It may not be a Greek tragedy, but it is an epic tale nevertheless. The debate over scare tactics that printer vendors allegedly use to “discourage” resellers from selling third party cartridges has taken another turn as a landmark lawsuit gets off the ground in the US.
The plaintiff is Lexmark, the defendant Static Control Components, a company that the printer vendor bunch would probably like to describe as one of those bandits responsible for turning their revenue issues from a minor headache into a serious migraine. SCC is responsible for the chip technology used to remanufacture original toner cartridges. As such, they are one of those Trojan horses that is eating into printing vendors’ most significant EBITDA contribution — a multibillion dollar consumables stream. Smell a battle of Trojan proportions? You bet.
Though vendors officially dismiss their significance on the grounds of quality and consumer preferences, remanufactured cartridges still account for 20 to 25 per cent of the whole market. There is no doubt that this is a big piece of the overall revenue pie. Even the world’s biggest IT conglomerate, HP, makes 15 per cent of its global revenue on cartridges.
In a no-nonsense world of political-types from Texas, such revenue streams would be protected by missile exchanges if necessary. In the world of IT, tactics of ‘discouragement’ are more of a ‘spin and sue’ persuasive variety. Lexmark’s choice was to try and legally prevent the enabling technology to be used in the remanufacturing process. Epson, on the other hand, has been battling remanufactured product through warranty provisions for years, claiming that using third party products can damage its hardware. This is rather curious given that most printer manufacturers not only make third party generic ink for each other’s printers, but also often buy their ink from the same place the remanufacturers do. More interestingly, independent studies have failed to corroborate the vendor’s findings. So, what’s the real issue?
The problem that vendors are facing is that consumers may be fickle, but they’re not dumb. Once upon a time, they may have settled for the cheap hardware-expensive supplies equation but, these days, they tend to go for the win-win economic formula all the way. They treat their printer supplies just like their car supplies (read petrol) — if it’s 10 cents cheaper and if it goes, then that’s what they want. And there’s no proof that remanufactured cartridges are a non-goer.
The model that allows for a printer to be sold under its realistic price — that which takes into account R&D, as well as its cost of production and distribution, to be subsidised by consumables-generated revenue — is obviously increasingly under threat. But showing signs of anti-competitive behaviour to cover for flaws in their business models won’t buy the vendors any favours. Outsmarting the opponent will.
The great majority of retailers seem to prefer to deal with the OEM product citing higher margins and not having to deal with higher return and fault rate of the remanufactured product as the main reason. Printing vendors themselves will have us believe that quality and cost issues, as well as increasingly advanced printing technology, are all playing in the favour of the OEM consumables, which still seem to be winning the profit stakes too. And, according to some market studies, most consumers are already reluctant to try third-party products due to manufacturer “recommendations”. So, if the OEM product is so superior, why are manufacturers so desperate to kill the clones off?
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