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Office Equipment Marketplace Evolution

Market Stages
The office equipment marketplace has evolved considerably in recent years, and it must continue to evolve to compensate for real and perceived device parity, shrinking hardware margins, and changing customer expectations.

In examining this marketplace, it is useful to understand past, present, and future market stages. The chart below outlines four stages of the office equipment market. The chronological lines between these stages tend to vary slightly, as different vendors make transitions to each stage at different times. At the same time, however, the overall stage progressions reflect the weighted transition of all market players.

Stage 1: Standalone Copiers

The first stage of this market began in 1959 with the introduction of the Xerox 914. It ended for some vendors in the late 1980s with the advent of production printing products and for others in the mid 1990s with the rise of MFPs.

Throughout the first stage, analog copiers were the core products of office equipment providers. Product specifications, along with the vendor’s ability to support and maintain hardware, were the main focus of sales efforts.

Stage 2: Connected MFPs

In this stage, network connectivity and multifunctionality became prevalent. To add value and capture more volume, sales efforts began to focus more on network printing as well as scanning and faxing capabilities.

Direct sales organizations and dealers hired systems engineers for network support and installation. This was viewed as a necessary cost of doing business. A variety of services including network installation, training, and phone support were usually provided at a low price or no charge in this stage to drive hardware sales.

Within a few years, all leading MFP manufacturers had filled in their product lines with devices of equal functionality, making hardware differentiation difficult once again due to device parity.

With network connectivity, lines began to blur between printers and MFPs. This created an opportunity for office equipment vendors to displace desktop and network printers, and for printer suppliers to compete in environments previously dominated by copier vendors.

Stage 3: Application Sale

The third office equipment market stage has brought more focus to software and services that support MFP sales. For the most part, this broader offering has developed because of two factors:

  • Perceived device parity is driving MFP margins down, leading direct sales organizations and dealers to sell software for differentiation and relief from price pressures    
  • Customer priorities are shifting toward solving workflow challenges or optimizing applications

This stage brings more of an application focus, in contrast to the performance or specification focus to selling what was seen in the past. At this stage, sales people are required to have an understanding of a customer’s application to propose an effective “solution.” This move toward application-focused sales brings vendors new opportunities and the ability to support more applications in the product life cycle. Nevertheless, offerings still revolve around core products rather than individual customer needs and business processes.

Although software and services can be very profitable, vendors are expanding offerings during this stage primarily to boost hardware sales or aftermarket revenue. In fact, many vendors have not shifted to a fee-based model for installation services, instead depending on no-charge services to remain competitive and drive their core hardware businesses.

Stage 4: Solution Sale

In this stage, the business focus has shifted from a hardware-centric to a solutions-centric strategy. The transition to this stage is very challenging, as it requires fundamental changes across all business functions or the creation of a separate and potentially competitive business unit or organization.

Solution sales efforts are focused on customer workflow and business processes. The vendor’s goal is to ensure that the appropriate combination of software, hardware, and services is effectively deployed and integrated to solve a need and provide a return that exceeds the cost of the solution. This approach requires a truly consultative approach to sales, which lengthens the selling cycle and requires a stronger relationship with the customer. The increased profits gained through software and services, however, should be structured to offset the cost of the longer sales cycle.

This stage also brings less price pressure, as customers recognize the value of the services provided, in addition to the cost savings, increased productivity, and/or enhanced capabilities that these services entail. The value is distinct to the organization, rather than to a specific product, providing greater differentiation and higher perceived value for the vendor.

Once vendors have successfully made this shift, they are likely to pursue opportunities that are separate from the MFP sale, even integrating their solution offering with competitive products. Hardware becomes secondary to the overall solution and serving the customer’s needs moves to the forefront of planning.

True solution selling is, for the most part, not being practiced in the office equipment space today. Most direct sales organizations and dealers are currently operating in Stage 2 or early Stage 3. Some are taking strong steps toward the solution selling approach of Stage 4, but only a few have taken on the difficult challenge of establishing a discrete services division that embodies the necessary strategies to be successful with this approach.

As customer priorities and perceived value continue to shift away from hardware to software and services, the transition to Stage 4 will become a critical factor in determining the future viability of a number of office equipment vendors.

This document has been abstracted from the CAP Ventures white paper entitled “Defining the Evolving Channel for Office Document Solutions,” which provides a comprehensive review of the evolving office equipment marketplace and the need for a solutions approach. Additionally, this white paper discusses in great detail the factors and strategies needed to make a successful transition to a solutions-led business and sales model. For more information about this and other CAP Ventures white papers, contact Alison Hipp at ext. 126.


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