Even the most keen industry observer may be surprised to learn that HP is in the process of launching upwards of two dozen new laser and inkjet business printers. Designed exclusively for its gold and platinum Partners, these new models are based on existing product families and are designed to sell in managed (e.g. contractual) customer engagements, as their “managed” product names suggest. These managed devices are a key component of HP’s evolving channel MPS strategy, and likewise a strategy to thwart aftermarket supplies sales. In this blog, we’ll briefly look at how these models fit into HP’s strategy, its context within the imaging industry, and why I think it’s a smart move that could help strengthen HP’s supplies business.
Let’s start with a quick snapshot of HP’s printing business today. It’s massive –$5.5 billion in sales and nearly $1 billion in operating profit last quarter. Of this, a sizable portion, say one-third or so, comes from HP’s direct business and its largest partners, and therefore has low exposure to aftermarket competition. A larger portion, likely upwards of 60%, is generated through SMB-facing partners and retail channels, which are largely transactional and therefore more exposed to MPS and aftermarket supplies – note the chart below that shows the disproportionate availability of aftermarket HP toner in open channels. This market exposure significantly weakens HP’s supplies business, but it is also something that HP correctly recognizes as a strategic opportunity to generate incremental and more sustainable supplies revenue.
Targeting this challenge in its channel sales mix and aftermarket competition, HP’s managed printer portfolio complements what has already been a concerted effort by HP in recent years to improve its channel/partner MPS capabilities and enable its channel partners to better compete. The new models fit a well-worn strategy among other printer and copier vendors: they are exclusive to HP’s larger Partners, they have unique names and part numbers, they use exclusive contract supplies that you can’t buy on the open market, and they feature value-add benefits (higher yield supplies, longer-term warranties, higher page volumes, unpublished list pricing, competitive supplies pricing). Customers won’t be able to find their supplies at Staples or on Amazon, and they shouldn’t need to if their contract is well-serviced and competitively-priced.
HP follows the path of many other printer and copier vendors in its exclusive managed SKU strategy. Copier vendors have long enjoyed an exclusive relationship with their dealers, which has helped stave off aftermarket competition, both in terms of demand for non-OEM toner and supply of empty cartridge. In the printer world, vendors such as Lexmark and OKI Data have also leaned more heavily on exclusive product lines. Created out of necessity and the requirements of the dealer community, Lexmark and OKI Data re-tooled their open channel portfolios, like HP has done, to expand their presence into contractual channels and effectively walled-off a portion of their imaging sales from third party supplies.
HP’s decision to take a play out of its competitors’ books and launch its own exclusive products is a smart move. For too long HP has struggled with the relentless growth trajectory of aftermarket supplies and the increasingly sophisticated competitive strategies of third party vendors and MPS providers, which view HP’s installed base as their primary target.
HP enters the second-half of this year with a more complete channel MPS portfolio that includes both a mix of channel programs (e.g. MPS Agent, MPS Resell, MPAS) and now a differentiated and channel-exclusive product portfolio. Partners should be pleased with the addition of more robust contractual SKUs, which offer them more pricing flexibility and channel exclusivity. For HP, these new models fill a key gap in its channel MPS strategy and have the potential to generate more sustainable and more profitable genuine supplies sales long term.
However, while HP has hit on all the right points in its channel product and program strategy, growing contractual hardware and supplies sales also requires a clear value proposition that communicates why this new portfolio is a valuable opportunity. Compared to HP’s open distribution business, growing contractual channel sales will require a stronger, more assertive marketing and sales push, as Lexmark and OKI will attest. HP must demonstrate that it is willing to invest not only in its managed product line and channel programs, but also in an expanded channel marketing effort that helps Partners understand why they will win by strengthening their relationship with HP.