As far as market costing models go, I would suggest that, at some point, HP would have decided in their wisdom to adopt the Gillette razor marketing model.
This is Marketing 101, but it's a very interesting case.
Bit of a digression - but it may reflect the dilemma that HP is in.The Gillette model basically comprised of:
- A product (the handheld razor) which was made as cheaply as possible, but engineered for a long and serviceable life. The sale price of this item was at or below cost.
- A consumable component - the disposable razor blades, which wear out. Originally, these were an innovation - 2 edges on opposite sides of a disposable blade - and when edge 1 became blunt, you just reversed the blade to expose edge 2. When that became blunt, the disposable blade was thrown away, and a new blade was fitted. The blades were sold at a very profitable price - I think they came in packets of 5 or 10.
The Gillette corporation had created an entirely new market, and they had a patent and a monopoly, and they consequently made a huge fortune.
However, when the patent ran out, the competition moved in. Now there are several producers supplying the market for handheld wet razors with disposable blades, and the differentiation between the various products is hard to distinguish. A ludicrous new war got under way, with the disposable blades becoming "one-sided", but with 2, then 3, then 4, and now 5 narrow blades all facing the same way, per disposable blade unit. Of course, for each new blade unit designed, the handheld component mysteriously could not fit the new blade unit and so consumers needed a new handheld component and the old one was made obsolete - and the handheld component and
the muliti-blade units have become increasingly quite pricey. What
a surprise! (NOT)
You can see the same marketing model having been adopted by HP for its printers, and now things have got into the ludicrous war stage.
Meanwhile, in the wet razor-blade market, very cheap and entirely
disposable multi-blade units with fixed plastic handles have hit the market and many/most consumers are buying those. This will impact the potential growth in numbers sold of the "old" model, which are made more expensive as the failing producers try to make more profit per item sold from a diminishing number of sales, thus arguably hastening their own eventual demise. They probably have a foot in the newer disposable product as well.
Years ago, the BCG (Boston Consulting Group) developed a simple hypothetical Growth-Share Matrix
. It is drawn as a square, cut across its centre into 4 equal quadrants: Cash Cows, Stars, Question Marks/Dilemmas, and Dogs. These are often characterised as the stages in a product's life-cycle. It doesn't matter what the product is - most will probably be able to fit the hypothesis.
- Star: Initially, a new product is designed/launched and it becomes a Star product. Sales are growing rapidly.
- Cash Cow: As diminishing marginal costs of large scale production come into play, it's all profit for little/reducing cost, and the product becomes a major source of large, pure net profit - a Cash Cow. Milk it for all it's worth.
- Question Mark/Dilemma: At some point, when a product has reached the end of its marketable life and is at risk of being superseded by fresh product invention or innovation in the marketplace, it is no longer a Cash Cow and starts to become a product management problem - it is a Dilemma. It's not dead yet. Do you just cease to produce it before it becomes a loss-making proposition, or try to sell it off to a manufacturer with a lower production cost base who might want to wring some residual potential revenue/profit out of it? Ceasing production can be a very expensive exercise (e.g., think of all those layoffs and redundancy payments), so the usual tack is to plan to sell it so that it all becomes a SEP (Somebody Else's Problem). Of course, if your production base has been outsourced to an arbitraged rock-bottom labour-unit cost base in (say) China, then it's already a SEP and you can continue to wring out the rag for any residual profit.
- Dog: The product's end-of-life stage. If it's not been sold yet, then now is the time - if you still can. Otherwise just terminate it ("deprecate" is quite the wrong term for this) and incur a pile of costs - unless you are already producing in (say) China. Usually it's advisable not to be holding the parcel when the music stops, so pass the parcel, quick - e.g., (say) IBM's sale of its PC division to Lenovo.
HP will indubitably be somewhere in that mix, with its Printer division and its PC division, and its Managed Services division, and the longer it delays facing up to the task of re-engineering the multifold parts of itself (e.g., as successfully done by IBM and Reed/Elsevier, to name but two), then the more we are likely to see it slipping into an increasingly dysfunctional state, thrashing about trying to juggle the numbers and survive and avoid change/damage by means of all the old tactics. If you look at HP's history of corporate deals and fiascos over the last 8 years or so - a lot of which is certainly nothing to be proud about - then this time-bombing of the HP inkjet printer head firmware is arguably just more - and pretty good - evidence of just such a dysfunctional state. Ditto for Volkswagen diesel's cheating on emissions-testing.
This corporate behaviour is arguably symptomatic - and what one might typically expect - of the business hypothetical and theoretical explanations above.