Why does it cost so much for replacement ink and toner cartridges?

January 16, 2018 | Guy Brown

Topics: Longtail Spend, Printer Cartridges

IMG_0870.jpgIt's not too difficult to understand why original brand (OEM) ink and toner cartridges are so expensive. There are many similar business models outside the office products industry where a piece of platform equipment is sold to a consumer at a low cost and the manufacturer then generates an ongoing, very profitable revenue stream selling consumables for the equipment.

The equipment cannot continue to be used without replacement consumables because the supplies provided with the initial purchase will soon be depleted. Unless replacement consumables are then purchased, the initial investment becomes worthless.

In order for the manufacturer of the platform equipment to be successful, it must maximize placements (sales) of its equipment. In order to accomplish this goal, it usually decides to set the sell price as low as possible because more consumers are inclined to purchase a low-priced product than a high-priced product. The more devices sold, the larger the installed base becomes and the greater the manufacturers potential for generating profits on the sale of replacement consumables.

Manufacturers deploying business models like this may sell the platform unit below its actual cost with the expectation that initial losses will be recovered through the future sale of replacement consumables. Furthermore, if the manufacturer is the only supplier of replacement consumables designed to fit in the platform device, a relatively high selling price can be set for them because the manufacturer knows the consumer doesn't have alternatives.

Most consumers tend to overlook the calculations needed to determine the total cost of ownership associated with a new device. In order for them to do so, the total cost calculation must include the initial outlay on the device, the cost of consumables for the expected lifetime, and the cost of any extended service or repair warranties.

Let's consider a desktop ink jet printer like the Epson Workforce Pro WF-4720. It can be purchased for around $100, a two-year extended warranty can be purchased for an additional $35, and the printer comes with a set of starter cartridges. Let's also assume the buyer expects the device to last for five years and will be printing an average of 500 monochrome and 250 color pages per month.

The Epson Workforce Pro WF-4720 All-in-One Printer

wf4720_MFP_Printer.jpg

The upfront investment required to obtain this device (including a 2-year extended warranty) is a modest $135 but, it will only be 54 days before the black ink cartridge runs out and only 24 days after that before the color cartridges also run out. At those time points the customer must then go back into the market to purchase replacements ink cartridges. The consumer should be diligent because Epson makes two different cartridge styles available for this particular printing device; standard yield and high yield versions which result in a large difference in the operating costs.

Anyone who's prepared to do some mental arithmetic can quickly determine the high-yield cartridges have the lowest printing cost per page and this metric is what determines the total cost of ownership over the expected 5-year lifespan.

Printer Total Cost of Ownership

  Black SY Color SY Black HY Color HY
Cartridge Yield 900 650 2,600 1,900
Cost (per set) $37.99 $80.97 $49.99 $119.97
Cost per Page $0.042 $0.125 $0.019 $0.063
Print Volume 500 250 500 250
Cost per Month $21.00 $31.25 $9.50 $15.78
5-Year Ink Cost $3,135 $1,517
Equipment Cost $100 $100
Extended Warranty $35 $35
Total Cost of Ownership (TCO) $3,270 $1,652
Credit for in-box ink ($75) ($30)
Final TCO $3,195 $1,622
TCO / Initial Investment 24 12

 

What can be seen from this analysis is that the total cost of ownership can vary by almost 100% depending on the style of cartridges chosen.

Let's think a moment about the buyer's psychology when considering the purchase of replacement cartridges. Remember, the upfront investment was $135 and the first set of replacement cartridges will cost $120 if the buyer selects standard yield versions and $170 if they're high-yield. It's tough for consumers to get their heads around having to spend more than the original device cost just to obtain a replacement set of cartridges. Because of this, fewer are usually prepared to shell out $170 for the High Yield (HY) cartridges than $120 for the Standard Yield (SY) versions, which must also mean the math to calculate the cost per page isn't generally being done.

Over the planned five-year lifespan, the cost of this oversight adds up and results in more than 24-times the initial investment in the printer being spent on replacement cartridges.

However, for the consumer who does do the math and overcomes the psychological barrier for spending almost twice the initial investment on their first set of replacement cartridges, and then continues to do for the lifetime of the printer, the total cost of ownership is halved to 12-times the initial investment. This is still a significant spend but only 50% of what it would otherwise have been.

Conclusions:

Think about how the decision was initially arrived at to purchase this particular device. Most likely the modest initial investment of $135 was a primary consideration but it's also likely that, while attracted by the low entry cost, not much thought was given to figure out the total cost of ownership. Furthermore, because it's quite difficult (and therefore rare) to calculate the total cost of ownership, it's also rare to be in a position to compare the preferred device with alternatives and, therefore, it's also rare that a fully informed decision can be made on the basis of lifetime costs.

For example, what if there were an alternative $235 printing device, that met the customer's requirements, but it came with cartridges that had 30% lower costs per printed page? The extra $100 investment in the printer would be more than offset with lifetime savings of $1,000 on SY cartridges, or $500 on HY cartridges. Unfortunately, not many consumers do this math so they cannot understand spending 50% more at the outset could save over 30% on the total cost of ownership.

As we've seen, printing in the office or home can become quite an expense. In our example, the printer is expected to output 45,000 pages over its lifetime, a percentage of which will be trashed and the remainder of which will be filed away and, in most cases, never looked at again.

For a business really looking to understand its total cost of ownership, it's not just the cost to print all the pages, it's also the cost of the resources required to file, and then potentially retrieve, a portion of those documents needed at a later time for some reason.

Finally, it's really important, when considering a new printing device investment to make sure the machine is correctly "sized" for its purpose. There's no need to over-invest in a device with a work cycle of say 20,000 pages per month, when the maximum demand expected to be placed on it is 5,000 pages per month. Over-specifying increases the upfront costs and increases the total cost of ownership.

Focusing on making the most informed decision with regards to selecting the optimal printing device for your requirements forms an important element of the transformation from a Traditional to a Digital Office environment. There are significant potential savings to take advantage of that come hand-in-hand with a successful transformation.

You can access our interactive model for calculating the total cost of ownership on your printing devices by clicking the button below:

Calculate Your Printer TCO

Guy Brown

Author: Guy Brown

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