Changing market conditions are important to OEMs, resellers, and remanufacturers due to short term and long term implications of market share, rising competitive pressures and economic impact.
Resellers and others in the 2014 Color Toner Market Study reported that 85 percent saw remanufactured color toner (RCT) cartridges as a viable alternative to OEM color. This indicates the changing attitudes and opportunity in the market. Consider also the trends of adoption of an OEM/RCT mix strategy, rising application in MPS like contracts, and the financial benefit of a substantial compared to OEM brands.
However the risk of RCT cartridges remains an important consideration. Depending on the remanufacturer and cartridge type resellers reported that OEM cartridges worked somewhat better (20-30%), experiencing a return rate of <2% 67% of the time.
This says that the color cartridge market is changing and the final outcome of the competitive developments not yet set. Improved performance of RCT is driving expansion of adoption and use. Resellers report that the greatest limitation to faster adoption is consistent print quality and return rates greater than 1 percent raise attention and concern.
The following discussion focuses on understanding shifting attitudes of resellers and others, key findings for factors affecting opportunity and risk, and market implications to OEMs, resellers and remanufacturers.
Profitable Niche
Cameron Consulting Group Inc. conducted the 2014 Color Toner Market Study. This work is important to the industry because it fills a gap in availability of professional, unbiased market data for color toner cartridges which has critical profit implications to resellers and the entire industry.
Independent resellers, distributors and others with recent RCT market experience were the target study group. The focus was on recent market experience to show the capability of the latest RCT cartridges compared with OEM and to concentrate on resellers and distributors to assess RCTs current viability as a viable alternative to OEM color. Preliminary study results include input from about 79 qualified participants out of more than 100. OEMs and remanufacturers were not included.
That color toner was reported as important to reseller profitability is not surprising.
Adopters and Skeptics
Fully 78 percent of resellers were currently in the market to some degree, selling and supporting RCT market offerings while 22 percent were not in the market at this time. The non-adopters were driven primarily because of a previous bad experience although they didn’t see an economic advantage or were concerned about IP liability.
The active resellers were top heavy with experience as 65 percent had four or more years in the market. This suggests a class of adopter that had weathered the storms of maturing RCT, had well developed relationships with leading remanufacturers and OEMs, and had found a profitable niche for RCT.
The skeptics, currently not participating in the market represent a hardened class of resellers. They are not likely to quickly return to the market until the risk is substantially lower. That said, we were delighted to have them participate in the study.
Probing reseller attitudes yielded a customer quote that, ‘Customers want lower cost, if the risk is reasonable,’ which is a common sense approach to a new offering. This begs the question, “Is RCT good enough for broader adoption?”
Assessing Opportunity
The reseller adoption rate is broader and deeper than 2012 when last studied. RCT penetration covered a much wider range of OEM brands (12) and significantly more cartridges sold per reseller. Colleagues in the industry like, Kevin DeYoung, framed the current market situation as, “No one worries about RCT anymore. It’s not a big issue for most of our customers. We just use it.” He went on to say he was more concerned about availability now than quality.
Key Indicators of increasing competition in color market include:
- OEM/RCT mix strategy was widely reported, 20-60 percent mix
- Contract penetration also was higher than expected
2014 Color Toner Market Study, Cameron Consulting Group Inc.
OEM/RCT MIX – Resellers reported using a mix strategy much like in the monochrome toner market. This approach is intended to maximize the reseller’s profitability while dealing with the reality of OEM relationships. The average OEM/RCT mix was about 50/50, which was higher than expected in the current market.
The implication of this strategy is that there is not much difference in how the types of color toner perform in office applications and that the reseller has developed confidence in RCT quality, life and leakage. This is supported by reported strong customer acceptance, too.
Contract usage is also a strong indicator of shifting reseller attitudes and confidence in the use of RCT. There is now more than one sound choice. In the past resellers have reported reluctance to use it in contracts because of quality concerns and potential customer risk, i.e., losing an account. Contract penetration followed the mix strategy percentage. This seems to reflects DeYoung’s attitude that RCT quality is no longer a major concern.
2014 Color Toner Market Study, Cameron Consulting Group Inc.
Shifting Market Attitudes
The past 10 years has been a story of dominance by OEM brands in the color supplies market. The OEM had the upper hand in quality while the remanufacturing industry was learning, improving, and maturing their products. The uneven performance of RCT over that time has created a hangover in the market that slows adoption, and for some eliminates it as a possible choice.
7% market share is a suppressed state.
RCT quality and the risk of product failure is a concern in the back of many reseller’s minds. It appears that the current generation of product has broken through the quality barrier, lead by market leaders of MSE, LMI and others based on the adoption strategies seen in the market.
Indicators of customer acceptance
- 85 percent of adopters view RCT as a viable alternative to OEM color toner
- 88.5 percent believe that RCT offers fair value compared with OEM brands
- 83 percent believe that their customers accept the use of RCT
This tells us about a positive experience for resellers and their customers in using RCT in 2014. It says that the large majority of customers had cartridges that performed well and were perceived as a value choice, meaning that the RCT cartridge offered good value for the price.
The implication is that the color toner market is changing. The current balance of power in this market is shifting towards the value alternative. All things being equal we should expect to see this play out in terms of market share over the next several years.
Product Quality and Residual Risk
Quality is hard to talk about precisely. The survey asked resellers about quality perceptions as shown above, and tried to quantify customer acceptance and return rates for reseller’s top selling cartridges. The point is that risk in many ways is dependent on quality and performance over time. We also looked at how RCT compared to OEM performance.
Quality Measures included:
- Customer satisfaction
- Print quality – 91 percent
- Page yield – 93 percent
- Leakage – 88 percent
- Color for text and graphics – 83 percent
This suggests that customers are satisfied with the product most of the time. We also believe it is an important reason that reseller confidence in the product is growing. The main caveat is that the results are dependent on cartridge type and the supplier. The primary supplies most often reported by resellers were MSE, LMI, Katun, West Point, Nine Star, and Image Star.
Return rate metrics told a different story.
- Reseller return rates for top selling cartridges
- 33 percent experienced return rates less than 1%
- Another 37 percent of return rates were marginal at less than 2 percent
- Outside acceptable limits, i.e., greater than 1 percent
- OEM cartridges outperformed RCT by 33 percent
- Depend on remanufacturer and cartridge type
2014 Color Toner Market Study, Cameron Consulting Group Inc.
Although the data is not precise it indicates that cartridge quality is not perfect and at least for some remanufacturers, return rates suggest more improvement is needed. The causes reported are pretty much what you’d expect, i.e., print quality, leakage, chip defects and others. However return rate levels don’t align well with the 90 percent customer satisfaction.
This begins to fill in the picture about product risk. It’s complicated. The risk of subpar cartridge performance may vary by remanufacturer and cartridge type over time. Also the wider use of RCT in contracts and general adoption of a substantial OEM/RCT mix, suggest that resellers are able to work through this uncertainty and find acceptable applications and solutions.
Conclusions
The color supplies market is changing as the RCT cartridges improve and the opportunity/risk balance shifts towards greater opportunity. Resellers with sufficient time in the market have found success and profitability in RCT. They have adopted a profit driven OEM/RCT mix strategy that they report satisfies a large percentage of their customers. Somehow they have worked around the potential issue of higher return rates.
Assuming that this success is something readily repeatable by other resellers, that it’s a discoverable process that can adopted by others, then the market change will continue. Currently RCT market penetration is about 7 percent (Photizo 2014) and expected to expand to 10 percent by 2018. One question is, ‘What are the factors that could accelerate the shift?’ For instance if the remanufacturing industry could create a step function improvement in quality performance, that might remove a major cause of sales resistance and accelerate the adoption rate.
An implication of the shifting market conditions is potential impact on OEM sales and profitability. Given the growing perception of RCT as a viable alternative to OEM brands, then that suggests increasing competition in the market. A shift toward commoditization of the market tends to favor the lower cost producer, i.e., the remanufacturer. One could expect that as the market heats up, the OEM’s would fight for market share by more aggressive pricing and other sales and promotion tactics to preserve market share. We’ll check back on market conditions at the end of 2016 to see have things have evolved.
This will also be affected by other related market changes such as the rise of inkjet and page printers as well as several critical legal cases that define the current OEM/remanufacturer battle lines over cartridge use and importation of cartridge shells.
Additional information on changing color toner cartridge market conditions is available at www.ccg1.net or by contacting Dr. Cameron at david.cameron@ccg1.net.
