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    « Case Study: Escaping Commoditization | Main | The Dangers of Price per Copy Programs (Part 2) »

    May 25, 2006

    The Dangers of Price per Copy Programs

    Many people have been asking about the viability of price per copy programs being promoted in the market today.  I believe strongly that they are bad for  individual companies, and they are bad for the whole industry.  The vendors promoting these programs are using the Reference Price Effect against you.  They are encouraging you to look at a proposed cost and compare it to an "actual" cost.  The proposed cost looks better than "actual" cost.  This is deceiving and very dangerous.  This is not a small one-time purchase.  It is a long term commitment that can have a dramatic affect on your business.  The reason that comparing only these two numbers is dangerous is in summary:

    • The numbers are not the same under different scenarios, one must look at multiple scenarios to truly analyze the costs.
    • There are very broad assumptions made about the current situation and the future situation used to calculate those numbers.

    There are situations where a price per copy program is good.  If your core business is NOT reprographics then this type of program may make sense.  For a reprographer to offer this to an architect or an engineer is great for the reprographer and it is good for the customer.  The reprographer has a recurring revenue stream and the customer has predictability and a lower cost.  Since reprographics is such a small component of their cost structure (direct or indirect) this risk of such a commitment is small.  The architect is in sense outsourcing their reprographics services.  Outsourcing a non-core component of your business makes sense.  Outsourcing a core component of your business offering is dangerous.  Would an architect outsource the design of buildings?  I don't think so.  If your core business is reprographics this type of program will work against you.  The predictability that is provided to the hardware vendor offering the program will introduce a restraint on the reprographer’s business.  Since the percentage of the reprographers business that is being locked down is significant, the risks are also significant.  In some cases the cost structure for 70% of a reprographers business will be locked in for five to six years.  Who knows what will happen even in next two years?  How can one predict what will happen to the cost of goods or the volume of business in the next five to six years.  Just think what would have happened if five years ago travel agents committed to reservation systems a certain amount of transactions to be paid to travel booking systems like Sabre?  The advent of online booking has changed the dynamics.  I know travel agents who are quite successful, but they have become successful by changing their business model.  They make money in different ways.

    The technology in commercial reprographics is accelerating and the business environment is hyper-competitive.  I believe these factors will cause several paradigm shifts over the next six years.  Those companies that have flexibility to adopt will thrive, but those customers who have restraints on their core business will find adapting to change difficult.

    I will create several posts over the next couple days to demonstrate the dangers of these programs.  I encourage anyone who disagrees or has additional insights to comment.

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    Comments

    Kip Young

    John you are hitting the nail on the head. Shops need to look at more than just the single number that all the plans that I have seen are based on. Calculate that number out based on the plan terms that are presented and the final numbers are staggering. What looks great today is going to be agonizing before that contract is over. I know current price pressures make these deals seem attractive. Shops need to begin the change of their business to model what everyone is predicting. If they do that, they will be money ahead down the road by not signing up to one of the "great" deals of today.

    One other thing...I challenge anyone to guess what we are going to be doing a year from now let alone two.

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