Recently I had an opportunity to speak at ITEX, An Industry event for technology resellers. During that talk, I discussed the three types of deliverables or more importantly the three types of end-user customers within the print equipment and its services industry. This industry is strangling their full profit potential as they continue to deliver these different types of customers with the same processes.
Here are the three equipment customer types:
1. High-Volume segments 6,7, and 8 Production Environments. This customer represents less than 2% of all print equipment customers. Today nearly every manufacturer is bidding for this extremely low potential. This barrage of dealers and OEM’s chasing the questionable high volume clicks and its revenues. Have caused most to eliminate the realities of low margins or in many cases no profit from their efforts.
2. The Enterprise Customer or the Value-added Appreciative Customer. This group of customers represents probably no more than 15% of your customer base. These customers are complicated they use sophisticated software applications, they participate in real workflow efficiencies, they have complex depositories to navigate documents in and out of. These customers are usually enterprise type organizations. However, keep in mind there are many national accounts who buy units in the hundreds which do not have complex needs they simply want to print and occasionally copy.
3. The Commodity Mindset Customer represents the most extensive customer base within your dealership or direct operation between 80-85% of your customers fall in this group. There are millions of these customers currently using A3 which are overkill to the needs of over 80% of the customers in this group. These customers could benefit more from A4 MFP’s.
So, now that we understand the three customer types. It’s time to discuss the extreme threat to the current circumstances of the Imaging Channel’s Dealers and Direct operations.
This threat I named the “Hertz Threat.”
When Hertz Car Rental lost the millions of Business Customers to the Rideshare industry, they found themselves in a position where they can’t live off the fridges.
Hertz still rents to the family an SUV to visit grandma; they occasionally rent to the victim of an auto accident till the needed repairs on the wrecked car are finished. But these renters can’t compensate for the millions of business traveling they lost.
My friends in the Imaging Channel soon an innovator will bring to market a process which delivers over 80% of your customer base a better experience. The innovator will educate those oversold A3 commodity mindset customers a better more practical option.
When this happens, you too will not be able to live on the fringes of your 2% high volume business, or your 15% Value add business. Unless of course, you have a concrete plan and understand the cost impacts of the three customer types. Dealers and Direct OEM Operations must consider whole heartily their version of the decision Ricoh made in 2017. It just isn’t logical to service and support every customer the same. The cost in this approach is no longer in alignment with the potential profitability.
Should dealers eliminate some customers? Which ones and Why?
Let’s review those questions by customer types
The High-Volume Customer:
Smaller dealers should evacuate all high-volume efforts. This market is too small and too saturated with competition. Last year I published an article in ENX Magazine on a study of nearly 7,000 production units.
There is a link to the article under publications on my Linkedin profile page. Its titled Production-Print-taking-a-deeper-look-at-the-true-data-not-marketing-hype
This study indicated that the average Volume on these so-called high-volume units was only 225,000 pages a month. The first call effectiveness was below 40% and the cost to deliver services was a little over .003 per page. If those reading these did a study on their high Volume, they would determine a similar result.
The cost and understanding of the high-Volume business model are too risky for smaller dealers without the operational maturity level the deliverable demands. Why chase something which has minimal payout and requires a tremendous amount of attention.
I learned quickly during the time I spent delivering IT services the importance of understanding the time required and the cost of that time for each contract. In reality, the reason the first call effectiveness on high Volume in many organizations is low is because in many cases the dealer is managing this customer in the same manner as the low volume customer. The Imaging Channel for the most part has the same processes for the lowest volume customer as the highest. The same sales process, the same agreement for services, the same dispatch process, the same response time, and sadly many times the same service tech.
Those dealers who can successfully deliver high Volume capturing a significant market share should do it. Provided they are managing the cost to deliver accurately. Just don’t fool yourself that somehow you can beat out the 12 or so manufacturers and their dealers in a profitable way without a real plan. Selling high Volume is a business model and should have a separate business plan. If your high-volume business does not cashflow enough to support all its cost, sell it off to a competitor and focus on delivering what is profitable. Ask yourself this. If you lost a vast majority of your small market base could you survive on high-volume? Make sure you factor in all the high-volume machines in inventory sitting in your demo rooms, the obsolete parts in the warehouse, the excessive supply inventory based on fantasy volumes, and make sure that labor cost are accurately accounted for.
The Enterprise Customer:
These customers are also more effort than the payout for smaller dealers without the necessary infrastructure to support. The reality of small dealers chasing these accounts and not understanding the scope of labor involvement evaporates all anticipated profit. How many remember, the excitement of selling a software solution and then realizing the thousands of dollars in support cost you neglected to anticipate and didn't include in the customer's cost. Or, the hundreds of hours spent working through network issues your organization didn't understand. Again, the hours used are not accounted for against the accounts contract, and this of, course hides the real cost against revenue. There are still many dealers who are listening to the hype of the big deal instead of the realities to the big deal's lack of profit.
“Don’t let the cheers for chasing revenue deafen the cries to controlling cost.”
The Commodity Mindset Customer:
Ricoh first recognized the market realities of this customer in 2017. They evacuated this customer type selling back nearly all of their direct operations to dealers. I would add Ricoh sold back this business for substantially less than the 2 Plus Billion dollars they paid for that distribution over the previous decade. The reason they cited was that print volumes were declining faster than anticipated and the revenue and margins on hardware were drastically squeezed.
Ricoh wanted to focus on enterprise customers where they felt they could keep higher margins and sell alternative technologies alongside their print equipment. Ricoh decided to stick with the customer I described as the Enterprise Customer the value-added Appreciative Customer. Time will tell how Ricoh will fare in its decision. But I believe they were spot on in recognizing the high cost to deliver services to the customer I described as the commodity minded buyer.
The commodity Minded Customer is the current greatest threat to being disrupted by an innovative process including A4 equipment. The new customer-centric processes will deliver closer to the expectations of the customer and will capitalize on replacing the oversold A3 MFP’s with A4, there are millions of A3 devices in the market which customers don’t need. However, I am not convinced that a majority of the current providers will deliver those innovative processes I envision.
As innovators come to the channel, they will focus on market share and have goals of displacing the quickest and easiest customer. Unfortunately for the Imaging Channel, this is the majority of their customers. I am looking forward to working with those dealers who are ready to fight for the significant market of oversold A3 and replace them with A4. There are millions of these A3’s in the market, and there is no doubt in my mind that their end-users will welcome the better experience of A4.
“A Company becomes obsolete when they focus on bringing the past to the future instead of the future to the present.”
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Ray Stasieczko
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