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For Panasonic, 2006 represented one of the most successful and controversial years in its recent history.
Taking an aggressive position in the flat-panel TV market, the company used its core competency as a tier-one plasma manufacturer to drive its market share up as it slashed pricing for key promotional periods, including Black Friday.
The result was Panasonic dominating the top market share position of the plasma category — with 33.3 percent of the unit volume and 31 percent of the dollar volume, according to The NPD Group. At the same time some competitors dropped or scaled down their plans for the plasma category to focus on the burgeoning LCD market.
At the recent International CES, TWICE caught up with Martin Kono, Panasonic Consumer Electronics president, who reviewed what transpired and offered some forecasts for 2007:
TWICE: Looking back, how good a year was 2006 for Panasonic?
Martin Kono: We continued to grow. Unfortunately, we couldn't grow as much as we wanted because the LCD camp really did a great job. But we will do an even greater job this year.
TWICE: The recent Black Friday promotions were very aggressive for the industry and Panasonic. What was your strategy?
Kono: It was a surprise to me too. There were two clear differences between what happened in the past and what happened last year at Black Friday. Until the '05 Black Friday period, those promotional items were mostly Korea-made or China-made or tier-two or tier-three products.
This year, tier-one brands were very heavily promoted to get people's attention. Not only Panasonic, but Sony and Samsung were sold at very aggressive prices.
$999 [for a Panasonic 42-inch HD Black Friday promo] attracted everybody's attention. But another channel partner promoted Sony's 40W-inch LCD at $1,199. That was the very best price when you know the price delta between LCD and plasma. Samsung products were also aggressively promoted.
Traditionally, those [Black Friday prices] were in print. This time those two major players didn't disclose information until the last minute. So we knew two days before what was coming on Black Friday.
TWICE: Didn't Panasonic go off its MAP program for some holiday promotions this year?
Kono: Three days for Black Friday weekend and that was it. And at this point I have no plan at all [to repeat it].
TWICE: Are you concerned by decisions of some other TV brands to drop or de-emphasize plasma and focus on LCD TV?
Kono: In the 42-inch and 43-inch screen size the number of SKUs has shifted — about two-thirds of SKUs in the screen size are LCD and one-third is plasma. A year ago it was a totally different picture. So, definitely, I need more partners to play in the plasma field. But even if Panasonic is left alone [carrying plasma] we have enough power, courage and resources to fight back against the LCD camp.
TWICE: How are you balancing your market share goals with profitability?
Kono: As far as I am concerned, I am working on the difference between my [factory] cost and my sell cost to the channel partner. This won't change. It sounds like it is irresponsible, but it is the responsibility of the factory to come up with a rationalized design and reduced cost and to make the components cheaper. The majority of our components are made in-house.
When the yield ratio comes close to 100 percent, and the factory is running over 100 percent of capacity, the factory can make a lot of money. Working at 90 percent of total capacity vs. working over 100 percent is totally different. It is not a 10 percent difference.
TWICE: In light of recent changes within the flat-panel TV market, has Panasonic considered adjusting its screen size mix strategy for LCD TV and plasma TVs?
Kono: For larger screen sizes plasma is the better technology, but in smaller sizes LCD is more appropriate. LCD is as important to Panasonic as plasma is because our mission is to sell more flat panels, and that includes LCD.
In larger-screen size LCD, a lot is being made about new 1,080p resolution today, but when an image is shown with motion at walking speed, the resolution of that picture drops below high-definition 720p standard, even on a 1,080p panel. Resolution drops in motion scenes for plasma too, but the drop curve is not as sharp as it is for LCD. So, when an image is shown with walking speed motion, the typical 720p plasma display can show more resolution than a 1,080p LCD panel.
TWICE: How do you plan to get that message to consumers?
Kono: We will be communicating the differences in moving picture resolution (MPR) through the Plasma Display Coalition and through the Advanced PDP Development Center (APDC), which is a cooperative Japanese development venture [including Hitachi, Pioneer and Panasonic] focusing on manufacturing techniques to make plasma technologies more efficient.
TWICE: What do you expect to be the industry's biggest issues in 2007?
Kono: The television business will continue to grow. Everyone is worried about the oversupply of panels, but for more than the last three years in screen sizes of 37 inches and above the total market has been pretty stable at between 6 and 7 million units, including rear-projection TV. Now that we have flat-panel TVs, even 42-inch models are fitting into bedrooms, so where 37- inch and above was limited to 7 million units, it is now growing as people buy 42-inch models for secondary rooms. I believe the total number of TV units will remain stable at around 25 million units, but the proportion of 37-inch and above models will grow.
TWICE: What are Panasonic's plans for Blu-ray Disc?
Kono: This year we want to focus on a player. In 2008, we will introduce a recorder, primarily because the technology is not mature yet and the market has not grown. At this moment the biggest obstacle is production of blue-laser diodes, and only one company can make them. So they are setting the price.
TWICE: What do you think of the announcements of hybrid format products at CES?
Kono: It is one of the ways to go. Blu-ray and HD DVD are not compatible. That means they need two separate pickups. It increases the cost. At this point Blu-ray players are all expensive so the cost delta is not as visible but when the technologies are commoditized like DVD is now and the price comes down, the two separate pickups will become an issue.
TWICE: Where do you see the format war heading?
Kono: Our feeling is that HD DVD will eventually go away, but I don't have a crystal ball to say when that will be.
TWICE: What can retailers expect from Panasonic in 2007?
Kono: We would like to be a more efficient and reliable company this year as far as supply goes. This year, we would like to put more emphasis on enhancing supply chain management. Now, with some of the channel partners, not just single channel partners, but multiple channel partners, we are exchanging sell-through data from the stores on a daily basis. In the past, when we were talking about supply chain management, we were getting sell-through data on a weekly basis, and we were looking at a number on a national scale.
Supply was then allocated by a distribution center based on the sales for the previous year. The product was changing, pricing was changing and the market was changing, but still they allocated based on the previous year's data. In some areas, sales would go up and they would be out of inventory. In other areas they might get stuck with inventory and the channel partners would have to have a scheme to cross ship within the business. Now we are working with those channel partners — this requires an investment for them and us — that have the capability to share data on a daily basis by store. We share information from their database using EDI.
So with some channel partners we are now able to more accurately forecast inventory requirements for the different distribution centers to make product available at the right time, in the right spot and at the appropriate price. By improving the supply chain we should be able to save a little money, and that money we would like to invest in the expansion of this market. At the same time, the channel partners can maximize their sales potential.
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.