The Battle for the A3 Market
A recent report by a Wells Fargo analyst indicated that they believed HP would be able to ‘flip’ the A3 channel due to their lower service costs on products, providing an opportunity for higher margins for dealers. While my view is that HP certainly has a shot at capturing A3 share, this report is one that completely underestimates the difficulty of switching A3 vendors. At the same time – it reinforces some of the future challenges we have been identifying for dealers in terms of trying to compete with their traditional model.
A3 dealers are notoriously loyal to their A3 vendors, and it’s more than about just products. A3 vendors continue to hold massive dealer events, award prizes, and basically do anything possible to develop deep relationships with the dealer principles. For most dealers, it takes more than just a better product or lower service costs to convince them to switch. In fact, many dealers have built their models on labor intensive service practices that let them charge (at least for now) for manual tasks or for automating manual tasks. For example, as recently as one year ago, a vendor in our city was charging customers to use remote monitoring to capture page reads. Their standard operating model was to have the customer call in with page counts. So trying to switch this dealer with a product that reduces service requirements isn’t really going to be all that appealing!
Now, here is the interesting part. For the progressive A3 dealers that do focus on efficiency, low labor, and high engagement customer support, the HP product line should be a major attraction. HP is leading the industry in deploying analytics to reduce service costs and optimize operations, and for many of these dealers, I believe they may switch.
Therefore, one could argue that HP may end up with the most efficient and effective A3 dealers, and the traditional A3 manufacturers may end up continuing their traditional spending to maintain their inefficient dealers. We may already see some hints of this from the significant difference in efficiency (as measured by revenue per person) that the traditional A4 vendors are achieving relative to the traditional A3 vendors. The battle for the A3 market is just beginning to heat up, and now is the time that A3 vendors really have to step up, deploy true advanced analytics such as predictive analytics, optimize their operational models, and lead their A3 dealers into a new, more efficient and more profitable model. Otherwise they will end up with a less efficient business model trying to move product through a less efficient channel. Not a good place to be.