“Our marketing mix has to become more creative,” Crawford says while walking the halls of the Philips offices, past rooms where high-tech displays show how lighting affects moods in kitchens and living areas.
Philips has been hiring marketers and engineers from consumer products companies to prepare for the change. Its North American headquarters in suburban New Jersey is a short drive from the red-brick labs where Thomas Edison developed and improved early light bulb technology.
Scientists at the world’s major lighting companies — General Electric, Philips and Siemens AG subsidiary Osram-Sylvania — are creating more expensive compact fluorescent bulbs, halogen bulbs and light emitting diode (LED) bulbs for retailers to offer instead of the incandescent bulbs they have sold for more than a century.
Starting next year, the Energy Independence Act of 2007 will require 30 percent more energy efficiency in bulbs. The legislation phases out 100-watt incandescent bulbs from sale starting in January and ends with 40-watt bulbs phased out by January 2014. Similar legislation is in place in parts of Europe.
Philips lobbied for the change in recent years. Other companies — accustomed to continual profits from selling 50-cent disposable incandescent bulbs year after year — were forced to get onboard with it. Some Republicans, including presidential candidate Rep. Michele Bachmann (Minn.), have tried recently to overturn the legislation, but without success.
The Natural Resources Defense Council said that by 2020, the new law will reduce energy costs by $100 to $200 per household each year. That could eliminate about 30 large power plants, according to the NRDC. The U.S. Department of Energy predicts that the new law could save households in the United States nearly $6 billion in energy costs by 2015.
Retailers prepare for switch
Light bulbs have been a major product for GE since Edison invented the incandescent bulb in 1879. At one point in 2008, the company tried to get rid of its lighting division. But it now sees the business as an area of growth in a $65 billion global lighting industry.
The Freedonia Group in Cleveland expects U.S. demand for advanced lighting products — LEDs, compact fluorescents, halogen lights and other products that will replace incandescent bulbs — to grow nearly 11 percent per year to $6.8 billion in 2013.
The world’s largest home furnishings retailer, Ikea, stopped selling incandescent light bulbs in January. The State of California mandated that retailers stop selling 100-watt incandescent bulbs last Dec. 31, a year earlier than federal legislation requires.
Vrinda Bhandarkar, an analyst at Strategies Unlimited in Mountain View, Calif, predicts that LED products alone will be the fastest growing worldwide, from less than $6 billion in sales in 2009 to more than $18 billion by 2014. With dozens of new LED products coming to store shelves this year, the bulbmakers and retailers such as Home Depot aim to smash the dominant incandescent bulb.
Although they also plan to sell halogen and compact fluorescent, or CFL, products, the companies tend to see LEDs as the most efficient bulb to sell long-term. The catch is that LED bulbs cost $25 or more apiece, so the companies are plotting ways to persuade Americans to make the investment. There’s always the argument that 50-cent, 100-watt incandescent bulbs will be illegal to buy next year and that $3 compact fluorescent bulbs contain mercury and pose hazards for disposal.
But an Ikea lighting survey, conducted by Harris Interactive, showed that 61 percent of Americans are not even aware of the legislation that phases out incandescent bulbs.
Some customers are sentimental about incandescents and skeptical about the LED bulb’s claims. “I still like the old incandescent, the light itself,” said Vince Liscio, 83, shopping recently in a Home Depot in Bridgewater, N.J. He wasn’t aware of the phase-out and was doubtful that new bulbs will last as long as manufacturers say they will. And at $30, “I’d stay away from it,” he said.
A bright idea?
Until recently, LED products were largely fixtures that plugged into a wall by a cord or were wired into walls. But the world’s lighting companies are creating LED bulbs that screw into the roughly 4.7 billion sockets in the United States.
Philips is hoping to persuade consumers to view the LED bulbs as a durable good like an iPad, a TV or a car rather than a disposable good such as Kleenex, pencils or toilet paper. That way, people might be more inclined to pay $300 for 10 to 15 LED bulbs for a house energy and lighting upgrade, instead of just grabbing incandescents at $2 a box as needed.
“We’re used to thinking of light bulbs as a replacement business,” Crawford said. “Transitioning our mind-set is absolutely a business challenge.”
Philips has been recruiting marketers from durable goods firms such as Honda and consumer product firms such as Proctor & Gamble and Scott Paper Co. Crawford worked at Nestle and marketed the Quick brand of chocolate milk before coming to Philips. Other executives have come from such consumer firms as Kohler and Johnson & Johnson.
“It’s a completely different sale,” Crawford says. “Getting people to think that way requires different skills, different marketing and salespeople.”
The new hires are studying and segmenting the market. They’ve identified early adopters who might buy LED bulbs, dividing them into categories such as “young affluent” and “pre-empty nest,” who are environmentally conscious, brand oriented and not price sensitive. The “green socialites” like to entertain and impress others with their home.
Another key is upscale packaging. Incandescent bulbs were packaged in 10-cent cardboard squares, but Philips and GE package their LED bulbs in heavy plastic clamshells or blister boxes — “the way you package an iPod,” Crawford says.
One challenge will be for the lighting companies and retailers to explain how new light bulbs are rated based on brightness — or “lumens” — instead of watts, which relate to the amount of energy used. The lighting companies can increasingly make bulbs that shine brighter with fewer watts used.
GE plans to introduce light bulb packages in five colors — purple, yellow, green, blue, orange — that will feature a conversion of watts to lumens for consumers. Osram-Sylvania will package the bulbs based on the light’s color range from cool to warm.
Home Depot, the largest light bulb retailer in the United States with nearly a third of all such sales, expects LED bulbs to go from 1 percent of the market to 25 percent by 2014. So Home Depot’s making a big bet on LED, launching its own private EcoSmart brand in stores to compete with suppliers such as Philips, GE and Siemens.
In addition to marketing pushes, those three companies are working to improve the cost and quality of the LED chips and other components. Philips is spending 90 percent of its lighting research and development budget on LED, and Osram-Sylvania and GE spent 50 percent on LED products last year. GE said that only 2 percent of its residential bulbs sold are LEDs but predicts that sales will pick up when those bulbs come down to $10 in the next three years as chips become less expensive.
A few skeptics in the industry suggest that American consumers will always migrate to the cheaper compact fluorescent and halogen bulbs instead of LEDs.
“How can you transform people’s behavior if the technology is not mature enough?” asked Ellis Yan, founder and chief executive of Cleveland-based Technical Consumer Products, which makes half of the compact fluorescent bulbs sold in the United States and is venturing into halogen and LED. “Price is a reality, especially in an economy like this.”
Yan said he’s “watching what’s happening” as Philips pioneers marketing the first wave of LED products. “You don’t have to be the first one,” he said. “The first ones usually get killed.”
But commercial sales of LED products are starting to gain traction, expanding faster than residential sales as companies realize they can save energy costs over time. Siemens said 2,600 GNC stores added LED lights in recent months. GE said Starbucks put GE’s LED lights in 8,000 stores globally last year.
Philips and the other firms hope to bring the residential market along quickly. That means bringing big customers to headquarters to walk through sleek showrooms that demonstrate the latest lighting products, from LED to halogen and compact fluorescent bulbs.
It also means putting a premium on people skills when hiring employees. “It’s a lot easier to train someone about the lighting business than training them to be customer-focused and people-centric,” Crawford says.
Philips’ strategy is also about more than just selling light bulbs. The company owns many brands of lighting fixtures and lamps, and it employs teams of designers who consult with big customers on lighting for office buildings, art museums and sports stadiums.
One executive at Philips said that the company looks to Wisconsin-based bathroom fixture maker Kohler for inspiration. “Kohler didn’t sell toilets,” he said. “It sold bathrooms.”
Glader is a financial journalist based in Berlin and edits www.wiredacademic.com.