Rivals Say HP Is Using Hardball Tactics

Cheaper store-brand inkjet printer cartridges have come on strong recently and now make up about a quarter of the market for replacement cartridges in the U.S. That poses a serious threat to Hewlett-Packard Co. (HPQ ), the worldwide leader in consumer printers. Now, according to printer industry and retailing executives, HP is fighting back.

Those executives say the company has approached chain stores that sell store-brand cartridges compatible with its printers and offered them incentives if they end the practice. Since those replacement cartridges typically sell for 10% to 15% less than HP's, consumers could be the big losers if a lot of retailers take the printer giant up on its offer, they say. "HP has a huge share and market power. By limiting the alternatives a consumer has, it's a tough strategy," says one executive in the ink cartridge remanufacturing business. (The independent and store brands sell recycled cartridges that they refill.) None of BusinessWeek's sources would allow their names to be used because they didn't want to damage their relationships with the industry leader.

Asked to respond to the complaints, an executive for HP says it provides incentives to retailers so they will aggressively market its products. But the executive, Pradeep Jotwani, head of supplies for the HP Imaging & Printing Group, wouldn't provide details of those marketing programs. "We don't try to stop the availability of non-HP supplies," Jotwani says. He adds that the Palo Alto (Calif.) company has the customers' interests in mind, and purchasers will get the best results if they use all HP-original technology and supplies. "We want to provide the best customer experience," he says.

Staples Inc. (SPLS ), the country's largest seller of replacement ink, confirmed to BusinessWeek it plans on phasing out sales of store-brand inks for HP printers, but won't say whether the electronics giant asked it to make the move. It says HP has invested heavily in optimizing its printers, ink, and paper, so the two work well together. "We'll focus on HP-original technology," says Scott Rankin, vice-president for technology merchandising at Staples. "Selling that system is going to enable us to offer our customers the best solution."

Yet Staples will continue to sell store-brand replacements for cartridges from Epson, Canon (CAJ ), and Lexmark International (LXK ). Rankin says customers still have opportunities to save on HP-compatible ink purchases by buying multicartridge packages and getting $3 each for recycling cartridges.

Jotwani says he's experimenting with programs that would make for more efficient cartridge recycling and would also boost the volume of returns. HP takes the cartridges and separates the materials for recycling, rather than refilling them like remanufacturers do. He denied the company is trying to deprive remanufacturers of the cartridges they need to do business.

Industry analysts are watching the action closely. "The speculation is that [Staples] reached a deal with HP and got increased margin and soft money for marketing," says Charles Brewer, managing editor of The Hard Copy Supplies Journal, a trade publication that first wrote about Staples' move. "That line is selling very well for Staples. They wouldn't drop it without compensation."

Staples' move has already had reverberations. InkCycle Inc., a Lexena (Kan.) company known to supply ink cartridges that Staples sells under its store brand, has reduced its workforce from nearly 800 last summer to 400 today. InkCycle officials would not comment on HP or their relationship with Staples.

Other retailers, including Best Buy Co. (BBY ) and Office Depot Inc. (ODP ), say they will continue to sell store-brand HP-compatible ink. "We carry what the customers ask for," says Scott Koerner, senior vice-president for merchandising at Office Depot. "As long as the customers continue to ask for it, we intend to continue to carry it. This is about providing customer choice." Asked if the industry behemoth approached Office Depot and asked it to stop carrying store-brand ink, Koerner said: "I can't comment on any conversations with HP one way or the other."

Executives in the ink cartridge remanufacturing industry say they are discussing whether to complain to regulators about the moves, which the executives say may harm consumers. Do these alleged tactics raise antitrust questions? "Antitrust law would only be violated if HP does something that significantly eliminates alternatives from the market and gives it enhanced market power as a result," according to Steven C. Salop, professor of economics and law at Georgetown University Law Center. "Right now, there are alternatives being sold at other office superstores, and other printer brands are being sold at Staples."

By Steve Hamm

    Before it's here, it's on the Bloomberg Terminal.