State of the Industry
- By Dan Mooney
- Jan 01, 2010
With cloudy economic skies still hovering worldwide, is the aftermarket message of “As good as the OEM, for a lower price” resonating louder with the public? Will consumers finally fully embrace the aftermarket as a cost-efficient, environmentally friendly alternative to the OEMs? With money tight, are “price wars” the only way for aftermarketers to succeed in the current climate?
“The tendency to drive down prices only takes place when we compete with ourselves, not when we compete with the OEMs,” said Luke Goldberg, senior vice president at Future Graphics Imaging Corp.
“As we know, at the beginning of the year HP actually raised consumables prices to try and offset the printer hardware sales slowdown. So I ask you: Why do we have to lower our prices when we can already offer fair savings to consumers at a time when OEM consumables are more expensive than ever? The main reason for the price pressure within the aftermarket is due to internal competition that is mostly a factor of overcapacities of new compatibles’ suppliers in China. In many cases these products compete with remanufactured cartridges versus taking OEM market share.”
Is the aftermarket message being heard? Many say it should click with consumers, especially now.
“The combination of environmental awareness, corporate cost-savings initiatives and the continual increase in OEM prices have all significantly contributed to the demand for high-quality aftermarket print cartridges,” said Brad Roderick, executive vice president at InkCycle.
Roderick quotes the aftermarket’s market share of “roughly 40 percent.” So how is the aftermarket attempting to dig into the OEMs’ share of the pie?
Through the continued stressing of being a cost-relieving, quality-based alternative to the OEM that continues to push forward with ever-improving help for the environment.
Dr. Harvey Levenson, department head, graphic communication department at Cal Poly State University, in San Luis Obispo, Calif., thinks the aftermarket must get more aggressive in its efforts to promote its message.
“There is very little conspicuous publicity about aftermarket companies and products, and how they are addressing the environment,” Levenson said. “Yet, nearly every OEM has elaborate publicity, print and online, in which they promote quality and their sustainability efforts.”
Levensen added that the aftermarket needs to “promote and deliver products that meet consumer quality, cost and environmental expectations. They must provide quantitative evidence that their products are as good as or better than OEM products in all three areas, not one or two of the three. It must be all of the three. This must be supported by anecdotal evidence from users. However, the anecdotes must represent the experiences of consumers who make purchases based on the anecdotes.”
The aftermarket’s work, if anything, is still very much cut out for the industry if the OEMs have anything to do with it.
“Printer manufacturers are trying to increase costs for the remanufacturing industry, said Andy Lippman, senior analyst for Lyra Research. “Examples include more advanced technology, cartridge collection programs, and simply more frequent product updates.”
Green thinking dominates landscape
Green issues continue to increase in importance. “The green movement was really just beginning when the downturn hit,” said Scott MacKenzie, director of marketing and market analysis at West Point Products. “The fact that it has remained an issue is testament to its staying power, however.”
In the past year, the aftermarket took the lead in the expansion of soy and bio-based toner for cartridges.
PRC Technologies grew its SoyPrint toner cartridge line in the United States and abroad. West Point Products and Clover Technologies Group Inc. introduced bio-based toner for remanufactured cartridges as well.
Much growth, and work, is seen as being ahead in the bio-based realm where black toner is currently the only option on the market.
“Indeed, the industry doesn’t have oil-based color fully mastered yet,” said Rick Greenlaw, vice president of marketing at PRC Technologies. “We will figure it out and when we do, bio toners will become commonplace.”
Companies like PRC Technologies and West Point Products are looking to get a foot in the door while the bio-based field is fairly new. Greenlaw believes in four years, bio-based toners will hold a large spot in the market. “In about two years, the major OEMs will offer it [bio-based cartridges],” Greenlaw said. “Once the costs of making bio-toner is reduced, there is no reason to continue making oil-based toner. This may only take three to six years.”
MacKenzie doesn’t see bio-based toners completely replacing petroleum-based toner, “but we [West Point Products] are confident it will find its place,” he said. “As is the case with any new technology, gaining significant market share will take time. This is still a very new technology, and there is a learning curve that must be overcome at the end-user level.”
Leaders in the remanufacturing world stress that to be truly in front of the OEMs as far as being a friend to the environment, though, the aftermarket must have a stronger message and work to back it up. “It is getting stronger, but we are still in elementary school as far as a sophisticated message on this subject in our industry,” Greenlaw said.
The aftermarket remanufactures cartridges first and foremost. But what happens to the cartridges when they can’t be remanufactured anymore? End-of-life cartridge issues continue to be a major concern for many in the industry.
“The aftermarket needs to do a far better job of promoting the green message and backing broad claims with scientific data,” Roderick said. “Every study that I read indicates there is no let up on the importance of environmental concerns.”
That data, for example, can come in the form of InkCycle’s expanding grenk program. The company’s grenk cartridges are intended never to reach a landfill. InkCycle’s Carbonneutronics Index, a software program, lets end users know, in weight, how much they are keeping out of landfills through using the grenk program.
The green message, for the aftermarket and OEMs alike, can mean different things in different parts of the world.
“I would say that this message resonates with EU (European Union) end users far more than it does in other parts of the world,” Goldberg said. “Conversely, I recently came back from a trip throughout South America where this message has no meaning to the average consumer. In the U.S., clearly the trend towards the ‘greening of the economy’ can be seen in ads from many of the largest companies in the world. We believe that this greater sense of corporate responsibility certainly makes remanufactured products more viable than ever before and it’s up to us collectively to take advantage of these changing attitudes to take advantage of these currents.
“That said, I don’t believe the aftermarket globally has done enough to capitalize on this,” Goldberg continued. “In many cases OEMs such as HP have co-opted our message and are now painting themselves as beacons of environmental stewardship. The challenge we face is simple: HP has billions to spend on marketing these messages and the imaging aftermarket does not. We have to do a better job in areas we can afford such as creating better awareness via grass roots methods and word of mouth.”
Selling in a downturn
Many in the aftermarket view the economic downturn as a glass being half-full, half-empty proposition. With savings in mind, many people are turning to aftermarket products. But those same people are buying and printing less.
“We have seen two effects – one positive and one negative,” said Bob Bloom, vice president and COO of INK & TONER USA. “We have been picking up a lot of new customers, many of whom probably didn’t think too much about saving on their cartridges when times were good. Now, it may be worth it to them to perhaps even go out of their way a little or try an alternative. On the other hand, our existing customers aren’t as busy and perhaps have fewer people – both of which translate into less printing. As a result, they are buying less. Orders are smaller and less frequent. Some industries that were strong for us, especially housing related and construction, have diminished or disappeared. Overall, our business is still down, but our customer base is broader.”
Developing a robust presence online is a viable option for growing new business, and social media is gaining some traction with the aftermarket.
“I firmly believe that whether you are a reseller, distributor or manufacturer, your company will ultimately not be competitive unless you embrace e-commerce,” said Dr. Dimitris Constantinou, president and founder of Easy Group LLC. “There are endless opportunities to capitalize on the Web’s potential to find more customers, convert those customers into higher revenue, and to cut costs by streamlining your business through e-commerce. As the business environment becomes more and more complex and our industry continues to rapidly evolve, it is becoming more important than ever that as a business owner you don’t ignore the glaring opportunities that e-commerce has to offer.”
MacKenzie of West Point Products believes e-commerce has its place for the aftermarket, but adds “I think the majority of companies in this space still subscribe to the tried and true method of relationship selling as opposed to e-commerce.”
“That being said, social networking and networking sites in general do serve a purpose. They allow business leaders to intermingle and make connections, perpetuating the relationships that can lead to sales down the road. Putting a dollar value on this technology is nearly impossible.”
Technology: Moving ahead
Tight budgets abound and R&D money, largely untouchable in the past, is being more heavily scrutinized.
“We’ve been lucky in that we haven’t had cutbacks; if anything, our R&D has become stronger, plus we’ve expanded our lab to more than double the space,” said Mitch Schwartz, director of quality assurance at Densigraphix. “But, on the other hand, I have been a lot more diligent in spending, as I’m sure my counterparts throughout the industry have been.”
Increasingly complicated chips continue to be a hurdle for the aftermarket. “I’m finding that it takes the compatible chip manufacturer longer to get the product out, and usually the first attempt is somewhat unsuccessful,” Schwartz said.
More and more OEM cartridges also lead to a scrambling for empties. But solving such riddles is all part of the job in the aftermarket.
“This industry is maturing and we understand the technologies well that we are dealing with,” said Steve Geishirt, director of training at Parts Now! “I find we have more savvy students in our training classes asking more poised questions.”
“On the other hand, new technologies are coming out so rapidly that it’s hard to keep up. I look at the new releases from HP in the last year and a half and while they, along with other OEMs, are consolidating engines, the number of new engines and their variants of printers, faxes, MFPs is perplexing. This along with the challenges of the economic downturn where customers are getting more for less dollars in many cases as suppliers scramble just to keep the business. As these revenues and profits decrease, and the number of units increases it stresses how much a company can spend in new research.”
The allure of MPS
Looking for new fields of revenue, many in the aftermarket have turned to delivering managed print services solutions.
The Photizo Group estimated the world’s 2008 MPS market to be $20.3 billion. The group is looking at that number to climb to $59.7 billion in 2013, and says in that year 50 percent of all hardcopy-imaging devices will be under an MPS contract.
Randy Elliott, a noted consultant who has worked with Xerox and HP, called MPS “the most major shift in the market in the last 20 years” and Carl Little, vice president of dealer sales channel for InkCycle, said “If you aren’t doing it, you aren’t in the game.”
There are many who definitely want in the MPS game. An example of the powerful draw MPS has in this industry was the inaugural Managed Print Summit held on August 18 before the start of Recharger’s World Expo 2009 in Las Vegas. The Summit drew an overflow crowd of more than 300 and featured presentations by noted leaders in the MPS channel.
A one-size-fits-all approach to MPS, with its decidedly complex nature, continues to hurt some in the aftermarket.
“One often-heard request is for an ‘MPS in the box’ approach,” Tom Callinan of Strategy Development said. “Did you get a ‘copier company in the box approach’ or a ‘recharger company in the box’ when you started your company? You need to spend the time and resources to effectively launch an MPS program. Most companies entering the MPS space are still struggling.”
Rob Sethre, a senior consultant with the Photizo Group, said “potential savings are shocking” with MPS. “But companies must have a no-pain, no-gain attitude. MPS isn’t easy.”
Quality: The perennial issue
Levenson says quality is still the number one thought in consumers’ minds and an area the aftermarket must continue to concentrate on.
“Basically, the quality issues trump the environmental issues,” Cal Poly’s Levenson said. “While environmental concerns are always considered important, users will not acquire aftermarket products that do not address issues of expected quality. Users will try aftermarket products but will abandon them if they do not meet quality and cost expectations.”
As in most markets, price pressures continue to grow in the aftermarket.
But the perception of poor products is still an area the aftermarket is battling to overcome.
“Our position to our customers is that they will get quality and yields equal or better than the OEMs,” said Bloom.
Many in the aftermarket, tough economic challenges and all, view the downturn as the perfect time for the industry to shine and grow.
As one industry leader said, “The current economic situation should be seen as a great opportunity to strengthen the position of the aftermarket compared to, or even at the expense of OEMs.”
That strengthening includes extending its green message, and pushing a plethora of quality products at an economically sound price.
While the gloom of the global recession still lingers, the many opportunities that arise from adversity make the industry poised to create a profitable market in the coming year.
This article originally appeared in the January 2010 issue of Recharger.