Can Canon shake HP’s hold on inkjets?

Focusing on smaller cities helped Canon move past Epson to become the runner-up in the inkjet market. Now the company will have its work cut out as it takes on the leader, says AKHTAR PASHA

	According to Alok Bharadwaj, the B&C Class city route was a very effective strategy for a late entrant like Canon since the entry barriers in the case of A Class cities was high

CANON grabbed 27 percent of the Indian inkjet printer market in Q1 2004 to displace Epson from the second place. It sold 39,261 units during that period, maintaining a 15-17 percent growth rate that has helped the company increase its market share from 3 to 27 percent over the past three years. By comparison, HP’s average quarterly growth has been 12-14 percent, say analysts. Of course, this is because HP has a huge installed base in the market, and growing at an average of 15 percent per quarter is difficult with such a base. Canon on the other hand is growing from a much smaller customer base, and hence it is scaling up rapidly.

HP still accounts for every second inkjet sold in the country, and its sales grew by 32 percent in Q1 2004 over Q4 2003 to reach 86,638, giving it 51 percent of inkjet printer sales. Says Rajiv Rao, market development manager, Consumer Peripherals, HP India, “We started focusing more on the photo printer market including all-in-ones (AIOs) from Q1 2004 (JFM), and the momentum built up in Q2 2004. We will continue to focus on inkjets, bringing new value-for-money products into the market for the home and small office home office (SOHO).”

As per IDC, Canon’s rapid growth has been primarily because it has successfully ramped up its retail strategy and created awareness about its products. This year the company is pumping Rs 20 crore into advertising, marketing research, retail expansion plans, in-store branding and training partners to bolster its market share.

Budget inkjets drive volumes

Canon’s entry-level S200SPx, which costs Rs 2,500, accounted for 90 percent (35,000 units) of its inkjet printer sales in Q1 2004. Says Alok Bharadwaj, director and general manager, Canon India, “The S200SPx has been a crowd-puller over the last six months because it offers photo-quality printing. The bulk of sales were to the home segment.” In comparison, HP sold close to 57,000 units of its DJ3550. Both HP and Canon agree that the first quarter was good because the drop in entry-level PC prices had a corresponding effect on PC and therefore upon printer sales.

A twist in the retail tale

If we analyse Canon’s strategy, we see that it is following in HP’s footsteps by emphasising retail outlets. The company’s done some tweaking to its advantage. Instead of going the traditional route of saturating Class A cities before spreading to B&C Class cities, Canon went to the latter first. Explains Bharadwaj, “The B&C route was a very effective strategy for a late entrant like us to take on HP since the entry barriers in the case of A Class cities is high. The media costs are higher there, while brand loyalty in small towns is greater when compared to that in bigger cities.”

Canon’s retail strategy includes setting up Canon Retail Stations (CRS), which are specialist stores opened in high visibility-high net worth locations. The company now has 19 CRS and 60 retail points, and plans to open six more CRS and add 190 retail points by end 2004. It also has 120 authorised service centres in 50 towns.

As compared to this, HP has 200 retail stores and 300 service centres in 90 cities. An IDC analyst says that HP outperforms Canon in more than one way, be it technology, products or market penetration.

Where the printers go

	Rajiv Rao says that HP will continue to focus on inkjets, bringing new value-for-money products into the market for the home and small office home office

The primary factor powering demand for (single function) inkjet printers is an increase in PC sales, especially to the home and SOHO market, thanks to dropping PC prices. At the same time there is rising demand from businesses that are upgrading from single-function inkjet printers to AIO inkjet printers. Rao states, “We see a trend in mid-range and high-end inkjet printers wherein customers are upgrading from using single-function printers to multi-function AIOs that are capable of printing, copying and faxing, and are available from Rs 6,000 onwards (the HP PSC1210).” HP sold 35,136 AIOs in Q1 2004. Bharadwaj adds, “There could be buoyancy of growth in the AIO market because it [an AIO] offers value for money.” Canon’s entry-level AIO is the MPC190 priced at Rs 8,495.

Digital photo studios

Both HP and Canon take the digital photo printing market very seriously because of the strategic business interests attached to it. HP leads this market too. It runs a programme called Photo Shop (HP digital studio) that aims to take technology to the rural and urban masses, converting traditional photo studios into digital (instant photo printing business). It has a network of 4,000 Photo Shops that are servicing 20 lakh customers per month. In contrast, Canon has just 500 digital studios using its photo printers. Reveals Ashwini Aggarwal, country marketing manager, HP India, “This market fetches us roughly Rs two crore a month in the form of cartridge sales.” Bharadwaj contributes, “There are about one lakh mom-and-pop photo studios in the country which represent a huge business opportunity for photo printers. Our strategy will be to convert 250 analog photo studios into digital Photo Shops this year.” Both HP and Canon have four photo printers. HP’s entry-level Photosmart 7260 is priced at Rs 6,499, while the Canon entry-level i455 is priced at Rs 8,995.

A consumable story

A market analyst points out that HP recovers the cost of the printer if it sells more than two cartridges; the recovery period can range from one year to 14 months depending upon usage. The printer cartridge of an entry-level inkjet such as HP’s Photosmart 3550 costs Rs 1,912 (Rs 789 for black and Rs 1,123 for colour). In comparison, for Canon’s entry-level printer S200SPX, the cartridge costs half i.e. Rs 1,190 (Rs 395 for black and Rs 795 for colour). Both HP and Canon agree that the cost of inkjet cartridges is quite high for consumers, which is why almost 50 percent of cartridges bought are local refills. These refills are easily available at one-third the price of a new original cartridge.

Success in the inkjet printing segment depends on three factors—product depth, reach in the market, and post-sales support. In all these departments HP leads from the front. Canon will be aiming to close that gap.

SWOT analysis
Matrix	HP	Canon
Strength	HP has three key strengths: product depth, reach in the market, and post-sales support.	A strong presence in the home segment because of its entry-level printers that are priced low. Canon is focusing on B&C Class cities where purchases are happening.
Weakness	HP should take its competition more seriously and cut prices on printers and cartridges.	Post-sales support and services need to be ramped up faster.
Opportunity	HP would like to leverage the groundwork it has done to take its digital studio concept to ruraland urban masses. This is where it expects the maximum revenue to come from, along with AIOs.	There’s an opportunity in AIOs and photo printers where Canon's business has started picking up.
Threat	HP would be under pressure in the AIO category.	Needs to watch out for competition from HP as well as Epson.

akhtar@expresscomputeronline.com