One year ago HP launched a massive effort to take share in the estimated $55 billion A3 market, and the company has already made a range of major investments and strategic moves to position itself for success. HP has made attempts in this area of the market before, yet this time it looks and feels different. It's time for industry players to acknowledge the threat HP may pose and position themselves to protect their business.
It’s important to understand that, while this threat is real and vendors should be wary, HP’s strategy is also still very much evolving and many questions remain unanswered, particularly around its channel development and the long-term role of Samsung’s technology portfolio. HP’s A3 success will in large part hinge on the development of new relationships and infrastructure in the dealer channel, which are daunting challenges even for a company with HP's depth and scale. And for HP competitors, the channel is one of the best opportunities to leverage existing relationships to ward off the threat of an aggressive HP.
HP Invests in A3 Lineup and Channel
The rationale for HP’s foray into the A3 market is clear: the potential opportunity is massive and there are obvious synergies with the company’s print business. The new strategy emerged as one of the first waves of HP’s post-split growth initiatives, and is now gaining traction just as HP is possibly turning the corner on a multi-year decline in Printing revenue. Assuming HP maintains its position in its existing areas of strength, such as A4 office and consumer inkjet, the revenue upside from A3 could be tremendous. The company estimates its A3 market share at about 3%, with each point of share gained potentially translating into tens or hundreds of millions of dollars in incremental sales.
Like other manufacturers looking to enter the dealer channel (Brother, Epson…), HP recognized that there are unique channel requirements that it must fulfill to position itself for growth. One important dealer requirement is access to exclusive products, which help protect these valued channel partners from competition and customer comparison shopping. HP launched its first rebranded products that required partner authorization – dubbed “Managed” SKUs – in mid-2015 and has rapidly grown this A4 and A3 line to become one of the most complete dealer/partner-oriented lineups in the industry outside of true production systems. These products are not only rebranded and require authorization, but also introduce exclusive dealer-friendly attributes, such as higher MSRPs (more flexibility in leasing), higher duty cycles and recommended page volumes, higher capacity supplies, and enhanced warranties.
With its new objective to grow A3 share, HP’s portfolio evolution has included a very rapid expansion of its A3 MFP lineup. Expanding from an existing range of Canon-based LaserJets, HP has introduced 18 core configurations based on Samsung engine technology and 3 new homegrown PageWide inkjet MFP engines in 2017, together driving an increase of roughly 275% in core A3 configurations in HP’s lineup since 2012. With its lineup filled-out, HP can go to dealers with a very complete line, fulfilling another channel preference of top-to-bottom portfolio coverage from a single brand. Now, rather than filling gaps in its product line, HP’s current portfolio challenge is managing overlap (and the supply chain, OEM relationship, etc. complications) between its homegrown inkjets, its Canon-based MFPs, and its new Samsung-based devices.
Positioned with a much stronger technology portfolio, HP will continue to invest in its channel development as its A3 business evolves. The company has already launched a range of enhancements to its Partner First partner program in the past year, including new partner tracks (think A3 specialization), reported changes to how partner performance is measured and compensation is distributed, and investments in the company’s partner portal. HP has simultaneously signaled its intentions to reduce the number of participating partners (i.e. low revenue and/or limited specialization) and to transition more direct accounts to the channel.
In an effort to grow the distribution footprint of its A3 line, HP has also reportedly been more aggressive in signing dealers to carry its A3 line. The company recently claimed that it has signed about 500 dealerships worldwide to carry its A3s, with up to 40% representing partners that are new to the HP brand (other ~60% are previous A4 partners). Yet while this increase in dealer participation is important, it’s still unclear how effective HP will be at displacing other brands in multi-line dealerships with often very deep primary brand relationships.
Beyond technology and channel development, there are still plenty of unanswered questions related of HP’s emerging A3 strategy. One question that’s particularly interesting is How will HP utilize Samsung’s valuable solutions technology portfolio once the company is acquired in Q4? While HP continues to evolve its Windows-based FutureSmart platform, Samsung’s Android Smart UX platform and ecosystem offers a number of clear advantages and could eventually become the technology of choice for HP’s office lineup long-term. Uncertainty is not good for software platforms, so expect HP to disclose more details regarding its post-acquisition solutions strategy in the coming months.
Work to Be Done
HP has completed much of the portfolio and channel prep work necessary to begin what it hopes will be the beginning of a long and profitable growth trajectory in the A3 market. Yet the difficult work of executing in a large, complex, and very entrenched dealer channel is just starting. HP will face the challenging task of relationship building across a range of unique geographies and dealer organizations, while also continuing to adjust and refine the economics and support structure necessary to meet the unique demands of this channel.
For HP’s competitors the channel is a vulnerability and also an incumbent competitive advantage. Companies selling through the BTA channel have deep knowledge of their partner’s needs and are often deeply-embedded in the workflows, economic structure, and personal relationships of dealerships. Companies wary of an aggressive HP would do well to assess and reinvest in their dealer relationships, which are the most vital resource available to protect their business against the threat of HP's A3 attack.