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Authorized or Un-Authorized – What Does it Mean to You?

4 Feb, 2014 By: Gil Wazana, MSE

By now most of you are aware that HP has changed their distribution strategy and unless you are an Authorized Partner, you will no longer be able to purchase OEM consumables from authorized distributors.

We are now left with the Authorized and Un-Authorized channels and this article will discuss the actual and potential impact on each and the steps that can be taken to mitigate the dependency on the OEM.

For the Un-Authorized channel there are only three viable options. The first option is to source through “grey market” channels. Sourcing through grey market is tricky at best and continuity of supply isn’t certain to say the least. There is also risk of counterfeit products which would only further emphasize to consumers the need to source from Authorized resellers. Grey market channels have withstood the test of time and are unlikely to be abolished, but if your business is heavily dependent on OEM consumables, this would appear to be a temporary option that will perhaps keep your head above water as you sort out a more sustainable solution.

The second option is to apply for Authorization. The process seems arduous and I have spoken to some resellers that have been waiting for months to get a reply. Aside from the process itself, it is very important to read the terms of the agreement line by line and even in between the lines. At time of press the agreement is public and available on HP’s website. It has language revolving around audits of a reseller’s books and records in order to understand the sale, maintenance and disposition of all products. It continues with language that grants HP “sales-out information for HP products.” I’m certainly not a lawyer and don’t have a legal opinion to give, but it would be a wise choice to seek legal counsel to better understand what rights are being granted to the other party.

The third option is what I would consider a hybrid and combines option two with an effective and sustainable aftermarket conversion program. The reseller channel will always be linked to the OEM and it’s evident that a balance must exist. As a testament to that balance, consider that most of the largest OEM manufacturers have embraced and developed an aftermarket offering. For them, as it will for you, this has led to incremental revenue opportunities and higher profit contribution. A proper aftermarket conversion program will reduce the reseller’s dependency on the OEM and more importantly, the final consumer’s dependency on the OEM. Done correctly, an aftermarket conversion program will also dramatically improve a reseller’s profitability

Wake Up Call

For the Authorized channel this should serve as a wake-up call. How dependent are you on OEM supplies? Do they make up 95% of your consumable sales? Does this change signal a shift in how HP will protect their supplies business? Will it be harder to remain authorized year over year and what restrictions will be forced on you? The good news is that you already have half of option three discussed above locked in, you are already authorized and now it is about mitigating your dependency and driving higher profits. Sounds easy I suppose, but if that is the case, why does the OEM dominate to the tune of 80% global market share on supplies. The answer is quite easy really, they have the best product and consumers will long term choose quality over price. So developing an effective and sustainable aftermarket conversion program is easier said than done and entails a real commitment.

The aftermarket industry is filled with companies claiming to be first in class quality leaders making products that are OEM equivalent; it seems that everyone is the best, so why is the aftermarket share so low? It boils down to the old adage of “the proof is in the pudding.” You must do your due diligence and not allow yourself to be confused by the multitude of sub-brands being tossed around. You have to find the substance behind it all so you can truly make an educated decision. Schedule a tour of the manufacturing facility and ask specific questions about how the particular manufacturer has overcome technological barriers that were presented by the OEM and how are they reinvesting to ensure sustainability. The right partner will be just that, a partner, which means they will push uncomfortable buttons and challenge some of the things you are currently doing. They will push you to price your aftermarket offerings market down versus OEM as opposed to cost up. They will offer training to your sales team on proper talk tracks and positioning. They will help you avoid being viewed as just another “remanufactured toner-phoner” by consumers who have grown tired of hearing “me too” sales pitches.

Once you have selected the right partner, you can embark on the journey of reducing your dependency on the OEM while improving your bottom line. It is unclear at this point if more changes are on the horizon, but in most business scenarios, a high dependency on a particular segment is unhealthy. Whether you are Authorized or Un-Authorized and with the fact that a quality aftermarket product will deliver substantially higher profit dollars, you should take the steps to better understand your options and line up true partners that will support you through the evolution.

Gil Wazana is Vice President of Sales, MSE.  For detailed company information, http://visit www.mse.com

In addition, look for MSE in the conference education sessions and exhibit floor at the ITEX Expo & Conference at the RIO Hotel, held in Las Vegas March 11-13 2014. For detailed info and agenda visit http://www.itexshow.com

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