Eastman Kodak Co. designed a new line of Kodak printers that print high-quality photos. The ink is for-mulated so prints will stay vibrant for 100 years rather than 15. Most impressive of all, replacement ink car-tridges will cost half of what consumers are used to paying. The new printers will be priced at $149 to $299. Black ink cartridges will cost $9.99, color ones will cost $14.99. If consumers buy Kodak’s economical Photo Value Pack, which combines paper and ink, the cost per print is about 10 cents, compared with 24 cents for Hewlett-Packard’s comparable package. “It’s really a revolution of thought in how to bring the price of printing down and encourage people to print more,” says David Morrish, senior vice president of merchan-dising for Best Buy Co., which has an exclusive on the product for three months. If Kodak pulls this off, it could pose a huge chal-lenge to the $50 billion printer industry. Those com-panies now rely on a razor-and-blades strategy, often discounting machines and making most of their prof-its on replacement cartridges. “We’re very proud that we’re coming to market 20 years late,” Kodak CEO Antonio Perez says with a grin. “We think it will give us an opportunity to disrupt the industry’s business model and address consumers’ key dissatisfaction: the high cost of ink.”
In particular, Kodak’s strategy is an assault on tne profit engine of industry leader HP. Printing supplied 60 percent of HP’s $6.56 billion in operating earnings last year. Even before Kodak’s new printer introduction, HP was facing strong competition from cheaper store-brand ink-jet printer cartridges. To fight back, HP has allegedly approached chain stores that sell store-brand cartridges compatible with its printers and offered them incentives if they end the practice. Because those replacement cartridges typically sell for 10 to 15 percent less than HP’s, consumers could be the big losers if a lot of retailers take the printer giant up on its offer. Staples Inc., the country’s largest seller of replace-ment ink, confirmed to Business Week it plans on phasing out sales of store-brand inks for HP printers. Industry analysts are watching the action closely. “The specula-tion is that (Staples] reached a deal with HP and got increased margin and soft money for marketing,” says Charles Brewer, managing editor of The Hard Copy Sup-plies Journal, a trade publication that first wrote about Staples’ move. “That line is selling very well for Staples. They wouldn’t drop it without compensation.”
Other retailers, including Best Buy Co. and Office Depot Inc., say they will continue to sell store-brand HP-compatible ink. “We carry what the customers ask for,” says Scott Koerner, senior vice president for mer-chandising at Office Depot. “As long as the customers continue to ask for it, we intend to continue to carry it. This is about providing customer choice.” Asked if industry behemoth HP approached Office Depot and asked it to stop carrying store-brand ink, Koerner said, “I can’t comment on any conversations with HP one way or the other.” Executives in the ink cartridge remanufacturing industry say they are discussing whether to complain to regulators about the moves, which the executives say may harm consumers. Do these alleged tactics raise antitrust questions? “Antitrust law would only be violated if HP does something that significantly eliminates alternatives from the market and gives it enhanced market power as a result,” according to Steven C. Salop, professor of economics and law at Georgetown University Law Center. “Right now, there are alternatives being sold at other office superstores, and other printer brands are being sold at Staples.”
Questions for Consideration
1. What do you think of HP’s move to offer retailers incentives not to sell their store-brand alternatives to HP cartridges?
2. HP recently sued two companies that sell refilled ink cartridges, arguing that the companies violate some of HP’s patents. HP holds 9,000 patents related to imaging and printing, 4,000 of them for consumable supplies such as ink and cartridges. If companies are allowed to refill and resell HP cartridges, will this hurt HP’s razor-and-blades strategy of selling its printers less expensively in hopes of making up profits in the cartridges? Is there something else that HP could do to sell printers at less than cost, but somehow make it up after the sale? 3. If you were Kodak, what kind of marketing campaign would you launch to compete against HP?,
