The OEMs weigh in on threats, aftermarket opportunities, diversification, and building out their dealer channel.
Our Virtual Panel series continues this month with comments from the Big Six OEMs, as well as HP and Xerox. The panel responded to numerous questions, some submitted by our Dealer Advisory Board, about plans to add more dealers to their network, diversification, aftermarket opportunities for future products, the biggest threat facing dealers, and advice on how dealers can remain relevant in 2024 and beyond.
This year’s participants include: Shinichi Yoshida, executive vice president and general manager, Canon U.S.A., Inc.; David Laing, vice president and head of iMPS Services Business, and John Whidden, vice president, U.S. Specialty Print Channel, HP, Inc.; Kevin Kern, senior vice president, Business Intelligence Services and Product Planning, Konica Minolta Business Solutions U.S.A., Inc.; Oscar Sanchez, president, Kyocera Document Solutions; Jim Coriddi, vice president, Dealer Division, Ricoh Americas Corporation Mike Marusic, president and CEO, Sharp Imaging and Information Company of America (SIICA); Bill Melo, chief marketing officer, Toshiba America Business Solutions (TABS); and Jim Morrissey, vice president, Document Technology Partners, Xerox Corp.
In addition to the questions posed here, visit www.thecannatareport.com for bonus Virtual Panel Series coverage to see how the panel responded to questions on acquisitions, as well as their investments into A3 and A4 products.
Are you still adding authorized dealers, or is the number of authorized dealers selling your products declining? What do you think the number of your authorized dealers will look like five years from now?
Coriddi: Ricoh has a market-by-market approach, and we are relying on our dealers as a significant growth engine now and in the future.”¯We have added dealers in specific markets where coverage was lacking, particularly due to the change we made 18 months ago to our go-to-market strategy.”¯We have established a major commitment and reliance on dealers in the SMB segment of the business, and we continue to develop our strategies for the dealers to be an extension of Ricoh. We are fortunate to have a network of quality dealers, and we will continue to focus on supporting quality dealer coverage over quantity. This has been true for several years and this will remain true. Furthermore, while the number of dealers may shrink, the feet on the street, or the new “digital feet on the street” will likely remain unchanged or even grow.”¯As this continues to evolve, the go-to-market strategy will continue to evolve over the next few years.
Kern: Our numbers are pretty stable in terms of independent dealers. I think you’ll see us, where it makes sense and where we’re not covered correctly, add dealers. We have a very logical approach. We like the balance of direct and dealer placements in the 50/50 range. That balance is healthy for our business and healthy for the dealers. We don’t want to have too many dealers in each other’s backyards.
Marusic: I believe it is well known that we are an under-distributed line and so we are adding some dealers in strategic areas where we do not have enough coverage. We have picked up several dealers that have helped support the Sharp product line in some markets, but we have not lost any dealers who have chosen to drop Sharp in some time. The big challenge facing the industry is the declining number of dealers. With all of the transitions and new technologies on the horizon, many dealers are opting not to invest in the future but take their chips off the table and sell. And in fairness to those dealers, they worked hard and earned that right. They have positioned their company as valuable to another dealer and so they go that route.
Melo: Toshiba continues to add quality dealers in markets where we are looking to bolster our distribution. I expect the downward trend in total number of dealers to continue and therefore, there will likely be fewer dealers five years from now.
Morrissey: We are still adding dealers but partnering with those who can sell our value proposition in our market-share areas, such as production, managed print services, application software, and Xerox’s brand.”¯We welcome dealers who understand where the future is heading and we are here to help them succeed.
Sanchez: The short answer is yes, we are always open to adding authorized dealers in relevant markets across the country; and yes, we know that the overall number of dealers will be reduced five years from now. Today we authorize based on specific market needs and highly related to previously-mentioned acquisitions that continue to change the dynamic of the market. In the future, the strategy for adding authorized dealers will change. Take our upcoming inkjet product as an example. For this new product segment, Kyocera is open to exploring options in both the traditional BTA channel and the non-traditional alternate channels that exist. The dealer who sells our full lineup today may or may not offer our inkjet in the future. As the reverse is true, we are open to adding dealers, strategically, in the inkjet category and only for the right, mutually beneficial partnership. Although full lineup offerings have traditionally been more attractive, the possibilities with dedicated production inkjet partners is very attractive, as well.
Whidden: We are continuing to selectively add dealers to our program to round out our national coverage and to help with our Partner Service Network.”¯Difficult to say in five years whether it will change dramatically, but we are targeting to have best-in-class coverage throughout the U.S., while also ensuring our partners can grow their HP share.
Yoshida: Canon is always open to the right opportunities to expand our channel partners, but it is a selective and intricate process with each dealer partner to ensure that their businesses are in good financial standing to invest so they can mirror our intended sales vision. We are not shy to decline a good opportunity to expand the authorized dealer lists if it is in the best interest of protecting our current dealers’ businesses.
Dealers keep hearing they need to diversify. What do you view as the greatest diversification opportunities for your dealers?
Coriddi: More than ever, dealers will need to look beyond the “box,””¯not necessarily beyond the office document and workflow. The document is going from paper to digital, a lot of the workflow is similar.”¯The greatest opportunity for dealers is to sell the “intelligence” they can provide to their customers.”¯If we can measure intelligence and analyze the intelligence, we can optimize our customers’ businesses. We must be able to charge for this business optimization. Ricoh is working with our National Dealer Council (NDC) and key dealers to develop the platform and business model to enable dealers to enter the “workflow” business. Our RICOH Cloud Workflow Solutions powered by the RICOH Smart Integration Platform is the start of this innovation.
Kern: It’s something we believe in because growth in the traditional business is not going to be dramatic. I’m not as negative as those people who say page volume is going to fall off a cliff. But if you look at the dealers’ business model, it’s built around some sort of monthly recurring revenue. We strongly believe in IT services. We know this can work based on how we go to market with All Covered. Whether it is managed voice or help-desk support, it is a perfect adjacency to our core business, particularly with mid-market customers. ECM is also a category that builds upon our legacy skills of scanning and workflow. All in all, we are very committed to bringing new opportunities to our dealers with revenue streams that will build on the monthly recurring revenue they have today.
I believe more dealers have the opportunity to get into production print, and particularly, industrial print, packaging, and labeling where there is growth. A lot of that is moving from traditional offset to digital and it gives the brand owner more flexibility. We have dealers involved in selling KM-1s, and we have dealers selling the MGI products and finding new opportunities with our label lineup. We have recently added new Konica Minolta wide-format products, and a dealer got the first AccurioWide sale in North America. Dealers have a tremendous advantage in industrial print due to their legacy of great service with rapid response times, which is critical to industrial printers as these products are part of their manufacturing process.
Laing: HP is assisting its partners as they look to diversify into graphics, managed IT, and 3D printing/manufacturing. HP’s large offering of graphics and publishing solutions enable partners to expand outside the traditional office A4/A3 space into new, profitable, color pages. HP’s device-as-a- service (DaaS) program assists partners entering the managed IT market sell seat-based managed PC services without requiring expensive investments in new fleet management tools. HP has grown our 3D printing portfolio, designed for low-volume manufacturing, to include new, lower priced, devices that are a great fit for many of the same SMB customers our partners call on today.
Marusic: I try to avoid the word “diversification” with dealers as it implies a “new” business to enter. When I think of diversification, I think of entering new markets with new customers like diversifying into medical devices””that to me is diversification. For dealers, we don’t need to make it that complex. Our industry has always evolved. Many dealers started in the typewriter business. In the 1950s, through much of the 60s and 70s, a 25-person typing pool was a 50 page-per-minute “copier.” The role of the typewriter was to expand the number of copies of a particular document or piece of information.
As time went on, copiers emerged to do the job, then digital and network copiers took it further. Once networked, the copier also became a way to “store” or file information for later use by integration into other systems. The point is, the evolution followed the path of information sharing. How offices evolved with communication and the sharing of information is how our industry evolved too.
Those opportunities to evolve are similar in thought. My answer may sound a little self-serving (two MFP competitors offer the same path). But getting into displays, office digital signage, and conference room systems is an extension of that information sharing. You can look at information on paper or on a display. Those are the two options. Most dealers sell document management systems and you see OEMs investing in ECMs. It’s all part of the digitization of information, but in the end, it needs to be “shown” to someone. That’s paper or a display, and it is within the business you already compete, and it complements the services you are already providing the customer. In the coming year, you will see a product we developed with Microsoft to make this even easier. The Sharp Windows Collaboration Display provides another path for document sharing, editing, and management. It’s a natural progression of the business.
Melo: While there are a number of diversification opportunities, the most important remains managed print services. For most dealers, MPS represents the greatest incremental return on investment and the surest path to success. Dealer service and hardware revenues related to A4 devices should be 40% or more of the total business. If not, the MPS opportunity within a customer’s own MFP customer base is not optimized. There is no greater and more achievable near-term opportunity than managing your customers’ total print environment.
Morrissey: I can talk forever about this subject because I have lived it for so many years. In the past, manufacturers would come up with a new product every couple of years, from analog to digital, fax machines and then color. Today, it’s all about the cloud, vertical application software, and collateral materials with production. These are the pathway to success, and we encourage our dealers to embrace these offerings.”¯Customer acquisition is also a big topic based on the current valuations and the difficulty grabbing net new business. Buying ancillary companies seems to be a cost-effective way to expand your business because the decision maker is similar in the SMB market.
Sanchez: It will come as no surprise that my direction is diversification through software and services. That is the future of this industry and that is the future for traditional manufacturers and dealers. However, it must be software and services with a distinct purpose; a unique offering that is not easily commoditized. This is not simply a strategy of becoming a reseller to be a “me-to” company. This is a strategy-led approach that requires an investment in both human resources and infrastructure, as well as selecting products that cannot be sold by everyone.
Yoshida: Canon itself is a diversified company, we offer the broadest range of product and solutions that can meet a variety of needs from small business and enterprise to production-level environments. In addition, through our strategic partnerships, dealers can maximize Canon offerings to differentiate themselves by integrating solutions such as Box/mxHero, cloud-based systems such as Canon’s own uniFLOW, and other third-party solutions into their offerings.
The office technology industry has a defined sales model and dealer compensation programs are based on this model, including an aftermarket that pays 40% profit on service and supplies. Do you think some of the future products you are developing will continue to offer an aftermarket opportunity? “¯
Coriddi: Yes, absolutely. Aftermarket margins are important to our dealers, and we will continue to support that. Our competition, especially the “very hungry” players are getting extremely aggressive, forcing lower margins.”¯Ricoh is spending a lot of effort on creating new annuity opportunities for the dealers.”¯If we can optimize our devices with AI and big data, we can increase the dealer efficiency.
We are working together with our dealers. We are taking a fresh look at how they’re servicing products and shipping toner, and we’re helping to optimize these processes. Our NDC and National Dealer Sales Council (NDSC) are working directly with Ricoh Company, Ltd. in Japan to provide open feedback on what is required for dealers to preserve and increase their aftermarket margins.”¯We are working alongside our dealers. We have even done “intern projects” with Ricoh Japan engineers at our dealers for weeks at a time.
We are also looking at new opportunities for dealers to create an annuity. Our Cloud Workflow Solutions is a perfect example. A $50 workflow a month can offset a reduction in aftermarket margin pretty quickly at $0.01.”¯Plus, the workflow opportunity offers dealers an off-lease sales opportunity they never had before.
Kern: We try to be very conscious of that model. It is one of the reasons we push bringing in IT services as a way to maintain that monthly recurring revenue. The question in my mind is does business inkjet that some vendors are pushing drive that model or not? It probably doesn’t. It’s not the same model but it probably does change service costs. The way that will be addressed to maintain margins is you’ll see a lot more things like predictive maintenance, longer life consumables, and things that reduce the service content of that aftermarket. I can’t guarantee 40% forever, I wish I could, but I don’t know what’s going to happen in five years. The devices are getting much more effective in terms of lowering maintenance costs, lowering aftermarket costs, and limiting parts costs. And you start taking some AI-based predictive maintenance, or even remote maintenance where you can fix things without even being there, that sort of stuff is coming, which will help maintain reasonable aftermarket margins.
Laing: Yes, HP is working to increase the service and supplies profitability of its partners above the 40% target by improving service efficiency””both with HP’s Smart Device Services (SDS) technology and our PageWide A3 and A4 ink devices. SDS is already driving 15%-plus improvement in service margins for partner’s MIF of HP A3 and A4 devices. SDS achieves these savings by improving remote diagnosis and resolution, lowering service visits up to 40% on HP devices. With better remote diagnosis and on-demand, while mobile, training, partners are experiencing first-time fix rates as high as 95%. HP’s PageWide ink devices have fewer moving, replaceable parts. This architecture lowers the number of service visits required over the life of the device by up to 40%, improving dealer service margins. With both SDS and PageWide, HP is careful to not market these service efficiency improvements to customers, thereby limiting the partner’s ability to capture these efficiencies as improved margins.
Marusic: This may be one of the bigger challenges facing the industry. As dealers evolve, I see this percentage model becoming an obstacle to change. It’s not so much the loss of the aftermarket as there are many categories coming that allow for an aftermarket. The bigger adjustment will be the ratios of the mix and the percentages on the aftermarket. We are already seeing big growth opportunities where a dealer can make more money in dollars, but how the numbers are allocated between aftermarket or gross profit percentage will change. Our goal is to deliver products and categories that will allow dealers to make more money while maintaining that aftermarket cash flow that drives the industry. The formula on the mix, that will change.
Melo: Toshiba will continue to develop and sell MFPs that provide dealers with profitable opportunities equal to or better than the industry norm.
Morrissey: Everyone has been trying to crack the code on that opportunity and it has not happened. A4 continues to grow, but A3 is still king with the dealers. Inkjet technology will continue to improve and become more relevant, but I don’t believe there is game-changing technology in hardware. It will be software that impacts vertical market application. Look at the mortgage industry. We would make millions of copies for home sales and now, it is all electronic.”¯There will be additional opportunities for dealers to make money in this space. Production of marketing materials is hot right now and our technology is the best out there. We are helping companies create and distribute marketing materials that’s personalized and relevant, with multichannel and variable data software from XMPie, A Xerox Company. Dealers looking for growth are looking at Xerox to lead the way.
Sanchez: I strongly believe that the future products of this industry, in general, are going to redefine the business model for a dealer’s aftermarket. By 2024, there will be less of a focus on hardware and more of a focus on software/services; therefore, we won’t be discussing standard service models of 40% profit as we know it today. Traditional service models will continue to exist, but they will also continue to erode. For those progressive dealers new more aggressive revenue streams will replace and surpass the traditional ones, allowing for a more efficient and automated approach to service. One example of this is my belief that the standard click contracts of today will change to flat rate contracts tomorrow, similar to subscription models we see in software. Can I say confidently this will happen in the next 5-6 years? No, no one can. Do we need to be aware of this shift and prepare accordingly to future proof our business models? Yes. That I can say with 100% confidence.
Yoshida: Yes, that is our business model and we don’t foresee this changing. It is good for our end-user, Canon, and our dealers.
What do you see as the biggest threat dealers are facing as they look to remain profitable in the future?
Coriddi: It is critical for dealers to not remain stagnant as the business continues to change.”¯It is essential for dealers to constantly invest in their future, this includes people, processes, systems, training, to name a few.”¯Dealers have created strong relationships and trust with their customer base, but this is not the time to get complacent.”¯Clients need more in the form of managing their information, and dealers have to show they understand the new customer challenges and can deliver more types of solutions.
Kern: Inertia. What I mean by inertia is this: Things aren’t so bad right now. Everybody is making money. Why change, why take the risk? If I were a dealer, I would be looking for what changes I need to make to facilitate longer-term growth. The problem is when you’re making 40% aftermarket and cruising along, and you’re gaining market share and taking other dealers’ customers, it looks great, why change? So there’s the potential for inertia from preventing a lot of organizations from preparing for the future. It’s thinking things are great, our sales process works, our commission scheme works, and our pay scheme works, so why look outside and say we need to make some changes here to prepare for where we’re going? The future may be less reps and less technicians, but the ones you have are much higher paid on base salary and have much more technical expertise. There’s a lot of changes that will happen. What everyone needs is that heightened sense of awareness to ask where I am going and how am I going to get there if this changes.
Laing: HP sees the biggest threat to its partners is a willingness to change. Changes in the demographics of customers as they shift to millennials and Gen Z mean our partners will need to change the way they sell and support these customers. As digital natives, these new customers prefer to research, buy, and get service/support in different ways than the current customer base. Younger buyers prefer mobile and technology-driven approaches, instead of traditional face-to-face selling and phone-based support. They crowd-source device and service-provider recommendations via social media and on-line buyer reviews, instead of depending on face-to-face selling and demonstrations. They want internet chat or text messaging-based, not phone-based, support. They expect devices to be cloud-connected, internet of things, smart devices that enable remote, preventative service. They want their service providers to generate a quarterly report on what they did, without their knowledge, for them afterward. In summary, HP thinks changing workforce demographics, and those new buyers’ higher expectations of technology, will require successful partners to change their selling and support approaches more in the next 10 years than they have in the last 30.
Marusic: Complacency. There is so much change going on now that remaining still is your biggest threat.
Melo: In the immediate future, perhaps the biggest risk to dealer profitability is the failure to execute on the acquisition of their customers’ print volumes. Dealers need to carefully evaluate entering new lines of business, especially as these will require significant financial resources and management attention.
Morrissey: One main threat is dealers struggling to bring in talent that can embrace the technology.
Young talent needs to be able to transform the dealer’s value proposition to address customer needs. If that doesn’t happen, prices will continue to be lower until dealers are ready to sell.”¯The other threat is the wide-ranging price of products from dealer to dealer, which is all dependent on their volume and cash position. I do not see the small dealers competing unless they can run very lean. The challenge: Customers want support with their systems and that takes investments””without that, venture capitalists enter the picture.
Sanchez: I believe the (American) phrase is “old habits die hard.” The resistance to adapt to the changing market or taking a much-needed risk into the unknown is the biggest threat. I have said several times in my career, you can’t experience positive change without taking great risks.
Yoshida: The two biggest threats I see for our dealers are hiring a diverse, young workforce that understands the industry, specially software solution business and retaining them, and outrunning declining volumes and click rates by selling more units to offset that decline is another challenge.
If you could leave dealers with one piece of advice as to how their dealerships can continue to remain relevant in 2024, what would that be?
Coriddi: We encourage our dealers to be diligent to clearly understand customer challenges and workflow needs.”¯Focus on customer outcomes and your customers’ success.”¯Traditional upfront selling alone in not the answer in the future, the real winners are the dealers who help their customers be successful””with a focus on their customers’ end users. Behind every customer, there is a series of individuals.”¯The person/individual’s success is the top priority.”¯Prints, scan, copies, workflow are not the priority. The customers’ success is paramount. Using this philosophy, we are confident and committed to investing in and helping our dealers prepare for and succeed in the future.
Kern: To quote Steve Jobs, “stay hungry.” Keep looking, find opportunities, take risks, invest, and keep looking forward. I’m not saying production print or industrial print is right for everybody, but what is right for you and your business in your locality and where you are in your career versus where you are in the businesses’ lifecycle? And stay really close to your customers. Keep looking for that next thing to add or expand the business. Some of it may come from vendors like us and some of it may come from different vendors outside the business. You’ve got to keep looking for where you need to be and what you need to have to position yourself for the future.
Laing: At HP we focus on creating a “growth mindset” culture based on the idea that those who change the fastest to customer input will succeed the most. Using a growth mindset, we prototype, test, and iterate on ideas quickly and consider failures as learning opportunities. HP would recommend our partners adopt a growth mindset as well. Stay focused on your customers and listen carefully to what they want. Especially, listen to how your younger customers want their experience with you to change””don’t try to force them into your historical model. Diversify carefully into adjacent areas where your customers want you to help them. Run pilots to test new ideas with younger customers, not the decision makers of today. Consider if your current vendors are helping you expand into adjacent markets and adapt to change or are rooted in the past. In summary, use a growth mindset to embrace change faster than your competitors and you too can remain relevant and grow.
Marusic: Be willing to adjust your thinking. I spoke at a BTA event about “mental models.” The concept is that your perception and understanding of a topic””the model you place it in””impacts how you approach things. Reevaluate what business you are really in. Is it generating clicks and the supply aftermarket? Is it helping your customers run their business better? Broadening the thinking to the latter allows you to provide your customers with new products and services, but you will also have to adjust the business model you support them in.
Dealers must be willing to try new things and adjust how they go to market. When I look at our fastest growing dealers, they are trying new sales approaches, new products, and they are going wide with their customers by offering new products and services. You don’t have to “diversify” into a new market or customer, but you will need to try new categories of products and services. Expand that mental model of what business are you in.
This will continue to be a great business for many years to come. There is still a lot of money to be made and growth to be had. But to do it, dealers will have to adjust and evolve just as they always have. I have every confidence that they will.
Melo: Choose your lines of business wisely””not all opportunities are created equally. Before deciding how to offset the declines in your A3 MFP business, understand your capabilities, market position, and resources.
Occam’s razor is a principle that states that the simplest solution is usually the best. I think that applies well here. I believe that there is still significant opportunity in managing customers print environment. If your printer MIF is not greater than your MFP MIF, you have significant room to grow in this area before you should consider doing anything new.
Morrissey: I try to live by the rule that if you are green, you’re growing, and if you are ripe, your rotting. You don’t need to invest in everything, but you do need to learn about what is out there. The manufacturers and the dealer groups are the best way to best practices. I share information whenever I can to help dealers grow. I also find that the dealers enjoy sharing with their peers. Stay relevant and continue to be a student of the game. Work with the manufacturer to understand how they can help you make the transition to software services and the cloud. Xerox has so many tools, it is crazy, but if you don’t understand how to use them, they are useless. This is a great business and I am confident that it will be around for a long time.
Sanchez: Continue to change and invest in the future. Redefine your business model, your processes, your organization. Understand your competition, even better than before. Don’t think of 2024 as 5 years from now, imagine it is tomorrow. That is the sense of urgency you must possess on a daily basis to continue to thrive in a changing market. Those that take risks will reap the benefits in the future. Not everything is about selling new products like IT Services or ECM, but it is also about selling the products you already have differently.
Yoshida: I would advise dealers to keep up with the changing times, look at the long-term perspective, and always look to invest when possible for future growth.
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