As CNet reports, HP made its first big post-Carly move yesterday, announcing plans to price printers more aggressively. This makes sense on a couple of levels:

  • The profit in the printer business comes primarily from ink, not the printers themselves, so the more printers you can get out into the market, the more ink you sell down the road.
  • By saying they’re a low price player, consumers who may have thought “low price means Dell” may take a second look at HP.
  • If they can target their price cuts narrowly, they can protect key ground without sacrificing profits across the board.

However, starting price wars is inherently dangerous, unpredictable, and rarely leads to higher profits. Dell, Lexmark and others are not exactly going to sit on their heels if HP starts winning market share. They will probably move to match HP, or even launch retaliatory cuts in other segments of the market. Most likely, margins will thin across the industry, which will benefit Dell more than anyone else.

So what should HP do? Dell is killing them in PCs and coming on hard in printers. Photo companies like Canon are getting more into photo printers, as well. Without sales data by segment, it’s hard to make compelling recommendations, but the one place they seem to have a strong position is the PC + printer combo. Apple’s tiny market share means they can’t have all of this segment. HP should promote heavily in this area, as they have, and sell the solution (for families, businesses, real estate, education, etc), bundled with highly discounted offers from 3rd parties. This allows them to say “Save $400”, and offer a real end-to-end solution.

(HP also has more R&D capabilities than their competitors, so over the long term, their real chance is to cook more value into their products. Printers have come a long way in the past decade, but the printer market looks a lot like the PC market– better performance, lower prices, more features, but pretty much the same thing done slightly better every year. Someday HP might wake up and find Apple has come up with another category killer, this time in printers.)

Will it work? I don’t know. The PC market may already be lost (many have suggested that HP should spin-off non-printer businesses), but starting a price war in their key market is a dangerous way to start.

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