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Pricing, Channel Changes Are Applauded

3/12/2012 12:01:00 AM Eastern
NEW YORK – A recent spate of vendor-driven unilateral pricing policy directives to better manage lowball retail sales and price promotions of higher-end TVs and other home entertainment products were met mostly with applause by observers from a broad swath of the CE industry.

Companies including Samsung, Sony, Panasonic and LG Electronics each announced changes to minimum advertised pricing (MAP) programs, online-retailing policies and/or distribution programs in attempts to bring profitability back to product lines as manufacturers’ ledger sheets see more and more red ink.

In several cases, manufacturers have broadened existing unilateral pricing policies (UPP) that give retailers with directed sales floors guidelines both on how to sell and how much to charge for their products.

Retailers at the recent Brand Source and Nationwide Marketing Group meetings applauded the changes as well as distributors who were questioned by TWICE.

Addressing a question on the moves at a recent DisplaySearch Flat Panel Display Forum Dennis May, hhgregg CEO, said that some clarity on the issue was welcome.

“I think the manufacturers are trying to take steps to bring some discipline to the marketplace, so the consumer, the dealer and the manufacturer have some clarity on the value proposition,” May said. “I think you are going to see continued changes, as it relates both online and in brick-&-mortar, from the suppliers. We are going to see more structured pricing strategies.”

May said the likelihood for long-term success of the actions was unclear, at this point.

“We are in a wait-and-see mode. Obviously we are very curious because this potentially could have a very big impact on the industry. But I think it’s too soon to say what impact it is going to have. I think it is interesting that the manufacturers are taking steps to try and bring some preservation to their profitability. Obviously it’s been a tough year for them.”

Paul Gagnon, NPD/DisplaySearch North American TV market research director, said moves to shore up MAP program enforcement and to set clearer restrictions on selling high-end goods online are probably over due.

“Profits really are in the toilet now, and the vendors really need to find a way to prevent the cascade of one retailer going discount and then everybody following all the way down the same path. We saw what happened at Black Friday [last year],” Gagnon said. “The reason it’s all happening now is that corporate profits have to improve – stat, if you are going to survive. From a market share sense things aren’t going to change much anymore but from a dollar sense things have to change. The TV market is a problem.”

Tamaryn Pratt, Quixel Research principal, said UPP requirements and online retail restrictions have been in place by a number of vendors for a while.

“Sony and Mitsubishi have both quietly had a UPP type policy for at least a few model series, so these tweaks are not really new,” Pratt said. “However as the industry leader, Samsung has really led the course this year and while it is early on, it appears their leadership role has had a strong effect in the manufacturer community. It makes a lot of sense to designate specific TVs as leader products and use the balance to shore up margin. It is good for the manufacturers and good for the retailers.”

Pratt pointed out the cannibalization in the CE industry is an anomaly in the business world. Yet, UPP practices are nothing new to the consumer packaged goods (CPG) or car industries.

“It has always been insane that TVs are almost “given away” at the end of the year or during holidays and promotions, and those prices then become close to the new selling price moving forward,” she said.

Newly structured pricing policies can be effective if upheld and closely monitored, Pratt said, but programs in the past have often been abandoned after vendors or retailers started to see a slip in unit share.

“If a manufacturer loses unit share, they might get nervous and retreat versus bite the bullet for overall profitability. The second tier players are going to cause the most pain because they had so little margin in their products from the beginning and might even gain share,” she observed.

“Amazon doesn’t have much choice except to play ball,” Pratt continued. “They will need to promote free shipping and/or tax free status of products (in most states) and hope that is enough to keep their customers satisfied.”

Pratt said policies that lay down clear ground rules for affiliate program sales eliminate the “muddled waters” that have led to their growth.

She said the timing of programs will have the added benefit of establishing necessary guidelines for the sale of forthcoming next-generation TV technologies, like AMOLED sets.

“The CEDIA/custom dealers are dying for protected TV model lineup products. They can sell the exclusive/ sheltered product while others sell the leader and open product lines,” Pratt said. “This will take the dealers back to the beginning of flat panel days, so they can re-gain support and trust just as AMOLED TVs begin to roll out.”

Pratt added that “there won’t be a significant number of AMOLED TVs sold in the next two to three years but they will come, and hopefully both manufacturers and retailers will still remember their battle wounds from the LCD TV run up.”

Some other TV manufacturers who have yet to impose UPP policies of their own are watching the recent activity closely.

Jim Sanduski, Sharp Electronics strategic marketing VP, pointed out that Sharp offers its high-end Elite TVs through directed sales floors, but has yet to impose UPP or online third party reseller sales policies on Sharp Aquos branded goods.

“We are supportive of the efforts of manufacturers and retailers to bring profitability back to the industry,” Sanduski said. “At the end of the day, manufacturers are losing billions of dollars, and can’t make any profit from the TV category.”

He added, “We are closely monitoring what some of our competitors are doing in that area and will be looking to adopt similar measures.”

Meanwhile, LG Electronics sales and marketing senior VP Jay Vandenbree said his company would not impose unilateral pricing practices, while acknowledging recently taking steps to curtail third party reselling of higher-end LG TVs through online “marketplace” sites, like Amazon or Sears.

“What we have done is 180 degrees in the opposite direction of a unilateral pricing policy,” Vandenbree told TWICE. “We don’t think we belong in between the buy/sell relationship of the retailer and the consumer. We don’t think the manufacturer has the requisite skills to be a retailer.”

Instead, LG implemented an extension to its Internet sales policy that prohibits retailers from selling LG 5700 series TV models and higher as third parties through online marketplace sites, like those run by Amazon, Sears and others.

LG will continue to allow retailers to sell products on their own Internet sites, he said.

“If you go onto some of these marketplace sites today you see a listing of a lot of prices and a lot of retailers, and that’s all that’s there, and we don’t think that helps brands, technologies, retailers or consumers,” Vandenbree said.
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