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The Case FOR QUALITY in aftermarket supplies

22 Mar, 2010 By: Craig Faczan imageSource

The Case FOR QUALITY in aftermarket supplies

I think by now, many resellers (and end users) see the value of compatible
imaging supplies.  Compatibles are environmentally responsible, resellers can
make 2-5 times the margin on compatible supplies compared to selling OEM, and
end users can save on average, anywhere from 20-60%.  So, if compatible
cartridges have equivalent quality, are environmentally responsible, and cost
significantly less that the originals, why isn’t every one of your customers
buying them? The answer is simpler than you think.

Key things to consider

There are three main points to be considered.  1) reduced environmental
impact, 2) increased consumer savings and, 3) increased dealer profitability. 
Let’s first look at the environmental aspects of compatible cartridges. 

Remanufacturing is often the highest form of recycling. By reusing certain
non-wearing parts of a cartridge, our industry prevents millions of tons of
plastics and metals from potentially entering our landfills every year.  There
are several studies now available proving that the carbon footprint of a
remanufactured/compatible cartridge is up to 65% less than the associated OEM
cartridge.  All in all, it’s hard to dispute that recycling is bad for the
planet – regardless what some OEMs attempt to disprove. 

Regarding cost savings, I do not know of any companies who (ethically) sell
compatible cartridges higher than the associated OEM cartridge.  Oddly enough,
remanufactured cartridges are one of the few recycled products in the market
that actually costs LESS than a newly produced product. Although consumers can
potentially “save up to 80%” as some Internet companies claim, I would question
the quality of these products and the true value they offer consumers.  A
realistic savings on a comparable product is about 20-30% on average.

The REAL challenge to gaining and maintaining market share is directly
attributed to product quality.  Someone once said to me that  “You are only as
good as your last cartridge.” I couldn’t agree more.  I’ve noticed that no one
ever seems to cry foul when an OEM cartridge is defective.  For example, while
at the bank the other day, they printed some documents for me.  I almost laughed
at the uneven density in a black bar across the top of the paper.  I checked the
printer and, of course, it had an OEM cartridge in it.  When I asked the manager
about the print quality she said, “Oh, it’s always been like that.” If that had
been an aftermarket cartridge, I bet it would have caused a few people to be
more concerned. 

In today’s business environment, productivity needs to be at its maximum. 
Replacing defective cartridges & haggling with vendors over replacements &
warranty issues regarding damaged equipment, certainly are not productive. At
some point, there becomes a significant difference between cost & price. 
Regardless of the discounted price and the minimized impact on the environment,
a customer will (eventually) go elsewhere if a cartridge doesn’t work

In the dealer’s eyes

Over the years, I’ve realized many resellers do not realize what it really
costs to have a defective cartridge. Not only are the initial defective product
costs lost, but you also have lost opportunities, lost margin, and even worse,
lost customers.  In one model I created for a prospective customer, I was
astounded to the actual amount of money they lost with every defective
cartridge.  When we looked at their defectives, I calculated the additional cost
on their brand of compatible cartridges to approximately $16 more per unit! 
Instead of the $59 they were (initially) paying for this cartridge, it was
really costing them $75. That is roughly a 30% increase of costs that they had
never calculated before

For simplicity, let’s look at the following model. Let’s say you pay $60 for
a cartridge and sell it for $100.  Your profits are $40. However let’s assume
that cartridge is defective.  You now have to buy a replacement that costs you
an additional $60. This results in your costs on that first cartridge to rise to
$120!  Remember, you also have costs involving the pickup/return and delivery of
the replacement ($5-$10), personnel costs (lost time and aggravation), sales
opportunity costs (time spent making sales) and potentially losing the customer
altogether. If you sold 1000 of these $100 cartridges and had a 5% failure rate,
it would end up costing you $8,500 more than you thought you were paying. What
you thought was your $60 cost actually totals nearly $70!  With this brief
analysis, you can clearly see that the “hidden” costs of defectives can
significantly damage both your gross and net profits. If that rate dropped from
5% to 1%, your incremental defective costs would only be about $1.50 per
cartridge. All the more reason to focus on quality. 

Understanding the market

Here in Los Angeles, it doesn’t snow. On the contrary, my hometown in
southwestern Pennsylvania gets more than 60 inches of snow every year (on
average). So, if you sold snow shovels, which market would you want to be in? 
The answer is obvious. However, when it comes to compatible toner supplies, many
dealers often forget to see the forest through the trees. 

According to InfoTrends, only 22% of end users buy compatible monochrome
toner cartridges and 5% of end users buy compatible color toner cartridges. In
other words,  78% of end users still buy OEM monochrome and 95% of end users
still buy OEM color cartridges.  So, ask yourself, are you trying to sell snow
shovels in Southern California? 

If thousands of cartridge companies are trying to compete for this small
percentage of market share, it has to be quite competitive. There is so much
talk in this industry about the influx of inexpensive overseas products (and I
know many dealers do not even bother with bids because they basically are all
about price). You may wonder then, how DO I sell compatibles? The answer is
simple. Purchase the highest quality products you can and compete against the
OEMs. You compete in the largest market segment, maintain larger margins, and
retain long-term business based on customer satisfaction.

Other ways to add cartridge revenue

If you are doing printer service, you can have the strategic advantage over
your competition. By becoming the sole vendor responsible for the upkeep and
productivity of the machine, you now become invaluable to your clientele. Take
service to the next level and offer a managed print solution.  You can bundle
everything together and lock out your competition altogether. Additionally, in a
managed print contract YOU decide what products to use. Compatible cartridges –
especially high yield and JUMBO cartridges, will maximize your profits, minimize
cartridge interactions, and even lower defective rates. 

I’ve heard many resellers say “I want to sell more cartridges” when in
reality they should be saying, “How do I make more money?”  What if I told you
that you could sell FEWER cartridges and make MORE money? At first, I bet you
wouldn’t believe me.  To do so, the key is to understand cost per unit of sale. 
In the case of toner cartridges, one must evaluate cost-per-page (CPP). In
particular, JUMBO toner cartridges make the most “sense” or “cents.”  For
example, let’s look at a model using the HP LaserJet 4250. The numbers may
surprise you. (See Figure 1).

As you can see, a dealer could sell 20 fewer cartridges, make nearly $2,500
more profit, and the end user would still save about 30% on cartridge costs.
Other factors such as reduced environmental impact, fewer cartridge changes,
less freight charges and fewer number of defectives have not been addressed in
this model. In other words, the benefits for both the dealer and end user are
even more than calculated. 

Summary: It’s been my experience that dealers who sell high quality products,
provide laser printer service, and offer JUMBO cartridges have a significant
advantage over their competition.  In addition, they are able to capture and
maintain more wallet share of both their existing clients and prospective
clients.  The key element to successfully selling compatibles is quality.  You
can maintain higher margins, close more business, and keep your customers
happy.  At the same time, you probably won’t have a warehouse full of snow

Craig Faczan is the Marketing Manager for Micro Solutions Enterprises (MSE). 
Craig is a 14 year veteran within the aftermarket industry and can be reached at
800.673.4968, craigf@mse.com or by visiting

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