Tuesday, June 5, 2007

Are Printer Companies Chasing the Wrong Target?

Lets us add a bit of financial analysis to our blog. It kind of stand of from what I usually port, but since it’s about printers and I studied economics at college, found it interesting. I promise I’ll try to keep it simple :)

When it comes to printer makers, it’s a well-known fact that most of them use ‘blade-razor’ marketing strategy to generate profit. That means they sell printer unit at the cheapest, even in the red, but make up the money by selling expensive consumables, i.e. ink and toner. So, at first look it may seem like the more printers you sell, the more profit you gain. Amount of printer sold defines the market share of a company.

However, Ed Crowley, a stock market analyst for SeekingAlpha, makes a point in his article that situation is a bit different. Actually, it’s completely different.

Each printer sold generates different income. Imagine a home printer making 50-100 pages a month, and a high-volume workgroup printer that can print up to 200,000 pages per month. The latter can be as much as hundred times more profitable than the former. Since every printer has a user, so there are more profitable users and less profitable ones.

For example, HP having the largest market share (selling more printers then any one else) of 45%, receives only 28% of income. At the same time, Ricoh with its 1% of market share generate 10% of income. Yes, if you see the absolute figure, HP get more, but Ricoh is more effective in terms of dollars per user.

AddThis Social Bookmark Button

No comments: