Analyzing Flat TV Prices - Essay Example

The LCD panel manufacturers had been producing flat screens faster than the TV industry could absorb and thus were forced to cut their wholesale prices by as much as 30%, which lowered their profits. Now they demand that TV makers, distributors, and retailers should cut their margins in order to generate more sales. On the other hand, retailers complain that their margins are not much because the high cost of storefront displays and marketing TVs does not leave high profits for them. In addition, they have to invest heavily in training sales personnel also. They further have a lot of money tied up in inventories of the costly TVs. Moreover, the average selling price of flat-screen TVs has dwindled to about $3000 from $5000 two years ago.

The LCD panel makers, meanwhile, face stiff competitive pressure from other screen technologies such as Plasma and High-Resolution Projection TVs. Since September 2004, plasma TV prices have plummeted and contributed to high market share gains over LCD sets.

Retailers of plasma screens also apply a similar margin to plasma sets as well. But plasma screen factories are not as costly to erect as LCD screen plants, and there is less competition among plasma screen makers, so the profit squeeze is not as bad. A slightly encouraging trend that the flat TV producers can find relief in is that the low price is likely to increase the sales volume. Though there is a gradual decrease in prices and an increase in sales of flat-screen TVs, most analysts predict that it won’t take off as quickly as flat-screen computer monitors. Monitors are primarily being used for commercial purposes, and the purchasing has been driven by businesses while TVs are chiefly purchased for domestic use by consumers. These customers rather tend to be more sensitive to price than any other consideration.

 Analysis

Due to increased production, the supply of flat TVs has skyrocketed much beyond the demand thereby resulting in a steep reduction in prices. The trend facilitated the popularity of flat TVs because they became affordable to the average person. The prices are further poised to fall because of stiff competition, especially in the case of small-screen TVs. Thus, in order to survive, the manufacturers will have to cut the prices more, to make the product attractive to consumers and thus sustain the demand.

New technologies evolving in the field of electronics further complicated the situation, and with the advent of Plasma TVs, TV viewing assumed a new meaning. With more innovations in this area, concepts like the ‘nextgen’ TVs emerged. A major share of potential flat TV consumers switched to the new product and this further depleted the sales prospects of flat TVs. Analysts now predict that flat TV prices would still dwindle.

It was expected that by the fall of 2005, some of the makers of LCD screens would suffer and some of the companies reported lower profits. Some analysts believe that LCD screen makers can rebuild profitability and gain market leverage by simply delaying the construction of new factories. But more profits go to the companies that move faster to grab the market share. Some companies like Samsung, in order to widen their lead in the LCD market, said that it would accelerate the opening of a factory it is building in Korea in partnership with Sony Corporation.