Consumer Electronics Makers Think Thinby
In the new film The Joneses, a fictional marketing company hires four people to pose as a family, move to an upscale neighborhood, and quietly hype the latest technology and consumer products to get other residents to spend big.
Consumer electronics vendors haven't reached that level of desperation. But looking at a grim U.S. market for TVs, stereo receivers, and high-end Blu-ray movie players, such companies as Bang & Olufsen, Panasonic, Samsung, and Sony (SNE) are working overtime to entice spend-thrift shoppers to buy new products at higher sticker prices.
Television manufacturers are pitching such gear as 3D-capable TVs and sets that connect to the Web to display video programming and other content. They're also packing more technology into smaller spaces to create ultraslim TVs. (See a Businessweek.com slide show on ultra-thin TVs).
Bang & Olufsen on Apr. 15 announced it would begin shipping a $6,200 LED television, the BeoVision 10, that's 2.5-inches thick. Executives say it took just 10 months to develop and manufacture the television, vs. the company's typical time frame of more than two years to create a new product.
Thinner and Pricier
Samsung, the world's leading television manufacturer, has persuaded millions of shoppers to spend several hundred dollars more for stylishly thin sets than they would for traditional LCD HDTVs. The new sets are based on a more expensive LCD technology called light-emitting diodes. "We're attuned to the changing dynamics of the TV marketplace and see how ultrathin is becoming a prerequisite" for enticing consumers to pay more, Scott Birnbaum, vice-president for Samsung's LCD business, said in an Apr. 7 presentation in San Jose outlining the company's new technologies.
Design leaders that include Samsung and Apple (AAPL) have coined the phrase "thinnovation" to describe manufacturers' push to pack cutting-edge technology into ever thinner packages. Consumer electronics makers are accelerating product release schedules to get consumers to shunt aside more quickly good gear that's perfectly good and that they already own. And they're placing greater bets on such technologies as 3D and widgets to try to boost profit margins.
"One of the things that's happening inside Sony and other companies is that we're really focusing on the consumer trends more," says Stan Glasgow, president of Sony Electronics' U.S. division. That has led manufacturers to tailor products to meet consumers' demand for more style and easier usage, he says.
TV Sets That Social Network
In the HDTV market, vendors are packing in technology similar to that found in personal computers. Manufacturers such as Panasonic, Sharp, and Sony are adding software that allows consumers to make video calls, use Twitter, or connect with friends on the social networking Web site Facebook.
Consumer electronics makers have good reason to bring such innovative and stylish designs to market quickly. U.S. sales of consumer electronics tumbled 7.7%, to $164.9 billion, in 2009, according to the Consumer Electronics Assn., an industry trade group. Sales this year are expected to rise a scant 0.6%.
Global television revenues fell 7% in 2009, to $112 billion, according to market researcher DisplaySearch. Average selling prices are declining as consumers comparison shop for LCD TVs, which constituted 91% of the roughly 46 million televisions sold in the U.S. this year, says DisplaySearch North American TV research director Paul Gagnon.
Even luxury goods makers are smarting as consumers seek out fresh products. Bang & Olufsen warned on Apr. 14 it may cut jobs in coming weeks, as its most profitable products—including speakers and other audio gear that have been in its portfolio for years—remain out of favor. "Our old product portfolio has been under pressure, while the new products have done well," Chief Executive Karl Hvidt Nielsen told analysts during a conference call after cutting the company's annual profit outlook.
As global economies recover, companies are anticipating even more demand for premium products. That's boosting confidence among electronics makers that thinnovation efforts will be worth the risk. Sharp on Apr. 16 said it would double display panel manufacturing at its cutting-edge plant in Sakai, Japan, to produce the equivalent of about 1.1 million 42-inch displays. That followed an announcement a few days earlier from rival Panasonic that it would boost production of panels for 3D TVs by 30% this year because of strong demand.
Still, manufacturers will remain under pressure to keep their production costs down. Because so many big brands are competing for shoppers' dollars, consumers have come to expect rapid price declines on even the newest technologies, analysts say. "Consumers still have a strong desire to purchase flat panel TVs, but at the same time they are willing to shift their buying behavior to match their budget," says DisplaySearch analyst Gagnon.