Rafi Mohammed

Hewlett-Packard: Nice Job of Pricing Your New High-End Copiers

Posted on April 27th, 2007 (0 Comments)

When I was a kid, I used to regularly watch “The A-Team” television show. One of my favorite parts of the hour was when Hannibal (the leader of the crack commando unit that included the lovable “Mr. T”) inevitably announced “I love it when a plan comes together.” A few decades later, I feel the same sense of satisfaction when I create a pricing strategy that captures the various (and often disparate) facets of value. While I did not work on Hewlett Packard’s (H-P) pricing strategy, the company deserves kudos for their great job of promoting and capturing the value of its new copiers.

H-P is entering the high-end copier market using a new ink-based technology (as opposed to the laser printer type technology used by other high-end copiers). The company claims its copiers can print up to 60 black & white copies and 50 color copies per minute. Interesting…but what’s so compelling about these new copiers you may be wondering…H-P’s pricing strategy of course!

Christopher Lawton reports (in his Wall Street Journal article titled “H-P Begins Push Into High-End Copiers”) that today, most high-end copiers are leased for 3 – 5 years. These leases charge about one cent for a black & white copy and eight to ten cents to print a color page. Using a different pricing model, H-P is basing its lease charges on the amount of color ink used on each page. The more color ink you use, the higher the price. To implement this pricing, its printers have sensors that calculate the color ink distribution on each copy.

While recent press articles have focused on the question of whether H-P’s pricing will be cheaper than rivals, this focus misses the real ingenuity of H-P’s pricing strategy (and really…what’s to stop competitors from also dropping their prices). So what’s so interesting about H-P’s pricing strategy? It all goes back to the notion of early bird (discount), regular (normal), and chef’s table (premium) pricing.

Today, the decision whether to make a color copy is actually black and white…is it worth 10 cents? While users may prefer color, many times it simply isn’t worth the dime per copy cost. This is where H-P’s pricing strategy comes into play. Preparing for a big board of directors meeting? Why not print early drafts in “general office color” mode (less color ink – lower price – “early bird”) and the final presentation in “professional color usage” mode (more color ink – premium price – “chef’s table”). Similarly, while adding a touch of color to jazz up a flier may be hard to justify at 10 cents a copy, H-P’s pricing strategy makes it possible at a lower (“early bird”) price.

The result of H-P’s strategy is “win-win:” customers benefit from using color in instances that were previously prohibitively expensive and H-P better profits from the value of its color technology (current customers make more color copies and its pricing flexibility will attract new customers). It never ceases to amaze me how simply creating a new pricing strategy can differentiate a product and in the process, boost profits.

A tip of my hat to Hewlett-Packard, you’ve done a great job of making “a (pricing) plan come together.”

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