Ink cartridges are big business at the likes of Harvey Norman, Officeworks and JB Hi Fi because they deliver significantly higher margins, often up to 60% which is significantly more than a plasma or LCD TV. The category also brings customers back to a store time and time again for a refill.
Last week I walked into Officeworks to buy a Colour and Black cartridge for a new multifunction printer. The price was a staggering $99. This was 30% of the actual purchase price of the printer.
Only a week earlier, I had seen ink cartridges for the same model printer selling in a Broadway store for half this price. The only problem was that the cartridges being sold in Broadway were counterfeit. While the packaging was an absolute replica of the original packaging, I doubt whether the ink on the inside was as good.
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According to all of the major printer vendors, the sale of counterfeit print cartridges is rampant in Australia.
And this is why the likes of HP are now investing millions into trying to cut out counterfeit ink cartridges, which in Australia is costing the US Company millions in lost revenue.
The problem is so bad, that HP have set up their own global police force in an effort to catch ink counterfeiters.
This elite squad is part of a little-known group that roves the globe trying to track down counterfeit ink cartridges which costs HP more one billion dollars in lost revenue last year.
Combating counterfeit ink has become a major priority for HP CEO Mark V. Hurd. “Counterfeit cartridges hurt HP’s business,” Hurd told Businessweek. “More importantly, they hurt our customers, who are not getting what they think they are paying for.”
Canon is also concerned that those shoddy products will do even more damage to its reputation as consumers suddenly realise that they have a “dodgy” cartridge that leaks.
In the past printers and ink cartridges have delivered nearly 60% of Hewlett Packard’s operating profit, but recently the Company has fallen on hard times with sales falling 21% this year, to $US11.9 billion.
HP isn’t alone in losing out to counterfeit ink. The entire industry missed out on an estimated $3 billion in sales last year to counterfeits, according to the technology research Company IDC, who claim that counterfeit ink cartridges has become a growth business in part because of the business models adopted by printer manufacturers who sell printers on the cheap and make virtually all their profits on ink and other supplies.
The cost of “good” replacement ink is not cheap with a litre costing around $2,300 claims HP.
The problem for printer manufacturers is that consumers are printing less. IDC predicts the number of printed pages will decline for the first time this year, to 1.47 trillion pages, from 1.5 trillion in 2008.
Manufacturers claim that one in 20 ink cartridges sold around the world are fake now manufacturers such as Samsung, Canon, HP, Lexmark and Brother are investing millions into trying to catch the counterfeit operators.
Using teams of private detectives and the resources of forensic laboratories, the manufacturers are now gathering evidence that will be taken to law enforcement bodies in an effort to obtain convictions and more importantly the seizure of the equipment used to manufacture the fake cartridges. “Stemming the flow of counterfeits has become an absolute priority,” says IDC analyst Jake Wang.
Australia is not immune, claims operators from HP’s Anti-Counterfeiting Force which is based in Singapore.
Peter Hunt, the group’s director believes that the origin of the fake ink cartridges is China, where it believes 80% of counterfeit ink originates.
According to Businessweek, HP scored its biggest anti-piracy success in May 2007 in Foshan City, China. After tracking illicit supplies for more than six months, the company worked with Chinese police to raid 14 warehouses, seizing $88 million in equipment, supplies, and packaging materials from a variety of manufacturers. Two men were convicted this year and sent to jail.
A key element of the fake cartridge operation, claims Hunt, is that the illegal operators sell cartridges at only a fraction of the usual cost. This delivers a higher margin for retailers while making it harder to track down a fake operator.
In Australia investigators are targeting online retailers who are selling ink cartridges after the International Chamber of Commerce estimated that online operators are responsible for the sale of “a great deal of the counterfeit products being made today”.
Ink is big business and significantly more profitable than the sale of a TVs or games consoles. Last year the worldwide ink market was worth $45 billion up from $11 billion ten years ago. In the first quarter of 2009 printer sales grew by 12%.