HP Tries to Breathe Some Life into Its Inkjet Cartridge Business at Retail

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by Charles Brewer, President, Actionable Intelligence

It’s no secret that Hewlett-Packard’s inkjet business is ailing and has been for awhile. The firm hasn’t reported an increase in inkjet hardware sales since last summer. Next week, HP will report financial results for its latest quarter, which ended on July 31. It will be interesting to see if demand has remained weak for its consumer printers, which are largely inkjet units. With no growth reported in over a year, the OEM’s supplies business has been equally lackluster. As one might expect given the withering demand for inkjet hardware, HP managers have blamed slow sales of inkjet cartridges for the overall decline in supplies revenue for the past few quarters. But maybe that will change.

The lazy, hazy days of summer are not historically a time when folks print a lot. That’s probably why HP has been so active in its attempts to drive sales of its inkjet cartridges lately.During the closing days of last month, HP ran a “buy two, get one free” inkjet cartridge promotion at retail stores across the U.S. The OEM supported the deal with lots of print ads and in online banners. At its Web store, HP sweetened the offer with an additional 20 percent off for purchases over $50 and free overnight shipping. I can’t remember a time when HP gave such an aggressive discount on its inkjet cartridges, and I suspect that it was a hit.

HP has also been working closely with individual channel partners to drive sales of HP inkjet cartridges at certain retail stores. In June, the firm introduced a new line of low-cost inkjet cartridges at certain Staples retail stores and at the office superstore’s website, Staples.com (see “HP ‘Economy Ink’ SKUs Debut at Staples.com as HP Remans Disappear”). Delivering roughly 5 percent fewer pages than the equivalent standard yield SKU but costing about 15 percent less, HP’s “Economy Ink” line, which currently includes 10 different cartridges, offers consumers some significant savings. Typically, you may recall, remanufactured cartridges are priced at 15 percent less than the equivalent OEM cartridge, so HP appears to be looking to gain back some share—and consumer love—with its new line. And, if it sells well, Staples will be thrilled with HP too.

At select Best Buy and Office Depot stores, HP has recently expanded its Instant Ink program. Launched last October, Instant Ink is a subscription service that delivers inkjet cartridges to consumers who purchase certain Web-enabled HP printers. Depending on the machine, subscriptions run between $5.99 and $10.99 per month. HP claims the service can save consumers as much as 50 percent off the purchase price of replacement cartridges. After using the initial set of cartridges, subscribers return their empties as cartridges are exhausted and they are shipped fresh supplies. HP uses the Web to monitor the machines in the program and ensure subscribers don’t violate the terms of their agreements. While the program is currently limited to Best Buy and Office Depot stores in a handful of states, it is expected to be available across the U.S. by year’s end.

So, with all this activity, will HP be able to get the hockey stick going in the right direction for its inkjet cartridge revenue? And, if the firm does manage to breath life into its inkjet supplies business, what—if anything—will that do for hardware sales? These sales are essential to the long-term health of HP’s printer business because unlike LaserJet revenue, which must be shared with Canon, HP gets to keep its inkjet money. In addition to seeing what impact all the discounting has had on supplies and hardware sales during the third quarter, it will be interesting to hear during next week’s earnings call if margins have been squeezed. Moreover, what will demand for inkjet cartridges be for the remainder of the year as impact of the buy-two-get-one free deal is felt in market?

Sorry to say, I’ve got more questions than answers at this point.

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1 Comment

  1. Hi Charlie,

    I would agree with the more questions than answers statement, In the past we may not have liked what they were doing but at least we could understand it.

    I find myself asking , what is their End Game? How on earth can lowering their prices (in and of itself) have any effect on demand, without an accompanying marketing push as you mentioned. You also nailed it with the most 2+1 free promotion, this is not an attempt to expand their market, it is an attempt to book tomorrows sales today. I think they referenced this as an attempt to reduce inventory levels but they did not hit those #s either…

    Seriously, 53% off and free overnight shipping and the couldn’t hit their #….WoW

    Then you have this whole Staples debacle, having traced your articles back to the 100 Mil SEA where HP remans came off the shelf at the end of 06 to the intro of OEM cartridges being sold at Reman prices. I cannot believe that this just seemed to roll by with little or no discussion. That could be an End Game for the Aftermarket.

    But the most interesting part of this turn of events is how the power seems to have shifted from the OEM to the Superstore. If you remember the tail end of 06′ the OEM’s sued the Staples Reman suppliers and then cut a deal to have the HP remans come off the shelf. I think the OEM’s may have been a little high handed during this time because of the class action suits brought by consumers….and thus HP was ripe for a massive shift to remans. By removing that option from the staples shelves they were able to avoid a possible disaster…

    In Feb. 2011 you release an article about the possibility that HP remans might be reappearing on the Staples shelves and they did. And like the last 2 times in Jan 2012 the staples suppliers get named in a lawsuit. But the Staples response this time was quite different because instead of removing reman products, in March 2012 they actually added more reman HP products…What the???

    The next thing you know CAU is laying people off, the reman HP comes off the shelves and is replaced by OEM cartridges selling at the reman price point???

    Is the tail wagging the dog here or what?

    Rick

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