VICTORIAN VOICE: Consume or perish
- 20 November, 2002 11:16
Consumption is not just a disease or condition that causes the wasting of tissue matter. Sadly, it is also the fundamental principle by which modern economies function. As it is to other industries, consumption is essential to IT vendors and their channel partners. All levels of the supply chain desperately need people to partake in the act of consuming technology so that the tills keep ringing.
According to the Oxford Concise Dictionary, consumable, in its adjectival form, is "that which is intended to be consumed". As a noun, it is "a commodity that is eventually used up, worn out or eaten". When it comes to printers, it should come as no surprise that consumables are the profit centre of what has very much become a commodity product.
There may no longer be margin in the sale of printers but there is still gold in them-there-hills when you talk about the consumption of consumables. There is a huge discrepancy between the cost of manufacturing consumables and the price paid by the end user. For this reason, vendors are very protective of their consumables supply lines and revenues. Every generic, non-original cartridge or grey import sold by the channel is a lost high-profit sale to the local vendor.
As Victorian-based Epson distributor Digiland discovered recently, the penalty for distributors that don't play the game by vendors' rules is exclusion from the action. In a full-page advertisement last week, Epson announced to the channel that Digiland had lost its Epson Genuine Gold Seal distributor status.
Vendors are entitled to protect their turf and, as the move against Digiland proves, they are definitely going to do so as this lucrative market comes under attack from both clones and faked originals. In the global economy there are numerous companies in developing economies that are keen to manufacture anything that will sell. To their delight, printer consumables sell like beer at a cricket match. This means that third-party printer supplies are in abundance and available to anyone who wants to pay.
Digiland's Epson troubles appear to be a straightforward case of grey marketing - or parallel importing as it is also known. Epson has stated that under the terms of its Epson Genuine Gold Seal distribution program, selling anything other than original product is "a clear breach of the terms and the spirit" of the agreement.
All products sold in Australia bearing the Epson brand must be bought through the local branch of the company. Otherwise Epson "cannot guarantee the stock as genuine". Digiland has admitted to selling cartridges sourced from Malaysia. It has eaten the forbidden fruit.
So why does a company like Digiland succumb to the temptation of sourcing product from outside authorised channels?
In a program where 13 distributors jostle for Epson business, often it would only be the vendor that is making any serious money out of sales. Consumables are a better proposition than hardware but it is still a highly competitive business and the channel is stuffed full of stock. Large customers, and resellers for that matter, are well aware that consumables are the key factor in total cost of ownership equations, so they are all looking for savings in this area.
With so many potential suppliers, the option to shop around means margins are under pressure in this component of the sale. Another once-profitable line of business seems to be rapidly disappearing.
Epson's move may seem to be heavy-handed but this episode should also serve as a warning. Despite competitive pressures, the big guns of the printing game are going to do whatever it takes to ensure their chief source of profit remains intact.
I suspect Digiland isn't the only offender. There must be much more grey marketing going on in the consumables space and the vendors are only going to get tougher in protecting their patch.
Gerard Norsa, ARN's Melbourne based editor at large, can be contacted at (03) 9690 2933 or firstname.lastname@example.org.