What Xerox, HP, and Konica Are Not Telling You: Your Revenue Will Reduce by 50% in the next 7 years.
Your current hardware partners are misleading you. Lying is a strong word, but they are no longer telling you the whole truth about what is happening in the office print and imaging industry. The problem is that their goals no longer align with yours. Revenue is in steep decline and talking about how tough things are, is far from a popular topic. OEMs are trying to get all the juice they can from the lemon. The problem is that you are the lemon.
This statement could get me in a lot of trouble, so let me back it up. Last week I was looking for statistics on office printing. I’ve been in the industry for 20 years, so I know my way around when it comes to information sources. A few years ago, it was common for the likes of InfoTrends or LYRA to share data on the printing market. It is no longer easy to get. Why? Well, the information is being suppressed.
You must dig for it, but the valuable piece is in the graphic that shows a 40% decrease in cut sheet consumption in North America from 2006 to 2010. That is a great measure for office printing. Something that decreases by 40% in 4 years translates into a 7-10% annual decrease. You should be alarmed by that number. It’s the kind of number you don’t share.
- If you are a research company, this is a number that OEMs won’t pay you to create a report on because they don’t want to focus on it or promote it.
- If you are an OEM like Xerox, HP, or Konica this is a number you don’t share with investors because they run for the exits.
- If you are an OEM, this is a number you hide from your resellers, because it’s the kind of number that FORCES those resellers to change their business model and find new products.
I can understand why OEMs don’t share that number with you. They are trying to mitigate the effects of dealerships shifting their focus away from office printing. Even as those are rapidly decreasing, your OEM “partner” still needs you to keep your focus on selling equipment and supplies. This issue tends to be deflected by statements such as “…the numbers are decreasing or are soft in a few segments…we are seeing pockets of growth…we are adjusting our business to address some of the areas of weakness…” They may not be lying, but that’s not exactly truthful, is it? It’s hard to pull out these numbers from the OEM financial results. OEMs mix together products, regions, segments, and business units to deflect these fundamental weaknesses. There are also many regions where the drop is not as fast. There are even regions where paper usage is increasing—but North America is a completely different story.
Why the 7% Decrease Number is Important
Knowing that a market will halve every 10 years demands attention. A 2% decrease would take 35 years to halve, but a 7% decrease demands attention. 2% is manageable. 2% is not urgent; 7% is URGENT. By not sharing this number, OEMs are deliberately misleading the industry. No business can sustain that type of decrease without changing strategy. A lower number makes owners think they can erase the decrease by working harder, working smarter, and making small incremental changes.
A change in strategy means you must change focus out of office printing. You must add product lines. If you do not shift your strategy, you likely need to lower revenue expectations and reduce staff.
Whatever you choose, the outcome is less focus on office print—that is what OEMs are trying to avoid because sales decreases will accelerate. That’s in their best interest, and to an extent, you want that too, but this is where strategy comes into play. As sales and revenues decline, a natural reaction is to pour more efforts and resources into existing products and try to get more customers. Consider that your competitors are doing the same thing. This will compress margins and compound the problem. In a way, OEMs are happy for you to follow this path, as you accept lower margins, there can be incremental sales increases for them.
The Growth Opportunity: Managed Services and Hardware
There are some signs that dealerships are expanding. One example is with managed services. This is a great step, and a winning strategy. Focusing on expanding your product breadth inside existing accounts is one of your only options. Most dealerships however are looking at the service component and leaving 50% of the sales on the table: hardware. Hardware sales and financing is in the DNA of most dealerships.
These products can be bundled together, sold or financed, and can help move your business away from an overreliance on print. Selling these products can also help you move away from your overreliance on expensive face to face sales.
This strategy change will not be easy. Staying the course is much less attractive and, besides, who really wants to be the lemon?
I wonder what your OEM would think…