It’s no secret that HP’s printing division has been very busy over the past six months. In the middle of the company’s strategic five-year-turnaround, HP is looking to strengthen its market leadership by updating its product portfolio and evolving its strategy with a focus on growing its color installed base.
The vendor has more or less completed its first objective, introducing well over two dozen new LaserJet configurations since September 2013 that provide much needed hardware improvements and lay the foundation for HP’s service and solutions-led strategy.
HP’s new LaserJet portfolio represents a very complete and competitive lineup, but the vendor certainly understands that to grow its printing revenue and profit will require a more aggressive strategy. In its most recent earnings call, HP stated that, beyond updating its portfolio, a major component of its print division’s strategy is to “invest in hardware unit placements with positive lifetime value.” In other words, HP wants grow its installed base with a focus on unit placements that offer long-term profitable supplies revenue (who doesn’t, right?). However, HP acknowledged that a difficult pricing environment is causing a decline in hardware average selling prices, presenting a challenge for increasing color unit placements without changes to its pricing structure.
Understanding HP’s long-term strategy to grow its installed base of “profitable” units, and its market view that ASPs are under pressure, it’s comes as no surprise that over the past few months the vendor has dropped prices for a large number of color LaserJets. Leveraging gap intelligence’s new PowerPivot Pricing & Promotion reports, we see that HP has lowered printer and MFP retail price points by as much as 18% and repositioned its color portfolio at a historically rare discount below many of its competitors’ color products, a move that is clearly tied to the vendor’s strategy to grow its color laser installed base. While many of HP’s color prices dropped over the past few months, the vendor made few price changes to its monochrome portfolio, which further suggests that HP is steering its customers toward color LaserJet purchases.
HP’s price drops are significant, especially in the SOHO and small workteam segments, and overall range from low-end retail SKUs up to its A3 color LaserJets with price tags approaching $5,500. As is historically the case, HP’s competitors have already begun to respond, with Lexmark adjusting prices for six of its comparable color laser printers earlier this month, with more competitors likely to follow.
These price changes provide HP with the advantage of lower hardware acquisition costs for its partners and end-users, which will likely allow the vendor to meet its strategic goal of growing its installed base – at least in the near term. It’s reasonable to expect that more aggressive hardware pricing could slow HP’s hardware revenue growth in the near term, given that the vendor will earn less for each unit sold. But, this impact will likely be justified if it results in a larger installed base that generates ongoing and more profitable supplies revenue.
With a refreshed and more aggressively-priced hardware portfolio, HP has improved its positioning and could succeed in growing its installed base. This installed base growth may help to increase the company ‘s supplies annuity, which continues to serve as one of HP’s most profitable business segments.
