The imaging supplies industry is a mature business; according to various industry analysts, annual retail dollars are now declining along with printed page volumes. However, despite the decline in total spending, the market remains vast, with over $25B in retail dollars expected to be spent in the United States on ink and toner alone. Furthermore, despite the regular projections for a paperless office, it seems unlikely that anything but an ongoing slow decline will occur.
There is a widespread sense of pessimism throughout the office supplies dealerships that market conditions are wrong and will not improve. However, as will be discussed, a legitimate scenario suggests there could be great potential for office supply dealerships to prosper and a strong case for increased optimism.
First and foremost, the only way to achieve revenue growth in declining markets is through price increases or an increased share of the remaining market. Price increases may be possible in a vertical right at the end of its business cycle – for example, demand has dwindled, and companies have exited. The remaining businesses have some degree of market power and a customer base that doesn't have alternative sources for the product. So long as there's demand remaining and limited options for customers to buy elsewhere, price increases and increased revenue and profitability may occur despite the declining market.
This is not the case in the imaging supplies industry, where independent dealers have no power in the market to achieve price increases.
So, for any remaining dealers to increase revenue, they must increase their market share. In a mature market dominated by accomplished large-scale enterprises, small dealers, to have a realistic expectation for increasing market share, have to be good, really good, at what they do.
It's difficult for small dealers to win business away from large and powerful competitors but;
- Relationships can be nurtured and developed more effectively by small business owners that larger companies cannot match.
- People still like doing business with people they know rather than large, faceless organizations.
- Potential customers in local markets may be willing to allow small dealers to do business so they can be seen supporting their community.
- The "personal relationship" and "support local business" angles are only effective if all other aspects of the proposed business relationship are at least equivalent to the service, products, and pricing the potential customer already enjoys from a larger enterprise.
In 2015 ink and toner were estimated to be a $25B+ annual market in retail dollars in the United States, and 80% of these dollars are spent purchasing OEM brand products such as Hewlett Packard, Lexmark, Brother, etc. The overall market for ink and toner is estimated to be declining at a low single-digit percentage rate – not falling off a cliff but declining nevertheless.
Dealerships will not be successful in growing their business by selling OEM-branded products.
- There is virtually no profit margin for a dealer reselling an OEM brand.
- Many dealers cannot purchase essential OEM brand products for resale as a result of the distribution policies of the OEM.
The only way for a dealer to stand any chance of profitably increasing revenue is to sell third-party compatible and remanufactured cartridges.
A small independent dealer has to be good at converting a customer from an OEM brand to aftermarket third-party products. Most enterprises are still swayed by the OEM marketing campaigns, funded partly by their high gross margins and the resulting fear, uncertainty, and doubt (FUD) about the "dangers" of aftermarket cartridges when installed on their hardware. Conversion is not easy.
THE CONVERSION STRATEGY
To achieve a conversion from OEM brand to aftermarket, the dealership has to nurture a trusting relationship with its customers and prospects. It has to demonstrate that it's an expert and an authority on the products in question and why it will perform satisfactorily for its customers.
It has to develop this trust for its authority and expertise on the subject matter to be believed by its customers. Being nice is nowhere near enough, even when playing the relationship and local business angles.
The most effective platforms for achieving these objectives for trust and authority are social media and should include at least LinkedIn, Facebook, and Twitter. Using social media in business is discussed in detail in a separate post but suffice to state here. If a dealership is serious about increasing market share in a declining market, it needs to get familiar with these platforms as quickly as possible.
There are electronic messaging and service components that customers of large, established corporations take for granted.
- Order acknowledgments
- Same day shipping
- Picking notice sent confirming product shipping complete or notifying back orders or split shipments
- Shipping notice sent on shipment of the order
- Carrier tracking details
- Electronic invoices
All these communications are sent automatically to the relevant personnel at the customer and now, in this electronic age, are taken for granted. If a small dealer can't provide the same service, it becomes a significant reason a customer prospect will not do business with a smaller enterprise.
When a customer calls a large enterprise with questions about an order, an invoice, or possibly a mistake on a shipment, then the large enterprise, through its use of a customer relationship software system (CRM such as Salesforce), can have all the relevant customer information available in a single interface. This capability speeds up handling customer questions and ensures the process is efficient.
Suppose a small dealer wants to win business from a customer and has not deployed its integrated information technology platform that includes CRM. In that case, it will not likely be able to provide the same level of support as the current supplier. So, to establish the confidence of new customer prospects and close new deals, an integrated information technology system capable of consolidating all customer data needs to be in place to ensure customer expectations can be met.
So, not only does the small dealership have to be good at what they do in terms of personality, customer skills, sales, marketing, etc. there are two fundamental requirements:
- It must have deployed an integrated information technology system to handle transactions and communications flawlessly.
- It must have deployed the capability for the appropriate use of small business social media strategies to engage a relevant audience and demonstrate its position as a trusted authority in the market.
Deploy the necessary information technology, use social media platforms intelligently, and start to see a path toward growth despite the decline in the overall market.