CHANGING THE BUSINESS MODEL…AGAIN

                           By Lou Slawetsky

It’s meeting time – that time of year when manufacturers in the digital imaging space hold their dealer meetings to announce their strategies for the coming year.  Sharp and Konica Minolta held their meetings in February, Ricoh is scheduled for March and even Xerox, whose distribution emphasis has always been on direct (branch) distribution, is holding an “alternate channel” distribution meeting this month.  Regardless of the brand, we’re already noting some common themes from those meetings already held as well as releases from manufacturers who have yet to hold their annual events.  Each has an impact on the dealer business model and can present a risk to dealers not prepared to adjust their plans.  For example (in no particular order):

• Expansion of direct operations – All of the “top tier” players are expanding their direct branch operations.  Even, Sharp, the last holdout, indicated that they will be acquiring dealers, with one already done and three more in the works.  As recently as last year, Sharp stood steadfast behind a total dealer distribution network strategy.  Asked why this has changed, Ed McLaughlin stated that the old strategy “didn’t work.” Dealers representing all major brands will have to prepare for increased vendor competition.  Adding a second line will become less effective, since each line considered will bring with it its own branch competition.

• Monochrome production print – Sharp showed their newest Hercules models, one of which boasts a speed of 110 ppm.  Now the field is almost complete (Kyocera Mita being the lone holdout).  Are dealers ready to compete seriously in this market?  It requires better response times, considerably more uptime and, in many cases, a performance guarantee that will cost you money if you fail.  Couple this with the fact that, although these systems generate high volumes, the margins are low.  Finally, even Xerox admits that overall page volumes in the mono-chrome production space are down.  Consider this one carefully before you jump in.

• Printers – All vendors are stressing their printer lines. This is particularly true of Xerox and Ricoh.  Dealers tend to resist taking on any printer line, convinced that there is not enough margin in the hardware sale to pay the sales reps to sell these products.  But, printers do collectively generate sig-nificant page volumes.  Consider moving to a page-based compensation program to provide an incentive for sales reps to compete in this space.  If not, you will lose MFP page volume to traditional printer manufacturers such as HP, Lexmark and Dell.

• Color – The push continues.  Color sales now exceed 35% of total units for most vendors.  Yet many dealers are concern-ed about their inability to determine their true running cost as page coverage increases.  Many are excluding color toner from the service contract, only to find that (surprise) they lose the aftermarket to another supplier.  Some vendors, such as Xerox (PagePack) and HP (TPM) have introduced innovative “pay as you go” cost per page programs to protect their aftermarket revenue from color.  Your vendors should be doing the same.  If they are not, you’ll have to develop strategies to protect your aftermarket profits while maintaining your supply business.

• Solutions – Every vendor is offering a host of solutions to help address workflow issues.  Since most are third party offerings through partnerships, many of the offerings are similar, if not the same, for every vendor. That aside, dealers have expressed concern over their ability to generate profits from the sale of these solutions.  Many sell for only $1,500 or less and require the same amount of selling time as that needed to place hardware that generates ten times the revenue.  Dealers who continue to cling to this belief are turning a blind eye to the potential of the increase in page volume invariably generated by these applications, as well as the benefits associated with aftermarket revenues. Are you adjusting your business model such that the sales representative has an incentive to uncover applications and apply these solutions?  Do they benefit directly from the generation of increased page count?  Are you charging for scans?  The answers to these questions must be “yes” if you are going to profit from the direction in which your vendor wants to go.

The common denominator of all the meetings and announce-ments we’ve seen in recent months is change.  Vendors are changing their strategies to meet the new demands of a more complex market.  You’ll need to change your business model to profit from these new directions.

Industry Analysts, Inc., is a marketing and management consulting firm for the office automation industry. Much of the company’s research and testing results can be viewed on their web site – www.industryanalysts.com.