Dell Debuts Printer Strategy
Lisa DiCarlo, 03.25.03, 7:16 AM ET
After a year of chatter, Dell Computer today enters the printer business. It may a few years before Dell sees any meaningful financial impact, but it's clear the company is taking some risks to win
customers.
Dell (nasdaq: DELL - news - people )is getting into the printer business because the supplies--ink and toner cartridges--have enormous profit margins and Dell wants a piece of it. The company has
been reselling printers made by other companies for years. Roughly 20% of Dell's PCs are sold with a printer--in what's referred to as an "attach rate"--a figure it hopes to increase with its own line of
printers and supplies.
The main challenge for Dell, which does not sell its products at retail, will be in getting customers to order all their replacement supplies online. To do this, this
company has developed a so-called ink management system, software that measures ink and toner levels, gives users repeated warnings to order more and, when
they choose to do so, routes them to a Dell order supplies Web page.
The success of Dell's printer business really hinges on this. Market leader Hewlett-Packard (nyse: HPQ - news - people ) also has monitoring software and
customers can buy supplies through its Web site, but most of its supplies are sold at mass retail outlets like Staples (nasdaq: SPLS - news - people )
To entice customers, Dell will pay the cost of standard shipping. "If we do our jobs right, customers will take advantage of buying [supplies] early and they'll
never have to require next business day delivery," says Greg Davis, director of sales and marketing. Customers are charged $3.95 for next day delivery. HP offers
free standard shipping on orders of more than $250.
Apples-to-apples comparison with HP pricing is tough, since HP sells supplies for dozens of printers. Some are new and some are a few years old. But a scan of HP's Web site indicates prices are
within a few dollars of Dell's.
The conservative Dell is taking an unusually aggressive step to attract customers, and will pay for the replacement--shipping, handling and recycling--of any competitor's printer.
That may not sit well with Canon (nyse: CAJ - news - people ) and privately held Epson America, whose products Dell says it will continue to resell. HP stopped selling its products to Dell last
year when it learned it was planning to sell its own. Lexmark International (nyse: LXK - news - people ), the second largest U.S. printer supplier, is manufacturing Dell's products.
In a February report, Merrill Lynch (nyse: MER - news - people ) surmised that Dell's printer moves "could prove to be more of a threat to Lexmark than HP" because the companies could wind up
more directly competing with each other.
Tim Peters, general manager of Dell's new printing and imaging division, says the company will eventually expand its printer franchise beyond the U.S. to global markets.
Dell has been expanding its product lineup and distribution channels. It is selling non-branded PCs through resellers in what is known as the "white box" market. When asked if Dell will adopt a similar
approach with printers, Peters said, "I'm not prepared to make reference to that opportunity."
It may make sense to do so, since Dell's expertise is not in building the products themselves but efficient delivery of lower-priced commodity products. Peters hopes a "better buying experience" will
distinguish it from established players. Like any new venture, it is not without risk, and Dell appears to be tempering expectations.
It's unclear how much money Dell is investing in the printer effort. It won't be the fastest growing piece of the business, nor the biggest, but just another cog in the wheel. |
