Rafi Mohammed

How does Kodak Plan to Enter the Crowded Inkjet Printer Market? With a Price Cut of Course!

Posted on January 19th, 2007 (0 Comments)

Given my keen interest in bundling, I’ve enjoyed writing this week’s blogs on the topic – they’ve pushed me to generate new insights. Much like David Letterman has “Ventriloquist Week” or the Discovery Channel has “Shark Week,” I thought about continuing the run of bundling blogs (at least 2 more) to create a PricingForProfit.com “Bundling Week.” But there have been several interesting pricing stories in the media recently that make for interesting discussions. With my pledge to write over 150 in-depth blog entries in 2007…there’ll be plenty of time to return to bundling in the near future.

William M. Bulkeley recently (1/11/07) wrote an interesting article in the Wall Street Journal titled “Sale Positions Kodak for Printer Push.” William wrote on the speculation that some of the proceeds of Kodak’s $2.35 billion sale of its health care unit will be used to fund a costly entry into the inkjet printer market. In particular, Kodak is expected to announce a line of inkjet printers that produce high-quality photographic prints that can also be used for general-purpose printing.

I can see how entering the inkjet printer business could make sense for Kodak. The company’s heritage is deep-rooted in photography (in 1888, George Eastman produced the first simple camera for consumers). And as the company has experienced first hand, digital is where future photography growth will come from – Kodak currently sells a line of digital cameras as well as a few inkjet printer models. Prior to joining Kodak, Antonio Perez (the company’s CEO) helped develop Hewlett-Packard’s inkjet printer business and has long expressed an interest to reenter the market. Given the company’s brand & product line, CEO’s experience, and future of photography – you can see the rationale to make a big splash in the inkjet printer market. And who knows, perhaps Kodak can bundle its printers and cameras together!

That said, it’s a daunting task to enter a mature market that is dominated by big brand names and led by Hewlett-Packard. To succeed, one of Kodak’s rumored key strategic tactics will be to sell refill cartridges at half of the current $39 price. The inkjet printer business model is similar to the razor/razor blade model I’ve previously discussed. Sell the printer at a low price and make profits from replacement printer cartridge sales. With lower printer cartridge prices, Kodak could highlight its value of offering a lower cost per printed page. But by lowering cartridge prices, Kodak would not start making money from a customer until after they had purchased four replacement cartridges – which could take more than a year.

Kodak has an interesting market entry strategy based on price. But here’s my question – if customers become enamored with Kodak’s lower cost per page value, what’s to stop rival printer manufacturers from also lowering their cartridge prices? Does Kodak have a cost advantage over rivals? Even if it does, I don’t think it’s a slam dunk that even a generous 20% cost advantage would convince customers to defect from well-respected brands like Hewlett-Packard.

Kodak’s entry into the inkjet printer market will undoubtedly lead to an interesting pricing battle that we will check in on periodically. It’s rarely a good idea to enter a market on the hope that simply lowering margins (with no obvious cost advantages) will lead to success.

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