HP: Dell's printer plans flawed
Published: 29 Jul 2002 11:12 BST
Hewlett-Packard says Dell's printer strategy has a fatal flaw -- consumers prefer to purchase ink refills at traditional retailers rather than by mail.
Vyomesh Joshi, president of HP's imaging and printing systems group, said on Friday during a Merrill Lynch conference call that Dell faces an uphill challenge if it enters the printer market, including adapting the direct-sales model to sales of high-margin ink cartridges.
"We don't buy that Dell can successfully apply their PC model to the printer business," Joshi said.
HP, which dropped Dell as a reseller of its printers last week, believes Dell will have a tough time competing in the printer space because it does not have the proper distribution channel or the right business model for the way people use printers.
"If my daughter runs out of ink while doing a homework assignment, I need that ink cartridge right now. I can't wait 24 to 48 hours (for the cartridge to ship)," Joshi said during the call. "That dynamic means we need to go to Office Depot...and buy the cartridge right away."
Meanwhile, printers require a large investment in research and development. Companies that buy printer technology from a third party are at a disadvantage because they must share revenue and profits with the manufacturer. The same goes for consumables such as ink cartridges for InkJets or toner for LaserJet printers.
While the company might not believe that Dell's printer strategy can be effective, "Dell entering this market is definitely a potential threat for HP," said Roger Kay, analyst with IDC.
Kay said Dell will try to use its lack of a retail presence as an advantage, emphasising the ease of ordering online for ink cartridges.
"I think that people are ready to do that," Kay said. "A sensible individual would have two ink cartridges and would order a new one when they changed one out."
This hurts their ability to price products competitively, Joshi said. He said that HP decided to cut off Dell after reading a 19 July article in the Austin American Statesman that discussed Dell's intentions to enter the printer market.
"The decision to end our reseller relationship was a no-brainer" and was "something we've been considering for some time," he said. But after seeing the article, "it was clear that we really needed to change our relationship with Dell."
HP will work with other resellers to make up the business lost from Dell and will otherwise continue along the same path as it had before.
"We don't want to address (HP) tit for tat and give responses for a category we're not even in," said Dell spokesman Mike Maher.
But Maher did say that Dell's direct-sales approach is an advantage to the company overall. And referring to HP's move to shut down Dell's supply of HP printers, he said, "we will continue to find ways to serve our printing customers."
So far, analysts have speculated that Dell will work with a printer manufacturer, most likely Lexmark, to get both printers and consumables like ink cartridges.
However, it appears Dell might have approached HP at one time.
"We've been working with Dell for a very long time and clearly they showed us the intention of saying 'we want to brand a printer.'" Joshi said. "It became very clear to us this is something they want to do."
"We basically said that this just doesn't make sense for us. That's why we stopped the current reseller relationship," he said.
While Dell may convince a manufacturer to cut it a sweetheart deal, allowing it to sell printers and ink for low prices, HP believes it is already competitive.
"We provide different...purchase prices depending on the segment you're in," Joshi said. "We have segmented the market...so the customer will be able to buy appropriate hardware and supplies for their needs."
HP has also recently introduced lower-priced ink cartridges, which Joshi said is helping HP to gain market share. Going forward, HP plans to keep the pedal to the metal on products.
"Our big bang is going on extremely well...in terms of initial sell-through in the channel," Joshi said.
HP's big bang is a refresh of its printing and imaging product line that began last month. When it concludes in early 2003, HP will have launched 50 new printing and imaging products.
Next week, HP will announce new digital imaging products, including new Photosmart printers, new cameras and new media for printing photos.
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