Thoughts from the ELFA

I recently read an ELFA presentation (Equipment Leasing and Finance Association) titled, “As the drum turns….The World of used Copiers.” Can you picture 300 – 400 leasing company representatives in a large room listening to this stimulating presentation? The world of used copiers—where was I for this one!

IDC’s research was referenced throughout the presentation—and along with InfoTrends and Gartner—I consider IDC a reputable research firm. Clearly the point of the presentation was to highlight changes in the used copier space. That aspect of the presentation was eye opening for me simply from the perspective that used color MFDs from the same vintage as mono MFDs actually sell for less on the used market.

The presentation had numerous examples but I’ll simply take one that is representative: A Canon iR5570 with a list price of $17,100 had a “remarketer sale price” of $1,350, or 8% of the original equipment price (OEP) and a Canon iRC5870U, with a list price of $19,100 had a remarketer sale price of $300, 2% of OEP. With the lower lease approval rate driving increased rental of lease end devices I assume the remarketer sale price will continue to decrease, forcing leasing rates higher since residual value is part of the equation to determine lease rate.

Increasing lease rates won’t be any fun for those companies that still rely 100% on the “bigger better faster same price” model of moving your year on year aftermarket price increases over to the funding side of the lease to sell a new box and take care of the buyout, reducing your aftermarket revenue and generating a commission for a rep. But for those companies that still work on this zero sum game the good news is that according to IDC, as reported by the ELFA in this presentation, average unit sales prices (AUSP) have dropped precipitously. That drop will allow you to continue to fund the buyout of the swap and maintain the “bigger better faster new price” suicide march [not the point of this post but think about it….you are selling a MFD at a lower price than you did four years earlier, reducing the aftermarket rate to below what the current placement started at four years earlier (and far below the current rate with three years of compounded increases) and probably paying your sales rep the same amount as you did four years ago to place the other unit since it probably has about the same amount of “GP” in the deal….how’s that work financially?).

Just how big is that AUSP decrease? Let’s first talk about mono-connected boxes and use the seven year look that ELFA used in their analysis; this is an absolute seven year decrease and not a compounded annual decrease—in other words, it is the decrease from seven years back until 2009. Segment 2 (43%), segment 3 (30%), segment 4 (24%), segment 5 (27%) and segment 6 (12%). Even scarier was color, using the same methodology, segment 1 (49%), segment 2 (54%), segment 3 (55%), segment 4 (25%) and segment 5 (61%).

Strategy Development has spoken about using environmental information in your planning and in previous posts on this blog we have already highlighted some of the year on year unit placement decreases. Now you have information on unit placement decreases, there is indication that lease rates will rise (interest rates can’t stay at zero forever and used equipment pricing isn’t holding), and AUSP is decreasing. Juxtapose those issues against more and more non-contract devices moving to contracts (MPS) and your ability to reduce your general and administrative expense and increase your service margins and you have some great environmental issues on which to build a solid business plan.

We will be running our BTA Business Planning Workshop in October in the Miami area—hope to see you there so that you can seize the future!

What is MPS?

Yesterday, Document Solutions Daily, a great publication available by subscription, had a link to a blog post titled “MPS Isn’t Just for the Big Boys.” Although the post details what can be described as an admirable job by a sales person to place a MFD, and that sales person works for a well known and respected copier company—so this commentary isn’t directed at either the sales person or the employer—does the post really describe an MPS agreement?

I ask the question for two reasons. First to define the MPS space, because if selling one MFD to replace an older MFD and some printers is MPS we may as well simply pull out the market size stats that have been put forth by Info Trends, Gartner, and IDC for the last few decades and change the title at the top from “copier and printer market” to “MPS Market.” It seems like anything with MPS on it sells so why not? Second is focus, the MPS space is a high growth high profit business today so should dealers / resellers really be looking at single placements of MFDs as an MPS opportunity?

Don’t get me wrong—I want sales professionals that can solve problems to get me new customers and retain those customers. If I still owned a copier dealership I would want them to sell copiers and I would want reps with problem solving skills to sell MPS. But I would clearly define my MPS space so I am not spending time in areas with little to no ROI.

Few companies with 250 – 1,000 knowledge employees are in MPS contracts today so why deploy resources at companies with fewer than 10 employees? Moreover, why focus on the hardware placement when the profits are in the aftermarket? We shouldn’t be measuring MPS by selling and MFD….we should be measuring MPS by how much recurring revenue it brings to our business. Strategy Development has been encouraging traditional copier dealers to get away from measuring sales success by hardware sales and to start measuring sales success by aftermarket growth. If you own the contract on the equipment you will sell the equipment.

So congratulations to that sales professional and the company mentioned in the blog—it appears as if you helped that customer solve a business problem with the correct MFD. But I would encourage companies to take a rifle approach to MPS and focus to the sweet spot, companies with 250 – 1,000 knowledge worker employees. Once that market is saturated with MPS contracts you can work your way down the food chain if you find it necessary and profitable. Don’t lose focus just yet!

Still Wondering if A4 Will Impact the Industry?

Sharp(R) Frontier Series Powers Company Into the Color MFP Segment 3'S Top Position in Leading Market Research Firm's US Quarterly Hardcopy Peripheral Tracker

First Quarter Shipment Results Show Sharp's Dramatic Market Foray Has Resulted in Increased Market Share as Well as Higher Overall Market Sale

-- 06/05/09 -- Sharp Imaging and Information Company of America (SIICA), a division of Sharp Electronics Corporation, today announced that they have finished with the highest overall United States market share for 31-44ppm* color MFPs** in Q1 2009. This data was made available by IDC, a premier global provider of market intelligence, and shows a dramatic increase in unit sales by Sharp over last year; particularly in the A4 subcategory of the same speed range, where SIICA was able to capture major market gains in less than two quarters.

Sharp's strong performance in the category was bolstered by the introduction of the company's award-winning Frontier Series A4 MFPs. According to the report, in just less than two full quarters, Sharp was able to move from having no presence in the color A4 31-44ppm color MFP segment, to a 40% share. This explosive growth, coupled with continued strong sales in the A3 sales, helped Sharp gain the largest percentage of overall 31-44ppm color MFP* sales for Q1 2009. In fact, the entry of the new Frontier Series helped to nearly double the total number of A4 31-44ppm color MFP units sold by all manufacturers between Q1 2008 and Q1 2009.

"Despite a challenging economic climate, Sharp continues to innovate and introduce new products that revolutionize the way companies work," said Ed McLaughlin, president, Sharp Imaging and Information Company of America. "This innovation can not be overlooked, and companies are finding products such as our Frontier Series help them work more efficiently and economically. In addition, dealers have found that the A4 Frontier line is fitting in nicely into their customers' workgroups without taking away from A3 sales. It speaks volumes about how smart our dealers are and the need for truly innovative new products as we continue to move forward."

Sharp introduced the MX-C311, MX-C401, DX-C311 and DX-C401 models as part of the Frontier Series MFPs in Q4 2008 and the DX-C310 and DX-C400 in Q1 of 2009. These units feature digital color copier, network printer and scanner capabilities in a single MFP, and a unique design that makes them aesthetically pleasing when placed directly in the workgroup. Sharp's newest A3 devices include the MX-4100N, MX-4101N, and MX-5001N, which were introduced in Q1 2009.

With Frontier, Sharp has successfully leveraged the Sharp OSA® development platform to change the MFP from a print/copy device into an IT document management system. Sharp A3 and A4 MFPs feature Sharp OSA technology, making them truly customizable; a brilliant 8.5" touchscreen panel for easy operation; and Sharp's award-winning security suite, which provides a multi-tiered system that protects data at every step of the document cycle. Sharp A3 MFPs also feature a retractable keyboard as a standard feature -- something not found on any other A3 MFP.

McLaughlin continued to say, "Sharp remains dedicated to producing a wide range of high quality MFPs that are changing the competitive landscape and giving our dealers the most comprehensive product line available."

For information about the complete line of Sharp MFP products, contact Sharp Electronics Corporation, Sharp Plaza, Mahwah, N.J. 07495-1163, or call 1-800-BE-SHARP. For online product information, visit Sharp's Web site at sharpusa.com.

*Based on letter speeds for Segment 3

**Source: IDC US Quarterly Hardcopy Peripheral Tracker, Q1 2009 for Laser Multifunction (print and at least one other function) and Single-Function Printers shipments.