Why Pricing Has to Align with the Rest of the Company

Seth Godin recently posted an piece on his blog called Razors and blades, about trouble with an HP printer. Like razors, printers are a money-losing business. The profit comes from the blades and the cartridges that people keep coming back to buy. Seth had a problem with his printer, so he called the manufacturer, who told him it was out of warranty 18 months after purchase. So now if he buys another printer, he either goes to another maker, causing HP to lose out on his cartridge business, or he causes HP to lose more money on another printer. It would be interesting to examine the online support and call center logs and try to determine:

• How much more should a company invest in quality and reliability?
• How many customers will defect?
• What is the impact of those defections (they may go beyond cartridges to paper, cameras, CD-Rs, computers, etc)?
• What are the costs of extending warranties? (And what are the channel implications for channel partners who make a lot of money selling extended warranties?)
• Why not offer a 5 year basic warranty? (Some components may require replacement before that.)

None of these questions directly address the price of the printer or the cartridges. However, they do address the value created by HP and received by the customer.

The funny part about this relationship is that neither party wants to buy/sell printers unnecessarily. The lowest cost per copy for the buyer occurs when they only have to buy one printer. And, the maximum profit per customer occurs when HP only has to sell one printer.

(Incidentally, my HP printer is still going strong 3 years and one cartridge change later.)