|
This article shows how --by clever positioning (and using price elasticity analysis)--a struggling product concept developed by PFE was positioned to seize the imagination of leading Asian and European display manufacturers.
Note the "one-two punch" employed: We not only showed (with detailed manufacturing cost models) that PFE was the least expensive wall-TV process, but that a $2000 price was necessary (for a 42-inch TV) to sell in the large volumes required--and only PFE had a process that could achieve that low price.
This "story" was drummed-in to our prospects. We refused to "come back when you have a perfect display," because--as we told them--Asian display manufacturers can perfect anything. But they should have a good reason for making the effort. Producing the only wall TV under the magic $2000 selling price is an excellent reason for making that effort. And since we demonstrated lowest cost, this was reason enough for them to take the risk of working to achieve product perfection.
Price-Elasticity Market Analysis of Wall TVs.
Performed for PFE-Ltd, April 2002.
© 2002 by Tom Holzel
The Large-Screen TV Market
As consumers gravitate towards larger screen TVs, the ergonomic advantage of flat, wall hanging TVs is becoming increasingly apparent and consumers are showing a willingness to pay a significant premium for them. PDPs (plasma display panels) are the most popular large (>32 inch) flat panel TV available today. LCD panels are making their debut. However, they are expensive and their high cost will not fall quickly because of inherently expensive component costs. A 36 inch plasma display panel (PDP) currently costs four times more than a 36 inch CRT. LCDs are most expensive, still. As a result of this pronounced price differential fifty-times fewer large-screen PDPs were sold in 2002 than large screen CRTs. The high CRT volume shows that consumer demand for large screen Wall TVs would be high if the costs were lowered. But by how much?
The market for all large-screen TVs is forecast to be worth $30bn by the year 2006. This is the market PFE's unique and patented display technology intends to penetrate by offering:
- The lowest cost process for manufacturing large flat screen Wall TV displays.
- The lowest cost-of-goods with costs approaching that of large CRTs.
- The ability to produce PFE displays on existing PDP fab lines.
- Arguably the best-looking image of any flat panel display.
The Market
According to DisplaySearch, a U.S. display market research firm, the world market in the year 2005 for all large-screen displays including CRTs is 23.7 million units producing revenues of well over $30bn -- See Figure 1.
Figure 1 1998 - 2005 Large TV Sales and Unit Forecast
The plasma display panel or PDP is the only one wall-hanging TV technology available for sale now. 23.7 million units of all large screen displays are forecast for 2005. Among differing TV types, the primary driver of product selection is price. The second attribute is bulk. As price differences decrease, more of the "better" units are bought. Thin is perceived as better than thick and bulky. Wall hanging is perceived as better than sitting on a stand or incorporated in a rear projection cabinet.
The current (2002) selling price for the most popular Wall TV (42 inch) is $7,000, although last year's model (inferior in image quality) may be had for $5,000. Shown in Figure 2 are the forecast price drops for all PDP sizes. One can readily see that, even in 2005, the street price for the most popular PDP, the 42-inch XGA version, will be $3,633. This is still not sufficiently low for mass consumer markets. It is the promise of a radically lower price for the PFE Wall TV that has created so much interest among major TV manufacturers. Offering the major TV manufacturers an opportunity to further halve the cost of their wall TV is an opportunity of compelling interest because it will let them steal significant business away from the very large CRT and rear projection TV sectors.
Figure 2 1999 - 2005 Forecast Prices Drops for all PDPs
Flat Panel Price-Demand Elasticity.
Lower prices lead to higher sales volume and taking the historical curve for the 42-inch XGA ALIS we see in the table below the relationship between selling price and volume of sales.
| Price |
Units K |
Price Drop |
Vol. Gain |
| $8,771 |
127 |
NA |
NA |
| $7,617 |
298 |
-13% |
235% |
| $6,209 |
521 |
-18% |
175% |
| $5,108 |
843 |
-18% |
162% |
| $4,258 |
1336 |
-17% |
158% |
| $3,633 |
2231 |
-15% |
167% |
| Source: DisplaySearch |
As shown in the table, except for the first price drop, each price drop of about 18% results in a sales increase of about 165%. DisplaySearch has stopped this analysis at the lowest price they forecast for the price of PDPs ($3,633) but the sales volume increases monotonically with reduction in price and is shown as a log-log plot in figure 3. It can be seen in Figure 3 that when plotted on a log-log graph price elasticity is an excellent fit to a simple power law of the form--
Annual Sales Volume ~ 1.35 x 1016 x (Selling Price in dollars US)-2.75
--enabling us to forecast sales volume of any wall TV as a function of price.
Figure 3 -- DisplaySearch projections for sales volumes of PDPs versus price with extrapolation to projected PFE wall TV price.
The PFE process is designed to meet its low manufacturing cost promise by replacing the many expensive (and capital intensive) semiconductor lithography steps of traditional field emission flat panel cathode with "low tech" approaches, such as screen-printing and low-resolution photolithography, already perfected by the PDP manufacturers. Our large feature sizes also reduce the need for manufacturing displays in exotic clean rooms. And most importantly, our unique nanophase emitters offer inherently greater robustness and uniformity than other approaches (such as carbon nanotubes).
Cost modelling in association with two independent flat panel display organizations (Stanford Resources, Inc and DisplaySearch) show that the cost of a PFE 42-inch display module could be as low as $0.50/sq. in., as opposed to lowest forecasts of $1.5/sq in. for LCD and $1.0/sq in. for PDP and OLED (Stanford Resources, Inc.), and versus $2.75/sq in. to $4.88/sq in. forecast for liquid crystal displays (LCD), plasma display panels (PDP) or solid-state electro-luminescence from iFire DisplaySearch).
Quite significantly, PDP fab lines, which are currently being built by most TV manufacturers, have a similar materials flow and can be relatively easily converted to manufacture the far-less expensive PFE display.
Clearly a PFE-based display at $1500 will deeply impact not only the flat panel display competitors, but also the two other TV technologies. Price elasticity shows that around twenty million units would be sold at $1500. These would tend to displace the rear projection cabinets (RP) and the conventional cathode ray tubes (CRT) shown in figure 1. The latter thrive today only because they offer a large TV image at a substantially lower price (three to five times lower) than the PDP.
Of course, unlike the extrapolation in figure 3, the total demand for large TVs does not approach infinity; in fact the total amount spent on TVs will not radically alter, even though the products are continuously improved. Too many other purchases, such as cars and vacations, compete for disposable income in that price range. What will happen, as their prices converge, is that buyers will gravitate toward buying the "better" wall TV over the less-desirable bulky CRTs and rear projection cabinets, the choice being reduced to the matter of superior living-room ergonomics. Moreover, the very existence of an attractively priced large-format flat-screen display may increase the size of the sector. Since DisplaySearch forecasts show that 14% of the large screen market will be captured by wall TVs selling at an average price of $3600, we believe forecasting sales of 14% capture for pFEDs selling at $1800 is not unrealistic.
The market for systems that would sell at only slightly higher prices than CRTs has not heretofore been calculated. The price elasticity figures indicate that this market will approach $30bn not by the forecast year 2005, but as soon as such devices become available at the $1,200 to $1,800 selling price. When that price range is reached will depend on the speed with which the major TV manufacturers are able to gear up and produce the PFE-based flat Wall TV. Within the five-year forecast window, that low price is out of reach for all Wall TV technologies-except the PFE flat panel displays.
********************************************************************
From the August issue of Information Display magazine:
When start-ups can't sell -- an article describing the major marketing errors made by nearly all start-up to medium-size technology companies. (Click this link or the button on left.)
The short answer: Inventors of important new products focus excessively on their product's advantages rather than on their prospect's needs and risk assessment. The two are not the same, and therein lies the art & science of strategic product positioning.
"Real power is flowing to those firms that have begun to work out not what to sell, but how to sell it." -- The Economist, June 15, 2003 discussing IBM's new positioning stance. |
