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Issue #0606/1 - 38% price increase in one year? Lexmark continues to play with consumables pricing frantically in its attempt to recover its waning fortunes, while Dell and Lexmark announce healthy earnings and growth rates that show a firm grip on the market.

As Dell and Hewlett-Packard announce financial results for the quarter ended January 2006 showing significant gains and growth, Lexmark is announcing more price rises on its consumables products in a desperate bid for increased revenue.

This now makes six wide-ranging price increases in the last 12 months. On average, consumables prices increases from Lexmark have been 9% since January of 2005 – but that is not the whole story by any means.

Average price increases within the relatively low-key dot matrix category are 14% with some prices having increased by 17%. In the mono laser category, average increases are lower than the overall average, at 8%, but highest increases are also around 17%.

However, it is the colour laser category that has attracted most interest. Every colour laser consumables product that was listed a year ago has had its price adjusted during the year. The average change is nearly 12% - significantly higher than the averages for other products - but there is one product that has suffered massive price increases of 38% while three others show increases above 30%!

Lexmark C510

Interestingly, it is the black 10,000-page toner for the low-end C510 colour laser printer that has been increased by 38%, suggesting that Lexmark attempted to maintain a low mono CPP on this machine to encourage users to consider the C510 to be their only, or main, printer but has found that users do not want to handle their hardware in this way.

However, the fact that the C510 has increases on its other toner cartridges, ranging between 18% for the low capacity colour cartridges and over 32% for the high capacity colour cartridges, suggests that Lexmark sees this low end of the market as the sector that will simply take the increases on the chin.

By contrast, consumables for the older four-pass colour printer, C720, have only been increased by around 7%. The essential difference between these two machines is that the C720 dates back to 2001 when only larger organisations would have been buying colour laser printers whereas the C510 arrived at a time when low cost, low-end colour lasers were becoming fashionable and affordable for small companies.

Lexmark C760

This theory is borne out by the fact that consumables for the business oriented single-pass C75X/C76X machines have also been increased by relatively small percentages. Indeed, although prices on the 15,000-page colour cartridges have been increased by 9% and one Return-Program black cartridge by 10%, several of the cartridges have actually been reduced (6,000-page colour cartridges – by 5.5%).

Similarly, price increases on the A3 single-pass C910/C912 are in the region of 11% for the colour toners but the black toner has been increased by 15%, while photo-developers have suffered by only 2.4%.

Returning to the C510 briefly, it is again the maintenance-oriented items that have not been subjected to the large increases of the toner cartridges. Prices on the photo-developer, waste bottle and fuser units have all been reduced by around 2% over the 12-month period.

Where mono toner cartridges are concerned, it is consistently the low-yield versions that attract the larger price increases. Lexmark seems to make no distinction between customers buying regular cartridges or Return Program Cartridges, it is the yield that has determined the scale of the increase.

Other larger-than-average increases in the mono category are reserved for legacy products.

Interestingly, the Linea range of mono toners for Hewlett-Packard printers have all had price increases over the year of around 2% although in the latest round of changes they are actually subjected to increases of 1.7%.

Moving on to the latest prices and specific adjustments made this month, with a heavy focus on mono and colour laser consumables, Lexmark looks to be playing with pricing to maximise profit in areas where demand is high and guaranteed while playing down adjustments on products where there could be a high price elasticity.

For instance: 80% of consumables product prices have been adjusted (by an average of 0.8%); 45% of product prices have been reduced; while 55% have been increased. But, whereas the maximum decrease is 1.2%, the maximum increase is nearly 7%. These high increases are on toner cartridges for the T63X mono laser series.

Aside from the T63X series, products experiencing increases (mostly around 1.7%) and decreases (around 1%) are shown in the accompanying tables. More than 90% of mono laser products have been changed and 100% of colour laser products.

Price reductions tend to be on older products, e.g. most Optra models except for low-end mono laser printers, while increases are on consumables for current or newer products, e.g. T64X and C52X.

Although Lexmark does not appear to be making further efforts to reduce pricing on existing hardware in order to drive unit growth, and therefore consumables revenue, there are signs that the company is continuing its downward pricing pressure.

Several new models have reached the market this month, all indicating that prices are pushing significantly lower or at lower prices than the models they replace. For instance, the X644e multifunction device replaces the X634e but at a price that is 12% lower.

In keeping with previously observed Lexmark practice though, the new X64X multifunction range, which has a new cartridge that is not compatible with any previous models, has cartridge pricing that is 5-6% lower than previous models.

Lexmark X632e

Lexmark X634e

Lexmark X644e

Note that for this level of machine, the long-term CPP over three years shown in the accompanying table is calculated on the basis of 15,000 pages per month using maximum capacity supplies and takes into account any standard, or starter, supplies shipped with the device and also includes the cost of purchase. All prices are manufacturer’s recommended prices.

So, we need to look at the nominal CPP (toner only) to see what is happening. What we see is that the CPP has risen from 0.78 pence, as applied to the X632e in February 2005 to 0.89 pence for the X634e in February 2006. The new X644e, however, with its new cartridge set, has a nominal CPP that is 7% lower at launch – but, we can be reasonably certain it will not remain that low over time but will rise to slot into line with the X634e.

In undertaking the comparison, we find that the Hewlett-Packard LaserJet 4345mfp is consistently less costly to run both nominally and in the long term than any of the Lexmark machines.

So, although Lexmark’s new model is much more competitive with the Hewlett-Packard than any of the previous models, the Cost of Printing is still higher and with prospects of only rising and therefore widening the gap. Furthermore, while Lexmark is struggling to ensure that it is in a position of growth, users must expect consumables prices, and therefore the Total Cost of Printing, to rise in the long term.

~End~

This entry was posted on Friday, February 24th, 2006 at 12:03 am and is filed under Pricing, Supplies, Hardware, Comparisons, Financials, Issues, News, Total Cost of Printing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.