HolidayBuyer's Guide

The secret of Vizio's success

The Southern California start-up's strategy of low prices and discount retail wins out, as it tops all LCD TV makers in the second quarter.

If you don't know Vizio yet, you will very soon.

The LCD TV maker has quickly staked out a place in the flat-panel market and has elbowed aside some of the biggest names in electronics in the process.

For all the clout and brand recognition that accompanies names like Sony and Samsung, it was Vizio, a virtual unknown a year ago, that topped all LCD TV makers in the second quarter of this year in televisions shipped to retailers. Vizio sold 606,402 TVs in North America in the second quarter, a 76 percent jump from the previous quarter, according to a report by iSuppli released Monday. That puts Vizio in first place among LCD TV vendors, with a market share of 14.5 percent, up from 9.4 percent, or fifth place.

Former market leader Samsung dropped to second place, shipping 467,210 units compared with 445,683 the previous quarter. But the company that took the biggest dive was Sony, which fell from third to sixth place, moving just 253,377 units, compared with 412,232 last quarter.

"We are more of a threat to them (Sony and Samsung) than we were before," Vizio CEO William Wang said in an interview with CNET News.com.

The biggest reason for Vizio's sudden rise is its distribution strategy. At the beginning of the second quarter, the company expanded its list of retailers to include Wal-Mart Stores, Sears, Kmart and Circuit City, providing a huge boost to its shipment total, according to Riddhi Patel, an analyst with iSuppli. The company started by selling TVs only through warehouse stores Costco Wholesale and Sam's Clubs.

In addition, the quality of Vizio LCDs looks very similar to the Sonys and Samsungs on the store floor--and the price is significantly lower, according to Patel.

"Say (consumers) have a budget to spend $1,000 on a TV. They could probably buy a premium brand 32- or 37-inch, or they could buy a Vizio 47-inch for the same amount," Patel said. "The low-price strategy is what's driving consumers to them."

Much of the sales have been word-of-mouth endorsements. Vizio has done little in the way of advertising. But that's about to change come this fall, Wang said. The company is prepping for a big marketing push when the new National Football League season kicks off next month. The ad campaign attracted a big-name spokesman, too: last year's league MVP, LaDanian Tomlinson of the San Diego Chargers.

"Our focus has been growing our brand awareness," Wang said. "We're not holding anything back."

The advertising, of course, will be done in true Vizio style: the budget will be less than 1 percent of overall spending.

"Do we need it? It's really hard to have a real scientific answer. Our goal is not to be just a fast mover for TVs, but to build a really great consumer electronics brands, not just TVs," Wang said.

Two years earlier, in the second quarter of 2005, Vizio was ranked No. 15 in North America, according to market research firm DisplaySearch. (Polaroid, another relative newcomer to TVs, saw its market share in LCDs grow 118 percent and rise from 4 percent to 7.5 percent.)

The growth came at the expense of more traditional manufacturers like Philips, Funai (which makes Sylvania brand TVs) and Sharp. These companies did not grow as fast as the market. Philips actually saw a decline in flat-panel TV shipments in North America.

Though many of the new brands are trying to expand internationally--Westinghouse and Syntax-Brillian sell TVs in Asia, for instance--Vizio says it's staying put in the U.S. for now.

Vizio's strategy essentially revolves around trying to have the cheapest TVs in the mid- to high price range. Acer has used a similar strategy to move up rapidly in the PC business. Additionally, Vizio tries to project itself as the company that can provide better and more personal service. TVs are packaged with poster-size service guides. It also offers free in-home support during the warranty period and a "no bright pixel" guarantee for the life of the product for many TVs. Bright pixels are faulty pixels that become a pinpoint of light on a TV's display.

The Costa Mesa, Calif.-based company started as a consulting firm in 2003. Wang had worked at several Taiwanese LCD makers and decided to branch out on his own. One of the company's first engagements was helping Gateway put together its 42-inch plasma TV system, priced at a then-startling $2,999. Comparable systems at the time sold for upwards of $6,000. Although Gateway's momentum in TVs petered out, it enjoyed a surge of sales and attention with that low-priced TV in 2002 and caused other manufacturers to cut prices.

"They sold over 4,000 in the first month. It was pretty exciting," Wang said in an interview in January.

For Vizio, small is big. The company employs 85 people in the U.S., and most of them are in customer support. The company also has a few employees overseas. Most of the actual manufacturing is conducted by contract manufacturers. Lavish corporate parties and massive salaries are largely absent.

Vizio also emerged with an unusual distribution strategy. It started by selling TVs solely through Costco and Sam's Clubs, though it now sells some models in Wal-Mart, Sears and Circuit City. These retailers, which are selling an increasing number of TVs, typically are looking for gross margins on their products only in the 10 percent range. Electronics retailers are looking for 25 percent or more. For Vizio, that's a two-way benefit: the price of its TVs are comparatively lower than those from major manufacturers at electronics stores, and major manufacturers can't participate as fully as they'd like to at places like Costco.

The lower prices coincided with another trend: Customers became more acclimated to buying electronics at superstores. Thus, the company was selling cheap TVs at the places people were frequenting. Last year on Black Friday--the traditional blockbuster sales day just after Thanksgiving--Vizio sold between 35,000 and 37,000 TVs.

But will it be able to sustain its strong momentum? Most likely yes, especially since the frantic holiday sales season is nearly upon us, according to iSuppli's Patel. The third and fourth quarters are very important to the TV business, and iSuppli is betting that Vizio will continue to grow its shipments.

"Now, having said that, we do understand that other brands like Samsung, Sony and Sharp are not going to sit quietly," Patel said. "They are going to work on their pricing strategy or promotion plans to compete effectively with the onslaught Vizio has brought on."

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