Issue #0613/2 - Having bought Lexmark hardware two years ago, many customers are now being penalised heavily for that choice as supplies price increases outweigh hardware price cuts.
As Lexmark continues to struggle to balance its books and balance hardware prices with supplies prices, we have seen rollercoaster supplies pricing adjustments on several occasions over the past 18 months or so but with the general trend defying gravity!
To emphasise some of the comments made in the previous article "Better than expected! Lexmark announces 6% revenue drop in Q1", and in several recent issues of TCPglobal, regarding those laser supplies price increases and the rising Total Cost of Printing with Lexmark laser hardware, we have run a series of historical calculations covering the last two years.
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This demonstrates just how serious the rising Total Cost of Printing has become for Lexmark business customers and how the situation is split between high-volume and low-volume environments. Analysing the information (focussing on A4 devices only) clearly shows that there is a strong dichotomy between pricing models and strategy in these two environments.
Let’s consider the most drastic situation first – low-volume mono printing.
Here we find a Total Cost of Printing that is as much as 53% higher now, April 2006, than it was two years ago (April 2004).
Figure 1 shows the situation faced by customers wanting a personal laser printer. Two years ago, the model available was the E321, costing £209 and with cartridge pricing that offered a nominal CPP of 1.6 pence, which, printing 2,500 pages per month, gave a 3-year CPP expectation of 2.17 pence.
Lexmark E321Lexmark clearly saw this as an opportunity to make more money from the supplies. The cartridge for the E321 had cost £95.77 and yielded 6,000 pages – a nominal CPP of 1.6 pence. But, the new cartridge (toner only) was priced at £64.86, yielding only 2,500 pages – a toner only CPP of 2.59 pence – 62% higher than the single-piece unit for the E321!
On top of the toner, the user was obliged to purchase a drum unit every 30,000 pages at a cost of £43.69 (0.15 pence per page), giving a combined nominal CPP of 2.74 pence – a massive 71% higher than the E321.
Lexmark E232Requiring 18 toners and one drum to print 45,000 pages over 3 years, the E232 user could expect to spend 58% more on supplies than the E321 user who would have needed to buy just 8 toner units! This results in a long-term CPP over 3 years that is 31% higher for the E232 user on a nominal supplies CPP that is 62% higher.
Probably realising the gaff, Lexmark reduced pricing on the toner and drum units for the E232 over the course of the next year, bringing a reduction of 12% to the nominal CPP and 15% to the overall CPP (including a contribution from a reduced purchase price). This meant that, 18 months on, the E232 was only 18% more expensive than the E321 instead of the 31% noted at time of launch.
Unfortunately, the E232 then fell foul of the supplies price increases and, when this month’s price increases were announced, the nominal CPP rose by 17% from the October 2005 cost, pushing the Total Cost of Printing up by 16%.
Overall, the result of the two-year trend is that the basic supplies cost of the E232 is now a massive 76% higher than the basic cost of the E321 two years ago. Overall, the increase in Cost Per Page, including purchase and printing of 45,000 pages, is 37% on two years.
However, technically, the story doesn’t end here. The E232 was actually discontinued in February of this year, replaced by the E120n – a 20ppm printer introduced at the same price as the E232, £87.
Lexmark E120nThis new model gave Lexmark the perfect excuse to ramp up the price of supplies again. Note from Figure 1 that although the purchase price of the E120n is the same as the exit price of the E232, the supplies are a further 10% more expensive than the E232. This results in a customer buying the E120n in April 2006 needing to be prepared to pay an extraordinary 94% more for supplies than the customer buying an E321 in April of 2004 and a massive 53% more over a 3-year period of ownership – if all the prices were to remain unchanged!!
Changing prices are, of course, the curse of the customer. Perhaps they might be reduced over time – certainly we have all come to expect pricing decline on IT hardware but the concept is a total misnomer when it comes to printer supplies.
Not only might they go up instead of down but with Lexmark we have been seeing significant increases as well as a high frequency of those increases. Not even Hewlett-Packard, the other US manufacturer prone to Wall Street led pricing policies, can be accused of such wild pricing adjustments and there can be absolutely no comparison with pricing policies of Japanese manufacturers where a long-term business outlook is reflected in minor, if any, pricing adjustments during life.
From the Customers’ point of view, it has to be noted that Japanese printer manufacturers offer a WYSIWYG pricing structure whereas US manufacturers, particularly Lexmark but with the possible exception of Xerox, do not.
Contrasting the situation described above with 33ppm mono printers aimed at higher-volume workgroup environments, T630/T640, we see how the upper end of the spectrum is hit less hard by the pricing fluctuations than the low-end.
Lexmark T640Figure 2 shows the same 2-year period for the T630 up to the autumn of 2005 when it was replaced by the T640 at a slightly lower purchase price. While we see a 39% decrease in purchase price over the 2 years, we see supplies pricing rising by 6%. At a print volume of 10,000 pages per month (360,000 pages over 3 years), this has the effect of balancing overall CPP almost precisely – with an increase of just 1%.
Note however, that there is the same blip in the trend in the autumn of 2004 when Lexmark attempted to increase prices on supplies but were forced to reverse those increases. This is a graphic representation of the phase Lexmark went through of hiking supplies prices only to reduce them again within a couple of months.
On the colour side of the business, the same basic factors are noted. At the low end (Figure 3) we actually see the same four-pass model (C510n) on the market right through from April 2004 to April 2006, during which time its purchase price has been cut by a hefty 57%.
Lexmark T640Not so supplies prices! Supplies consumed by mono printing only have been increased by 27% over the period and pricing on the full set of supplies for colour printing, at a ratio of 70% mono pages and 30% colour pages, have risen by 33%. This has resulted in an overall Total Cost of Printing that has risen by 15%, with the high increases in supplies prices partially balanced by the large price cut on the hardware.
Because 70% mono and 30% colour is a notional figure for the balance of mono pages printed against colour pages, the calculation has also been run for a machine printing nothing but colour pages.
Here we see the effect of the heavy price increases on colour supplies coming into play such that the hardware price reduction has much less of a balancing effect. The overall increase in Total Cost of Printing is now 25% two years on.
Lexmark C510n
CPP - Lexmark C750
So, Figure 4 shows the changing situation for nominal supplies CPP and Total Cost of Printing for a C750 bought just before it was discontinued and operated between April 2004 and April 2006. The original exit price of £1,739 has been used throughout as the purchase price for the overall CPP to make the point that, once the customer has purchased a machine, the Total Cost of Printing has simply been increasing!
For instance, the chart shows how the nominal cost of mono printing is now 11% higher and the nominal cost of colour printing is 14% higher.
Overall, the Total Cost of Printing expectation, over a 3-year period, would now be 10% higher, assuming no change in purchase price or supplies pricing over a complete 3-year period. These figures are based on our standard 70%/30% mono to colour printing balance. If the machine were used solely for colour printing, the customer would have seen the Total Cost of Printing rise by 13%.
Lexmark C750As in the mono segment, we see that Lexmark has kept price increases lower in the high-volume printing segments, expecting low-volume customers to bear the brunt of its need for increased revenue.
Pushing up the Cost of Printing so fast could prove disastrous for Lexmark in its current fragile financial position. Some customers may be swayed by exceptionally low purchase prices, thus falling foul of very high supplies prices and perhaps living to regret the decision, but it does appear that more customers are becoming more aware of the principle of considering a ‘Total Cost of Printing’ model and are making purchasing judgements based on a more educated and longer term outlook.
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