Nubeprint’s Antonio Sanchez Navarro notes that whilst making a profit as a dealer is more difficult nowadays, not everything is negative, and discusses how the challenges faced can be managed.
Making profit as a dealer in the printing industry is getting more and more difficult. External and internal elements threaten the status-quo. But not everything is bad news. Quite often these threats are opportunities that, well managed, can be used as a competitive advantage.
Antonio Sanchez Navarro
Globalisation
Most of the small dealers have seen their customers addressed by companies that are not even located in the neighbourhood. Quite often the competition comes from web stores that use an aggressive pricing combined with an outstanding availability of the product and fulfilment facilities. Fighting against these competitors is not too complex: it is a question of reducing the price and increasing the stock. The result for the dealer is a radical reduction of the margin, even negative. As a consequence, this solution is unsustainable over time.
There is another type of competition, supported by the “internet” too. But opposite to a web store, where the dealer proactively buys from it, these are service companies that use auto-fulfilment to serve all the printing needs of the customer in a proactive way. The shipment is automatically triggered using the advantage of having direct access to the printers of the customer, and therefore knowing in advance when a cartridge will be needed. The profile of these companies is very wide: from OEMs that go direct to the end-customer, to MSPs or dealers that have moved forward from just shipping cartridges to auto-fulfilment or even managed print services. The issue of shipping to wherever the customer’s office is located is solved in a very clever manner, by asking their distributor to use its network capacity.
Fighting this type of competition is harder because most of the auto-fulfilment contracts tie down the customer over a period of time. Therefore the only way to fight against this is being the first to sign with the customer.
Pressure on prices/competition
As a product becomes popular, its price goes down. It is not only the result of mass production economies; it is merely the increase of competition that pushes prices down, and so does the margin. The globalisation accelerates competition, leaving little room for healthy margins.
The competition based on price is not sustainable long-term. It obliges the dealer to go and find cheaper cartridges. Long-term, the quality is impacted, the customer starts suffering and he finally moves to your competitor looking for a trouble-free product.
No big pocket full of cash will work anymore in a strategy of low prices. The reason is that the printing market is very open and “perfect”. There will always be competitors somewhere ready to compete with your pocket. Fighting low price with lower price is a “lose-lose business”. There will be no winner: not even the customer, who will get a better cost but for a “troublemaking” material.
What any consultant will recommend is to change the strategy and redefine what you are selling for. The aim is to keep doing the same thing (shipping cartridges) but maintaining the quality (trouble-free). This is a “new” product alien to the price competition in the market. Well-bundled using existing technologies, it is easily transformed into a “service”.
Services
There are three major differences between billing cartridges and billing services: the first one is the perception of the customer. When a customer buys services, he is indeed buying solutions to his problems. Opposite to a product that can be easily compared, and where the main difference is the price, a service is valued based on how much benefit the customer perceives. Of course, the risk is that the customer’s perception is something difficult to control and manage. But as long as his perception is good, the loyalty of this customer is higher.
The second difference is a consequence of the previous point: the possibility to get a healthy margin is higher in services. It is the result of the ability of the dealer to define its “service” to address the problems of his customer. The better he does it, the higher he can price his customer and the better his margin is.
There is a third aspect that makes selling services very attractive compared to selling products: its recurrence. When the dealer bills a monthly recurrent amount, no matter if it is variable, he can much better plan for its financials, making the business more stable, and letting him focus on developing it, instead of struggling with cash issues. A service contract compromises both the dealer and the customer over a long period of time: this is good for the dealer as mentioned above, but good for the customer too because the dealer uses its increasing know-how about the customer’s printing needs to customise the services, adapting them to its specificities.
Demands from customers
The depression that most of the economies have been suffering since 2007 stressed the need of companies of all sizes to control the costs, and focus on their core activity. The need of printing is not an exception. Printing is just that: a need, not their core business. As such companies are demanding outsourcing. Indeed, plenty of companies still spend thousands of hours calling to request toner, chasing the toner when received, allocating hundreds of square feet to stock the toner delivered in excess by the supplier, and again hours and hours renegotiating the price every year based on the volume of cartridges delivered, no matter if there was a need or not.
The customers are aware of these “hidden costs” and demand the outsourcing of their printing needs similar to outsourcing any other IT facility: the contractor puts the copiers, printers, supplies and elements to ensure their auto-fulfilment. The employees of the customer are moved away from the printer or copier fulfilment process. But the control remains at the customer side, as a way to supervise the quality of the service.
The dealer is a fundamental element of the distribution channel. He is in a very desirable position: he knows his customers and his customers trust him. Though his position is threatened from many sides, he still can take advantage of his current position and reinforce his role. But he must adapt to the new situation, moving out from the competition in price into the delivery of value-added service.