The downward trend in price has not surprisingly grabbed a lot of attention. Many large LED manufacturers are using the lowered prices to help quicken the pace for popularizing LEDs. This however is putting a squeeze on medium and small LED businesses (SMBs).
The existence of SMBs relies on their price superiority and benefit they receive from second and third tier sales for their survival in the market. If a brand named company initiates a price war and expands sales to second and third tier markets then SMBs will start to feel pressure. Also, as soon as product price for large named companies drops low, it will begin to encroach upon SMBs’ sales quotas. Aside from this, just as some companies act as bench markers in the industry, so do some prices; Large manufactures adjustment in price indicates that many other companies are likely to follow suit. The question remains as to whether or not SMBs who can succeed in price will slowly disappear from the market and if the price war will have an effect on Chinese lighting city Guzhen. It still remains to be seen if the price war will result in a life and death struggle for medium and small companies.
Industry Insider’s Point of View
Luo Yifeng from Navigation Light said that brand named companies lowering prices on their products should have little to no affect on companies in Guzheng. These companies should be able to maintain high flexibility in price regardless of price fluctuations by other companies. For example, Navigation Light’s superiority in market channels, strong production capabilities, and deliveries are all qualities other companies are unable to replicate. Therefore, even with NVC Lighting reducing product prices, Navigation Light felt very little affect because the two companies have different market channels and are not competitors.
Yanrong from Phoenix believes that industry veterans act as leaders in the industry and by dropping prices can lead to healthy and orderly development for other companies and is beneficial towards the pricing system. The current lighting market is a mess with manufacturers all in the midst of a pricing war. The pricing system is unorganized, quality uneven, and the market lacks a definite standard. Therefore, big named companies decreasing their prices will have a clear influence in the market. Only if companies have a clear position and dedicate themselves to their products will they be able to do the job skillfully and easily amongst the price war.
The head of another small company stated that he believes large companies dropping prices puts pressure on SMBs and the situation is not optimistic.
In an interview with a SMB by a reporter from the World Lighting website, the general concerns revolve around market sales. A boss from one lighting fixture company said, “Businesses in Guzhen all have superiority in price, especially when compared with brand named companies. However when brand named companies drop their prices, SMBs lose their superiority, which is the same as being kicked out of the low and medium end market.” He made a comparison: “A 7W LED bulb would be sold by a large company for about RMB$ 130. If there was a 30-40 percent drop in price, it would then be sold for around RMB$ 87.3. For SMB the selling price would be around RMB$ 30-40. RMB$ 87.3 can still provide large companies with a net profit but for SMB the price is too low to make up for losses.
Consumers Point of View
World Lighting interviewed 10 consumers in regards to SMB and brand named company’s product prices. Around half of those interviewed would choose low priced products from brand named companies mainly due to the influence of the brand’s name. However an equal number of consumers also believe that product prices by brand named companies incorporate too much of the production costs. They believe product ratio and good values are very important.
One consumer named Zhang said that although SMB products have low prices, brand named companies guarantee product quality and have good after sales service. So when purchasing products, brand names are often the first to be chosen.
A manufacturer from Hubei when shopping in Hubei recently he noticed that local residents when looking for inexpensive products had a limited consumer purchasing power. He therefore believes that brand names do not have a strong influence so the consumers relied more heavily on economical prices.
Local resident of Guzhen Mr. Lan said, “Even though products from large companies have decreased in price, the prices still tend to be high and the average consumer will have a hard time accepting it. Guzhen has a lot of companies who offer good products, economical prices, high price/performance ratios that are suitable for the average consumer. Therefore, SMBs with higher price superiority can still hang onto that advantage. I personally believe that I will still select good products at competitive prices.”
LEDinside Observations
The huge adjustment to pricing within the LED market is beneficial towards quickening the LED replacement trend. It does not however spell out the death of SMBs in the market. There is still room within the market for SMBs to exist.
Price adjustment by large companies shows the movement towards replacing traditional lighting with LEDs and acceptance of energy saving methods in residential areas. Drop in prices by large companies is conducive for quickening the pace for LED replacements and for improving the pricing system. SMB survival in the market is effected by the decreasing prices however. That being said, SMB do not need to panic. This is not a life and death struggle for LED SMBs nor do they need to blindly enter into the price wards because decrease in price is not the only method for sales. There are a variety of consumer types, all with different needs and sensitivities towards price. Some consumers want convenience, others look for products that are more fashionable, while others want good service along with their purchase. SMBs need to plan their product direction, target consumers and design their prices accordingly.
Aside from this, SMBs who want to develop themselves amongst the fierce price war must find a field that has been overlooked by large companies and showcase their own individuality. The Chinese LED lighting market is currently in a competitive stage. With development in technology maturing and net profits dropping, there are still a lot of opportunities to explore segmented markets. Companies can go increase the added value of their products to establish a brand image and go through channels that best suit their brand. This will be helpful for companies to overcome the price war and at the same time still give them a bigger space for development. Companies should seize the opportunity at the most opportune moment and polish up shortcomings in order to build the core competitiveness of the company. This way companies can avoid the overcrowded market and instead target a broader untouched market which offers more room for growth and development.
