Issue #0615/1 - Unusual price adjustments in the printer market raise this question with respect to the mono laser printer segment.
Ever since the start of time – well, the advent of the electronics or ‘IT’ era anyway – we’ve come to expect the price of electronic goods, and computer related goods in particular, to fall rather than to rise. The term ‘Price Erosion’ was coined to express this trend and it really has become an expectation.
It is with some surprise then that we find some hardware prices in the printer market having actually risen over the past few months.
What makes it even more surprising is that one of the manufacturers concerned, Dell, has a tradition of aggressively cutting prices, while the other, Brother, does not generally have a tradition of adjusting prices mid-life, let alone increasing them.
In the accompanying tables, the price changes have been laid out.
Only selected networked Brother mono laser printers are affected, together with the four-pass networked colour laser printer.
| Mono Laser | December 2005 | May 2006 | Change |
|---|---|---|---|
| Brother 6050DN | £479 | £499 | 4.2% |
| Brother HL-7050N | £649 | £659 | 1.5% |
| Brother HL-8050N | £829 | £849 | 2.4% |
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| Colour Laser | December 2005 | May 2006 | Change |
| Brother 2700CN | £399 | £449 | 12.5% |
| Mono Laser | December 2005 | May 2006 | Change |
|---|---|---|---|
| Dell 1710 | £98 | £115 | 17.3% |
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| Colour inkjet | January 2006 | May 2006 | Change |
| Dell 924 AiO | £44 | £59 | 59.1% |
Where Dell is concerned, just the low-end personal networked mono laser printer and the low-end 4-colour inkjet AiO are affected.
Note that Dell models that have experienced price increases use engines from both Lexmark and Fuji Xerox, so the increases are not merely Lexmark related increases.
By contrast, Lexmark has reduced a few of its models by up to 28%! Listed in the accompanying table, these reductions affect only the T640 range of mono laser printers and two of the three consumer colour inkjet models. It is the T640dn, with duplex and network, that is reduced by the largest amount.
If hardware prices are ever raised by any manufacturer, it is generally accepted that the uplift is almost entirely caused by exchange rate fluctuations. We do occasionally see this effect in Hewlett-Packard’s European market where multiple exchange rates may be moving in different directions at the same time. For instance, a couple of years ago we saw repeated price increases over several months in Norway when the Norwegian Kroner hit a rough spot.
It is true that the exchange rate between the American Dollar and the Japanese Yen has experienced a sudden change since mid-April, with the value of the US Dollar crashing against other currencies and by nearly 7% against the Yen, but this change has occurred too late to be the cause of this phenomenon. It should also be noted that exchange rates between the other currencies relevant to this situation (Yen/Euro/British Pound) have remained typically stable – this is very much a US problem.
| Mono Laser | December 2005 | May 2006 | Change |
|---|---|---|---|
| Lexmark T640 | £444 | £379 | -14.6% |
| Lexmark T640n | £644 | £504 | -21.7% |
| Lexmark T640dn | £814 | £589 | -27.6% |
| Lexmark T640dtn | £949 | £714 | -24.8% |
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| Colour inkjet | December 2005 | May 2006 | Change |
| Lexmark Z735 | £50 | £40 | -20.0% |
| Lexmark X3350 | £80 | £70 | -12.5% |
Just to emphasise that these pricing adjustments can have nothing to do with exchange rate fluctuations; one of the manufacturers raising prices is American while the other is Japanese. In addition, we see one US manufacturer (Dell) raising prices while another (Lexmark) is cutting them.
From Lexmark’s perspective, the crash of the US Dollar against foreign currencies has actually come at a good time. It means that currency conversions will work in Lexmark’s favour. As the value of the Dollar decreases against other currencies, we expect to see price reductions from a US manufacturer in those other countries and the manufacturer being able to show higher profits in its financial results.
Had Lexmark been able to resist the temptation to make more hardware price reductions, the effect of the currency fluctuations on its results would have been very appealing to the accountants.
However, back to the main issue: Is the industry becoming fed-up with Lexmark and beginning to turn the tables? This could actually be good for Lexmark, helping the company to reverse its aggressive pricing trend to a degree. On the other hand, it could be the death of the company by helping to push it out of the market altogether if customers become overly suspicious of the huge price gap.
One suspects that this may already have started happening and could be the root cause of Lexmark’s dwindling fortunes and dire financial situation. Certainly where Kyocera Mita is concerned, the very low Cost Per Page offered by the ECOSYS engine has not had the effect on the market that the company would have hoped for or expected to see.
Why not? Probably because many people tend to suffer from the ‘too-good-to-be-true’ syndrome and the ‘what’s the catch’ mentality. In other words, there is a tendency for us to be suspicious of an organisation offering us the chance to save money or trying to persuade us that their product is so much less expensive than all the competition. What we need to remember is that not all people or organisations are out to swindle us and there are genuine cost-saving opportunities available.
With regard to Lexmark, while not everyone would agree, I am not the only person in the world who considers that Lexmark hardware is generally of poor quality, falling far short of the standards of most of the other printer manufacturers. Here are a couple of quotes drawn from the press and online sources:
“Build quality isn’t up to the standard of the HP or Epson”
PC Pro
“Disadvantage: Always jams, Awful print quality, Terrible build quality” … “Cant wait till they go bankrupt!” … “I understand that this is a base model printer for Lexmark but how this passed quality control I will never know. Avoid Lexmark if you can!”
User review - www.dooyoo.co.uk
“Overall the build quality seems a bit cheap and cheerful”
IT Reviews
Not all reviews of Lexmark hardware are this damning but, since bad news travels farther and faster than good news, it would not be unreasonable to believe that customers could be becoming disillusioned with Lexmark. After all, poor quality hardware and high consumables pricing is not a good combination.
Price erosion is essentially the result of a number of factors, largely based around reducing manufacturing costs through:
- better manufacturing methods
- more automation removing some of the labour cost from the process
- higher manufacturing volumes
- downgraded product design to remove materials and manufacturing costs
Other causes of price erosion include:
- new, lower cost, technologies replacing existing technologies
- more intense competition from other manufacturers
- customer expectation
What this means is that price erosion is ultimately unsustainable. There has to be a limit to the number of units it is possible to push into the market before the market becomes saturated.
This is the position with the mono laser printer market. Units sold are now largely replacement units to replace those that have reached end of life. This in turn means that unit sales growth settles back close to zero. Exacerbating this effect is the fact that the market is transferring to colour from mono – further reducing demand for mono laser printers as demand for colour laser printers increases.
As demand for mono laser printers decreases, manufacturing volumes are forced downwards and therefore the unit cost of manufacture increases.
Thus, a steadying of prices should be expected at some point in time. The interesting question right now is, ‘are these particular price increases just an indication of mono laser printer prices settling into a post-growth pattern or could there be a specific anti-price erosion (or even anti-Lexmark) revolution beginning?
~End~
