Prod Eval WE 2006

PRODUCT EVALUATION BASED ON “REAL WORLD”PRINTER APPLICATION AND CUSTOMER EXPECTATION

Luke Goldberg

SR. Vice President

Sales and Marketing

PRODUCT EVALUATION BASED ON “REAL WORLD”PRINTER APPLICATION AND CUSTOMER EXPECTATION

Every printer sold is marketed and positioned by the OEM specifically to one of 5 distinct sales channels asdefined in the cart below (Figure 1.) Each of these 5 customer types has distinct expectations and productrequirements that are based on application and usage

Catalogs Stationers, Super Store Catalogs, ContractStationers, OEM Contract

HP 9500, Xerox Phaser 7700, HP 9000 MFP,Digital CopiersDepartmental

Catalogs Stationers, Super Store Catalogs, ContractStationers

High-speed Network Laser and MFP, HP4350, 4345mfp, Lexmark t634Large Business

Office Products, Discount Warehouses, ComputerRetailer, Computer Catalog (CDW, Tiger), CatalogStationers, Superstore Catalogs

Mid-Range Color (HP 3700/3800, Xerox8500)Mid-Range Laser of MFP (i.e. HP2400,etc…)Business Ink Jets

Medium-sized Business

Office Products, Discount Warehouses, ComputerRetailer, Computer Catalog (CDW, Tiger)

Entry Level Laser, Entry Level Color (HP2550/2600, Samsung CLP 510, QMS 2400),Laser-based MFP (Brother leads here)

Home Office/Small Business

Mass Merchant, Office Products, Computer Retailers,Consumer Electronics

Ink Jet, Photo Ink jet or Entry Laser-basedMFP; Thermal FaxConsumer

LEVELS OF RETAIL DISTRIBUTIONCORE PRODUCTSCHANNEL

EARLY QUALITY ISSUES

— In the past, our industry made mistakes in our efforts to govern the expectations of our customers. Early, poor quality issues led the industry to oversell the quality benefits of a compatible/remanufactured cartridge.

— Rare exceptions to this are HP’s “Colorsphere” branding requiring CPT knowledge.

— The OEM sells quality as an assumed benefit without disclosing the specifics.

— Remanufactured products should be sold and positioned as a cost-savings alternative product to the OEM, offering consumers a choice, environmental benefits and acceptable quality.

— Our industry has overused the adage that “all products meet or exceed the OEM standard.”

Historical Examples Illustrating This Include:

— Monochrome gray scales/resolution (There is no aftermarket 6 Micron aftermarket toner and therefore true 1200 dpi resolution is impossible.)

— Workgroup color quality remains elusive to the aftermarket due to availability of high quality matched systems and a shortage of needed materials such as developer rollers, adder rollers, and even toners.

— HP has released a renewed line of midrange and workgroup color printers including the 3800, 4700, etc… They brand their toner as “Color sphere” in order to differentiate themselves from aftermarket.


OEM Challenges– Imaging Process

– Sub-branding of OEM toners – “ColorSphere”

– HP claims they are on their third generation of color imaging processes, which enhances toner fusing properties, etc…

– HP’s own internal documents address the aftermarket deficiencies in pulverized toners and the superiority of chemical toner to produce true color in terms of charge characteristics, flow, efficiency, pile height, etc…

OEM BRANDING


— Another example of this on the inkjet side is inkjet archival qualities, water fastness, dry times etc… Epson with its Durabright and HP with its Vivera have played the marketing card that their prints will last 100, 120 years without fading under glass. Clearly the aftermarket is just learning how to determine the archival qualities of its inks and is not in a position yet to compete with these claims.

— Hopefully with the advent of STMC for inkjet, there will be a correlative basis to compare aftermarket inks to the OEM to determine just how archival our products are.

— I also don’t know of an aftermarket ink that will allow submersion in water without running as you would see with a pigmented Lexmark or Epson durabright ink.

— Can we meet or exceed this OEM standard?

— How many consumers care whether or not they can spill their beeron their photos?

— Do they care that in 120 years their photos will need to be reprinted?


– The aftermarket has done a great job in achieving a standard that is acceptable to as many as 30% of the consumers out there.

– Aftermarket quality continues to improve and in many cases we can get close to the standard of the OEM or even match it.

– Improper management of their quality expectation will mean you don’t get a reorder.

– Proper management will endear you to your customer because you have treated them with the respect that all consumers want, and that is to be given the facts so that they can make an informed decision.

QUALITY ISSUES SUMMARY

PRODUCT LINE REVIEW

— With laser monochrome, as with all product categories, printers must be broken down into at least 2 segments:

– SOHO/SMB/Micro SMB– Workgroup

— Within each product category the user will have distinctly different usage patterns and therefore distinctly different expectations.

PRODUCT LINE REVIEW BASED ON “REAL WORLD”

PRINTER USAGE/USER EXPECTATIONS

ENTRY-LEVEL MONOCHROME LASER TRENDS

– Hardware features and speed have been increasing while printer costs have decreased dramatically in the last two years. Today, the average single function monochrome entry-level laser such as the Dell 1100, Samsung ML2010, Page Works 1350W or Lexmark E220/230 can cost less than $50.00 at retail with rebates.

– The average MFP/MFC multi-functional printer/copier (printing, faxing, scanning, and copying; also called AIO or All-In-One) costs less than $200.00. Brother is a leader and has done exceptionally well in laser and ink based AIO printers especially with the huge success of its tn/dr350 engine.

– Samsung is also strong here with multifunctionals based on both the ML1710 engine (scx4216) and based on the newer ml 2010 engine.


MULTIFUNCTIONAL REVOLUTION

Dell 1100

Samsung ML2010


– In many cases these printers cost almost as much as the consumables themselves. Today’s OEM selling strategy is to offer faster, feature-laden printers at very low costs to attract small business looking to have one device for all-purpose printing or to attract a home office consumer looking for low-cost printing solutions.

– Because of this ‘razor and blade’ selling strategy, consumers who reorder their OEM consumables often get a case of severe sticker shock.

– OEMs bank on the fact that MFP usage is 2 – 3 times more than single function.

– This scenario creates huge aftermarket demand and is a big factor in expanding the growth of the aftermarket across all SOHO product categories.


MULTIFUNCTIONAL REVOLUTION


– Installed base is around 6%. (somewhat under projections from 2004 where 10% was seen as the figure)

Ship

men

ts (i

n m

illio

ns o

f uni

ts)

Rev

enue

(in

billi

ons

of U

.S. d

olla

rs)

Source: Lyra Research, Inc., Hard Copy Industry Advisory Service, Second-Half 2005 Forcast.

Worldwide Monochrome and Color LaserPrinter Shipments and Revenue, 2003-2005

QUALITY EXPECTATIONS FOR ENTRY-LEVEL MONOCHROME USERS

– These products are sold and positioned as low cost printing devices for small business and home users. They are usually host-based, lower volume machines, used for text printing or faxing and general office usage.

– Users of these printers are looking for low-cost and are not typically employing them for high-volume external presentations, graphics or other professional usages.

– Not designed for this, and therefore the users don’t have very high quality expectations.

– Especially true for MFC usage where copy and fax quality is not highly scrutinized. The reasoning is, generally, as long as they can read it, it is good enough.

– These users are not on cost-per-page programs and are not analyzing total cost of ownership; therefore, they are clueless as to page yield.

– Our customers don’t typically do a lot of STMC type testing for these types of printers; therefore, shortfalls on yield that are not dramatic in these devices are also not an issue.

– In short, as long as there are no hard failures that show up early on (back grounding, improper fusing, etc.) it is unlikely that a failure that we would encounter in stress testing would ever occur. Take your own home printing as an example of how most printing is done in the SOHO environment.

QUALITY EXPECTATIONS FOR ENTRY LEVEL

MONOCHROME USERS

QUALITY EXPECTATIONS FOR WORKGROUP MONOCHROME USERS

– Page yield is the single most important quality feature of these types of printers. It is also these printers that our customers are more likely to use STMC and other types of yield tests; since it is these devices that are typically sold by our customers on a cost-per-page or TCO programs.

– In many of these products, solid back page coverage is not nearly as important as text character fill and page count.

– Quality evaluation must include long run life tests, since long runs are common in this environment.

WORKGROUP MONOCHROME LASERUnlike the Entry Level Monochrome space, workgroup users have very different quality expectations. Typical workgroup users are doing networked, higher-volume printing with anywhere from 5 to 50 users on a networked central printer. Typical workgroup printers for larger workgroups of 20+ would be the 4300/4350, 4345 MFP, the 9050, 9050 MFP, the Lexmark T634, etc…

These printers are getting faster and faster with more copier like features (sorting, stapling, etc.) The 4345 MFP, as an example, is really a copier with a laser engine. The convergence of lasers and copiers in the office is placing more and more importance on cost per page and therefore, also page yield.

Lexmark T634

HP 4300/4350

COLOR LASER

– We will examine color laser and segment the printers and customer usage and expectations between entry-level color printers, which are typically sold at $400.00 or less and targeted towards the small business/SOHO channel, versus the workgroup color printers which sell for over $1000.00.

COLOR LASER

ENTRY LEVEL COLOR LASER

– Entry-level color laser is classified as any single-function color printer selling for under $500.00. This is by far the fastest growing segment of the laser color business. How these products are being sold and positioned is critical in understanding user demands interms of quality.

– When the HP 2550 was first introduced, it was the only color printer priced and positioned as a monochrome replacement. It was marketed as a black and white printer that offered color neophytes the option to print in color.

HP 2550

ENTRY-LEVEL COLOR LASER

–According to Lyra, color overall remains the highest % growth channel in laser along with entry level monochrome lasers.

– In 2005 sales of color toner cartridges grew to 3.7 billion from 2.4 in 2004.

Source: Lyra Research, Inc., Hard Copy Supplies Advisory Service, First-Half 2005 Forecast

Worldwide Revenue: Laser Toner Cartridges, 2004-2005

Rev

enue

(in

billi

ons

of U

.S. d

olla

rs)


– According to most OEM’s, in the space for entry level printers (e.g. Samsung CLP500/510, QMS2300/2400, OKI5100/5200, HP2500/2550/2840), these users will print between 70 to 80 % of their pages monochrome.

– A serious color user will buy a more capable, faster color printer such as the HP 3700/4700.

– The one example that runs counter to this trend is the HP2600, which at 8 ppm color and only 8 ppm black is meant for more highly-colored users, according to HP.

– When evaluating these products, therefore, you are really evaluating 70% of an entry-level black-only printer used by a small business with the same expectations as the users as described above. In general, those who do use color here are not extremely quality-conscious. They are cost-conscious users who, in this case, are seeking consumable savings.

OKI5100/5200

Samsung CLP500/510



– In almost every instance of entry-level color, a set of 4 cartridges costs far more than the printer itself.

– The newly emergent trend of entry-level color MFP’s designed to offer AIO (all-in-one capability) for the SMB channel will translate to more consumables business for the remanufacturing industry since they will offer copying, faxing and printing on one device.

– Examples of these products can now be found in retail for under $750.00 (e.g. HP 2840MFP, Konica Minolta 2480MF, Brother 9420 MFP).

– Clearly these are going to be marketed at small business seeking one device for all general office printing needs with an OPTION to print in color. According to my customers survey (see below), the majority of the pages on these devices (80+ %) will be monochrome documents for general office usage, not full color marketing documents. Therefore evaluation simply based on color performance is not true to these printer’s intended application.

– An important point to remember in general: in the SOHO channel, the printer buyer is also the owner of the company, or it was bought for his/her personal use. Because of this, cost is much more of an issue than in corporate America where, typically, the buyer is not motivated to save money on consumables.



– To illustrate the varying needs and expectations of color users in the small office versus the workgroup environment, I hired on the prestigious research group of LG Inc. To survey office users in the workgroup environment and SMB environment in order to better understand their printing needs and quality expectations. The head researcher of LG Inc., Luke Goldberg, analyzed typical customers in the SMB channel with the findings below.


WORKGROUP COLOR

LG SURVEY— The LG survey of 10 small offices using entry level color laser and monochrome MFP type products

included the following types of business:

— E-commerce company selling online imaging consumables

— Single agent real estate

— Small dental office

— Jeweler

— Fiancèe’s brother (Real Estate Developer)

— Tattoo Shop (Not that I frequent these establishments)

—Printers used include the OKI 5100, QMS 2400 and HP 2840 MFP

— Most pages printed are black even on the color printer (80+ percent).

— Color is not used in the SMB channel as an external marketing tool.

— All of the users surveyed feel taken advantage of and are upset at the low printer and high consumables cost.

— No one said they would not try aftermarket cartridges due to the fact they were all owner/operators upset with high prices of OEM cartridges.

WORKGROUP COLOR

LG SURVEY— The LG survey of workgroup color users. I spoke to the marketing, IT, and purchasing agents at the following companies:

— Future Graphics

— Corporate law firm

— Insurance Company

— Real estate firm

— Printers used include the JP 4650, Xerox 8400, Xerox 7700, and HP 3700

— In every instance these were printing as high as 80 percent of the pages in color.

— Documents produced in color were used to market to the outside world, such as mailers with four-color pictures of properties, color logos, etc…

— None surveyed (other than FG) tried aftermarket cartridges.

— Given the high cost of marketing and the importance of image, none felt the savings for compatible cartridges were worth the risk.

—One asked about warranty issues for compatibles and one asked if the aftermarket cartridges contained “ColorSphere toner.”

WORKGROUP COLOR

– The users who fall under this category are the most quality-sensitive customers in the world.

– As HP states, “color is a tool used to promote, to persuade, to sell.”

– Keep in mind, when evaluating monochrome, that 99% of all documents are used for the internal dissemination of information within a company. These documents rarely make it outside of the company. Workgroup color, conversely, is a marketing tool.

– Take FG, for example. At FG, workgroup color users using printers such as the HP4600/4700, HP3700, and Phaser™ 8400/8500 are using these to market their image to the outside world, and therefore, are primarily concerned with quality.

– They are generally not cost-conscious users.

– (See survey of workgroup color users)

– When evaluating workgroup color, long run continuous stress tests are required. Marketing jobs will often be hundreds, or thousands of continuous prints.

WORKGROUP COLOR

INKJETS

– Inkjet quality has to be looked at in two different segments:

INKJETS

– Anyone serious about digital photography would invest $100.00 in a 6-color Epson or HP printer if they wanted photo quality.

– Older models taking cartridges such as the 23a, 78a, 49 etc., are generally not going to be used for photo quality and therefore should not be evaluated solely based on this criterion.

OLDER SINGLE-FUNCTION (1 or 4 COLOR SYSTEMS)

INKJETS

– The digital home printing revolution really has taken the printing world by storm in the last two years. During this time, over 150 million digital cameras, 1.2 billion ink cartridges (annually), and 3 billion units of 8x11 photo paper have been sold. Most of this growth is driven by the quality, low-cost, and ease-to-print photos at home trend.

– Almost every printer released today is photo-capable with a photo memory card slot. Even though the majority of home printing consists of printing off of the internet, all of these can be used to print photos requiring close matching to the OEM when using photo paper. Evaluation should be based on the following:

– Acceptable photo quality using photo paper. If it does not look as good as the OEM in regular printing, with low-grade paper this is not an issue. Even faint lines will not cause a return generally in text printing.

– Water fastness is not an issue. Users don’t expect to be able to submerge their photos in water and not have them ruined.

– Dry times can be longer than the OEM as long as it is not a matter of days.– Archival qualities are important although difficult to prove. Limited archival studies on our inkjets

will only help to debunk OEM propaganda efforts. – Yield is not an issue unless it is excessively low. Home users don’t count pages.

INKJETS

NEWER PHOTO-SPECIFIC 6-COLOR SYSTEMS

INKJETS

— Since most inkjets are consumer products where cost is certainly an issue, it is important to position compatibles as low cost alternatives to the OEM.

— It is difficult to compare some of the OEM claims made by HP that their prints will last 120 years under glass since there is no correlative test standard to confirm this.

— It is important to understand, however, that in an era of digital photography, the option to simply reprint your photos always exists if indeed they do fade!

INKJETS

NEWER PHOTO-SPECIFIC 6-COLOR SYSTEMS

INKJETS

— In many cases, the OEM selling strategy of giving away hardware in order to shore up revenue should play into the hands of the aftermarket by creating an angry public who is tired of paying through the nose for the “most expensive liquid on the planet” as Kevin Rollins of Dell claims.

— Should you encounter a user who is a photo professional using, say, a Photosmart® 8250 or a similar device, they are not going to be as receptive to a low-cost alternative since printing for them is their living, not a home hobby.

— In these instances, sometimes it is better to forgo the sale and gain credibility until the product is ready.

SUMMARY

— It is impossible to have a quality standard that attempts to paint all product evaluation with a broad stroke.

— Every product in the categories above must be tested and qualified with an eye to the printers intended purpose, the type of customer, and the user’s expectation.

— It is impossible to educate our customers and therefore properly manage expectations, unless product evaluation is based upon this “real world” standard.

SUMMARY