Vendors try to beat counterfeit consumables

The manufacture and sale of counterfeit consumables for printers is part of a much larger global epidemic of pirated technology products. According to some experts, only 50 percent of the products sold are genuine. Rahul Neel Mani and Gaurav Patra have the details

During the last few months the cops have raided nine shops in Mumbai and Chennai, seizing counterfeit HP inkjet and LaserJet cartridges as well as other accessories. The crackdown in Chennai reportedly yielded 250 fake items, including cartridges, refills, packages, pouches, toner boxes and a sealing machine. The seizures in Mumbai included 1,500 counterfeit HP pouches, refilled and empty cartridges and toner boxes, a sealing machine and a printer. In an earlier raid conducted on a workshop in Mumbai, fake HP items seized included 5,500 security labels and cartridge stickers, 4,800 catalogues and 500 inkjet boxes. Half a dozen people were arrested.

HP is not the only victim of this malpractice. Many large companies have fallen victim to the rampant increase in global piracy. According to industry groups, the counterfeiting of trademarked and copyrighted merchandise costs companies billions of dollars each year in sales worldwide.

Huge threat

Illegal manufacturing and sale of fake printer cartridges is a part of the larger global epidemic of pirated technology products. Today, counterfeiting is no longer done on a small scale. It takes some capital investment and reverse engineering to get involved in counterfeiting.

There are two types of problems in the imaging supplies industry. One group makes an absolute copy of the product, which is where they re-engineer or reverse-engineer—typically an inkjet cartridge or a ribbon. They manufacture fake cartons and containers too and sell their fakes as genuine products under the original brand name.

The other type is the re-manufactured product. This affects vendors to a greater extent because it takes advantage of the legal manufacturing route. Companies often take laser cartridges, re-manufacture them, and sell them as re-manufactured cartridges under their own brand names. That is perfectly legal and there are even respected vendors in this sphere. But what one sees in many cases is that there are some people who re-manufacture the cartridge, put it in a counterfeit box, and sell it as a new, original branded cartridge.

According to alok Bharadwaj, rewarding customers with loyalty points and providing information to help differentiate between a genuine and a fake product will give customers a few extra reasons to buy genuine products

Another area is that of compatibles. This affects both the equipment and the vendor’s business. By using this kind of product one loses any vendor warranty that the user enjoys. Apart from this, parallel imports are an area that has been a source of problems for companies because it involves the sale of legitimate goods that are sold outside of authorised distribution channels.

Vendors are taking steps to counter these issues, particularly in the supplies and imaging segment, which is growing at a good pace while other segments are either not growing at all or growing marginally. Vendors are adopting a three-pronged approach—prevention, detection and enforcement—to make sure their brands are not affected.

Possible answers

In theory, quality does matter, whether it is a complete product or a part of a product or a refill. Yet piracy continues. The reason is because there are customers who prefer going in for counterfeit products.

This means that companies need to undertake various kinds of information campaigns, offer incentives to customers and give them a better reason to buy original products.

“First, users should be given information to help differentiate between a genuine and a fake product. If they continue to buy genuine consumables they should be rewarded with loyalty points. Measures like these will certainly give the customer a few extra reasons to buy genuine products,” says Alok Bharadwaj, director, Consumer Imaging & Information Division, Canon India. The measures already implemented seem to be working. Princy Bhatnagar, national sales manager, IT division, Samsung India, feels that of late he has seen increased customer preference for genuine and original supplies.

Hewlett Packard—the company that sells the maximum number of printers, does a lot of customer education in terms of ‘why a customer should use originals’ and ‘how to identify originals.’ The message is put forth using industry publications, other print media and the radio; channel partners are also roped in.

According to Princy bhatnagar, of late there has been an increased customer preference for genuine and original supplies

Building a strong brand is very important in the consumables business, because if customers start associating themselves with a particular brand it helps counter illegal trade. “Companies should try to explain high-cost products to customers and show them that they are really high-value. For example, explain that with a genuine printer cartridge you are able to get a higher number of printouts with the same amount of ink in the cartridge,” says Bharadwaj.

Another factor that will motivate customers to go in for original products is the effective handling of customer complaints. Basically, good customer support initiatives from the vendor side will ensure greater consumer loyalty. Keeping this in mind, vendors have already taken initiatives. For instance, Samsung has a toner replacement warranty, which is offered at over 200 locations across the country. “We also have very stringent service norms for customers whose printers get damaged due to refilled toners. This ensures lower usage of refills,” says Bhatnagar. The company is currently in the process of setting up a customer service helpline with a guaranteed availability of toner units to ensure a higher level of customer satisfaction.

HP has authorised replacement centres across the country; customers can get products replaced here if there is any manufacturing defect. The imaging major also has a 24-hour customer care facility, which offers online support and assistance.

Canon has recently started a new initiative, which is designed to improve customer experience by providing consumers easier access to genuine Canon consumables. Canon has raised the bar for consumer convenience and delight with the launch of its new ‘Cartridge Online’ programme. Under this initiative, the customer will be able to order cartridges/ink tanks for all Canon Bubblejet printers, all-in-ones and fax products by simply logging on to Canon’s website. In the first phase, this programme will be available only in Delhi, later it will be extended to Mumbai. In another three months the programme will cover another seven category A cities across the country. In keeping with Canon’s endeavour to maximise the reach of this customer service initiative, the programme will also be extended to small and medium enterprises and corporate customers who wish to order new genuine toners for Canon’s ImageRunner machines.

“In order to further improve our customer experience, Canon India is also including its call centre in the consumables programme. As part of this initiative, Canon customers will be able to reach us at ‘Call Canon,’ with a toll-free number, and order consumables which will be delivered to their doorsteps,” says Bharadwaj.

Economy does matter

India has always been a price-sensitive market. A product once sold remains in use for a long time, and is considered to be a capital expenditure. But the operational expenditure required to sustain a product is often too high. Repeat purchases do not happen too often in India. “In the technology business, the repeat purchase is actually an upgrade of the past product/equipment purchase because nothing really goes wrong with technology products in the short run. Indian consumers have begun to upgrade or are showing signs of upgrading their existing products. This is a positive sign,” comments Bharadwaj.

The next big issue is the cost of original consumables. Original supplies are usually very costly and sometimes unaffordable for the end-user. “That is the reason why we are not subsidising our original equipment as much as the others. From our side, we always try to keep the cost of consumables as low as possible so that the economies of scale can be bettered,” explains Bharadwaj.

“We look at it from the point of view of the total cost of ownership (TCO) of the printer. There are many factors like cost per page, support, uptime/downtime, etc. This needs to be kept in mind rather than just looking at the cartridge cost,” says Raj Kumar Rishi, country manager, supplies, imaging & printing group, HP India. Samsung also believes in offering the lowest TCO to its customers. “The TCO of all our products is 30-40 percent lower than industry standards. While other vendors are busy offering new products with lower toner/cartridge capacity, we have been consistently increasing consumable capacity,” claims Bhatnagar. However Bharadwaj has a different story to tell: “Instead of producing big cartridges we are making smaller cartridges. This is because not all customers use the printer everyday, so the ink dries up. That is why we are giving the option of smaller cartridges since it also leads to half the cost per page.”

Market trends

The consumable business works on the assumption that if any company has a large population of equipment then the consumable business for that particular company will be much more in terms of volumes. In the printer business, vendors do sell machines at a subsidised rate. The subsidy is the result of competition, which is very strong in the printer segment. Using low prices, the vendor tries to tap the consumer so that the consumables business can flourish with the help of repeat purchases of original supplies.

When a company starts selling equipment at a low cost, it is basically suffering a revenue loss. So is that a posing a problem in the imaging business? Or do consumables more than make up? “The subsidy is not a loss to the company which looks at the business in totality and adopts a long-term approach. If you make a loss in the printer sale you make huge margins in the consumable sale. How much profit you have made in the imaging business matters more than how much you have generated from the consumable or printer business,” explains Bharadwaj. He further says that no company, whether HP or Canon, would treat its printer business or equipment business as a separate division from consumables: “Our extent of subsidy is lesser so we have difficulties selling printers because our prices are higher. It is therefore extremely important for us to build a brand so that people will understand the value of our products.” Also, the longer the presence of a player in the market, the higher the number of its machines in the field and the better its consumable business. Further, the higher the consumable business the more the flexibility it will have in terms of giving subsidies.

Although India is not a mature market, it has started pushing volumes. After all, it is a huge market in terms of buying potential. One trend that is driving the consumable business in the Indian market is the increase in PC penetration. With the increase in PC penetration the sale of printers/related equipment is also on the rise. And growth of PC penetration in B and C class cities has helped. Canon has dealers and distributors in 150 cities and towns in India. “We have been seeing growth in the installed printer base in the country, which in turn is driving growth in the supplies business,” says Rishi.

Another major trend is the increase in the number of colour printers. India has been a monochrome market for a long time, but in the past two to three years India has witnessed a rapid increase in the adoption of colour printers. Basically, the home market, Internet usage and offices are driving this market, which in turn will give a boost to the consumable business.

Notwithstanding this, monochrome still rules the Indian consumable space. “If a customer’s printing needs are largely mono he will never buy an inkjet. We strongly believe that laser is the technology to focus on,” declares Bhatnagar. Samsung sees a very steady demand for its consumables in this segment, and its toner business is not at all seasonal.

Vendors of consumables are expecting good growth in the future. Take the case of Canon. In the last fiscal its turnover was Rs 200 crore, of which about 20 percent came from consumables. The company is now expecting a turnover of Rs 500 crore in 2005, of which 35 percent is expected to come from consumables. Although Samsung is a new entrant to the printing business, its toner revenue as a percentage of the total printer business revenue is around 20 percent. The company is confident of growing this business over the next three years, to 45 percent, where it is expected to stabilise.

With these bright projections from vendors, the dominance of counterfeit products could decline slowly. After all, vendors have a very good incentive to stand up for their rights: consumables are going to be a major revenue earner as far as the imaging business is concerned.

rahul@expresscomputeronline.com & gaurav@expresscomputeronline.com