Customer loyalty can impact printer sales.
The catalyst for this article was that my Canon (NYSE:CAJ) MX892 printer died after owning it for about a year and a half. I started searching the Internet to find a fix, and came across some startling information about Canon and customer loyalty and how I suspect it will impact HP's (NYSE:HPQ) printer market.
On September 24, 2015, Canon USA Inc. agreed to pay $930,000 in order to settle a class action lawsuit over allegations that its inkjet printers contain a print head defect, which makes them inoperable. However, to get an award of a cash payment of up to $50 or a voucher valued at up to $75 redeemable at the online Canon store, the owner had to show proof that he/she incurred an out-of-pocket expense for the specific purpose of remedying a print head issue. (here)
One of the striking issues is that the lawsuit covered not only the MX982 printer, but a total of 35 printer models.
The plaintiffs in their filing in 2014 said
"that if they and the other Class Members had known about this defect, they would not have bought the Canon printers."
I learned about the lawsuit on the Canon Community website here, and the first response of about 200 started back in mid-2004. What is telling is that every respondent who spoke about what they planned to do next was to buy a replacement printer that was NOT a Canon. No one took advantage of Canon's Customer Loyalty program because it offered a $50 voucher for the purchase of a printer through Canon even though it was available at stores for less than the vouchered price. Again, their response was that they would buy from another printer company. Some people actually joined the online Canon Community with the express purpose of telling readers NOT to purchase a Canon printer. One respondent took his dead printer to a recycling center and saw two other Canon printers in the bin.
I went to Canon's corporate website in Japan to see of any announcements. There were none, but incredibly the latest corporate press release was entitled "Four Canon MAXIFY inkjet business printers recognized with prestigious Universal Design honors." Nothing about the defects inside, only about the nice packaging outside. (here)
Finally, I contacted investor relations (could only do so by e-mail) with no response, placed a voice mail with media relations about this article (no response), and tried to reach corporate executives at the US headquarters and was transferred twice to a customer relations call center in Virginia.
Printer Market
I point out these issues because it is the perspective of customers that will impact sales not only for Canon but competitors. After analyzing the high-tech space for the past 36 years, a critical component of any product is the supply chain, and what better supply chain component than the end user.
IDC's Worldwide Quarterly Hardcopy Peripherals Tracker provides data on the global hardcopy peripherals (printer, MFP, and digital copier) market. IDC reports that HP continues to be a market leader in the worldwide hardcore peripherals market with a share of approximately 38.7% in Q3 2015.
Canon is at a distant second place in this market, with a share of about 20.5% followed by Seiko Epson (OTCPK:SEKEY), Brother (OTCPK:BRTHY), and Samsung (OTC:SSNLF).
Shown in the table below are breakouts for 3Q15 and 3Q14. HP's share decreased to 38.7% in 3Q15 unit shipments from 39.4% in 3Q14.
| Vendors | 3Q15 Units Shipment | 3Q15 Market Share | 3Q14 Units Shipment | 3Q14 Market Share | 3Q15/3Q14 Growth |
| 1. HP | 9,983,710 | 38.7% | 10,840,722 | 39.4% | -7.9% |
| 2. Canon | 5,293,411 | 20.5% | 5,659,586 | 20.5% | -6.5% |
| 3. Epson | 4,075,438 | 15.8% | 4,128,439 | 15.0% | -1.3% |
| 4. Brother | 1,881,925 | 7.3% | 1,943,206 | 7.1% | -3.2% |
| 5. Samsung | 1,039,723 | 4.0% | 1,315,456 | 4.8% | -21.0% |
| Others | 3,525,903 | 13.7% | 3,653,255 | 13.3% | -3.5% |
| Total | 25,800,110 | 100.0% | 27,540,664 | 100.0% | -6.3% |
Click to enlarge
Analysis
3Q15 data were compiled prior to the Canon class action lawsuit, so the 4Q15 date will be meaningful. However, the lawsuit was US-based whereas the numbers listed above are worldwide. Therefore, the impact may not be obvious.
In addition, HP stated that in 1Q16, the number of PCs sold fell by 13%. Desktop sales fell by 13% as well, while notebook sales fell 8% YoY. The company also sold 20% fewer printers YoY in fiscal 1Q16, and consumer hardware sales fell 23%. Keep in mind that there are a large number of printer sectors, such as Production Printers (Led by Xerox (NYSE:XRX)), Large Format Printers (Led by HP), Inkjet, Laser (monochrome and laser) and Serial Dot Matrix. The above data only focuses on the printer, MFP and digital copier sectors as defined by IDC. So, the 20% drop in printers announced by HP in 1Q16 needs further dissection and we await IDC numbers.
The whole process of market share gains by HPQ will depend on post-split performance and how the new management's business model will resonate with customers.
Finally, if we look at the table above, only HP and Samsung make desktop personal computers and both companies fared worse than the other three printer leaders that do not in that market. In 2015, the desktop PC segment dropped, which may impact printer sales, since consumers often bundle the PC and printer at the time of purchase.
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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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