Our panel of experts discusses the impact of A4 on the dealer channel.
Pictured clockwise above, Phil Boatman, Nick Capparelli, Fred Carollo, Chuck Clarke, Kevin Kern, Dan Waldinger
This month our virtual panel focuses on a single topic—A4. It fits squarely into our diversification theme if you initially sold A3 before diversifying into A4, even if “It was long ago and it was far away and it was so much better than it is today” as Meat Loaf sang in Paradise by the Dashboard Lights.
We’re not going to get into a debate if it was better in the A3-only days, but this is an A3 and A4 world, and like it or not, A4 is on the rise and there’s no stopping it now.
With that in mind, we approached some of the industry’s key A4 manufacturers, and representatives of some leasing companies to get their take on what is happening in the A4 space.
Participants in this month’s panel include Phil Boatman, director of business development/alliances, Lexmark International; Nick Capparelli, managing director, LEAF Commercial Capital; Fred Carollo, VP of originations, office products platform, TIAA Bank; Chuck Clarke, A4 product marketing manager, Kyocera Document Solutions America; Kevin Kern, senior vice president, business intelligence services and product planning, Konica Minolta Business Solutions U.S.A.; Dan Waldinger, senior director, B2B marketing, Brother International Corp.
CR: Do you foresee a time when A4 sales will supplant A3 sales in the independent dealer channel?
Boatman: With the A4 unit market opportunity already greater than that of A3, combined with ongoing A4 technology advancements, we believe this will happen eventually. A3 sales have been very consistent for decades, however, we’ve all seen the slow decline. The A4 opportunity still shows growth in multiple segments, and dealers want to grow their businesses. Lexmark is committed to helping the independent dealer channel take advantage of these A4 growth segments.
Capparelli: The timing around this is of course dependent on what the future holds as the world makes its way through the current crisis. But as page counts continue their decline and the perceived value of printing lessens for a lot of applications, I think it’s inevitable that A4 will take an increasing share of the market opportunity in the independent dealer channel. You’ve also got to consider who’s making the purchase decision now – increasingly, it’s millennials and even Gen Zs for whom print has always been less important. For now, A3 still leads, but the shift is definitely occurring, and at some point, we’re going to see A4 take a dominant position.
Carollo: We do, to an extent, purely based on the continuing discussions within the marketplace. The conversations within the industry are focused around the A4 products being a lead product to gain traction with an end-user as well as the relatively smaller footprint of the product being desirable by end-users. It seems like the market is forecasting this evolution.
Clarke: At Kyocera Document Solutions America Inc., our perspective is to provide a portfolio with a wide array of A3s, A4s, and integrated solutions to meet our customers’ needs. Kyocera diligently works with our dealers to ensure that they can offer their customers a total document solution. Kyocera has always taken the holistic approach, whereby A4s can complement an A3 sale or vice versa. With this approach, one model can pull in the other, as well as sell a solution that ties it all together as one comprehensive package. Meeting their customers’ needs/pain points, whether their business is growing or consolidating, is the key cornerstone as we move into the future.
Kern: I think it’s going to happen slowly. A4 has always been way beyond A3 because there were probably five or six times the number of A4 printers and small A4 MFPs in the world compared to A3. A3 is generally flat so that math will continue. As businesses refresh fleets, they’re taking a closer look at what they’re doing, and that changes the business model for dealers to a certain extent. Dealers would be wise to figure out how to embrace that. I see a lot of them doing it just to manage print. That’s sort of the pathway to the future with A4. And customers like a fixed monthly fee on everything these days. A4 is going to probably surpass over time for sure in the traditional office spaces, which used to be totally A3.
There are a couple of dynamics happening right now. Devices are much more reliable than they were ten years ago. If you look at what happens to the service model on that, you’ve got to adjust your service organization to that future, which is the machines are less service intensive. So, you get into the production and the higher-end industrial print type of stuff. It’s a transition every dealer should prepare for.
Waldinger: While A3-capable devices have typically been ideal for business needs, there’s been a seismic shift from A3 to A4 printing over the past few years. Customers are beginning to realize that A4-sized technologies can be an ideal solution for how their businesses work today – and tomorrow. They’re being more efficient about what they’re printing, and they also have less of a requirement for A3 printing. Looking at current market trends, we do believe that A4 devices will likely represent a larger percentage of a dealer’s business in the future. As a result, we’re seeing a shift to document management environments that provide a combination of A3 and A4 devices in a balanced deployment setting. For dealers, this means offering a full portfolio of business devices.
CR: There was a time when the independent dealer channel wasn’t all that receptive to A4. What was the turning point?
Boatman: Lexmark started its dealer channel in 2007. By 2009, we had uncovered dealers’ need for MPS and began providing them with the type of sales and service support needed to fit their business model. The Lexmark approach has focused on delivering superior A4 technology (dealer-unique models) and driving Lexmark as the growth engine for our dealers, not the replacement for A3. Dealers have the reach, expertise, and service capabilities to capture additional A4 devices and pages in the current customers they service. By bringing an expansive and reliable product portfolio to market that enables dealer profitability and differentiation, Lexmark demonstrates an ongoing commitment to the dealer community.
Clarke: Traditionally, in the past, A4s had the basic functionality of copy, print, scan, and fax. Now, our A4s have become very robust, incorporating the same A3 capabilities and functionality, such as mobile scan/print, application integrations, stapling & sorting, all under the protection of data security. This will result in an increase of A4 profit margins.
Kern: It’s somewhat market reality. People could get A4 cartridges from anybody in the universe and price it down. The way things are going now, particularly for managed print or flat rate billing where you bury all those costs in it for the customer, the customer is happier, and the dealer has a predictable aftermarket on the cartridges.
Waldinger: Dealers were originally hesitant to offer A4 products since the hardware margins were lower for these products. Traditionally, the drum and toner were combined in A4 printers, which drove up the cost per page. Now that the CPP/CPC for A4 products is closer to A3 products, dealers can make a healthy margin on these products. With MPS contracts, the CPP can even be blended (A3 and A4 together) for color and B&W, respectively, to offset any revenue loss by the dealer due to the lower acquisition cost for A4 devices. In addition to providing dealers with CPPs that are on par with A3 devices, A4-sized devices can fit more seamlessly into document management and security workflows due to the features and capabilities previously found only in A3 devices.
Furthermore, as print volumes come down, and the processing of documents has evolved within workgroups, customers are more in tune with their true document management needs. With MPS adoption rates increasing, the visibility into underutilized A3 devices has also increased. In short, customers are smarter than ever, and as true partners, the independent dealer must continue to right-size the fleet. Simply, this means more A4 devices and less A3 units. If they don’t suggest this change in an end-user’s hardware configuration, their local dealer competition will.
CR: Do you believe that with the reduction in the use of A3, A4 will become more heavily featured from a finishing perspective?
Boatman: Lexmark consults regularly with our dealer advisory board on topics such as A4 functionality needed for their customer base. Today, Lexmark offers staple-finishing, hole-punch, and multi-position stapling on many of the dealer A4 models. Booklet finishing is typically required in very specific applications, not distributed or general office output. Lexmark will continue to work closely with our dealer network to determine what additional finishing features are a necessity for A4 to flourish.
Clarke: Yes. As we move to the future, we are anticipating enhanced finishing capabilities to be incorporated into several future product offerings. Presently, Kyocera has begun to incorporate some A3 finishing and stapling functionality into our A4 508ci Series.
Kern: There’s going to be some of that happening. I’m not sure that most customers would need booklet finishing in A4. Let’s be frank, if you look at the typical A3, because everything’s software, they are generally way over featured. I saw somebody’s machine recently with overhead transparency mode still on the control panel. You’re going to see the key features that customers want will definitely be in A4 products, including finishing. Again, you have to be mindful of how customers are using paper differently in the office today. Although the interesting thing is, they’re still using it much more than anybody would have expected. The sky’s not falling, but it’s better to be way ahead of the curve in terms of preparation. Quite frankly, we’ve seen additive business by accelerating our A4 placements. It’s a smart way to do business to capture the potential volume out there.
Waldinger: Yes, as mentioned earlier, Brother recently introduced a stapler finisher for our monochrome laser printers. For many offices today, companies require convenience stapling versus production level finishing, which will still be needed on larger A3 devices.
CR: What are some of the new capabilities and features that you have been adding to your A4 products?
Boatman: Most recently, Lexmark has announced its Cloud Fleet Management and Cloud Print Management tools available on all dealer models. Industry analysts expect 40% to 50% of business users to have moved their core collaboration and communications systems to cloud platforms. By 2021, more than 70% of businesses will be substantially provisioned with cloud office capabilities. Lexmark Cloud Fleet Management provides an alternative to traditional premise-based device management and configuration. With our multi-tenant cloud platform, a customer’s Lexmark devices can be managed from the dealer’s network operation center, without the need to go onsite. This robust and secure tool helps dealers improve service delivery, track usage, and improve profitability in managed accounts.
Lexmark CPM gives dealers access to next-level print release that’s designed to be a true SaaS solution, for a more robust portfolio without added burden to their technical teams.
Clarke: With each new A4 series, Kyocera Document Solutions is raising the bar in terms of added functionality. For example, adding Dual Scan Document Processors (DSDP), increased processing speed and memory (including fax memory), standard wireless and Wi-Fi Direct and duplexing, smart operation panels, HDD/SSDs, Scan Extension Kits, in-line staple and collate finishing capabilities, as well as HyPAS Business Applications traditionally found in A3 device functionality. Kyocera is also committed to preserving the integrity of our customers’ data. For example, a Data Security Kit is standard on many models, providing overwrite & data encryption (even if the HDD is removed, there is an additional layer of encryption that protects the data). Also standard are Embedded TPM (Trusted Platform Module), Standard Secure Boot, Standard Run-Time Integrity, and Standard End-of-Life Sanitization, among other security features.
Kyocera’s A4 products have also evolved to become more solutions friendly. For example, KFS (Kyocera Fleet Services) assists in toner auto shipping, service alerts pushed out for quick resolution and maximizing uptime, and accurate page reporting for accurate billing. Other print management solutions, like MyQ or KNM (Kyocera Net Manager), provide personalized workflow solutions, authentication, and A4 and A3 device management. Kyocera ensures that solutions expected on A3 devices will also be available on A4 devices. Dealers are excited about these “value-adds” and how it makes it easier to show/sell these benefits to their customers.
Kern: They print great. The color quality is great. But the big thing is the software platform. The firmware on the engine is common to all the A3 engines, common to the marketplace, and compatible with Workplace Hub drives. It’s like an ecosystem, rather than a printer, so to speak. Our focus is on making all these things interoperable, streamlined with A4 and A3 from a workflow standpoint. There’s money in that. They have the same security capabilities, so there’s money in that. This does two things. Number one, it gives the customer what they need to solve their security problem. Number two, it’s a revenue opportunity. That’s the big thing, the commonality between all the different devices. They all look, act, and feel the same to customers, which is critical. Features, speeds, blah, blah blah, who cares. The real thing is how they work together in the customer’s environment.
Waldinger: Brother continues to innovate and develop solutions that meet the needs of today’s changing workplace, as well as the related impact on our channel partners. For example, the Brother Workhorse Series products support solutions that were previously only found in higher-end A3 devices. But due to changing market conditions, we introduced a stapler finisher option to provide stapling, offsetting, and stacking for our monochrome laser printers.
Our A4 business-grade devices are equipped with enterprise-level security features and allow for user-based secure printing. The Brother Solutions Interface (BSI) enables customization and integration to applications as needed, and our MFC’s are equipped with robust scanning to support digital transformation, collaboration, and mobility initiatives. We also added an E-notify value-added service, which enables users to access the service button on the machine’s control panel to request service, or to place an order for Brother Genuine replacement supplies. This seamlessly dovetails service requests and supply orders without the need for a Data Collection Agent (DCA). Finally, Brother continues to develop strong relationships with technology partners like KOFAX, PaperCut, and nddPrint to help provide even greater control of a customer’s print environment.
CR: How is your company preparing for a future where there will be fewer A3 products moving through the channel? Or are we being premature asking that question?
Capparelli: I don’t think you’re being premature at all in asking that question, especially considering the extraordinary challenges we’re all facing right now. The shift to A4 is happening and will continue to happen at an accelerating pace as A4 devices become more advanced in a time when businesses are more eager than ever to reduce print costs. With the crisis we’re currently seeing, I think pressures on A3 will further increase. As a company, we’re here to support imaging industry dealers and customers with finance options that give them more flexibility regardless of their current needs and plans for the future, whether they’re focused more on A3 or A4.
Carollo: We feel that may be premature. A3s typically have a much better after lease value than A4s, so if there is a switch to A4 sales from A3 sales, that will be a concern for aftermarket values. With that said, when we are quoting a transaction that has a large makeup of A4s, it may affect the residual positions we are taking on transactions.
CR: Will an increase in A4 placements affect leasing rates due to the loss of revenue in the recovery process because the returned A4 MFPs will have no value?
Boatman: Lexmark brings benchmark technology to market with intentional engineering at its core.
This means developing devices that are purpose-built with vertical market solutions in mind that are robust, dependable, and require less service over the lease period. Because the construction of Lexmark print devices includes steel frames, long-life components, and fewer parts, this allows for secondary revenue streams when dealers redeploy. Lexmark knows many dealers will use off-lease A4 devices for short-term rentals, previously-owned sales, service loaners, and parts sources.
The leasing industry has made changes over the years based on the current needs of the dealer channel. Lexmark has seen many dealers sell A4 devices with revenue and margin similar to A3 placements, depending on the deal-size and other variables. The distributed approach that Lexmark recommends to dealers emphasizes putting the right technology in the right place at the customer. Coupled with sound MPS strategies, dealers will get the right leasing offers from the finance companies.
Capparelli: The economics underlying finance transactions are always changing and the increase in A4 placements could mean additional challenges as dealers and finance companies navigate this uncertain time. Another factor is that the sales model itself is changing as demand for as-a-service solutions increases. More and more businesses are opting for the cost savings and versatility of this model, which we’re supporting with finance plans that give businesses better control over cash flow and budgeting while helping to drive predictable ongoing revenue streams for dealers.
Carollo: I feel that is a ‘wait and see’ kind of question. If our portfolio is continuing to have an increased percentage of A4s in its makeup that results in lower after term economics, that could cause us to take a lower residual when booking deals, which will affect rates, but it is too early to declare that position.
Kern: We do like to recycle things here. It’s hard to predict because devices are so reliable now. We still have A3 and production devices that are 12 to 15 years old in the market still working. It’s probably not the same resale that maybe a lease company may do with A3 products, but there’s still market value, and I think they’ll still be usable because most of the critical parts are replaceable by the user. They still have usable life, and the question is how the secondary market develops for those [devices].
Waldinger: This situation is dependent on the size and scope of imaging deals and the state of the financial market. By combining the fleet under one MPS contract (A3 and A4), lease rates should remain competitive.
What factors may have a positive impact regarding the value of future A4 devices at the end of a lease?
Capparelli: Resale value for A4 devices on the secondary market has always been a challenge, but the fact that many of them can meet business MFP needs with lower costs and reduced space requirements make them a really appealing option in a time when cutting expenses and saving space are such priorities. The need to work remotely could increase demand for A4, especially for multifunction devices that can be ideal for home workspaces. Though businesses are working remotely by necessity for the time being, it won’t be surprising if many of those same businesses continue doing so, to at least some degree, by preference due to lower costs, higher productivity, and increasing employee demand.
Carollo: A4 being a relatively simpler product than an A3, that is easier to service and may be deemed more reliable. This could affect end-of-term behavior that could lead to increased renewal payments, which would be a positive for the unit’s end-of-term value. The only other positive effect on end-of-term value would be if dealers were to buy more A4 units from lessors or wholesalers thus increasing the market for the units and having a positive impact on their end of term values.
CR: What strategies should a dealer employ to ensure they are making decent margins on A4?
Boatman: The Lexmark dealer channel has been very successful because of its strong sales capabilities. Industry data still validates there are approximately 4-5 A4 installs for every A3 unit sold. When a dealer can recognize this reality, there are opportunities for multiple devices to be sold, which will enhance revenue and overall margins. These winning dealers have leveraged many strategies over the years, including vertical market expertise (leaning on the Lexmark Industry Advantage), document management workflow solutions, space-saving discussions, and utilizing the new Lexmark Cloud
Services platform. The Lexmark Industry Advantage puts a whole new conversation on the table for our dealers, enabling the dealer to address specific customer pain points, not just CPP. By making our decades of vertical industry expertise and insight available to our dealers, they have the tools and knowledge needed to more effectively serve customers and gain an advantage in the marketplace. This dials-in the dealer’s consultative approach and dials up margins.
Clarke: Kyocera Document Solutions encourages our dealers to take a holistic approach to maximize higher profit margins, as well as achieve a high ROI for their customers. Identifying specific customer pain points, both from a hardware and solution/workflow standpoint, are critical to dealers achieving healthy margins. With our powerful A4 MFP/printer capabilities, as well as many HyPAS applications, like DMConnect, KFS, and KNM, we are confident dealers can reach their goals.
Kern: Look at subscription models, number one. Number two, build other services around it. A4 plus a VoIP is different. A4 plus ECM is different. The bigger thing is how you add additional services that offset any potential erosion of pricing on A4 and A3, for that matter. The dealers I’ve seen that have done that have been extremely successful.
Waldinger: Dealers should attempt to lock in reoccurring supplies revenue while providing additional customer value by aggressively moving towards a managed print services (MPS) model. With the right MPS programs in place, dealers can become valued consultants to their customers by improving business processes and employee productivity while also reducing costs in the areas of document workflow, management, and output.
Additionally, some dealers have started to offer flat-rate billing programs for customers that provide a printer, service, and unlimited supplies for a set time period. These programs require dealers to understand their customer’s print volumes accurately and then price them accordingly. A4 devices can fit nicely into these programs due to their low service requirements and alignment with the print volumes of today’s businesses. For example, Brother’s Value Print Program provides discounts on Brother Genuine supplies and offers a free two-year limited warranty upgrade. Thus, covering the device for a total of three years.
Ideally, dealers should also look to offer channel protected models that do not directly compete with pure e-commerce players. By offering more feature and solution rich models not sold at retail or e-commerce sites, dealers can provide greater value to their customers and greater margins for themselves.
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