Electronics Companies' New Pricing Policy
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It has become the norm for electronics retailer Best Buy Company (NYSE: BBY) and others to steeply discount some items like flat-screen TVs in order to generate sales. But that practice is under fire from electronics manufacturers like Samsung, LG, Sony Corporation ADR (NYSE: SNE) and Panasonic Corporation ADR (NASDAQOTH: PCRFY).
These electronics companies have decided to introduce a new price-setting policy in the United States to try to protect their brands from heavy discounting by the likes of both Best Buy and their e-retailing competitors like Amazon.com (NASDAQ: AMZN). The new policy is called UPP or Universal Pricing Policy and was introduced on April 1. Under this policy, retailers will be warned they may not receive future supplies of electronics from these companies if they fail to stick with the fixed prices for electronic items set by the companies.
The goal of UPP is to end the growing trend practiced by consumers of “showrooming”. That is, viewing electronics items in a brick-and-mortar store and then going online to buy them from online stores that may be selling the item well below the manufacturers' suggested price. If successful, this will help the electronic companies get full value for their products like Apple does.
As Amazon and others have seized control of pricing, electronics companies have seen their products becoming increasingly commoditized. They see prices for their products spiraling downward and are simply trying to regain control before companies like Panasonic and Sony are forced out of the electronics business. Sony's television business, for example, has lost money for 8 years in a row.
Electronics companies are also trying to shore up their prices in anticipation of tougher times ahead in items such as flat-panel TVs. The research firm IHS iSuppli recently forecast that this year would see an actual year-on-year fall in flat-panel TV shipments, something never seen before. The company predicts shipments to drop by 5% to 37.1 million units.
In addition, UPP will give a much needed boost to retailers like Best Buy as e-retailers like Amazon will lose a key competitive advantage – lower prices. Of course, e-retailers will retain one other key advantage over the likes of Best Buy. They do not collect sales taxes on items sold.
Best Buy has been losing market share in recent years to Amazon, Overstock and other online competitors. Last week, it announced the shuttering of 50 of its big box stores for a cost savings of roughly $800 million. It is also shifting its focus toward smaller stores that specialize in hot-selling mobile devices such as smartphones and tablet computers.
The move toward UPP pricing by Samsung, LG, Sony and Panasonic should level the playing field somewhat for Best Buy and others, at least temporarily. The pertinent question remains though as whether these electronics makers can enforce this policy over the long term or whether their pricing will be undercut by rivals not involved in the UPP plan.
The result of the UPP plan remains to be seen. But given the competitive nature of the business, it is unlikely that it will be effective for anything more than the very short term.
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