Samsung and Sony Get Tough on TV Prices
Samsung and Sony no longer want to be part of the race to the bottom. The two consumer electronics manufacturers, according to a Wall Street Journal report, have set policies to keep retailers from going below a minimum price point on televisions.
Manufacturers have received favorable court rulings in recent years (U.S. Supreme Court 2007 – Leegin Creative Leather Products v. PSKS) giving them the ability to control prices in ads and online sites. By preventing retailers from going below a minimum price point, Samsung and Sony protect brand equity and also provide cover for big brick and mortar customers such as Best Buy that have seen sales literally walking out the door in the showroom effect.
"This allows us to make a reasonable profit," Billy Abt, co-president of Abt Electronics, told the Journal. "It got to the point where we were selling $2,000 TVs and making $10."
Of course, forcing retailers to stick to a minimum price could have negative effects for Samsung and Sony if other television manufacturers do not follow suit. Count LG as one not likely to do so.
"We don’t think we should dictate policy between a retailer and a customer transaction," Jay Vandenbree, former Sony executive and current senior vice president of the Home Entertainment Division for LG Electronics USA, told the Journal.
Discussion Questions
Discussion Questions: How will the imposition of minimum pricing by Samsung and Sony affect the television market in the U.S.? Will the manufacturers stick to their minimum pricing line when the holiday season approaches?
As George points out, the 2007 Supreme Court ruling makes it easier for manufacturers to conduct price maintenance than in the past. In this case, Sony and Samsung seem to be following the Apple model, where there is very little deviation in selling price whether in their own stores or at discounters. And Samsung has been more successful in the mobile phone business avoiding widespread discounting of its products while it continues to gain share.
The problem here is that they have become a “commoditized” category for the last several years … as manufacturing costs have fallen, so have the retail prices for flat-screen TVs with similar features. In this case, Sony and especially Samsung are setting themselves up for rivals (like LG) to be very aggressive on price. If you were a consumer, would you rather pay $100 more for a virtually identical TV?
The current price wars have made it tough for electronics retailers, from Best Buy to regionals, to make margins in this category. This move might help them in the short term, but only if Sony and Samsung are willing to market themselves as superior products. And, meanwhile, we are all waiting for the other shoe to drop: The eventual launch of a truly game-changing TV from Apple.
I would call this a “Stop them before they kill again” strategy. Retailers have been selling electronics at near zero gross margin forever. And Circuit City lost money on every single plasma TV it sold on its way to the bottom. It’s damaging to the brands of everyone involved.
Having bought LG TVs before, I know the quality is not up to that of Samsung and Sony. So there is a difference. Will they hold the line when the holiday season approaches? That’s the magic question for everyone seeking to escape the race to the bottom. I have no idea.
It’s everyone for themselves when it comes to pricing. Customers have no loyalty to stores and stores increasingly have less loyalty to brands.
As long as there is an online retailer willing to only make $10 on a TV and torch the category, all retailers will find the downward pressure on their pricing gaining momentum.
While I applaud Sony and Samsung, I can’t see how they could catch that $10 retailer who, thanks to the net, can show up just as easily as a search for the nearest Best Buy.
Samsung and Sony can set minimum advertised prices, but that won’t stop other companies from similar products for less money. Unless these two companies offer products with far better attributes than the competition, consumers will buy the lower priced competitors.
Talk about a can of worms!!! This is the battle between B&M and the Online Giants, and it will be interesting to see who blinks first. There is no way this arrangement will hold up, as the price slashers will not heed the wishes of Samsung and Sony. I could be wrong, but there are always loopholes to make a sale, and when the Christmas sales begin, I will enjoy re-hashing this topic later.
Bottom line; Samsung and Sony will lose market share and their competitors will gain. Why? Because customers’ perception is that most of the TVs are the same (even if they are not). By the time the holiday season gets here, someone within their companies will be screaming about the inventory buildup and they will be forced to lower prices.
I kind of think it’s too late to matter. Most people have already transitioned to flat screen, so the big TV opportunity has already come and gone — as evidenced by last holiday season, when there really weren’t any big TV driving forces behind electronics sales.
I do find this article an interesting juxtaposition to the last article to run today — asking if retailers have too much power over manufacturers. Different context — grocery, not electronics — but simply the other side of this coin.
This could shake out several different ways. Manufacturers sticking to established prices could enjoy greater perceived prestige, or they could lose relevancy to less expensive brands. As the happy owner of a large, no-name TV, I’d urge manufacturers to think carefully before they pull the trigger.
My first large TV cost about $5000 before TVs started to emerge as entertaining commodities. It was made by a great company that I think no longer markets TVs.
Offer a TV-seeking shopper a set for less money that he or she feels is as good as a Samsung or a Sony and it’s a sale. It will be difficult for Samsung and Sony to stick to their minimum pricing this holiday season.
There are ways the TV manufacturers are “naturally” setting some price floors, rather than just trying to controls via business practices that may be scrutinized. One way they are trying to do this is by loading the TVs with more capabilities. “Smart TVs” with Internet connectivity and apps may help retailers since these products lend themselves well to margins and some “higher touch” opportunities for sales associates and services.
A good answer to this is that manufacturers should not have control over pricing and promotion since that allows them to manipulate the market. However, in an era in which major retailers are large and powerful, more so than many of their suppliers, perhaps this subject is a good one for intense debate since some retailers have the ability to dictate pricing to suppliers.
Supreme Court decision or not, it is outrageous that a manufacturer can in any way control retail pricing once it sells its product to the retailer. That is hardly free market philosophy.
That being said, if Sony and Samsung want to get better pricing for their TVs, they should offer product advantage over the competition. While they both make excellent products, perhaps their features and quality are more than the shopper needs or wants.
It is product, not price that grows brand equity. Apple’s success is not built on the ability to charge more. It is built on the products they make … the price follows.
I imagine that if Samsung and Sony hold this pricing it will be a tremendous opening for competition.
Good luck sticking to minimum pricing — customers have already been trained. I think this move will help retailers, assuming there is a penalty for someone who moved off MAP.
TV inventory doesn’t age well, so sticking to this when inventory piles up will be a challenge.
As one that spent years in both the video and camera industries where maintenance of minimum advertised prices was our mantra, the idea of Sony and Samsung trying this today will simply not work, due to the many changes that the marketplace has gone through over the past few years, especially with aggressive internet pricing. It did not work back then and it will not work now.
This is a tough one. I think this is a reasonable strategy to test, since the alternative (selling at no profit) is grim. One idea is to test various ancillary retail strategies with the increased price point. Does new signage, displays, merchandiser support, etc., help support the price point? Can we test something dramatic in-store to demonstrate quality differences with the low end? If Sony and Samsung put a couple dozen such ideas into test in stores, maybe one of them (whichever is first?) can crack the code on maintaining sales at a reasonable margin.
The other real challenge here is driving product innovation that consumers are willing to pay for. That has been extremely difficult in this business. But Sony and Samsung have to take on the challenge and keep pushing, not cede the space to the someday-to-be-real Apple TV.
Sounds like suicide to me! Pardon me for pointing out that Panasonic Plasma is generally considered the best of the best right now. All of the internet add ons can be had with the new Apple TV add on for $99 and you know that will work.
Sony and Samsung should be worried about larger issues. Why don’t they put their energy into innovation and process improvement. This stupidity is just going to grind away their market share. Hint: when product stagnates at retail, no sales are made. Sony and Samsung will become the “refurb” kings as their unsold product (98%) will be sold as refurb to get around their own pricing policies.
Even before the more recent court decision, suppliers had de facto control over prices — to a point — by limiting their distribution channels; and that point was right up until they found out how much business they would lose when a major retailer told them “fine, go —– –!” I don’t think this is anything new … same TV, different channel, so to speak.
Lawsuits, lawsuits, lawsuits. Enforced MSRP is illegal. Plain and simple. Sony and Samsung cannot dictate or control a market by collusion on pricing, (which is also illegal), and they will pay the price. They will pay in terms of market share and in the courtroom.
I am REALLY curious where this will go. Is this enough for the other major brands to join forces? Retailers do need to make a profit on goods they sell. However, life isn’t always fair, and we’ll see what happens as the holiday season approaches.
The economy is by far the largest influence in consumer values. And contemporary consumer values are about being smart shoppers.
Sony and Samsung might want to be perceived as premium brands — and they do have very good equity as quality brands. But they are not luxury brands, they are mass produced electronic goods for mass consumption.
A manufacturer like Apple can command minimum pricing and the consumer will not be able to circumvent the price, in fact consumers are willing to pay for the proprietary attributes of the product. Sony or Samsung lack technology the mass consumer market would be willing to pay a “proprietary” price.
The television category has changed drastically in the last decade, and without unique proprietary technology and an abundance of competitors, Sony and Samsung will protect brand equity over profitability if they stick to the minimum pricing line.
There are several references here to the Leegin decision. I am not a lawyer, but I’m doubtful Leegin would apply here.
As I recall, the Court was explicit in the Leegin case about the decision being predicated on the fact that Leegin was a relatively small supplier with little or no market power. That’s not the case here — Samsung is #1 in the TV market and Sony #3.
Minimum manufacturer pricing can not only help both manufacturers and retailers, but customers too. The deadly, slippery slope of discounting is all too pervasive and indicative of a collective inability on brands and merchants to effectively compete and market to customers.
The best brands actively manage what their distribution partners do in terms of pricing. When the line is held and discounting is controlled, value comes out for all parties.
Specifically related to LG, when we moved into new office space last year we installed large TVs/monitors in several places. Brands we use include Samsung, Panasonic and LG.
This past week the picture on our LG went out, just as it went out of the manufacturer’s warranty. Fortunately, we bought it at Costco, which doubles the warranty and offers concierge tech support. This experience makes us loyalty to Costco … to LG not nearly so much (for a photo check out our homepage at www.rDialogue.com)!