High-Def and No Frills: Vizio's Winning Formula
Saturday, October 20, 2007
Walk through the entrance of the Pentagon City Costco, and among the first things you'll see on prominent display are stacks of 32-inch, high-definition television sets made by a company that was virtually unknown a year ago.
That company, Vizio, recently catapulted to the No. 1 position for shipments of HDTVs in North America, according to the research firm iSuppli. Its strategy is to hold down the cost of making the sets, then undersell its rivals and make money by selling in high volume through discount retailers. It has also benefited from a boom in television sales ahead of the pending phase-out of analog television signals in 2009. With a 14 percent market share in the second quarter, Vizio surpassed such better-known, well-heeled competitors as Samsung, Philips, Sony and Sharp, iSuppli said.
The California company's bare-bones approach to the HDTV market is reminiscent of the personal-computer industry of a decade ago. Companies like Dell and Gateway burst onto the electronics scene by tapping low-cost suppliers, then building and selling their computers at a low price.
But, as the PC industry has since learned, that strategy has risks. Markets become saturated; prices set by overseas vendors can fluctuate dramatically; and, in the case of Vizio, partnerships with high-volume, low-cost retailers like Costco, Sam's Club and Wal-Mart tend to make for thin margins. Meanwhile, deep-pocketed competitors in the HDTV business -- Sony, for instance -- are often better-positioned to withstand the ups and downs of the markets.
Vizio, which gets many of its parts from overseas vendors, is vulnerable to fluctuations in the dollar and those vendors' prices, some analysts have said.
"In times when there are tight supplies, the premium brand is likely to benefit," said Riddhi Patel, principal analyst of television systems for iSuppli.
Still, none of that seems to matter to consumers like Justin Alanis, who bought a Vizio set last year primarily because of the price -- the 37-inch screen was less than $1,000. Initially, the Georgetown resident said, his friends paused when they saw the brand name on the set. But after they watched football games on the TV, they no longer noticed.
"The Vizio has everything that other brands had in terms of picture quality, brightness, durability," said Alanis, whose friends now regularly gather at his place for major sporting events. "The price was the driver."
In the Costco warehouse, a 32-inch Vizio priced at $600 compares with a Sharp Aquos set that sells for $800 and a Sony Bravia set at $950 -- a price differential that Vizio credits for driving sales up almost 500 percent since 2005, to 700,000 sets last year. It expects an increase in sales this year of more than 325 percent, to 3 million sets.
Vizio sells only in the United States, where it's also trying to build brand awareness. It said it will attempt to expand to Mexico and Canada in the first half of next year.
It's not clear what kind of impact Vizio is having on its rivals. Samsung, the leader with more than 12 percent of the global market in the second quarter, declined to comment on the impact caused by budget HDTV manufacturers like Vizio. Samsung is second in North America, with 11 percent of the market, according to iSuppli's data.
Much of Vizio's growth in the United States stems from a national mandate that requires broadcasters to switch from an analog to a digital signal in February 2009, a move that requires broadcast television viewers to update their old TV sets or to purchase a new one.