The consumer electronics market is changing. Household brand names such as Sony, JVC, and Samsung are facing off against new competitors, such as Dell and Gateway. In the prime markets of North America, computer brands are going beyond the commodity PC business and threatening the margins in consumer

electronics with their direct to consumer business model. Over the East China Sea, new players stand ready to sell to the world with their low-cost producer status. How can traditional, vertically-integrated consumer electronics (CE) companies thrive in this market?

This is best illustrated in the coming battle for the LCD television/display market. Poised to grow by 70 per cent per annum through 2007, a gold rush is forming in this market space. Veteran firms such as Sony, JVC and Samsung are squaring off against new competitors who are very different from their traditional foe. They must exercise a focused strategy in order to successfully compete against these new entrants. It must capitalize on its strengths, which include strong brand equity and vertical integration while exploiting the various weaknesses inherent with the alternative mass-market approach.

In any market environment firms have three primary choices: to be the cheapest, be the best or be the most focused. The first alternative is causing the rapid commoditization of LCD technology. A flood of new brand names entering the market continues to put downward pressure on prices across the board. Samsung, for example, could easily engage in a price war given the completion of its new 7G plant in South Korea and its operational efficiencies; although it is not a preferred choice. Such a manoeuvre would likely devalue Samsung’s growing brand equity, which is not consistent with its overall corporate strategy. Recently Samsung has made great strides to enhance its brand in pursuit of being the best; the second strategic option. This market space has traditionally been a stronghold for veteran CE producers such as Sony and Sharp, however the increasing influence of technology on every aspect of our lives has significantly changed the landscape. People now have many different reasons to buy LCD screens, which significantly restricts this particular strategic approach. The definition of a superior product becomes highly subjective and widely debatable. It is no longer good enough to simply be the best. Rather, Samsung must adopt a plan to be the most focused.

People don’t buy technology, they buy solutions

Application-based segmentation tells us that consumers no longer want ordinary televisions or generic computer monitors. They want a showpiece for their art, a productivity tool, or a large quality-viewing medium to share an experience. Understanding these new focused applications and the people who want them is a key challenge for a company such as Samsung that will help unlock the ground-level market strategies required to penetrate the LCD mass market. A focused, segmentation strategy will allow these top brand names to systematically target specific groups of customers necessary to build economies of scale and logically grow and hold market share. While the competition continues to blanket the market with generic low-priced equipment, these companies must entrench its position by winning these segments.

Other companies whose strengths solely lie in low-cost manufacturing, direct sales, or outsourcing will be unable to offer this added value of innovation. They will instead be relegated to punishing price wars and razor-thin margins as the market matures.

In achieving mass appeal, traditional segmentation schemes will fail to adequately address customers. The key to successful segmentation will be focusing on the problems that customers are using LCD to solve and providing 100 per cent solutions; whether it is everyday HDTV, home theatre, TV in confined spaces, a showpiece for the living room, or a productivity tool. The customer will be reached through segment-specific channels, not those in traditional consumer electronics. This requires new alliances with organizations such as IKEA or Rona for example. The ability to execute this type of focused strategy is exclusive to the well-established CE firms.

Understanding the customer and their respective segments is the key to survival in an ever-changing consumer electronics market. If traditional household brands are to maintain traction within the industry they must consider strategic alternatives that will best position them to compete against new rivals. The current battle for market share within the LCD flat panel display market demonstrates the importance of a focused application-based strategy. Traditional CE powers faces this challenge in the near term as it tries to respond to threats of commoditization as well as numerous new entrants into their market space. Being the cheapest or the best is no longer enough. The market will richly reward the first companies that successfully go to the next step.

Peter Tam, Ken Sun, and Brook Hamilton also contributed to this article.

Ryan Garrah, Brook Hamilton, Ken Sun, and Peter Tam are graduating MBA students at the Queen’s School of Business. The MBA for Science & Technology is a 12 month intensive program ranked #1 for four consecutive years by Canadian Business magazine

  • Ryan Garrah is a Mechanical Engineer having worked in the defence industry.
  • Brook Hamilton is a Computer Science Major with a background in wireless banking. He previously worked with the Bank of Montreal.
  • Peter Tam comes from the biotechnology sector with a degree in Life Sciences.
  • Ken Sun is an Electrical Engineer who has worked for several Silicon Valley startups including Walmart.com.

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