One year ago Kodak entered the multifunction ink jet printer market with a radical new concept: Sell the printer for a bit more and the ink for a lot less. So did the strategy work? Yes and no.
Kodak's approach with the EasyShare 5000 series (and the successor ESP series which launched this month) turned the generally accepted marketing wisdom on its head. While most vendors sell ink jet MFPs at a low margin and make up the difference selling high-margin ink and paper products, Kodak went the other way, hoping to tap into frustration among frequent printers over the high cost of ink cartridges.
To date, not one competitor has countered with its own low-cost ink strategy. The approach seems to be to ignore it and hope that Kodak goes away.
Most buyers don't educate themselves prior to purchase. While car buyers may do extensive research online before stepping into a dealer showroom, IDCs survey results show that most consumers do very little up front research before walking into a store and making a purchase. There are people who do research online. The majority say theyve done very little, says Glaz.
Consumers don't always get to choose their printer. Because so many home computers come in bundles, consumers often end up taking what they get, says Glaz. Typically, thats not a Kodak product.
Consumers arent using as much ink. "We're finding that people are printing less," says Glaz. Users have easier and more mobile access to the Web and so are less inclined to print everything out. And they are printing fewer photos at home, choosing instead to just take a CD-ROM down to their local Wal Mart, says Glaz.
It appears, then, that Kodak will have the greatest success with knowledgeable consumers who do a lot of printing and are looking for good quality printing and the lowest cost per print and who are willing to pay $30 or so more for a printer up front. If that doesn't sound like a recipe for mass market printing success thats OK with Felke. People who dont print a lot should stay with the alternatives because you get a better deal on the hardware if you only use one cartridge a year," he says. (On the other hand, it doesnt take a lot of photo prints to use up a color cartridge. Glaz estimates that the difference can be made up in cost savings after using 2-4 cartridges, depending on the models youre comparing. See the review link above for a comparison of Kodak and H-P models)
Even if Kodak doesn't end up with a huge installed base, it could improve profitability at the expense of competitors by cherry picking away the most profitable group of MFP ink jet buyers: Those who do the most printing. Its the old 80/20 rule. Consumables bring in the profits and 20% of users do most of the printing.
"If these people print 40% more [than the average user], the revenue Kodak gets from sales will be pretty good for them," says Glaz. At the same time, the industry leaders, such as H-P and Canon depend on those hefty margins on consumables to make up for razor-thin profits on the hardware. If they end up with a larger installed base but most of those users are using only one cartridge a year, they will be less profitable.
From that perspective, Kodak doesnt need to gain mass market appeal to win. Instead, its strategy could upend the system by dominating in just one important user segment.
That's the dream. But it will take more than a 1% market share to get there, and the competition has never been tougher.