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The DQ Top 20 traditionally analyzes different categories of the hardware market ranging from PCs/laptops to peripherals devices like printers. What usually get ignored are the consumables, perhaps the segment that keeps the printer sector going. This is especially true with the toner cartridges market, the lifeline of printers, and perhaps the most important of consumables in the Indian landscape during FY 07. With every user being familiar with the fact that consumables cost quickly exceeds printer cost, a brief study on this segment was imperative.

Compatibles Quietly Gain Ground
In the Rs 534 crore inkjet cartridge market, the compatible variety was without doubt snatching away the market share of branded cartridges. According to IDC, compatible toner cartridges comprised 54% of the total market, while their branded peers accounted for only 40%; the rest coming from counterfeits. On the Rs 619 crore laser toner front, though the compatibles were yet to overtake the branded, the gap narrowed to a mere 5%.

	A tenth of HPs business in India came from consumables
	Compatibles, refills and fakes continued to eat at the printer vendors supplies market

Branded Goliaths still ruled the roost last fiscal. Nearly 10% of HPs India revenues were contributed by consumables, leading to significant margins, as consumables lead to much better margins than printers. Among other established printer vendors, Canon and Epson had significant market share; consumable vendors like Kores too gained traction.

A couple of years ago IBM started (and then stopped) making IBM-branded toner cartridges for HP LaserJetprinters that were 30% cheaper than HPs originals. IBM gave up; today it makes cartridges for its own handful of printers, with a supplies revenue in India of just Rs 2.5 crore. In FY 07, the market size of IBM printer cartridges was just Rs 2.5 crore.

With Indian customers focusing mainly on value for money, it is not difficult to understand the success of compatible cartridges, which were sold at 10-30% below the price asked for by branded product makers. Also, while purchasing a printer is a one-time investment, consumables like cartridges are a recurring cost. Its actually consumables from the OEMs that earn the most money. Apart from lower prices, compatible toners also came through in terms of quality: they offered high print volumes, high resolution, clean and sharp print, and lower cost of printing per page. Also, quick, improved service and support by remanufacturing companies is an important factor responsible for the increased acceptance.

Manufacturing companies managed to provide such quality because all raw material used in manufacturing compatible cartridges are now 100% imported from Europe, Japan, and the US.

The printer vendors over the years have tried their utmost to discourage users from using third-party cartridges. Mainly to protect their cash cow; but also because fake cartridges do produce poorer prints and can also damage printers.

Usually, using a third-party cartridge voids the warranty on a printer.

Also, almost every company is heavily investing in advertising its products, and educating people on the negatives of refilling. HP has a range of incentives for dealers to push its cartridges, apart from the margins--way higher than hardware products.

These efforts have worked to a great extent - HP for instance has over Rs 900 crore of profitable revenues from supplies - but compatibles and refills are going to be a fact of life in the cost-conscious Indian market for the near foreseeable future.

Sandeep Kumar Sharma
sandeeps@cybermedia.co.in

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