As manufacturers publicly celebrate significant spikes in big-screen TV sales resulting from a spate of longer-term, no-money-down financing programs, most are also wondering if things have gone too far.
Most projection and big-tube television manufacturers this fall have jumped into the zero-percent financing game with promotions offering consumers no down payments, no payments due until January 1997, and in some cases, no interest when the products are paid off prior to the due date.[text]The cost of the programs is significant but necessary, given the competitive nature of the market, most vendors say. Manufacturers generally charge retailers up to 3% to participate while they lay out 5%-12% in underwriting costs and other expenses.
Retailers and manufacturers alike say the incentives have contributed to moving inventory, but some question the logic of using expensive promotions that eat into vendor and dealer margins on categories showing consistent growth.
Programs have become so aggressive and pervasive that vendors now worry they will soon fail to produce the desired spikes.
Several manufacturers testing programs for the first time say they did so reluctantly, realizing that they had to remain competitive.
“We saw that at least four of our major competitors were running financing programs, and we had to be there to level the playing field,” says Gary Bennett, Hitachi executive VP. “But it’s my hope the dealers have become sick of this.”
In September, Hitachi ran a financing program underwritten by GE Credit Corp., promising no money down, no down payment, and no payment due until January 1997. The program included all Hitachi projection sets (even last year’s models), 35″ and 32″ direct-view sets, and certain Ultravision camcorders and VCRs.
Bennett says the results were impressive, and a follow-up program will run in January. But, he laments, “it’s turning a technology business over to the bankers. Dealers should be on the floor selling products based on quality and feature sets.”
Similarly, Toshiba ran a financing program that started a week prior to Labor Day and ran through September 17.
“Based on the results, I can understand why others have done it in the past,” says Steve Nickerson, Toshiba DVD, TV and VCR VP. “We’ve had retailers who traditionally hadn’t done $200,000 with us in a quarter sell $300,000 to $400,000 worth of product in a weekend.”
“We have two more periods of financing coming up,” he notes. “We will do one centered around Thanksgiving, and we will do another one during the January Super Bowl period.”
However, Nickerson adds, a risk exists that the benefits to dealers and vendors may soon disappear, leaving manufacturers locked into an endless cycle of financing programs to avoid a negative perception.
Although 1996 is supposed to be a major growth year for television sales, with the Olympics and presidential elections coming up, he says, TV manufacturers must now wonder whether current financing programs have drawn away from next year’s audience.
“With all the finance programs that have been done to create business this year and will be done over the next 90 days to ensure a strong selling season, how many customers has that taken out of the marketplace for 1996?” asks Nickerson.
For the same reason, Hitachi’s Bennett predicts that as many of 1995’s payments come due, “January 1997 could be the worst month in history.”
Most of the industry followed Mitsubishi, which last spring unveiled a financing program offering no money down, no payment until January 1997, and no accrued interest on big-screen sets. That promotion was so effective the company quickly followed with another program in the fall.
Some Mitsubishi dealers report having their best periods ever with the firm’s big-screen lines during the first offer, which ran while the industry had entered the doldrums.
However, Ray Navarrete, Edison, N.J.-based Tops Appliance City VP, says the financing promotions aren’t nearly as effective as they might have been had manufacturers supported the efforts with advertising.
“I don’t think the customer really gets it yet,” says Navarrete. “I think we might see more action in the fourth quarter. It’s a nice incentive, but there isn’t enough awareness.”
Several manufacturers running financing programs say the cost is already so high that there are no available funds for advertising support. Most rely instead on dealer-supported efforts on the local level.
Sony is addressing the concern with its new Sony Preferred Card financing program. Bob Weissburg, Sony strategic sales planning senior VP, says his company will support the effort with a national prime-time television ad campaign running from October 15-31, mainly focusing on many Fox and ABC NFL broadcasts.
The two-tiered campaign, which is run in conjunction with Banc One Private Label Credit Services, will cover all Sony electronics products.
The first tier will offer no money down, no interest, and no payments due for 12 months on any Sony electronics product or group of products totaling $599 to $999. The second tier will cover any product retailing for $1,000 or more and will offer no money down, no interest, and no payment due until January 1997.
Customers who obtained the Sony Preferred Card during the promotion will be able to use it to make subsequent purchases on easy payment terms after the promotion ends, Weissburg says.
Other projection TV manufacturers that have offered financing programs include Pioneer, Thomson (ProScan) and Zenith.
Dave McCollough, Pioneer’s video brand manager, says his company offered a financing program September 13-October 15 on select projection TV models.
Pioneer has revised the program for the November 22-December 17 period to include all PTV models.
Additionally, the second financing program extends the terms to include other Pioneer home theater audio components and laserdisc players as add-ons. “When the customer buys one of our projection sets in the program they have the ability to add on audio and laserdisc purchases as long as they meet a $750 minimum additional purchase requirement,” McCollough explains.
“Obviously, these programs are a win for the consumer,” he adds, “but I think manufacturers and dealers alike have mixed feelings about them.
“Where we might have been able to have some sort of program on the TVs factored in and budgeted based on dealer cost, now we are being forced to apply dollars based on a retail selling price. And that 4%, 5%, or whatever the cost of the financing program is, is on the retail sale rather than the dealer cost.”
“Obviously, there are some dealers who would prefer to have some other form of program on the televisions,” McCollough concludes. “You are taking money that could have been budgeted and used elsewhere, and now you are being led to participate in the financing programs.”
Zenith also has been drawn by the competition into the big-screen TV financing game this year. According to a company statement, its promotion was initiated “in response to other manufacturers who are offering these programs.”
The Zenith program will be open to all big-screen TVs over $1,000, including 35″, 46″, 52″ and 60″ screen-size models. It offers no money down, no interest, and no payment until January 1997 and will run November 1-December 17.
However, not all projection TV makers are lining up behind financing programs.
Philips projection TV product manger Mike Harris says his company opted for alternative promotions for the Magnavox big-screen line — following focus group studies that showed consumers “are starting to feel that easy financing terms are getting to be ho hum. What was exciting in 1994 is now viewed as an industry standard.”
Philips launched its Home Field Advantage promotion in October, which among other things offers a free pair of 900MHz wireless surround sound speakers with the purchase of select Magnavox projection sets.
