Vizio is a relatively nascent player in the flat panel television industry. It has witnessed tremendous growth within the industry and, in turn, has seen sales multiply by approximately more than ten-fold within a three year span. This analysis will examine the flat panel industry’s competitive landscape, the success of Vizio’s strategy, and whether Vizio’s strategy is sustainable for the long term prospects of the company.
To get a better understanding of the flat panel television industry, let’s consider the competitive forces. When we consider buyers, there are two groups to keep in mind – the retailers (Walmart, Best Buy, etc.) and the consumers. As it stands today, there is not much ...view middle of the document...
Vizio is a fraction of the size of these two juggernauts and does not have their in-house capabilities in terms of manufacturing and R&D. However, these two brands command a premium price for their products and are not fully optimizing the low-cost retailer channels for distribution (e.g. Costco). Utilizing these alternative channels and targeting a down-scale customer base lowers the potential competitive retaliation from these incumbents.
Initially, Samsung and Sony invested heavily in R&D and manufacturing to create high barriers to entry. However, the commoditization of some of component parts has allowed smaller players like Vizio to enter the market and thrive through partnership with manufacturers. Although there has been some new entrants following the same model as Vizio, barriers to entry still remain fairly high as success is largely determined by strong relationships with suppliers and distributors.
In terms of substitutes, older television models are becoming outdated and the flat panel industry continues to grow. Currently there are no major substitutes that pose a serious threat. However, television quality will continue to improve and older models will become antiquated and a focus on R&D will become increasingly important.
Considering the aforementioned competitive forces in the flat panel industry, Vizio opted to enter as a low cost provider instead of differentiating itself through better quality. CEO William Wang saw an opportunity to capitalize on the recent computer trend, which was moving toward flat screens to buy components in bulk and produce televisions at a low cost. To further reduce cost, Vizio partnered with one of its suppliers, AmTran, by making them a partner with a 23% stake in the company.
With respect to Vizio’s value chain, design, marketing and distribution were all managed by Vizio while manufacturing was managed by a third party, AmTran. Instead of manufacturing in-house like Sony and Samsung, Vizio decided to allow a contract manufacturer to assemble its televisions. Outsourcing manufacturing enabled Vizio to focus on design and marketing, while leveraging a specialized contract manufacturer’s core competency.
The trade-off of being the low cost provider was limiting investments in R&D. Vizio’s strategy was based off the premise that it could maintain quality that was close enough to that of Samsung and Sony but offer at a significantly lower price. Too much of a compromise in quality could potentially deter even the most price conscious customers.
Another important strategic decision was to use distribution channels that were not the main source of revenue for the large incumbents. Vizio established relationships with big discount retailers such as Costco and Sam’s, focusing on a more price conscious consumer. This served as an attempt to attract a different demographic and limit competitive response from Sony and Samsung.
Probably the most important part of Vizio’s strategy...