New Price Policies Should Curb Profit Erosion

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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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