Office Products Resellers and the Battle to Increase Market Share

Independent office products and supplies resellers have been on the defensive for a long time. Entrepreneurs who started 25-30 years ago as laser and then ink took over the office imaging industry, figuring out the only way to participate was to recover used toner and ink cartridges and then offer a value proposition based on refilled cartridges, which was the height of entrepreneurial spirit.

Of course, times have changed, and few of these entrepreneurs are still remanufacturing cartridges. The technological challenges to do so are formidable, the range of products in the market is vast, and there's no consumer tolerance for poor quality. Today, the only way to survive in the aftermarket is to rely on the remaining larger-scale manufacturers with the resources to invest in research and development, intellectual property, sophisticated quality controls, and partnerships with high-quality component suppliers.

The industry has consolidated and continues to do so at an ever-increasing rate. The OEM business model continues to rely on low-priced hardware and high-priced supplies. With an annualized global market of around $50 billion for ink and toner, the fight for market share and a portion of the profit dollars is intense.

However, despite all the hurdles facing the smaller independent office product resellers, the OEMs and the traditional distribution channels are vulnerable. OEM operating margins are relatively slim, and the two leading retailers and B2B contract stationers (Office Depot and Staples) are burdened with the expenses of excess retail space and leases that may only be terminated through last-resort bankruptcy proceedings and other downsizing measures.

Hewlett Packard has split into two separate businesses, with HP, Inc. now focused on PCs and printers. Overall, HP, Inc. reported a solid fiscal 2016 Q3 on August 24. However, the main driver of its performance was strong PC sales, while its printer division lagged seriously behind. Since printer supplies generate most of HP's earnings, this could become a severe problem.

When a company of HP's stature is then motivated to shoot itself in the foot and risk a global backlash by triggering a firmware update to turn off third-party ink cartridges, you have to ask yourself if this was motivated to prop up market share on a vital part of its business, or to simply send out a reminder that aftermarket products cannot be relied upon - in this case, for their self-serving reasons!

Either way, it looks like an act of desperation to risk the brand with such a misstep that, in turn, quickly led to a humiliating public apology and climb down.

With net income in the range of 6% or so, and a disproportionate share of this income coming from ink and toner, HP, Inc. doesn't have much room for a protracted fight for market share based on price. Instead, other tactics, perhaps like those just described, may be expected to be increasingly used to try and prop up their sales.

Many know an OEM cartridge sold at $100 probably doesn't cost more than $10 or so to manufacture. High-quality aftermarket alternatives are widely available at half the OEM price, while cartridges of less well-known origin may be purchased online for $10 or less.

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