to reach 538 million. The country’s now 39.9% internet penetration rate sits just above half that of the US (77.3%), demonstrating significant opportunity.
However, not only has China seen a surge in internet connections, but mobility is gaining its own ground in the region. According to a Business Insider Intelligence report, the number of mobile users in China (388 million in June 2012) surpassed the number of broadband users in June last year after broadband connections contracted by 70 million during the trailing 18-month period.
Mobile phones also surpassed desktops as the device of choice for browsing the internet, according to the June data from the CNNIC. As a result, reports indicate that mobile devices and their declining cost will play a significant part in growing the country’s internet penetration, especially in rural regions. Mobility will be a key factor in the success of the HotSpot LaserJet in China. The more businesses that adopt mobile strategies, including the popular “Bring Your Own Device” (BYOD) policies, the better the chance that the concept will succeed. Similarly, if more people are connecting to the internet using mobile devices, the more likely they will want to print from that same mobile device.
HP’s device clearly caters to both the rise in internet and mobility with its internal wireless router and compatibility with multiple wireless print applications, including Apple AirPrint, HP ePrint, and HP wireless direct. Though the company highlights that the device can eliminate the need for an external wireless router, it can also benefit businesses with existing routers by providing additional coverage for a wider range while maintaining access to the printer. I think those of us that have experienced losing access while roaming about the house or office could appreciate such functionality.
A potential downside for small businesses is the HotSpot’s maximum capacity of eight mobile device connections, whether they are from a computer, smartphone, or tablet, whereas most routers have a much higher capacity. HP also noted that the HotSpot is not recommended for activities that generate heavy Internet traffic, such as P2P downloading and multiple concurrent video streaming…not that those are traditional office tasks. As such, the device would likely be beneficial for start-ups, which typically have few employees, as an initial internet hub. However, in larger environments, the HotSpot LaserJet would likely join an existing wireless internet network, which although helpful, would defeat the purpose of purchasing the printer primarily for its HotSpot capability.
The suitability of the device for home office environments is further supported by CNNIC data, which shows that most people (88.8%) in China accessed the internet from home in December 2011. Notably, the second highest number of respondents (33.2%) accessed the internet from the workplace in December 2011, though the figure is down from 33.7% in December 2010.
Other positive features of the HotSpot LaserJet include its compact form-factor (compared to other comparable MFPs), which creates a space-saving footprint and energy- and cost-efficiency. However, the device has reportedly rated low with regard to its heavy scanner lid, flimsy control panel, and lack of backlight on the LCD display. In the ideal environment however, the device ranks high in convenience by reducing the need to purchase, interact with, and set up another piece of equipment (router) and saving valuable office space.
Ultimately, users will have to decide whether the convenience of the integrated HotSpot outweighs price. HP’s HotSpot LaserJet currently lies in the middle of the price spectrum of monochrome laser MFPs in the China ecommerce channel. Consumers will be faced with the alternative choice of purchasing a lower-priced MFP with comparable functionality and external wireless router. Regardless of the device’s success in China, I don’t think that this is the last we will see of integrated HotSpot functionality.
HP’s New Ink “Advantageous” for Emerging Regions
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.
First Non-OEM Time-to-Market Analysis: Brazil, Russia, China
Third party consumables have long been an issue for original equipment manufacturers (OEMs), as their lower price points undercut OEM sales and their proliferation reduces OEM market share. In an effort to combat the rise in these third party (non-OEM) consumables, many manufacturers have developed efforts to promote the use of original supplies, most often touting their superior print quality compared to non-OEM options. However, despite ongoing attempts to curb the introduction of such supplies, compatible cartridges, and often new brands, continue to come to market, especially in developing countries like Russia and China. Though this trend is not seen to the same extent in Brazil as in the other two regions, it remains helpful to investigate as a comparison.
Lately, there have been a large number of non-OEM ink cartridges entering the ecommerce channel in Russia and China, but how many months did the OEM options have before the first third party version hit the market. There are some similarities between the three regions across different printer brands, though the time-to-market varies by product.
For example, on average, it takes longer for the first HP-compatible third party cartridge to reach Russia and Brazil, though they are among the first to reach China. Conversely, Canon-compatible cartridges take on average the second longest time to reach China and Russia, but take the longest to reach Brazil. This is supported by the fact that there are a number of non-OEM HP products in the Brazil ecommerce market tracked by gap intelligence, and none for Canon. Epson has one of the shorter time-to-markets for the first non-OEM cartridges, as well as the largest number of third party cartridges available in the ecommerce channel.
Overall, Brazil is definitely least affected by these products, with the some of the longest periods of time between the introduction of the OEM and first third party option. Brazil also has by far the lowest number of non-OEM consumables, and the fewest number of non-OEM brands per product in the ecommerce channel. When comparing the number of months for the first non-OEM cartridge by compatible brand, nearly all brands take upwards of a year, on average, to hit the channel, with Maxprint’s time-to-market coming in at around two years. Among the primary reasons for Brazil’s low penetration of non-OEM supplies are the greater difficulty of entering the market, increased taxes and regulations, and higher costs of entrance, and therefore a higher end-user price, as well as the fact that it is generally less developed than the other countries, particularly with regard to ecommerce.
In Russia, with the exception of HP, many on the first non-OEM consumables arrive in ecommerce after about an average of one year following the OEM version debuts. With regard to consumable brand, Goodwill is often one of the first to bring a third party version to the channel. This aligns with the fact that the brand also has the highest number of non-OEM consumables available in the ecommerce market. However, Cactus has one of the longest times-to-market for the first non-OEM and the brand still retains a sizable piece of the market in terms of ecommerce product placements.
Lastly, China’s large ecommerce market is saturated with a significant number of non-OEM brands, though only several brands are highlighted*. The China market has some of the shortest periods of time between the OEM and first third party option. China also has by far the highest number of non-OEM brands per OEM product, due in large part to the significantly greater number of non-OEM brands in the channel. In addition to the fact that China is a very open market with fewer restrictions and regulations, many of the world’s non-OEM cartridges are manufactured in the region, making it easier for them to enter the market. Interestingly, most times-to-market in this region are significantly lower than one year, compared to nearly two years for some in Brazil, illustrating the significant impacts that can come from different levels of development.
While further trends are needed to determine whether the gap between OEM and the first non-OEM cartridge is contracting, greater improvements in infrastructure (especially in Brazil) and advancements in technology will likely close the distance in the future, though third party brands will need to be especially cautious of OEM lawsuits and other legal initiatives. However, as long as non-OEMs remain outside of the patent infringement zone, it is likely the more affordable options will become a larger part of consumers’ lives in developing countries, at least until quality becomes a larger priority.
*The time-to-market estimates focused only on products that were isolated based on the criteria that both the OEM and first non-OEM options debuted in the gap intelligence ecommerce channel after August 2009.
Could Brazil Embrace the Refill?
Following recent investigation regarding the idea of refilling of a toner cartridge with a bag of powder toner and a funnel, it seems that the concept has continued to surface over the past several months. Things began with the launch of Ricoh’s SP 100 series of single and multifunction printers in China several months ago. The company introduced the compact, low-cost devices in December, aiming to attract more price-conscious buyers. (It should be noted however, that the device is not being pushed heavily through the consumer retail channel, meaning the device’s primary audience will be business customers). What intrigued me however was the concept of users refilling their own toner cartridge with a bag of toner powder, but seeing as how the device was developed specifically for China and possibly other developing markets, maybe there is a reason that this concept doesn’t exactly make me want to jump on board.
Then, last week, gap intelligence reported that Ricoh’s SP 100 devices were spotted on the U.S. Energy Star equipment list this month. It was highlighted that while the device and its refillable cartridges may not be ideal for the U.S. market, it possibly signals preparations for introducing the device in nearby regions like Latin America.
Being the Brazil market analyst, I started wondering how the refill concept would fare in the Latin American country. While not a new concept, it is still somewhat in its test phase in the low-cost compact printer segment, and was developed partially as a combatant to lower-priced third party supplies, which undercut OEM consumable sales and can potentially damage the printer. However, it seems that this concept just presents new opportunities for third-party vendors, who can jump in and simply make lower-priced, non-OEM refill toner bags, leaving OEMs back where they started. In response, it doesn’t appear that OEMs in these emerging regions are boosting hardware prices to let third party brands win on supplies…at least not significantly, if at all. However, there have been a number of introductions of higher-priced devices hitting the Brazil and China ecommerce channels since the start of the year, possibly signaling a different shift in strategy among manufacturers.
But back to the refill. As part of my research, I ran through some of the pros and cons of the concept and came to several conclusions:
Price – first and foremost, the most appealing part of this concept is inevitably the price of both the device and its consumables. As far as low-cost lasers go in China, the single-function Ricoh device is among only a handful of others from Brother, Fuji Xerox, Lenovo, Panasonic, Pantum, and Samsung in the sub-1,000 yuan ($158) price band (including VAT), making it ideal for price-conscious shoppers. At an average ecommerce price of 95 yuan ($15), or 81 yuan ($13) excluding VAT, the low-priced bag of refill toner is also highly attractive and is one of only about five OEM toner options below 100 yuan ($16) currently available from gap intelligence ecommerce resellers in China.
Environmental benefits – the company indicates that the refillable cartridge conforms to its environmental philosophies: Less packaging (bag vs. new cartridge) equals less waste. I don’t know that this would be a major deciding factor for price-conscious customers, but it’s certainly an added benefit.
Size – as far as laser printers go, Ricoh’s SP 100 series is fairly compact, which can be significantly beneficial in a business environment. At 402mm x 368.5mm x 119mm (15.8in x 14.5 in x 4.7 in), it is rivaled by very few laser devices currently present in the China ecommerce market tracked by gap intelligence.
Increased user interactions/time – consumers will still have to purchase the initial cartridge, which in the case of the SP 100 printers, is rated at 12,000 pages. The toner bags are rated at only 2,000-pages, meaning it will take six refills to reach the original yield of the cartridge, but the bag toner is more than one sixth of the cartridge price. The bag refill thereby negates the cartridge’s high-yield benefits by creating more printer user interactions for a greater price than purchasing a new cartridge. Additionally, by investigating user reviews in China, we have found that while consumers are enticed by the price, in the end, they are disappointed by the added complexity of refilling the cartridge themselves. So while the bag refills offer consumers a lower price up front for a reduced yield, the bag refill will actually cost shoppers more time and money in the long run.
Potential reduced yield – having consumers refill their own cartridge inevitably poses the
problem of accidental spillage. When I picture pouring a bag of toner into a funnel, I can’t help but picture being the person in the office that has to replace the jug on the water cooler. Everyone’s biggest fear is creating Lake Superior on the kitchen floor. Though it would be tough to spill the entire bag of toner, the potential for a little loss is a possibility, and could reduce the overall yield of the cartridge.
Potential health risk – speaking of spilling toner, I don’t think I need to go too far into why interacting with toner powder might be a concern.
The overall advantage of using a refill comes in terms of cost-savings, which in Brazil, remains a primary factor when it comes to purchase decisions. In a market where imported goods are highly taxed, customers are constantly seeking the lowest prices. If the Ricoh products entered Brazil at the current yuan price converted to Brazilian real (270 Brazilian real; $135), the products would remain among the lowest-priced laser printers in the Brazil ecommerce channel, competing with only a handful of mono lasers from HP, Samsung, and Xerox. Based on this, the devices would likely do well if brought to this Latin American market.
However, it will remain to be seen whether there will be a long-term adoption of the lower-priced refills, as they surpass the cost of a replacement cartridge when the yield of the original cartridge is matched. From my experience with the Brazilian market, consumers are looking to minimize cost wherever they can – for example, opting to make monthly payments for a product because it is cheaper upfront, even though the long-term interest accumulation boosts the final purchase price. This could mean that the short term monetary pros of the refill and low hardware cost could outweigh the aforementioned cons. But because the device has only been around for several months, it is difficult to understand what the long-term future of the concept will be and whether it will be embraced on a more global level.
“Tweet”, “Like”, and “Pin” Your Way into Emerging Markets
Over the past few years, and the past year especially, nearly everyone we know has learned to “tweet”, “like”, and “pin” things (for those of you who haven’t discovered pinning, visit pinterest.com and cancel your plans for the rest of the day). Social media has already had a significant impact on the way businesses in the U.S. (and other regions, but I’ll get to that later) market to customers. Companies can make tweets about new products long before they are ever advertised, post on Facebook and generate buzz, or attract customers with contests by asking visitors to “like” their company’s page. And the best part is that it’s all for FREE!
While adoption of these kinds of social media sites (with the exception of Pinterest) in the U.S. is no longer “new”, in emerging regions things are just getting started. Over the past year, there have been significant studies investigating social media use in countries like Brazil, Russia, and China, most of which indicate that social media adoption in these regions is skyrocketing.
The above Alexa traffic charts show the steady decline in the traffic rank and time spent on orkut, once Brazil’s largest social network, over the past two years. Facebook and Twitter are excluded from the charts because they cannot be narrowed to a regional URL and would have skewed the results.
Russia – The most popular social media sites in Russia include vKontakte (a site that is comparable to Facebook down to the color scheme and layout), Facebook, Odnoklassniki (a more basic and photo-centric social network), MoiMir (a social network that is integrated with mail.ru), Twitter, and LiveJournal. vKontakte remains the market leader in the country, followed by Odnoklassniki. Facebook however, continues to gain ground in the region against the two larger players, which is helpful for U.S. companies marketing to this region.
Twitter also recently teamed up with the Russia’s Yandex search engine to allow users to view Twitter posts in their search results, giving companies that Tweet information greater visibility to users that prefer the Yandex service.
The Alexa traffic charts demonstrate a relatively thin margin between the average time spent on vKontakte, Odnoklassniki, and recently-launched social site, Futubra, per day. Facebook and Twitter were again excluded because they cannot be narrowed to a regional URL and MoiMir is grouped in with mail.ru, which would skew the results.
China – Micro-blogging is taking China by storm. Nearly half of the country’s internet users are participating in these types of services, including China’s Weibo micro-blogging site, at which the number of visitors demonstrated a four-fold increase to nearly 250 million people last year.
While this growth is likely partially attributable to the government’s ban on Facebook in the country, the Chinese social media market remains rife with alternatives that continue to battle for the largest share of the market, including popular networks Youku (comparable to YouTube), Renren (social network), Tudou (video site), Weibo, and Baidu (web service platform).
The Alexa site traffic charts demonstrate that internet users spend the most amount of time per day on Weibo, which is not surprising as micro-blogging sites generally require more user interaction, while Baidu has the greatest traffic rank, which is likely attributable to its wide variety of web applications.
These kinds of statistics present an enormous potential for companies looking for new ways to bring their products and brand across borders.
The potential to be seen on a social networking site like Facebook, Twitter, or other comparable site is exponential. Personally, if a friend posts something that I find interesting, I follow it…and it costs the company nothing! Rarely do I see something on TV or in a print advertisement that makes me run to the computer to find more information (because the first thing I do when I see something interesting is search for it or visit the website), but I follow links on Facebook because I am already on a computer and its convenient! In fact, I tend to follow more links for things that I’m even mildly interested in when I’m browsing my news feed on Facebook BECAUSE it’s convenient. Additionally, companies receive further benefits (still for free) when people share, retweet, post, or pin something they liked from another friend’s page, thereby exposing that company/product to a theoretically new audience (assuming that person doesn’t have the exact same group of friends).
A company’s social media marketing relationship is also a two-way street. Not only can companies market themselves to consumers, but they can collect information about what consumers like, which can help them better tailor their products to a specific market. Should a site like Pinterest explode in emerging regions the way it has in the U.S. (where it is currently the 16th most popular site*), companies can see exactly what kinds of things that people in their region are interested in by what they pin to their pinboards, which are segmented by category. Similarly, entering a contest held by a company on Facebook often requires the user to allow that company to access their profile…meaning much of their demographic information and usage habits can be collected.
Just in the past two months, I have written about three new (or future) social sites in Brazil, Russia, and China, demonstrating that there is no shortage of these types of sites on which to market. In Brazil, ecommerce website Submarino unveiled its new integrated social media platform, the Submarino Digital Club, which aggregates social media content onto a variety of devices and encourages social interaction.
Similarly, in Russia, Mail.ru launched Futubra, a micro-blogging site that the company hopes will one day rival the likes of Twitter. In the first 24 hours of its launch, Futubra had already gained 17,000 users, though it still has some catching up to do to reach its competitor.
Finally, China’s Alibaba Group is reportedly working on its own social network, “Laiwang”, which it has compared to Google+, while Baidu (a local search engine) is in the midst of creating a mobile operating system and Android-based application platform.
Internet usage continues to grow in emerging countries, which is largely fueled by the growing popularity of social networking. We have come to an age where it’s hard not to be a part of social networking, and the companies that can respond to this shift are likely to be more successful than those that fail to acknowledge or act on it. Social media will be KEY for global expansion in the future. From 2012 through 2016, Bricdata believes that there is going to be a gradual increase in the proportion of marketing budgets delegated to social media.
However, companies will need to target sites in emerging regions differently. Just as the demographics of the people that use Twitter will vary from those that use Facebook or Pinterest, different types of users in Brazil, Russia, and China are drawn to different social networks. It should also be noted that these regions are likely to respond differently to marketing efforts via online social media sites, and users in some regions might not be so keen on the idea. According to a TNS Digital Life study (which is worth checking out), as reported by Latin Link, 53 percent of Brazilians would rather not be marketed to through social media, but 48 percent nevertheless view social media sites as a place to buy products, which results in a split audience. However, this will be true for any market and finding a balance will be the key to reaching consumers that are open to the idea and not bombarding those that oppose it.
*According to March 2, 2012 Alexa traffic data, Pinterest is the 92th most popular site in Brazil and 641th most popular site in China (compared to 94th and 650th on March 1, 2012)
Brazil Social Network Users Favor Facebook 01/27/2012
Alibaba Group Developing Social Network 12/22/2011