By Brent Hoskins
In today's competitive environment, with hardware and service margins being squeezed, it certainly makes sense to find ways to boost customer page volumes. After all, the more clicks, the greater the aftermarket income for the dealership. With that in mind, one could argue that every dealership should be in hot pursuit of Segment 5 and Segment 6 copier/printer placements.
Consider Konica's 7085 production printing system, for example. This Segment 5 device offers an 85-page-per-minute (ppm) output speed and a maximum monthly duty cycle of 750,000 impressions. Or how about Canon's digital imageRUNNER 105 copier/printer/scanner solution? This Segment 6 device offers a 105-ppm output speed and a monthly duty cycle of 600,000 impressions. The segments offer huge volumes, equating to huge revenues, and so are primary product categories for dealers. Right?
The reality, of course, is that while such high-speed models are finding a home in the marketplace, they only claim a relatively small percentage of the overall U.S. unit placements. The numbers tell the story. Gartner Dataquest, a San Jose, Calif.-based market research firm, reports that in 2002, there were 246,641 Segment 2 placements (21-30 ppm); 222,290 Segment 3 placements (31-40 ppm); and 236,988 Segment 4 placements (41-69 ppm). In contrast, there were only 44,298 Segment 5 placements (70-90 ppm) and only 8,053 Segment 6 placements (91-plus ppm).
Why are there significantly fewer high-speed copier/printer placements than there are placements of their lower-speed cousins? There are, of course, a number of reasons — not the least of which is the simple truth that many current and prospective customers have no need for higher-priced, higher-volume models, particularly Segment 6, generally found in manned production environments, such as central reprographic departments (CRDs).
Sometimes it has to do with geography. As one Savin dealer tells Office Technology, "We are in a rural area with limited Segment 5 and Segment 6 customers." In other cases, it has to do with the projected return on investment. A Canon dealer reports the decision not to pursue Segment 6 "is based on investment expenses versus the market return."
Gary Chambers, president of Advanced Systems Inc., a Canon dealership in Waterloo, Iowa, says his company has not pursued Segment 6 either, but "we are always keeping that option open for the future." Again, it is a matter of the projected return on investment. "Our dealership has a policy that we will not sell any unit that we cannot sell more than four or five of," he explains. "At this time, the Canon CDA (Copier Dealers Association) dealers have determined that you have to sell at least seven units to cost justify the up-front cost of taking on the product. We don't feel we have that much market in our area."
On the other hand, says Chambers, Segment 5 models are proving to be a growing opportunity for his dealership. "We are seeing that the market is expanding in this segment due to companies bringing outside printing in-house to save money, now that the cost of the equipment has come down and the features have gone up," he says. "We sell the customer on the idea of two or three Segment 5 units for about the same price of one Segment 6, giving them redundancy."
Actually, despite the comparatively low overall number of placements, one does not have to look far to find dealers pursuing the Segment 5 opportunity to some degree. "We have been placing Segment 5 copiers for about four years," says Leigh Hoetfelker, president of OfficeNet Inc., a Savin dealership in Fremont, Neb. "We find the market is growing, mainly because of the reliability of the equipment; some are in environments where one Segment 5 machine has replaced two or more slower units."
Figure 1. Segment 5 market share (2002).
While they are even fewer in number, other dealers are reporting success in the Segment 6 market. "Segment 6 is growing for us," says Gregg Petrie, president of Copiers Northwest Inc., a Canon dealership in Seattle. "It is our largest growth segment for capturing clicks. The best prospects are companies with underutilized DocuTechs and analog Segment 6 Kodak and Xerox models."
Martin Whalen, president of Martin Whalen Office Solutions Inc., a Canon dealership in Bradley, Ill., also reports significant success with both Segment 5 and Segment 6 models. "We've got some Canon 8500s and 105s doing hundreds of thousands of pages per month," he says. "We've gone head to head with Xerox and, in some cases, felt we had to justify our lower prices since many customers equate price with quality or durability. Now that the machines have proven themselves in the field over time, the customers love them."
Figure 2. Segment 6 market share (2002).
With such success stories, vendors, of course, are quick to encourage those dealers who have yet to pursue either Segment 5 or Segment 6, or both, to consider doing so. "It's a huge opportunity," says Janet Cain, director of product marketing at Canon U.S.A. Inc. "The revenues and profits are great in these segments."
In an era where page volume is as important as ever, Michael Fego, product marketing manager for Minolta Corp., says he is surprised that few dealers pursue the high-speed copier/printer opportunity. "It amazes me that more dealers don't get into Segment 5, because that's where the clicks are," he says. "Segments 5 and 6 are where they really are going to pack some major volume."
The Minolta DiALTA Di850 digital printer/copier offers finishing options such as folding, stapling, hole-punching and cover insertion. It offers a 750,000 impressions per month duty cycle and can handle up to 110 lb. stock. Two units can be connected for tandem operation providing 170 copies per minute.
Dealers do not necessarily have to enter the market with visions of selling dozens of high-volume units, says Kevin Kern, vice president of product development and support for Konica Business Technologies U.S.A. Inc. "Even if it's only a few units a year, our push is, let's get a few of those units doing 700,000 or 800,000 impressions a month in some of those placements," he says. "You can't believe the impact that has on service profitability when you do that."
Kern cites the example of a small Konica dealership in South Carolina that was one of the first to place the vendor's 7075 Segment 5 model. "They put them in a high-volume print shop of an insurance company doing 300,000 to 500,000 impressions per month, per unit — and they placed five units," he says. "Today, almost four years later, they've still got those five units and that dealer is pumping huge page volumes. So, their aftermarket profitability is off the scale."
Dealers should not automatically assume the opportunities for high-speed models only exist in larger urban areas, adds Kern. "There are, even in rural areas, small commercial print shops where they can't afford a DocuTech and a Segment 5 may be the perfect product," he explains. "There's county government. There are state and local government offices. There are universities, sometimes, in rural areas, which are very big users of Segment 5. Yes, in terms of mass, there are not as many placed in some secondary markets, but there are clearly identifiable targets where there is opportunity."
Selling High-Speed
Where should the dealership that has yet to pursue high-speed copier/printers begin? Does it require a dedicated salesperson? Who are the best prospects? What are the best selling strategies?
Perhaps any discussion of the topic should begin at the top — that is, with Segment 6. Of course, some dealers who may have an interest in the product category are undoubtedly aware that it is not even an option for them. Only two of the vendors that sell through the dealer channel are players in the segment — Canon and Ricoh (including its Lanier, Gestetner and Savin brands; Ricoh also supplies IBM with the models it sells). However, Konica and Minolta, soon to be merged, have announced plans to unveil a Segment 6 model in 2004. The other current Segment 6 market participants are Imagistics, Oce and Xerox.
As noted, the domain of the Segment 6 copier/printer is often the CRD. However, says Lynn Ritter, principal analyst for Gartner Dataquest, while some dealers may be replacing underutilized Xerox DocuTechs as Petrie confirms, they are not necessarily always replacing the "big iron," which also includes products from Heidelberg, IBM and Oce. Instead, she believes, light-production Segment 6 models are often placed as "backup" production machines in large companies. However, she adds, a Segment 6 copier/printer may be appealing as the primary production machine in some medium-sized companies. "They may need a machine that prints out their reports or brochures — and they don't have a quarter of a million dollars for a DocuTech," she says.
It should be noted that some of the "big iron" models do fall into the 91-plus ppm category, but are not included in the Gartner Dataquest numbers cited in this article, since such models are printer-based. "Segment 6 is divided into two different categories — light production for the copier-based engines and heavy production," says Cain. In addition to its copier-based Segment 6 models, Canon is a player in the heavy production printer-based segment as well, with its printer-based imageRUNNER 110 and imageRUNNER Pro 150+ (both made by Heidelberg). The 91-plus printer category "is smaller than the light production market, but the volumes and aftermarket prices will make the equity stream very profitable once a dealer is up to speed."
The Canon imageRUNNER 105 is the most powerful digital copier/printer/scanner solution built on the imagePlatform architecture. It offers a duty cycle of 600,000 impressions per month and has a 7,650-sheet maximum paper supply. It offers finishing capabilities from basic collated output to saddle-stitching.
While there is growing opportunity for "copier-based" Segment 6 placements, adds Ritter, Gartner Dataquest projects that the number of placements will remain low. "We forecast the number going to 9,800 placements by 2007," she says. "So, it's not a number that's doubling in five years — we are talking a compound annual growth rate of only 4 percent."
Any dealer deciding to pursue Segment 6 should recognize that it does require a higher degree of specialization than the traditional general line sales rep has, says Fego. "You should have someone who is a production printing specialist, because you are talking, in a lot of cases, with people who have 'ink on their fingers,'" he says. "Instead of copies per minute, they want to talk about impressions per hour. And when they talk about two-sided copying, it's not duplexing, it's called perfecting. So, there is a whole different lingo in the print-shop environment and it's a different type of sales rep who excels in that area."
As the placement numbers indicate, it is the Segment 5 high-speed copier/printer that is often a better fit for the dealer's traditional customers. "High-volume departmental printing/copying placements tend to be in mid- to large-size accounts, many in the insurance or legal environment — the big 'paper factories,'" says Fego. "A lot of them are also going out into school systems, colleges and universities, as well as the medical environment."
Louis Panna, vice president of American Duplicating Products Inc., a Minolta dealership in Pennsauken, N.J., says his Segment 5 customers often include mortgage companies, local and federal government offices, and banks. Ric Tieman, president of J&H Office Equipment Inc., Bozeman, Mont., cites print-for-pay, title companies and manufacturing among his Savin dealership's Segment 5 customers.
Unlike Segment 6 models, Segment 5 copier/printers are often found in the general office setting. "The great thing about Segment 5 machines is they can be used in both," says Fego. "In a lot of cases, they are in manned environments, but I'd say 65 percent of the time they are just out on the floor, with maybe some people who use them more than others, but where anyone can access them."
Kern agrees. "The typical place to find a Segment 5 is in a high-volume walk-up environment, with a large number of users maybe doing 80,000 to 100,000 impressions a month," he says. "That's not a high volume for a print shop, but it is for a walk-up environment. It is going to be placed somewhere where the machine is going to 'take a beating,' so to speak."
Whether it is Segment 5 or 6, and whatever the prospect, the best strategy for selling high-speed copier/printers, says Ted Mitchell, director of product marketing for Savin Corp., is for the rep to always focus on a consultative sales approach. "Step one in this process is to do your homework and gain a thorough understanding of the customer's needs, their business and, where applicable, their customers," he explains. "In addition, cost analysis can be a powerful tool, demonstrating how high-volume systems can impact the customer's bottom line, short and long term."
And finally, say vendors, the newcomer to the high-speed arena needs to expect longer selling cycles, which can be as long as 90 to 120 days, says Fego. Longer cycles are particularly common when the customer is in the "print shop or CRD" environments, says Kern.
"When a print shop is buying, they are are not buying cost per page, per se," he says. "They are looking at, what is the capitalized cost of acquiring the equipment? What is the price for pages out in the market? What do they think their uptime is going to be, and their total cost of operation? How much operator intensity is involved? They are going to look at the economic metrics of a total decision, versus 'Hey, you've got a good price and a good CPC.'"
Going forward, what are the expectations for the future growth of the Segment 5 market? Like that of Segment 6, it is somewhat modest, says Ritter. "We're predicting a market of almost 47,000 placements in 2003, going up to to 54,000 placements in 2007," she says. "This is a compound annual growth rate of 4.2 percent."
The Right Timing?
Despite projections of modest growth for high-speed copiers, it is a product category that more dealers may want to at least consider in their pursuit of more page volume. Keep in mind, says Canon's Cain, "There is probably between 70 to 80 percent connectivity at this end of the market." Her point is commonly made among vendors.
"Currently, the Segment 6 rate has been trending at 75 percent and Segment 5 is at about 60 percent," says Savin's Mitchell. "We believe that, in large part, this is because Segment 5 and 6 customers are inherently more technologically advanced, and can more easily understand the benefits of connecting.
"Connectivity is extremely important," he adds. "Total output volume is estimated to increase by 30 percent once a system is networked, immediately boosting profit via increased consumable sales."
Is the timing right for the dealer to enter the high-speed arena? Mitchell advises dealers to begin by simply talking with their peers in the industry. "Most dealers in non-competitive situations are more than happy to share their stories," he says.
"We recommend fully researching how high-volume sales can affect the dealership's bottom line," he says. "How many units will have to be sold to break even? Are there enough prospects in your market to reasonably achieve that sales goal? If a dealer finds positive answers to these kinds of questions, the time is likely right to move into the high-volume market."
--------------------------------------------------------------------------------
Brent Hoskins
Brent Hoskins is editor of Office Technology magazine. He can be reached via e-mail at brent@bta.org.
This article originally appeared in the August 2003 issue of Office Technology.