Samsung, Sony begin enforcing minimum prices on HDTVs to grow margins
Sony and Samsung, two of the world's largest TV makers, have begun enforcing minimum prices on their sets, in an effort to aid brick-and-mortar retailers and improve margins in the cutthroat HDTV business.
Both Samsung and Sony began enforcing the new policy last month, according to The Wall Street Journal. The companies hope the move will stop the slide of HDTV prices, which have fallen 15 percent over the last two years to an average selling price of $545.
In fact, the strategy takes a page out of Apple's playbook, as the iPod maker has strict rules that restrict the prices at which the company's products can be sold. Apple's policies with third-party resellers help to ensure that Apple can maintain its margins. In its last holiday quarter, Apple reported reported gross margins of 47.4 percent.
Sony had previously set strict minimum prices for products like its PlayStation videogame consoles and Handycam camcorders, but enforcing minimum prices on HDTVs is a new policy that industry watchers say could pose a risk. Because Sony is only joined by Samsung in this strategy, competitors like Panasonic, Sharp and LG could see their sales grow through continued steep discounts at online retailers like Amazon.
Low margins in the struggling HDTV business have had a significant effect, prompting Samsung to spin off its LCD manufacturing business into a separate company in April. Officials at Samsung hope the separate LCD business will merge with Samsung Mobile Display and become more competitive going forward.
Sharp was also compelled to sell a 10 percent share in its struggling LCD business to device assembler Foxconn in March, after seeing the largest losses in the company's 99-year history. The deal bought Foxconn $808 million worth of shares in Sharp Corp., which both companies hope will help create demand for products from Sharp's state-of-the-art LCD factory in Sakai, Japan.
Industry watchers have speculated that the partnership between Foxconn and Sharp could be a strategic move by both companies to attempt to produce panels for Apple's rumored television set. It has been suggested that Apple could be interested in using Sharp's technology to produce Indium Gallium Zinc Oxide (IGZO) panels for an anticipated television set.
Rumors of an Apple television have continued to pick up steam since last year, when biographer Walter Isaacson revealed that Apple co-founder Steve Jobs told him he felt he had figured out the secret to a simpler HDTV. Jobs indicated to Isaacson that he "wanted to do for television sets what he had done fro computers, music players and phones: make them simple and elegant."
Apple's ability to sell millions of products at margins considerably higher than its competition has been cited as one of the main reasons the company could shake up the struggling television market. And one analysis issued last week suggested that an Apple television could double the annual spending of the average U.S. household on Apple products to $888 by the year 2015.
Both Samsung and Sony began enforcing the new policy last month, according to The Wall Street Journal. The companies hope the move will stop the slide of HDTV prices, which have fallen 15 percent over the last two years to an average selling price of $545.
In fact, the strategy takes a page out of Apple's playbook, as the iPod maker has strict rules that restrict the prices at which the company's products can be sold. Apple's policies with third-party resellers help to ensure that Apple can maintain its margins. In its last holiday quarter, Apple reported reported gross margins of 47.4 percent.
Sony had previously set strict minimum prices for products like its PlayStation videogame consoles and Handycam camcorders, but enforcing minimum prices on HDTVs is a new policy that industry watchers say could pose a risk. Because Sony is only joined by Samsung in this strategy, competitors like Panasonic, Sharp and LG could see their sales grow through continued steep discounts at online retailers like Amazon.
Low margins in the struggling HDTV business have had a significant effect, prompting Samsung to spin off its LCD manufacturing business into a separate company in April. Officials at Samsung hope the separate LCD business will merge with Samsung Mobile Display and become more competitive going forward.
Sharp was also compelled to sell a 10 percent share in its struggling LCD business to device assembler Foxconn in March, after seeing the largest losses in the company's 99-year history. The deal bought Foxconn $808 million worth of shares in Sharp Corp., which both companies hope will help create demand for products from Sharp's state-of-the-art LCD factory in Sakai, Japan.
Industry watchers have speculated that the partnership between Foxconn and Sharp could be a strategic move by both companies to attempt to produce panels for Apple's rumored television set. It has been suggested that Apple could be interested in using Sharp's technology to produce Indium Gallium Zinc Oxide (IGZO) panels for an anticipated television set.
Rumors of an Apple television have continued to pick up steam since last year, when biographer Walter Isaacson revealed that Apple co-founder Steve Jobs told him he felt he had figured out the secret to a simpler HDTV. Jobs indicated to Isaacson that he "wanted to do for television sets what he had done fro computers, music players and phones: make them simple and elegant."
Apple's ability to sell millions of products at margins considerably higher than its competition has been cited as one of the main reasons the company could shake up the struggling television market. And one analysis issued last week suggested that an Apple television could double the annual spending of the average U.S. household on Apple products to $888 by the year 2015.
Comments
Hmmmmm....price fixing? Where is the FTC on this one!!!!
Slightly misleading headline. Makes it sound like Samsung and Sony are enforcing the same minimum pricing, which is price fixing and is expressly illegal.
Price fixing is illegal the last time that I checked.
Quote:
Originally Posted by Mike Barriault
Slightly misleading headline. Makes it sound like Samsung and Sony are enforcing the same minimum pricing, which is price fixing and is expressly illegal.
I don't find the headline misleading. Enforcing the same minimum pricing is only illegal if the companies collaborate to set a minimum price. If two companies independently conclude that establishing the exact same price for a product is a good business strategy for their business then doing so is not illegal.
"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court."
Emphasis is mine, the quote is from Title 15 of the United States Code as listed below.
1. 15 USC 1. http://www.law.cornell.edu/uscode/pdf/uscode15/lii_usc_TI_15_CH_1_SE_1.pdf
Quote:
Originally Posted by Bilbo63
Price fixing is illegal the last time that I checked.
This isn't price fixing. They are only enforcing a policy, the same policy that Apple has, actually.
Yes, but something doesn't add up.
Manufacturer sells to retailer at wholesale price. Retailer sells to public at retail price.
If the Manufacturer sells a million units to retailers at a given wholesale price, enforcing a retail price does not net any more money for the manufacturer. So how is setting a minimum selling price going to help Samsung and Sony?
(OTOH, if they're talking about discounting of the wholesale price, then they're not going to really be setting a minimum price. Rather, all they have to do is offer smaller discounts to the retailer. But that's apparently not what they're talking about).
Here's the first paragraph of the WSJ article:
"Sony Corp. and Samsung Electronics Co. are trying to force retailers to rein in discounts on televisions, a tactic aimed at preserving profit margins that may also help protect chains such as Best Buy Co. and Target Corp. from cutthroat online competition."
So now we have a second inconsistency. How does setting a minimum price help to protect brick and mortar stores? If anything, that makes them less competitive rather than more. The entire story makes no sense.
There are two fundamental problems:
1. The TV industry has matured. The differences between TVs are trivial for most viewers. I really couldn't care less if my TV does 120 Hz or 240 Hz. I won't see the difference (and even if I could just barely discern it, I'm not going to actively be looking for it when watching a movie).
2. Online sales have a big advantage over brick and mortar stores. Lower inventories, lower overheads, and (often) no sales tax charged to the customer. Brick and mortar stores have become the retail showroom for Amazon and other online retailers - Best Buy gets all of the expense but none of the revenues.
Until they find a way to address those two issues, their problems aren't going to go away.
Quote:
Originally Posted by jragosta
How does setting a minimum price help to protect brick and mortar stores? If anything, that makes them less competitive rather than more.
This minimum price should apply to online retailers, as well. Though it should help them more as they should have lower overhead costs than a brick & mortar store so a higher minimum price would generate higher profit margins for them.
Quote:
Originally Posted by icoco3
Hmmmmm....price fixing? Where is the FTC on this one!!!!
There's no way for Apple to be involved, so no one on Earth cares. Them's the breaks.
Quote:
Originally Posted by hittrj01
This isn't price fixing. They are only enforcing a policy, the same policy that Apple has, actually.
Where? Oh, their physical products (…right?). That hasn't been true recently, though.
And this week I am picking up a sweet 47-inch Panasonic at Costco for $799 to tide us over until Apple's HDTV arrive.
Screw you, Samsung and Sony.
Quote:
Originally Posted by jragosta
Brick and mortar stores have become the retail showroom for Amazon and other online retailers - Best Buy gets all of the expense but none of the revenues.
I agree with everything you said except for this one statement. I don't bother going in to a brick and motor store for something like this because either A, the selection is too limited, or B, I'm lucky if the display unit I want to see is functioning due to everyone monkeying around with it. My purchasing decisions come from the reviews people leave on sites such as Amazon. No longer do I need to touch or see something before I buy it. Other than that I think you are on to something, a lot in this article doesn't add up.
Quote:
Originally Posted by AppleZilla
And this week I am picking up a sweet 47-inch Panasonic at Costco for $799 to tide us over until Apple's HDTV arrive.
Screw you, Samsung and Sony.
Not that this is the worst problem to have in life ... but I'm currently using a few years old LCD 52" Sony and really want to upgrade to a 60" but I have been waiting and waiting to see what Apple does. Now I wonder if cheap 60" will be a thing of the past ... I was looking at the Sharp Aquos 240 KHz 60" LED in time for the Olympics.. (I refuse to buy a Samsung
Quote:
Originally Posted by icoco3
Hmmmmm....price fixing? Where is the FTC on this one!!!!
Not sure if joking, but it's not price fixing, they are enforcing minimum retail pricing on their OWN products, not setting a bar across different companies. It's the same reason you don't see large discounts on new Apple products no matter the store.
Hey Sony, I bet you could fix those margins if you made a smart TV with a great interface and content, now who else is working on that?
Quote:
Originally Posted by razorpit
I agree with everything you said except for this one statement. I don't bother going in to a brick and motor store for something like this because either A, the selection is too limited, or B, I'm lucky if the display unit I want to see is functioning due to everyone monkeying around with it. My purchasing decisions come from the reviews people leave on sites such as Amazon. No longer do I need to touch or see something before I buy it. Other than that I think you are on to something, a lot in this article doesn't add up.
I wonder of this move is in anticipation of an Apple product they know will be carrying a high profit margin for Apple and also sell like hot cakes. They are perhaps trying to get the financial ducks in a row before this happens and they are left with the HDTV equivalent of NetBooks compared to the Apple offering.
Quote:
Originally Posted by tipoo
Not sure if joking, but it's not price fixing, they are enforcing minimum retail pricing on their OWN products, not setting a bar across different companies.
Does this minimum price happen to be the same for all of them?
Quote:
Originally Posted by jragosta
Yes, but something doesn't add up.
Manufacturer sells to retailer at wholesale price. Retailer sells to public at retail price.
If the Manufacturer sells a million units to retailers at a given wholesale price, enforcing a retail price does not net any more money for the manufacturer. So how is setting a minimum selling price going to help Samsung and Sony?
(OTOH, if they're talking about discounting of the wholesale price, then they're not going to really be setting a minimum price. Rather, all they have to do is offer smaller discounts to the retailer. But that's apparently not what they're talking about).
Here's the first paragraph of the WSJ article:
"Sony Corp. and Samsung Electronics Co. are trying to force retailers to rein in discounts on televisions, a tactic aimed at preserving profit margins that may also help protect chains such as Best Buy Co. and Target Corp. from cutthroat online competition."
So now we have a second inconsistency. How does setting a minimum price help to protect brick and mortar stores? If anything, that makes them less competitive rather than more. The entire story makes no sense.
There are two fundamental problems:
1. The TV industry has matured. The differences between TVs are trivial for most viewers. I really couldn't care less if my TV does 120 Hz or 240 Hz. I won't see the difference (and even if I could just barely discern it, I'm not going to actively be looking for it when watching a movie).
2. Online sales have a big advantage over brick and mortar stores. Lower inventories, lower overheads, and (often) no sales tax charged to the customer. Brick and mortar stores have become the retail showroom for Amazon and other online retailers - Best Buy gets all of the expense but none of the revenues.
Until they find a way to address those two issues, their problems aren't going to go away.
Quote:
Originally Posted by razorpit
I agree with everything you said except for this one statement. I don't bother going in to a brick and motor store for something like this because either A, the selection is too limited, or B, I'm lucky if the display unit I want to see is functioning due to everyone monkeying around with it. My purchasing decisions come from the reviews people leave on sites such as Amazon. No longer do I need to touch or see something before I buy it. Other than that I think you are on to something, a lot in this article doesn't add up.
In my opinion, it "doesn't add up" because you are both thinking rationally and logically as well as forgetting recent history of both companies. My suspicion is that both companies are attempting to reposition their brand as a premium brand or aspirational brand. This is the first of many steps in their attempts to retard the sales of the supposedly forthcoming magical, revolutionary AppleTV. Both companies have learned that a company can't successfully market inexpensive but poorly performing products then market expensive products (that supposedly perform well) as the initial product release has already established a reputation for the brand in the market. Unfortunately, neither company actually realizes that a company can't simply refer to their brand as a "premium brand" and increase the price then expect sales to follow.
http://www.investorplace.com/2012/03/sony-rolls-out-an-aspirational-pricing-program-sne-ssnlf-lgeaf/
http://www.brandrepublic.com/news/1124989/ ;
My understanding from a Sony retailer is that Sony is chopping the upfront margin so resellers, in an efforts to make any money, will sell at MSRP. But the reseller then has the opportunity to "earn" additional margin back each quarter based on a number of factors - the purchase and active display of demo units, marketing participation, overall volume, etc.
Not sure how accurate this is, but it makes some sense
Here's how it will help brick and mortor stores:
Brick and mortor stores are selling TVs at as low of a price point they can to make a profit. Online retailers are doing the same. However, due to overhead costs and such, brick and mortor stores have can't sell the TVs as low as online retailers. Enforcing a minimum price (assumably somewhere around where brick and mortor stores are selling these TVs, or only slightly higher) allows these stores to compete more readily with online retailers because the pricing will even out between the two. Then, people who prefer brick and mortor stores don't have as much of a financial incentive (sure, there is no sales tax online, but sometimes there is shipping) to shop online, and will presumably go back to shopping at brick and mortor stores.
However, I fail to see how this will acheive that goal unless there are a significant number of devout Sony and Samsung TV buyers. Why not just skip those and grab an LG or something similar that is still offered at steep discounts?
So they're following Apple in this as well. Surprised they didn't figure this out earlier.
I love Sony products to be honest. This is sensible if it helps stems the losses and drives up margins so they can continue to operate in these markets. There are still many fo us who love Sony and will pay a premium for their products just as we do Apple.
Only if it's Apple and publishing houses. For everybody else it's perfectly legal.