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New Price Policies Should Curb Profit Erosion

3/12/2012 12:01:00 AM Eastern

TWICE: Several top brands have set new pricing policies,
especially for TVs, which manufacturers say will
be strictly enforced. Will new policies stem typical
price erosion on TVs, and maybe other CE categories,
this year?


Fred Towns, New Age Electronics/Jack of All
Games:
The new policies should minimize or slow the
erosion that we have seen over the last few years in TV.
Once we start seeing traction with the new policies,
and natural erosion has been successfully minimized
bringing profitability back into the TV business, it will
be easy for other categories to adopt similar policies.

Brent McCarty, Ingram Micro Consumer Electronics:
Samsung is taking a leadership position
here, and I believe this is the right action. I think it is
in the best interest of the retailers to ensure they support
the manufacturers who are taking these actions,
as it will look to protect margins for everyone and will
help the consumer make better choices based on the
new technologies that are launched.

The consumers are making decisions on screen
size and price while there is so much more functionality
that needs to be sold and the consumer is willing to invest. There is data that suggests consumers paid
less for their televisions in 2011 than they expected
to pay. That is extremely unfortunate, given how vastly
improved the technology is and the needs for retailers
to enhance margins. If it works, I can definitely see
other manufacturers and product categories following
suit.

Rob Eby, D&H Distributing: No question, we see
minimum price enforcement coming, and, yes, it will
have an impact on price erosion. Some key vendors
are now coming out with unilateral pricing policies,
much like Bose has had for years. This leaves the door
open for value-priced brands to gain some market
share as well.

Warren Chaiken, Almo: Enforcement of pricing
policies, similar to those just announced by LG and
Panasonic, will give dealers the opportunity to bring
profitability to TV lines, which they haven’t done the
last few years. I believe many of our retailers will come
back into this business segment, given the existing
services they offer and this renewed opportunity to
make a profit. Overall, this policy change will protect
the independent retailer, increasing margins and preserving
prices.

Stephen Bodnarchuk, M. Rothman & Co.:
While many manufacturers are in the process of line
transitions there have been proposed modifications
of retail advertising pricing policies. It appears retailers
and manufacturers alike have huge concerns
about improving and maintaining profitability as well
as channel management.

It is generally accepted that these attempts to
enforce new advertising pricing programs are positive,
but in order to be considered successful these
changes must also include and focus on all channels inclusive of e-commerce.

Price erosion will ultimately be determined by supply
and demand. If projected sell-through unit quantities
are not met in tandem with the new pricing practices,
downward pricing pressure will be increased
and accelerated.

Jerry Satoren, DSI Systems: I don’t think that
these policies will curtail the natural [average selling
price] erosion we normally see every year, particularly
in segments or categories that are not yet mature like ultra-large-screen panels.

However, I do believe that these policies will have
a positive impact on the alarming profit margin erosion
we saw last year, if the vendors stick with them.
I believe this time they will. Panel suppliers, TV manufacturers
and retailers all had a losing year in the U.S.
TV business in the fight for share in a flat industry. I am
not sure we have seen that before.

With that said, I think there seems be a common
thread in the desire to end the “race to zero” no matter
where you play in the business. Further proof is
that in addition to the institution of these policies we
have already seen many manufacturers take difficult
and severe cost-cutting, production, and inventory
measures in an effort to shore up their bottom lines. If
fear, rather than common sense, is the driver to profit
in 2012, then so be it.

From what I have seen so far, I am excited about
the prospects for a better and more profitable year
for everyone.

Michael Flink, ADI Americas: We are always
supportive of the minimum advertised pricing policies
of our manufacturing partners. We are hoping newer
policies will stem price erosion. However, the irrational
behaviors of a few key players can quickly deteriorate
market conditions. The challenges we see are
distributors and retailers using a few product categories
to draw traffic.

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