mind the gap: blog
“All I have learned, I learned from books [that I read in the gap Book Club]” – Abraham Lincoln
I’ve always heard that the human brain is like a muscle–the more you work it out, the stronger it gets. And no matter how weak or strong it is, there’s always room for more growth. On the flip side, it seems the latter is also true. The more we use our brains for mundane and passive activities, the more they atrophy and become increasingly dependent on routines to help get through the many challenges that each day brings.
At gap intelligence we hold the firm belief that we can’t grow as a company without nurturing an environment and a culture centered around learning. Years ago our employees put this belief into action and founded gap University in the spirit of team education–that each of us not only has something important to teach, but we also have many things to learn from one another. If we all knew what we all knew, then just imagine how much smarter and more successful we all could be!
In addition to gapU, there are ever more lessons to learn in business, management, leadership, innovation, and life in general. Many of these lessons are organized and written down in things called “books!” Surprisingly, books have been around for hundreds of years. Although they don’t have high-powered CPU’s, ultra-HD displays, or cutting edge mobile operating systems, they often pack a lifetime of knowledge into just a couple weeks of reading. Not bad for 15th-century technology!
So it is with great pride and excitement that I announce: we too at gap intelligence read books! Quite a few of them actually. In fact, this month marks the one-year anniversary of the gap Book Club, which is kind of like Oprah’s book club, except we don’t give away free cars and the books we select don’t become immediate best sellers. Still, our little club of gap bookworms has steadily grown in popularity, and we are without a doubt the largest contributor of gently-used books to the gap intelligence library, which now occupies two large bookshelves on the main floor at gap’s San Diego headquarters.
For those of you who missed the last few meetings, here’s a primer on some of the titles we’ve read and discussed over the past 12 months:
The Advantage (Patrick Lencioni): A practical guide on organizational health that encapsulates many of the concepts within several of Lencioni’s other popular books, including The Four Obsessions of an Extraordinary Executive; The Five Dysfunctions of a Team; Silos, Politics, and Turf Wars; and one of our favorites: Death by Meeting. Great cross section of topics centered around building winning teams, but more direct than his other books and not as interesting without all the fables!
The Lean Start Up (Eric Ries) had probably as great an impact as any book we’ve read at gap intelligence in the last year. A new way of approaching product design–especially software–that centers on customer feedback as early in the new product development cycle as possible and leveraging that feedback throughout each iteration of development. The Lean Start Up introduced new lexicon into our intra-office conversations; the term “MVP” (minimally viable product) now finds its way into our daily dialogues.
David and Goliath (Malcolm Gladwell) was one of the most entertaining and provocative reads of the year, thanks in part to Gladwell’s gift of the silver tongue. In simple yet elegant prose, Gladwell challenges our assumptions about what we think are advantages, how they are really disadvantages, and vice versa. As the title suggests, the book presents a multitude of ways in which underdogs prevail even when “common sense” dictates otherwise.
The Leadership Pipeline (Ram Charan, Stephen Drotter, James Noel) is one of those books that should be required reading for any Fortune 500 CEO or high-level manager within a large enterprise. Admittedly this one was not as applicable for those of us running a small or medium-sized business. That said, the book’s message still rings true–that time and time again the most successful companies are those that cultivate and grow leaders from within their own ranks. You do this by identifying future leaders at each level of management, assessing and planning their development, and measuring their results along the way. We’ll keep this one on the shelf and refer back to it a couple years down the road after we’ve moved up the Fortune rankings!
The Six Sigma Way (Peter S. Pande, Robert P. Neuman, Roland R. Cavanagh) is like a quality process engineer’s dream come true. This book is basically the “Bible” for those individuals seeking out green belt or black belt certifications with aspirations of implementing Six-Sigma quality initiatives. However, at 400+ pages long, it is not what we in gap Book Club would consider light, off-hours reading. In all transparency, this was not our favorite book of the year. In fact, it was probably our least favorite book of the year.
Conversely, I would highly recommend the yet-unpublished, but highly impactful “Six Sigma on a Napkin,” which was literally drafted on a napkin during a business lunch at our local Sammy’s Pizza by gap consultant (and Six-Sigma Black Belt) Jane Marshall. Jane is phenomenal by the way. Condensing 400 pages into a 4-step process diagrammed on a Sammy’s napkin is genius.
Kill The Company (Lisa Bodell) was also one of our favorite books of the year. It was especially timely after wading through 400 pages (and a napkin) about Six Sigma because the book promotes creative and innovative thinking–especially where process overload and status quo risk making our business and culture complacent. If I had to pick one word to describe this book, I would choose “provocative.” Thanks to a laundry list of easily implementable ideas for executive teams, managers, and all staff members alike, this is another book that has already had many impacts on our company. The most popular one so far: Kill a Stupid Rule. I count 5 stupid rules that we’ve killed just in the couple months since finishing this book, and each one has had a multiplier effect on improvement in culture, productivity, and positive attitudes.
Delivering Happiness (Tony Hsieh) came highly recommended because it tells the story of how a little startup produced amazing results and growth thanks to an unwavering focus on company culture and the value of happiness–happy customers and happy employees. This book did not disappoint. Again, another highly entertaining read if for no other reason than to ride along with Tony Hsieh as he describes the thrilling downs and ups of overcoming adversity and leading his little internet shoe store startup to greatness (and a billion-dollar payday selling off to Amazon). We found a lot of great lessons in here, as well as validation for what we at gap intelligence strive to accomplish on a daily basis. Our motto has always been: “Culture Comes First,” which for us is a huge differentiator to our employees and our customers.
If you don’t know what I’m talking about, check out last year’s holiday card, which we printed on actual card stock, signed and addressed with human hands and Sharpie ink, and mailed through the U.S. Postal Service (yes they still deliver snail mail) to about 1,500 individual clients around the world.
And lastly, The Tipping Point (Malcolm Gladwell) — OK, technically we aren’t done reading this one yet (our next meeting isn’t for 2 more weeks), but (SPOILER ALERT) the title pretty much gives it away. The Tipping Point is another Gladwell book that equates popular movements to contagious epidemics–but not necessarily in a bad way. The real purpose of this book is to help identify ways in which subtle, sometimes unidentifiable changes can have massive impacts–whether you’re running a marketing campaign, rolling out a new product, or like Paul Revere, riding from Boston to Lexington in the dead of night galvanizing American forces to rise up and fight against the British incursion.
That’s all for now, folks. In 2015 we’re hoping to post our reviews more regularly and even let you know what we’re reading next. If you’re feeling up to it, we’d even love to have more of you join us. As it turns out, time goes by pretty fast when you’ve got a warm book and a warm drink, which I hear works out well for our colleagues on the east coast buried in 3-feet of snow. Then again we live in San Diego, so what do we know!
Now & Then – A Month of Innovation
What do Benjamin Franklin, born in January 1706, and the Consumer Electronics Show 2015 have in common?
Benjamin Franklin is known for a lot of different things…he is among the Founding Fathers of the United States, a politician, postmaster, inventor, scientist, and much more. While he may be most known for inventing the lightning rod and bifocals, Benjamin Franklin got his start in the newspaper business where he eventually became the first paper merchant in America, helping to start 18 mills in Virginia and surrounding areas. It is an understatement to say that Benjamin Franklin, born on January 17, 1706, changed the world forever.
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Franklin was born in Boston, MA as one of ten children. When he was about 12 years old, he became an apprentice to one of his brother’s, James, who was a printer. Franklin grew to understand the printing business and trade through this experience. He eventually left his brother’s paper and in 1728 set up a printing house with a partner. He began publishing The Pennsylvania Gazette, giving him a platform to share his thoughts through essays and observations. The power of the paper helped earn him a significant amount of social respect, setting the stage for what was to come.
Franklin went on to become a successful author, evolved the science of population studies, and published the Gulf Stream chart.
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Franklin then went on to investigate electricity with his famous flying kite in a storm. While he proposed the experiment in 1750, it was not until 1767 in Joseph Priestley’s History and Present Status of Electricity that Franklin’s experiment was written up with credit to him.
Franklin then moved on to experiment with light, meteorology, and the concept of cooling, resulting in his letter, Cooling by Evaporation. Franklin went on to create one of the first volunteer firefighting companies in the country, and even printed a new currency for New Jersey using anti-counterfeiting techniques that he developed. He was a strong advocate for printed paper money and wrote A Modest Enquiry into the Nature and Necessity of a Paper Currency in 1729.
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And of course, Franklin eventually contributed and signed the Declaration of Independence and is forever commemorated on the US $100 bill.
So, what does all of this have to do with technology or anything happening today? Well, everything. Benjamin Franklin had his hand in many cookie jars as we have very, incompletely, summarized. The aforementioned innovations and ideas are just a few of the contributions that Benjamin Franklin made to the society we live in today.
This month, the analysts from gap intelligence attended the 2015 trade show. Benjamin Franklin was born almost exactly 309 years ago to the day and here we are, still experiencing innovations and new technological advances based on many of the discoveries and inventions that he discovered. Maps, refrigerators, paper currency, newspapers, weather patterns, it is all there! We may have GPS, smart fridges, Apple Pay, and weather apps now, but none of these things would be possible without all of that up front work by Mr. Franklin.
Liberty Station 4 Year gapiversary!
When I came for my first interview at gap intelligence in October 2009 I made sure to arrive early. My friend Aidan that referred me told me that gap’s office was located on the 3rd floor in downtown San Diego at the corner of 7th and C Street. That seemed easy enough to find since I lived near downtown. After easily finding parking, I headed to my first office job interview ever.
Walking through the palatial marble lobby bustling with people was intimidating. I headed to the elevators and hit the number three. As I watched the numbers light up in the elevator indicating that I was almost to the 3rd floor I felt nervous. My fingers were crossed that my business ensemble from Forever 21 was dressy enough to make a good impression. Being greeted by a massive fish tank as I anxiously stepped out of the elevator was unexpected.
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I wasn’t sure which door I was supposed to go in so I texted Aidan to let him know I was at the office. When I informed him that I was standing by a fish tank he called me right away since there was no fish tank at gap intelligence’s headquarters. Turns out the fancy fish tank filled office was the Merrill Lynch building. After further instructions from Aidan, I head across the street to the modest office building that was surrounded by homeless people. Aidan and I had a good laugh. Luckily they hired me despite being directionally challenged.
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7th and C was so close to my house I didn’t even have to take the freeway to get to work. I would cruise down Park Boulevard and end up right downtown. The office was bright and airy with huge floor to ceiling windows. There was free gated parking next to our office. As far as dining options near the office, they were certainly limited. This office required planning lunch wise. Forgetting to pack a lunch meant you’d be walking several blocks to grab something edible to eat. The worlds tiniest Starbucks was around the corner. As long as you weren’t claustrophobic you’d be able to tackle getting your caffeine fix.
Our office was on the outskirts of downtown which meant that there wasn’t a lot of foot traffic. Little foot traffic meant questionable characters loitering near our front street entrance. These questionable characters loved to make nests near our front door. Luckily most gappers used the side entrance adjacent to the parking so these nests could be avoided. When our CEO announced that we were moving offices and that our new home would be at the recently renovated Liberty Station I was super duper excited. I knew this would be a game changer and a HUGE upgrade even if it meant saying farewell to free parking downtown.
After working two years at the 7th and C office with little to no amenities, Liberty Station was a luxurious breath of fresh air. This month marks our 4th year and it’s certainly a milestone I’d like to celebrate! As I walked across the grounds of Liberty Station this morning I couldn’t help but appreciate the lush perfectly manicured surroundings. Like most people, I spend more time at work than anywhere else. I feel like we upgraded to a fancy college campus. On site at Liberty Station there are two grocery stores, a yoga studio, gym, fantastic restaurants, non-tiny Starbucks, hair salon, nail spa, dry cleaners, postal annex, hardware store, and even a golf course. Having so many incredible amenities steps from my office makes my life a million times better. Running errands is a breeze and I am so grateful that gap decided to make Liberty Station our home. Going to work is an absolute joy. I look back on the days of 7th and C and never ever EVER want to go back. Cheers to our 3 year gapinversay at Liberty Station! I hope we stay together 4 EVA EVA and this is our forever home!
gapForecast: What to Expect from the Print Industry In 2015
There are a lot of reasons to feel confident in what 2015 has in store for the print industry. The economy (at least in the US) is looking as strong as it has in recent memory, there are a number of interesting strategies and initiatives emerging, and many vendors in our industry are now posting solid profit and revenue growth. However, there are powerful technological and behavioral changes unfolding that will impact printing as we know it, and the real storyline for 2015 and the years to come will be the evolution of our industry in the face of these changes.
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With that, below are gap intelligence’s top predictions for the print industry in 2015. At the very least, I guarantee that these predictions are much more likely to come true than what the folks from Back to the Future II forecasted for this year.
gap’s 2015 Forecasts
- Lineups Continue to Balance
- The HP Split will be Fast and Change Everything!
- Inkjets Mean Business
- Get Ready for M&A!
- Toner-Out Gets Locked-In
- The Yen Boosts Profits and Pushes Down Prices
Lineups Continue to Balance
I told you these would be easy to predict! Looking back on 2014, one hardware trend was very clear, the copier guys are actively expanding their A4 portfolios and the traditional printer players are similarly trying their best to grow their enterprise-class lines.
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Last year, the segment expansion trend was most pronounced among the traditional copier manufacturers, as an amazing 45% of all BTA dealer-targeted office MFPs that launched were A4s, marking a clear shift from the 25% A4 / 75% A3 average ratio from the previous four years, and suggesting that these A4 investments in 2014 will lead to increased sales activity in 2015. Overall, the traditional printer players maintained a more A4-centric approach, but still continued to push their A4 lineups up-segment and up-market, while making a number of notable A3 additions.
Even if the balancing of MFP portfolios won’t get the same headlines as solutions or services, you can bet this trend will dominate hardware strategies throughout the next year for very old school reasons: In a contracting market, segment expansion drives growth, and as lineups expand, having a complete portfolio will be a competitive requirement – not a nice to have. The printer-based guys keeping their A3 lines to a minimum should keep this trend in mind.
The HP Split will be Fast and Change Everything!
Just kidding. Like HP’s recent acquisitions (although hopefully it will be more successful), the separation of HP’s Print and PC business into the new HP Inc. will be a gradual process with minimal tangible impacts on HP’s printing strategy and business structure until much later in 2015 at the earliest.
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That said, just about everything HP does has a major impact on the print industry, and there have been some changes brewing within HP Inc./HP PPSG/HP IPG/et al. for some time that are much more likely to influence the print market in the coming 12 months. In fact, perhaps HP’s highest-impact upcoming moves were tipped off within HP Inc.’s strategy briefing when the split was announced back in October.
Personal Systems – Although most of the print industry pays little attention to HP’s PC-related activities, the very purposeful use of “Multi-OS” in describing HP Inc.’s Personal Systems strategy should have set off alarms. We’re still the peripheral after all. The fact is, between Chrome growing among consumers and within key verticals, Android expanding both within and beyond mobile segments, and the OS possibilities of the Internet of Things, the need to connect way beyond the Windows OS has never been stronger. The print industry generally lags behind platform shifts (just ask the guys who built all of these BlackBerry print apps), so we’ll see how manufacturers adapt to the Multi-OS future this year, but it has to happen soon.
Printing – HP Inc.’s Printing strategic pillar screams “inkjet technology” (fast, affordable, engineered by HP = inkjet), and you can bet that 2015 will be highlighted by HP’s continued efforts to push its inkjets deeper into B2B channels and enterprise environments. There will of course still be a lot of laser activity from HP and we could also see some cool SMB-ready solutions as well as new and better ways to deliver service and supplies to customers, but once again, HP’s printing future looks very very inky. If this HP ink trend keeps up, maybe in 2016’s forecast we’ll write about Canon Inc. becoming the majority stakeholder in the newly spun-off HP Inc…..
Inkjets Mean Business
Good segue, right? As home printing continues to decline and the benefits of inkjet technology keep chipping away at the traditional laser value proposition, it’s hard not to see this one coming. By hook or by crook, inkjet print manufacturers/divisions are going to do everything they can to infiltrate B2B channels and customers in 2015. In the world of forecasts, this is a layup. I guarantee it.
After years of office inkjets bumping up against a $400 / 20ppm ceiling, the HP Officejet Pro X series expanded the business inkjet segment to $699 / 42ppm in 2013, carving out a double digit share of the A4 Color Small Workteam MFP market by 2014 on the strength of its astounding TCO advantages over direct laser competitors (see below). If that didn’t catch everyone’s attention, last year brought the world’s first $1k-plus enterprise-class inkjets with a similar low TCO value proposition. Also, looking at the current business inkjet MFP assortment (see below again), it’s easy to see how much lineup expansion opportunities still exist within the business inkjet segment, both within the existing $500 – $2,000 price range and eventually into higher speed/price bands.
Sure, these first and second generation business inkjets will face their share of adoption and performance challenges, and the laser guys have no shortages of reasons to naysay inkjet technology. However, given the initial success of the Pro X line and based on the strength of these inkjets’ exceptionally low TCO, these products are going to sell. And considering that business printing is pretty much a flat market, nearly every business inkjet sale is going to be at the expense of a laser-based product, making the need for laser vendors to shift from naysaying business inkjets to competitive responding to business inkjets a strategic necessity.
Get Ready for M&A!
At the very best, the office MFP industry is deep in its maturity phase, which is pretty good considering it’s been 76 years since Xerox invented and launched the first copier. However, this milestone still serves as a strong indicator that the MFP market is going to act its age in 2015, particularly in the form of increased merger and acquisition activity, targeting a few key areas:
Dealer Channel Acquisitions– For the larger and more sophisticated dealers, competitive acquisitions represent a core part of their geographic, capability, and account expansion strategies. Meanwhile, many of the dealers that have struggled/refused to evolve in recent years increasingly see being acquired as their primary exit strategy. Seems like a match made in heaven… Throw in a handful of expected OEM direct acquisitions, and it is all but guaranteed that 2015 will bring a surge in channel acquisitions.
Software Developer Acquisitions – A wise man once said, “software is hard.” It’s hard to develop software if you are small and don’t have the funding to do it right and it’s hard to justify developing your own software if you’re big enough to realize it can be a much safer investment to buy the small guys than try to develop software yourself. Because of these factors and because of the vital importance placed on solutions-led sales, expect a big target on software companies this year. It’s even possible that buyers not named Lexmark/Perceptive, Nuance, and EFI will be involved.
Adjacent Channel/Capability Expansion Acquisitions – Whether it’s Managed IT Services or ECM, the vendors and dealers that are paying attention know it’s time to diversify their revenue sources and differentiate their offering, and once again, that is going to mean more acquisitions outside of what was considered part of the MFP industry just a few years ago. I’m still trying to wrap my head around how many Managed IT providers the world’s SMBs really need or how many copier guys can trick themselves into adopting an IT mindset, but until we know the answers to those mysteries, expect adjacent-targeted acquisitions to play a major role throughout 2015.
Manufacturer Acquisitions – I’m actually not forecasting any major OEM acquisitions this year. That said, sometime in the not too distant future, it’s going to happen again. There are 15 legitimate multinational companies making and selling office printers and MFPs right now (18 depending on how you define “legitimate multinational”). I dare you to name any other mature industry with that kind of competitive population. Once again, more OEM acquisitions are going to happen.
Toner-Out Gets Locked-In
You have to feel for the printer-based guys. Transactional channels and the toner-out supply model do not exactly promote customer loyalty or allow for account control, and if you’re selling hardware at a loss (or at low margins), that’s a deal breaker. With that, it’s no surprise that the major printer OEMs are significantly increasing their investments in new programs centered around locking-in these customers, with a focus on auto toner fulfillment, a shift to new billing/metering methods, and even an increased openness towards slinging non-OEM toner.
Some may point out that the mechanics of auto toner delivery is far from new, as the non-OEM guys and supply distributors have been doing it for years, but the key difference here is a closer direct connection between the manufacturer and the once-transactional end user, even if resellers are still serving as the middle men or distributors are still handling the logistics.
I’ve been saying for a while that entry-level MPS is more about infrastructure than about the human and process elements vital to larger MPS deals, and programs like these are actually not too different than how small SMB managed print services is delivered, they just need some added assessment and optimization. In fact, for a number of vendors, these programs are positioned as the entry point (HP, Xerox, Lexmark) or even a core part (Epson, Brother) of their MPS continuums, making these programs both a strategic and financial priority for many OEMs.
Look for this trend to continue in 2015, and considering that the transactional toner-out market still represents a $30 billion-plus opportunity, it may be wise for the copier guys to start building out their own delivery infrastructure.
The Yen Boosts Profits and Pushes Down Prices
Two months after Prime Minister Abe and the Bank of Japan launched a round of new and more aggressive stimulus programs that would make even Tim Geithner squeamish, the yen is starting off 2015 with an unprecedented downward trajectory. This is great news for our industry’s many export-centric Japanese OEMs, and not so great for their US and Korean competitors.
While Japan’s stimulus moves have significant economic implications, it is important to note that the resultant weakening of the yen will also have a major impact on the print industry, which remains closely linked to Japan’s economy and currency. Roughly 67% of all active copier-based MFPs and 80% of all active laser printers in gap intelligence’s US Price & Promotions Reports feature engines made by Japanese companies, as the majority of printer and MFP manufacturers are Japanese and the key US-based players including HP, Lexmark, Xerox, and Dell source a large portion of their engines from Japanese partners (Canon, Fuji Xerox, Konica Minolta, Casio).
Short term, the weakened yen stands to help much of the industry, as Japanese manufacturers will see their revenue and profits rise, US and European subsidiaries and OEM partners will have more leverage in price negotiations, and vendors may have more capital to acquire and develop new service and solution capabilities. Meanwhile, the declining yen will likely create challenges for many non-Japanese players, who may face greater competitive pressures without the same currency factors to help offset price cuts and promotional investments.
To quote the only Yankee I’ll ever like, “It’s tough to make predictions, especially about the future.” That said, looking at these ongoing trends within the printing industry, even Yogi Berra might agree that the industry’s crystal ball is a bit clearer going into 2015.
Although a lot of these expected 2015 highlights could easily be viewed as attempts to grow share within a flat-to-declining market, the print industry’s challenges are certainly bringing forth some innovative responses, and we believe that this innovative spirit is what is going to drive ongoing success beyond 2015.
Super Bowl Stats Inspire how to determine if a Laser Cartridge is Remanufactured or Compatible
I love a good statistic. The numbers have such a way of drawing you in to make you read more, because what good is a stat without a fun fact behind it? This is a great time of the year for stats because the Super Bowl is right around the corner, and it’s impossible to watch football without hearing a couple dozen of them. I also have some Super Bowl stats of my own, for example:
This is the percent chance that I’ll be watching the Super Bowl this year. The percent that I care who wins has yet to be determined. Regardless of who plays, it hasn’t been high since the Chargers’ season officially ended, but I still enjoy watching the game and eating like it’s a holiday.
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But the point of this blog is not to talk about Super Bowl stats. The topic served as my inspiration from a timing and format perspective (think of this as a Super Bowl stat sheet), but what I really want to talk about is toner cartridge stats. A recent topic of interest I’ve encountered is the classification of cartridges as either remanufactured (where a new cartridge is produced using an empty cartridge that has been cleaned, parts replaced, and refilled) or new-build, a.k.a. compatible (where a new cartridge is manufactured using all new parts and components; henceforth, any reference to compatible will refer to a new-build compatible). While this would be an important “stat” to have, this type of classification is something we can’t currently provide for the thousands of non-OEM SKUs in the gap intelligence database because it’s really tricky to capture, as the information is not always provided or confusing language is used that makes the distinction unclear.
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Despite the confusing language, there are other indicators that can give you a good idea of whether a cartridge is remanufactured or compatible. While external wear or signs of usage on the cartridge itself can be a sign that the product is remanufactured, this is probably not the most accurate method since we’re not in any position to be purchasing thousands of SKUs just to look at the cartridge. This leads me to the next indicator that you can see before purchasing the cartridge: price! Along with price, it’s also important to take into consideration the channel in which the cartridge is selling, as that can have an impact on the final price. This is where the stats come in…
This is the ‘rule of thumb’ percentage that is used as a threshold to help determine whether a cartridge is remanufactured or compatible. According to this guideline, genuinely remanufactured cartridges are typically priced within 30% of the OEM price, while compatibles are often priced lower because they can cost less to produce and/or import. But I wanted to investigate just how good of an indicator this is using a cartridge tracked in our database, the HP CE285A. I chose this particular toner because it has one of the highest number of available non-OEM HP alternatives, as tracked by the gap intelligence online channel of direct ecommerce (online only DMR, think CDW, PCMall, etc.) and retail.com (think staples.com, officedepot.com, etc.) resellers*.
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This is the number of non-OEM replacements in the online channel (not including extended yield or MICR) available for HP’s CE285A SKU. Of the 28, I could reasonably classify 18 as remanufactured and six as compatible, while the remaining four were either unclear or did not give any indication.
This is the average discount off the price of the OEM CE285A delivered by the 28 available non-OEM SKUs. HP lists the CE285A for $68.99 and the average price of the 28 non-OEM SKUs is $46.97, resulting in the 32% average discount delivered by a non-OEM cartridge. Bonus stat: 32% is just under the average 41% price discount calculated across all non-OEM HP SKUs tracked in the gap intelligence online channel.
27%, 40%, 42%
These are the respective average price discounts off the OEM for the remanufactured, compatible, and unclassified cartridges. The average price across the 18 remanufactured cartridges came in at $50.38, while the compatible and unclassified captured higher $41.41 and $40 average price points. Based on these percentages, the remanufactured and compatible cartridges seem to be abiding by the 30% rule. This is also when my suspicions began about the unclassified cartridges being compatibles. But as previously mentioned, channel also plays an important part with regard to price.
This is the average price discount off the OEM for non-OEM cartridges available only from Amazon (not surprising since Amazon often carries the lowest prices). The channel with the next highest price discount, again not surprising, was the direct ecom channel at an average of 31%. Coming in with the lowest discount off the OEM were cartridges available only in retail.com or in both online channels (ecom direct and retail.com) at 22% and 21%, respectively. Based on this, it is clear that the channel and reseller can have a significant impact on non-OEM pricing.
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35%, 54%, 36%, 43%
These are the discounts off the OEM for the remaining unclassified cartridges from Print-Rite (retail.com), Performance Plus+ (Amazon), Printlogic, and QIP (Direct Ecom). While I don’t know for sure, I would classify all of the uncategorized cartridges as compatible, based on the above findings and considerations for pricing, channel, and resellers.
Of course there are always some exceptions. A couple of the remanufactured cartridges had discounts over 30% and a few of compatible cartridges had discounts under 30%, but most of them could be justified by also taking the channel into account. Ultimately however, the 30% price discount rule seems to be a reasonable way to help determine whether a cartridge is remanufactured or compatible, when used in conjunction with other considerations mentioned above. Like some football stats, at the very least the evidence suggests that it can serve as an indicator of what to expect. If only there was a way to use this to help predict the outcome of the Super Bowl… or is there?
This may or may not be the final score.
*gap intelligence online channel includes:
Direct Ecom: Dell Home, Dell Business, PC Nation, CDW, Sparco, Insight, PcMall, PC Connection, Amazon, Rakuten, and SuperWarehouse.
Retail.com: OfficeDepot.com, Staples.com, BestBuy.com, Frys.com, TigerDirect.com, MicroCenter.com, Sams.com, Costco.com, Sears.com, Target.com, and Walmart.com
Televisions and Black Friday: Like Peanut Butter and Jelly?
If you happened to hit the stores in the morning hours of Black Friday this year, you may have noticed that things seemed rather quiet. In fact, after the scrum of Thursday evening, Friday’s shopping hours seemed downright civilized. As photos and observations from gap intelligence analysts began filtering into gap HQ on Friday, I began to ask myself whether or not the “holiday” has the impact on TV sales that it once did. This year, stacks of bargain TVs still remained on store floors well into the week following Black Friday weekend, indicating that sales of the low-priced units were not as high as the stores expected. Despite these signs of unmet expectations, results after the fact indicate that TV sales did quite well over the weekend. In one example, Target reported selling 1,800 TVs per minute during its first hour of sales on Thanksgiving night.
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A look at in-print Black Friday TV ads gives us a hint about where manufacturers and retailers were placing their bets for the big event.
Manufacturers increased ad placements for TVs sized 50- to 59-inches this year, with 31% of all ads, a 4-point increase over 2013. Screen sizes in the 60s and the 40s also increased, to 22% and 21%, respectively, while ads for the largest and smallest sizes decreased. This tells us that manufacturers were expecting increased competition in the popular screen sizes between 40- and 69-inches this year, and that shoppers were hunting for bargains on primary, rather than secondary, TVs for their homes.
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Great TV deals could be had across the TV market, but I wondered how those incentives stacked up against each other. By looking at the average discount percent, I was able to determine that although Sony had the highest average discount by dollar amount ($564), it was actually sixth among manufacturers by average discount percent (28%). Samsung, who had the third-highest average dollar discount of $538, had the highest overall average discount percentage with 35%. In fact, Samsung so enthusiastically advertised its TVs for Black Friday that it accounted for 48% of all Black Friday print ads placed this year.
Manufacturers and retailers expected a boom in 4K UHD TV sales this year, and Black Friday ad placements followed suit. Ultra HDTV advertisements accounted for 10% of all ads in 2014, up from 4% in 2013. In addition, these ads tended to be more prominent than those for run-of-the-mill 1080p HDTVs.
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Despite a slight decline in overall sales for the weekend, TVs still remained high on Black Friday shoppers’ lists. Several surveys reported that low-priced TVs were the most sought-after deals this year, as they have been for several years running, beating out smartphones and tablets. TVs are big ticket, durable goods and are products that many people still prefer to purchase in-store rather than online, two aspects that lend themselves to attractive Black Friday deals. Will TVs survive Black Friday sprawl in the years to come? Absolutely. But we must prepare ourselves for intense competition over a longer period of time as the holiday shopping season expands to fill the space we grant it.
Want a Refill?
Over the last seven years, ink refilling has gone through some ups and downs, and as this point, it remains questionable how popular the non-OEM option will remain long term. As the service became more popular several years ago, national and regional retailers began offering ink refilling to customers in-store as a low cost option. Retailers were heavily promoting the service and refill machine manufacturers were looking for other ways to expand. Some of the most prominent advertising came from retailers such as Ace Hardware locations and Walgreens with their free refill days, aimed at growing their customer base. Companies like Ink-O-Dem found success installing machines in locations in various states at at a number of major universities. Meanwhile, franchises specializing in refills were also popping up such as Cartridge World and 123 Inkjets. In 2006, a report by Lyra indicated that office supply stores and drugstores would be the primary stations for ink refilling compared to specialty franchises.
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In 2006, new retailers were beginning to install refill machines in the hopes of capturing more sales for ink supplies overall. Walgreens rolled out refill services in 1,500 stores across the US, while Longs Drugs, Ace Hardware, and Staples, and Office Depot also began offering refills. With the popular new alternative to OEMs hitting stores with lower-than-ever prices, customers paid attention. Promotions were implemented frequently driving customers to at least try the method with free refill days or $1 refill days from select retailers.
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Refills were attractive for a number of reasons and primarily appealed to customers that were searching for the lowest cost alternative to an OEM. There was a considerable amount of press out at the time claiming that ink was the most expensive liquid on the planet. Some articles would compare an ounce of ink to Chanel #9 or oil to prove the high cost. The ink industry was put on the defense with the feat of explaining what justified the high cost of ink. However, this would take time and refills and non-OEMs would take advantage of the negative press around OEMs.
The growth of the refill market posed a challenge both to OEMs and remanufacturers. Remanufacturers, particularly those sold in the retail channel, claim to abide by quality standards and guarantee their products, while refills can be slightly less reliable. Store brands were arguably creating competition to their own private label remanufactured inks as store associates would offer refills as an OEM alternative.
In response, OEMs began investing more into defending their technology through Intellectual Property, as well as educating consumers. OEMs put out marketing messages defending their own products by explaining the technology behind ink cartridges and providing guarantees on high quality every single time. Many OEMs, particularly HP, commissioned studies to show that refills and non-OEM options were generally not as reliable in terms of quality as the genuine OEM product. Despite testing by the refill machine, the refill would often time not work, requiring additional interactions and efforts from the consumer to obtain the product that they need.
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In the past year, Walgreens, OfficeMax, and most recently, Micro Center have removed their ink refill capabilities from stores. Walgreens, which was among the stronger players several years ago, likely saw a decline in business from refill machines. The service required personnel training and time from employees to actually do the refills, which may have proved less valuable and efficient over time. OfficeMax’s move to get out of the refill business is likely related to the Office Depot acquisition as the retailers begin to consolidate. It should be noted that both non-OEM brands for remanufactured inks are currently still available at stores. Micro Center, which is the most recent to exit the refill industry, offered a vast selection of refill capabilities for the major OEMs with the exception of Brother. It is likely that Micro Center was not generating enough business to justify the cost of operation and maintenance on the refill machine.
Prior to Micro Center’s exit from refilling, the average discount of a refill (channel-wide) compared to OEM pricing was approximately 46%. This is in relation to the non-OEM (remanufactured discount) of approximately 40%, which is not necessarily drastic enough to convince customers to take the time to refill their cartridges, which are less likely to be reliable. Interestingly, refills for Brother and Canon inks were actually higher than the average price of non-OEM remanufactured options throughout the channel, on average, moving the difference between remans and refills to favor remanufactured products. It should be noted that Fry’s Electronics and Costco maintain their refill services at this time.
With the changing prices and quality issues associated with refills, even more so than remanufactured products, it is not surprising that many regional and national retailers are getting out of the refill game. OEMs are beginning to offer more alternatives to their own cartridges including HP’s Economy inks (Staples), as well as the company’s Instant Ink program. Epson has also released its CISS products in the US market, posing competition to non-OEM alternatives. OEMs understand that they are going to have to listen to the customer and adapt their own products to appeal to the mainstream customer to combat third party competition. As for the prediction of drug stores and office suppliers owning the refill market, it appears at this point that specialty franchise locations may eventually be the only places to get refills in the future.
While a number of mainstream retailers offered the service in 2009, it should be noted that specialty franchises will likely be the only refill option remaining within the next several years.
Office Depot Enjoys a Successful Honeymoon as Strategic Challenges Loom
November 5 marked the one year anniversary of the merger between Office Depot and OfficeMax. Following this milestone and the company’s quarterly earnings report on November 4, both Office Depot insiders and industry watchers have expressed a surprising amount of optimism despite Office Depot’s challenges.
There are many reasons to view the merger of Office Depot and OfficeMax as a smart defensive maneuver, enabling the combined chain to more effectively compete with brick-and-mortar and online rivals. Office Depot has laid out an aggressive strategy to expand margins and grow its business, and has so far executed on cost cutting plans to the cheers of the market.
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While the first 12 months as a merged company has provided an endless number of clear opportunities for progress and to tout early successes, the coming years will prove much more difficult. Facing countless competitive and secular headwinds, the retailer has to improve its core business execution, expand sales beyond its traditional customer base and sales channels, and reengineer its value proposition. One year into its merger, Office Depot’s recent honeymoon phase has nearly ended and pressure will only grow on its core business. As a larger and leaner company Office Depot is managing to survive at the moment, but if it underperforms in any of its strategic goals its already weak position in the market will only get worse.
Huge Successes and Fist Bumps
One-year into its merger, and despite a very long list of looming threats to its business, Office Depot’s CEO recently went out on a limb to describe its union with OfficeMax as a “huge success.” While this statement may be a bit premature, the company has good reason to be optimistic. Synergies in a merger of this size can generate a quick improvement in profitability, which in turn provides more resources to make strategic investments and can produce an appreciation of its market value. Meanwhile the company’s larger combined scale is very much a competitive improvement in a consolidating market.
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Since it merged with OfficeMax in November 2013, Office Depot has made cost reductions a cornerstone of its near term strategy. This strategy has taken shape in the form of 400+ store closures through 2016, a plan to reduce store footprints, a focus on eliminating supply chain redundancies, divesting business abroad, trimming expenses such as advertising, and aligning its in-store and online operations, among other initiatives.
So, has this strategy worked? Is the company as successful as it believes? Wall Street is certainly bullish on Office Depot’s new direction. The company’s shares have been on a tear, appreciating more than 300% since an August 2012 low. Expectations for Office Depot were set so low, pricing the chain at one of the lowest multiples among its peers, that any bit of positive news, however expected or forward looking, now seems to garner industry-wide praise (often from value investors) and likely a few fist bumps at Boca Raton HQ. Just last week, Office Depot announced that its adjusted operating income in Q3 more than doubled to $126 million on planned cost reductions. But sales also dropped once again, this time down 4% as foot traffic continued a steady decline, and (logically!) Office Depot shares have since jumped about 25%.
Back to Reality
Having clocked one year since its merger became official, Office Depot’s grace period with its investors, customers, and employees is nearing an end. Despite a number of wins in recent months –increasingly optimistic cost savings forecasts, healthy margin expansion, restructurings and divestitures in the U.S. and abroad – there is no shortage of challenges facing Office Depot today. Many of its core products are in secular decline, customer purchasing habits are rapidly changing, and the chain’s competitors all have at least a few years head start in reinventing their own businesses.
As Office Depot steps forward into its second year as a combined company, the chain needs to move beyond its focus on business synergies and address the long list of difficult decisions that will shape how the company evolves to meet changes in the market. The summary below outlines some of the most urgent problems facing Office Depot in the months and years ahead:
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Future Direction Uncertain – Office Depot continues to shy away from disclosing the details of its long-term growth strategy, a major portion of which is its “Unique Selling Proposition” or USP. Office Depot has provided almost no clarity into what this USP will look like, even though it’s the primary driver of the chain’s future differentiation in the office supply industry and will dictate future target segments. The USP will likely bring massive change to Office Depot, as it will determine who the company will target, through what channels, with what products, and at what price points. USP rollout isn’t planned to begin until late-2015 and into 2016, which is an eternity in the retail channel and likely too long for employees and customers to wait without more transparency into what the USP really is. Office Depot needs to communicate its USP as soon as possible and demonstrate that is can evolve beyond its worn-out office supply business model.
Lack of Innovation Engine – Can two underperforming office supply chains really combine to make one that is more competitive and innovative? The two merged companies’ underlying business models are nearly identical and Office Depot’s top leadership appears to have little experience in ecommerce or business services, which are two major components of Office Depot’s growth strategy. As it looks to dramatically reshape its business model, Office Depot needs to enlist the aid of outside experts that can help it navigate the strategic and tactical development of its ecommerce platform and services delivery.
Lagging Behind Competitors – If Office Depot’s strategy sounds familiar, it’s because a good portion of it is straight out of rival Staples’ playbook: store reductions, smaller stores, a redesigned in-store concept, online assortment growth, improved online storefront, expansion into adjacent product and service segments, omnichannel go-to-market, etc., etc. Facing unprecedented changes in the market, many retailers have been developing these initiatives for at least a few years, and in the case of Staples the chain has already executed many of these ambitious goals. While these are smart strategic goals for Office Depot too, the chain is at least a few years behind its brick and mortar competitors, underscoring the urgency needed to begin executing change. Any further delays will hurt the chain’s ability to maintain share and develop competencies in services and new product categories where it does not currently have a presence.
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Slow Store Alignment – Here at gap intelligence, we pride ourselves on our comprehensive knowledge of the market, the players, and the 4Ps of marketing – what we like to call the forest, the trees, and the leaves. Understanding each element is crucial to providing our clients with timely and accurate market intelligence. A closer look at the leaves of this merger reveals that there’s still work to be done.
Office Depot’s latest earnings report states that the chain has already aligned its assortments, its SKU systems, its rewards programs, its in-store execution, and so on. Now, compare the assortment of an Office Depot to an OfficeMax (differences still exist), try to use an OfficeMax gift card at Office Depot (you can’t as of late-Oct.), or ask a store associate about how the merger will affect you as a customer (they typically don’t know). Despite the chain’s assurances, many tactical elements of the merger have not progressed as smoothly as promised and need to be addressed before it affects already dwindling store traffic and the confidence of the brands that sell there. If Office Depot cannot get the blocking and tackling of the office supply business correct then surely more ambitious goals are likely to fail – the chain must execute on store alignment immediately.
Declining Foot Traffic and Product ASPs – Office Depot shares a common problem with many other retailers: less customers are visiting its retail locations each quarter. And while Office Depot reported flat purchases per customer in Q3, its ability to maintain average order values in the future is in question. Like rival Staples, Office Depot is very exposed to product categories that are in secular decline, such as printers, toner/ink, PCs, and other office supplies. Previously important categories such as digital cameras have all but disappeared from shelves and likely have a very diminished impact on the chain’s sales.
The chart above paints a clear picture of a major problem in Office Depot’s current product mix. Average selling prices at Office Depot continue to decline across most hardware categories tracked by gap intelligence. Coupled with declining foot traffic, Office Depot will be hard pressed to generate retail sales growth with its current assortment. Investing in its online presence (in addition to B2B direct) is a natural route to pursue growth, but that too has its own challenges that include lower margins and a hostile competitive environment where customers have a low barrier to switching resellers. Differentiating itself online and generating profitable growth is surely one of the most challenging obstacles facing Office Depot today, an obstacle that is only compounded by the retailer’s late entry.
Time to Execute!
Again, the near term opportunity to execute on merger synergies is good reason for Office Depot to be optimistic. The combined company is stronger together and the market has validated this with a strong increase in share price and patience in the rollout of its long term strategy. But, streamlining operations and improving profitability is just the first piece of a much more uncertain strategy that will play out through 2017 and beyond.
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The channel is experiencing change at an unprecedented rate and Office Depot’s competitors are becoming larger, more diversified, and more responsive to customer needs every day. For Office Depot, time is of the essence. The chain will benefit itself, its customers, and its vendors if its moves sooner rather than later to execute on its growth strategy.
Vendors Target On-the-Go Professionals with Mobile Inkjet SFPs
As a declining number of users are printing at home, inkjet manufacturers are working to grow sales of inkjet devices by focusing their efforts on other new segments. While inkjet manufacturers have found an opportunity for growth in the business inkjet AiO segment, vendors are also focusing on the mobile inkjet SFP market to target on-the-go professionals who may benefit from a portable and lightweight mobile inkjet printer.
For more than one decade, Canon and HP have competed head-to-head for sales in the segment. However, competition has grown since Epson this week launched the WorkForce WF-100, the vendor’s first mobile inkjet SFP. Epson’s introduction of its WorkForce WF-100 and Canon’s recent refresh of its popular mobile inkjet SKU (PIXMA iP110), in addition to growth in the mobile workforce, suggests that there is at least steady demand for portable printers that likely appeals to a number of different user types.
While mobile inkjet SFPs may not provide customers with the lowest printing costs or the fastest print speeds, the models do offer A4 printing in a compact design. With their portability and lightweight form factor, the models mostly target customers such as sales professionals, real estate agents, and delivery service people. Although the products may seem like a solution for on-the-go printing, a noteworthy limitation may be the low number of pages that can be printed per charge.
For customers who are looking to purchase a mobile inkjet SFP, models can be found in the retail channel where they maintain a very limited shelf presence, while the majority of purchases are made through B2B channels. Mobile inkjet placements currently account for 30% of the total inkjet SFP assortment at the OSS chains, and it is worth noting that the segment only accounts for 3% of total inkjet placements (SFP and AiO) at those retailers.
While Epson’s entrance into the mobile inkjet SFP market shows that inkjet manufacturers still see an opportunity for growth in the segment, placements of the WorkForce WF-100 will have little effect on retail shelf. If the product gains placements at Office Depot / OfficeMax and Staples, mobile inkjet SFP shelf will grow to 7% of overall inkjet placements. Looking forward, retailers and vendors may grow demand for the mobile inkjet SFP market through promotional activity. Over the last year, mobile inkjet SFP ads have accounted for roughly 37% of all inkjet SFP advertisements.
The mobile inkjet SFP segment is unique given that inkjet vendors sell these products in a niche market for customers who require on-the-go printing. In contrast, the majority of inkjet SFP purchases are made based on low acquisition prices, as well as the minimal printing needs of these customers.
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Given the growing number of remote and mobile workers, it is certainly possible that the segment may see growth in the near term. With that, inkjet manufacturers are expected to focus their efforts on the niche mobile inkjet SFP segment in a likely attempt to maintain sales in the declining inkjet SFP market.
gappy Tumblr 5: How to be Zen
September 22nd marked gap intelligence’s second yoga challenge at Yoga Six in Point Loma. A handful of gappers have been committed gap-yogis ever since last October’s yoga challenge, including yours truly. While I was a skeptic of yoga in the beginning, I’ve learned to love it and all the health benefits that come from it; ranging from toning the body and increasing flexibility, to feeling mental clarity and relaxation even during the most stressful parts of the day.
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I’ve officially been practicing yoga for a year, and I’ve found that my mentality is very different whether I’ve done yoga that day or not. Am I Zen? Or am I not Zen? Below are a compilation of some Zen and not-Zen reactions to certain events before I’ve done yoga versus after doing yoga:
Wrapping my head around a new project:
Before yoga: You want me to do what, exactly?
After yoga: Cool, I think I can come up with something…
On indulging my sweet tooth:
Before yoga: When did my clothes shrink?
After yoga: Hello, candy!
Before: Touch my toes? Yeah, right.
After: I’m a stretchy machine!
On making mistakes:
Before: Oh no, I’m worthless.
After: What would Yoda say?
On feeling focused:
Before: Second coffee isn’t cutting it.
Dealing with the gap kitchen:
Before: Tripping on my way into the kitchen:
Before: Trying to figure out how the psychotic light switches work:
Before: Leaving food in the toaster oven and someone telling me the kitchen is starting to get smokey:
After: That kitchen can’t bring me down!
On people who take things off my desk:
Before: I NEED all 10 mugs on my desk!
After: Sharing is caring!
On dealing with surprises:
Before: My deadline is in 5 minutes? Surprise!
After: 5 minutes? No biggie.
On misunderstanding a formula:
Before: Just when I thought I’ve fixed a formula forever, then it totally blows up in my face the day before the end of the quarter:
After: Take a deep breath, kid.
On dealing with people asking about my sports team losing:
Before: Do I want to talk about why my team lost?
After: I got good sportsmanship in the bag.
Going to work:
Before: What? Did you say something? Still sleeping.
My advice: Go to yoga once a day and you can learn to be totally Zen in every situation. Or at the very least go to get an amazing head massage: