Upstarts Challenge Leadership Status Quo

While Xerox won the network color printer category for the second year in a row, it was a bittersweet victory. That's because while besting HP, Lexmark and Minolta overall, it did not perform as well in all subcategories as it did last year.

Xerox notably fell short in partnership, particularly in the areas of managing channel conflict, revenue/profit potential and ease of doing business.

"We are taking steps to change that," says Jerry Farmer, vice president of North American reseller sales for Xerox Office Group. Those steps include offering multifunction products in the indirect channels and improving its leads program.

That's a good thing considering that Xerox is going head-on with one of the industry's toughest competitors in HP, which has nearly half of all market share in the color printer market, according to market researcher IDC. By comparison, third-ranking Xerox has only 14.7 percent of the market share for the first half of this year, down from 18.7 percent for all of 2002.

The advent of multifunction network printers, copiers and fax machines has been a mixed blessing. While Xerox forecasts they will account for 20 percent of sales this year--up from 10 percent in 2002--Farmer acknowledges the segment has had a better direct-selling model than an indirect one.

So earlier this year, Xerox took the first step toward offering an entry-level set of multifunction products via indirect channels. "You can look for us to continue down this path this year and next year," Farmer says. "I think that element of the conflict will disappear and improve in that category."

One area where Xerox dominated its competitors was in loyalty.

"When I deal with Xerox, I get a real sense the dealers are important to them," says John Aberle, owner of Falcon International Computer Services, an El Paso, Texas-based VAR. "I like their attitude better." Aberle points to the company's Peak program, which provides rebates for increased sales volume. Those rebates are becoming a key component of the margins attainable from selling printers today, given the overall margin pressures from direct sales channels.

Aberle also leads with Xerox because the color quality of its products have consistently outshined that of competitive products. Indeed, in the categories of quality, reliability, richness of features, technical innovation and compatibility, Xerox outpaced its rivals.