By Lisa Johnston
New products on display at the American International Toy Fair, held in N
Falling prices, stepped-up retail merchandising and advertising programs and an intriguing form factor have combined to fuel explosive growth levels for flat-panel TVs in the early weeks of 2003.
Despite prices that keep plasma displays over $2,000, and LCD TVs even higher in large screen sizes, consumers are snapping up flat-panel TVs with almost as much enthusiasm as they had for the first DVD players, manufacturers said.
According to CEA sales-to-dealer reports for 2002, the industry sold over 185,000 units of flat-panel sets in calendar 2002. Approximately 100,000 of those were plasma displays and 85,000 were LCD TVs, CEA said.
Tom Edwards, NPD Group senior market analyst, said the growth has been fueled by increasing numbers of manufacturers and retailers entering the category in the last 12 months.
As a result, both the plasma and LCD businesses are changing rapidly, he said. In terms of screen size, plasmas are coming down while LCDs are getting larger.
"Production yields are hitting acceptable levels for plasmas and LCD, and costs are coming down," said Edwards. He added that a number of companies, such as Gateway, Sampo and others, have introduced aggressively priced products that are bringing new classes of retailers and consumers into the market.
"To Gateway, plasma is a profit center," he said, commenting on its introductory 42W-inch EDTV plasma panel that sells for $3,000. "When you buy a product for $2,700 and sell it for $3,000, that's 9 percent profitability, which is a higher gross margin than they have on their IT stuff," Edwards said.
Price aggression is seen coming from players from Taiwan and China. Sampo recently set a new low price for a 50W-inch HD-capable PDP at a $6,999 suggested retail price, while Apex Digital, which continually shaved prices in building its DVD player market, announced its first two PDPs, including a 42W-inch HDTV model at $3,999 and an EDTV version at $3,499.
All of the recent activity encouraged retailers such as Ultimate Electronics, Sears and others, to remodel stores and place greater emphasis on flat-panel displays.
"I think everyone realizes how interesting plasma is," said Tedd Rozylowicz, Fujitsu General America senior VP. "Everyone involved in consumer electronics now wants to sell plasma. It's in mass merchants and warehouse clubs, as well as Circuit City and Best Buy."
Despite the activity, Fujitsu will not break from its distribution to value-added, home theater specialty retailers.
"We have a philosophical difference [with mass-merchant retailing]," said Rozylowicz. "We believe in selling the magic."
First-tier manufacturers warn retailers to be wary of companies that seek to "commoditize" the burgeoning category with aggressive pricing strategies.
"We think flat-panel TV is going to be a very, very robust business for the industry, but we are troubled by a number of the business-model implications we see," Mitsubishi marketing VP Bob Perry said. "We are even more troubled by the fact that many retailers are not taking a value-added approach to retailing the products."
Perry said some retailers are "covering their floors with lots of plasma," but are failing to provide source content to allow consumers to differentiate between performance levels.
"The risk is that if the consumer perceives plasma as just a big, flat screen that has an image on it and there are no differences in products, and no reason to pay more for HDTV than EDTV, overall, not only will it damage the plasma business, but it will damage retailers," he said.
Perry reminded that retailers rely on the profit margins of TVs more heavily than other products, such as DVD players.
"When a retailer makes a plasma sale, they give up the sale of another TV, and that may be a profitable projection TV or some other high-end profitable TV," he added. "If they are exchanging profitable sales for marginally profitable sales, their business model will cease to work."
Mitsubishi, which was the first manufacturer to introduce plasma display panels to the U.S. consumer market, currently sells a 50W-inch model and plans to add 42W- to 61W-inch models this year. It will also add 22W- and 30W-inch HD LCD TVs.
Jonas Tanenbaum, Samsung national marketing manager, said regional retailers have indicated that "entry level, lower-priced 42W-inch plasma products are impacting their business," while heightening the overall awareness of the flat-panel category at the same time.
Tanenbaum said the category "is growing very quickly" and that the recognized name brands, such as Samsung, have seen sales keeping stride with their lower-priced competitors.
Samsung committed considerable resources to promoting brand awareness around flat-panel TVs in 2002. Viewing flat-panel as its pillar product, Samsung ran advertisements in 30 magazines and newspapers to support a variety of campaigns, including two phases of pillar advertising for LCD-TV and plasma, and a rebate program which preceded the price drop on LCD TVs in 2003. Similar activity is planned for later in the year, Samsung said.
Tanenbaum said picture quality, feature content and Samsung's two-year warranty have been major selling points. Additionally, Samsung has selected strong retailers that can deliver, service, install and sell associated products to bring a better value to the brand in the marketplace.
Regarding merchandising, Tanenbaum said retailers that have opted to present plasma or LCD TVs as part of a home theater system or lifestyle environment have been very successful with the category.
Philips, which was among the first to advertise the flat-panel category in a national campaign, will continue to promote its brand as a plasma and LCD TV leader.
This year's line has been expanded to 15 models, said Patrick Pondaven, Philips Flat-TV marketing director.
That included the addition of the 37W-inch screen size in a $5,999 plasma HD PDP model. Philips said it will push picture performance over price in larger flat-panel screen sizes. The company is adding Pixel Plus technology to an e-box that drives its latest plasma models. The technology enhances SD images to create an HD-like picture.
Meanwhile, Philips will continue to promote its leadership in both plasma and LCD-TV technologies, and will wait for the market to decide which of the two technologies will win, as screen sizes further overlap, said Pondaven.
"Over time, we see LCD taking over a much bigger role in flat TV," he said. "This year and certainly next year, anyway, the two technologies will continue to coexist.
Sharp, which staked its claim to the LCD market long ago, continues to push LCD as the larger screen flat-panel technology of the future.
Tony Favia, Sharp LCD TV senior marketing manager, said his company expects sales to meet its 200,000 unit projection for the fiscal year, which ends March 31, and expects significant growth for the following year.
Sharp now sells LCD TVs through both Circuit City and Best Buy, and just announced that Sears has added Sharp LCD TVs to its flat-panel department.
Favia said Sharp's "edge in the marketplace" continues to be superior picture quality and design, and the company will seek to derive a price premium from those advantages.
At the same time, cost efficiencies and the establishment of new production facilities in Japan and Mexico enabled Sharp to announce a new series of price cuts across its LCD lines.
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