New Pricing Strategy Protects Color Printer Margins

Solution providers now can sell the benefits of low-cost color without sacrificing profits.


It’s no secret that for the past few years, prices for color printers and multifunction products (MFPs) and their consumables have been steadily falling. A recent color page-printer forecast by technology researcher IDC documented a drop in hardware prices of more than 64 percent between 2002 and 2006. IDC expects declines will continue at least through 2011, with a projected total decrease of about 24 percent compared with two years ago.

That’s a mixed blessing for solution providers. On one hand, it makes color an easier sell to end users who traditionally felt sticker shock when they compared color hardware to cheaper monochrome devices. The flip side is color margin erosion, once a source of relief from ever-declining profit percentages with monochrome. Unfortunately, today’s color devices are experiencing the same downward margin pressures, as resellers are forced to compete for sales by dropping their selling prices.

Now, Xerox is taking a new tack that bucks the trend for ever-cheaper color hardware and as a result offers a way to stabilize margins. The company actually increased the base price of its solid-ink 8860 printers and 8860 MFPs, while reducing the cost of consumables. The price premium for its color ink when compared to black cartridges is approximately a third higher, a much narrower price difference than what competitors offer. “Xerox raised the printer price high enough that we don’t have to make all of our money on supplies,” says Shell Haffner, worldwide solid-ink product manager for Xerox. “This means end users can print a page in monochrome or they can print that page in color, and it’s about the same price, or what we call color for the price of black-and-white.”

In alternative pricing schemes, solution providers make a relatively small profit on the hardware while aiming to cash in on selling the supplies. But with the 8860 pricing, solution providers make about four times more margin than with competing hardware, Haffner says.

Answering TCO Concerns

The new strategy addresses a key concern of end users who question the high cost of color consumables. These customers are more likely to see the larger expense picture and understand that even if their upfront hardware investment may be higher than with a competing product, the total cost of ownership (TCO) of the devices makes them more attractive.

“This approach is something a solution provider can have in the tool kit to convince customers that color can be a good deal,” says Haffner. “Some companies may be attracted by the lower hardware price, but they are paying for it in the supplies, and now they are actually starting to realize this. A competitor just launched a rash of products, and it actually increased the cost of supplies again, so if you look at even a low-priced product in the sub-$300 range, you end up paying quite a lot for the use of that device as far as supplies are concerned.”

Haffner estimates that over a four-year period, end users can save 50 percent when they factor in supplies and hardware. To help solution providers sell this TCO message, Xerox offers a calculator that graphs lifetime costs of 8860 products (www.office.xerox.com/printing-ink-costs/enus.html). The interactive tool lets users plug in variables such as page volumes and document type, and displays cost savings for each year of the printer’s or MFP’s lifetime.

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