What is it that makes LCD monitors so attractive to consumers? It is common knowledge that LCD monitors take up less desk space than standard CRTs, and look much better. They also reduce eye strain due to their flicker-free performance, boast twice the lifespan of a CRT, and consume significantly less power. LCD monitors have evolved to fully replace the bulky CRT technology with irrefutable benefits. Regardless of all of these benefits, the breakthrough factor that has led the masses to drop the CRT in favor of the contemporary LCD only came to fruition quite recently. What we are talking about are lower prices.
However, with this recent phenomenon of LCD affordability, consumers have become increasingly expectant of bigger and better deals. As the holiday season approaches, a restless generation of PC bargain hunters are already looking forward to their chance of getting the best for less.
The holidays are indisputably retail channel’s annual promotional climax. Past seasons have given us $29 DVD players, $1,499 plasma TVs, $199 computer bundles, and much more. Monitors follow the same trend. In this review, Current Analysis scrutinizes recent monitor holiday history and lays out an intriguing projection of the season for monitor vendors and shoppers alike.
Reality Check â€“ Prices Declined, Sales Climbed
In Q2 2004, retail LCD display prices peaked at an unattractive average of $514 per unit, after climbing uncontrollably since late 2003. At this point, consumers resorted to simply dusting off their CRTs; the LCD alternative was clearly far from affordable. In fact, during the LCD price skyrocket, the century-old CRT technology made a significant comeback that lasted through most of Q3 and Q4 2004 (see graphs below). As indicated by monitor manufacturers and suppliers, prices were rising because of key component shortages.
However, the law of supply and demand is unrelenting, so while prices skyrocketed, demand slumped. Consequently, LCD panel manufacturers (panels are the main component of LCD monitors) and monitor OEMs took a major hit. Panel production continued to increase; new multi-billion-dollar factories were getting ready to produce, and warehouses were suddenly drowning in inventory levels that were going nowhere.
That was the time for panel makers to take actionâ€“and panel prices started to plummet. By Q4 2004, average LCD monitor prices had already declined to $409, representing a 20% drop.
Despite the unbelievably high retail LCD monitor sales volumes of the 2004 holiday season, at 35% above the same period a year earlier, manufacturers’ inventories were still high, and more price trimming was on the way.
From Q4 2004 through June 2005, LCD monitor prices declined by an additional 19%, to $330. And demand is stronger than ever.
However, despite consumer euphoria, LCD monitor prices will stabilize in the months to come. Margins in the LCD monitor space have been wiped out to such a degree that they turned the profitable LCD business into a black hole for panel and monitor makers. With demand at full throttle, monitor manufacturers and their component suppliers will now try vigorously to get back some of the profits they lost in the first half of the year. Slowly but surely, TFT-LCD panel pricing is again on the rise. The recent price increases have stabilized LCD monitor prices. Chances are that between now and the end of the year, average LCD monitor prices will edge up between 3% and 5%.
Black Friday â€“ The Beginning of the Holiday Season
Black Friday, the day after Thanksgiving, is considered by retailers and vendors alike to be the official kick-off of the holiday season, and they make sure to score a touchdown. Months before the season arrives, retailers and vendors combine efforts to come up with promotional offers to beat anything they have done in the past. Conversely, consumers save every penny not spent on Thanksgiving dinners to benefit from those offers.
During the week of Black Friday 2004, retail LCD monitor sales were up 40% from the previous year, as indicated in the graph below. That was by far the strongest week in 2004 in terms of growth and unit sales.
17- and 19-inch displays dominated last year’s promotions with after-rebate prices as low as $189 and $349, respectively. Sub-$200 17-inch LCDs were promoted by retailers such as Best Buy, CompUSA, Office Depot, and Staples. Best Buy also bundled an eMachines-branded PC with a 15-inch LCD for a groundbreaking $379 price tag after $350 worth of mail-in savings.
The retail market saw other appealing FSI placements in the five weeks following Black Friday, which saw an average growth of 34% over the same period in 2003, but no other week compares in strength to that of Black Friday.
Sneak Preview of the Upcoming Holiday Season: Jolly for Both Vendors and Consumers
Retail LCD monitor sales were stronger than ever in 2004’s holiday season, when average LCD prices were at $389. Today’s $330 average price is already 15% below that. Furthermore, the actual average price of an LCD is now only double that of a CRT, currently at $160. LCDs are not emptying anybody’s pockets nowadays.
Even if average LCD monitor prices increase slightly between now and the end of the year, the overall value proposition will remain appealing, so the lofty demand will not be affected greatly.
Finally, sub-$200 17-inch and sub-$350 19-inch promotions, which were extraordinary in late 2004, became common place in mainstream retail throughout 2005. This holiday season, vendors and retailers will have to go the extra mile if they are going to make an impression among consumers. This will require creativity with regards to product, pricing, and promotional planningâ€“and deep pockets to fund those activities.
Promotional Activity â€“ Mail-In Rebates to Reign Supreme
LCD monitor vendors rely heavily on mail-in rebates. In June, nearly 80% of all promotional activity for monitors took the form of mail-in rebates. This number represents an 8% increase from holiday 2004. Conversely, instant savings declined from 15% to just about 5% of all promotional offerings in the same period (see graph below).
Despite recent news that Best Buy is intent on phasing out mail-in rebates over the next two years in a bid to eliminate consumers’ dissatisfaction with redemption processes and disputes with partners that do not honor their offers, the mail-in rebate method remains the vendor’s favor. After all, the fractional redemption rates for mail-in rebates translate into a profit cushion for vendors.
That said, vendors will continue to prioritize rebates throughout the upcoming holiday season. With the forecast of price increases in the LCD monitor market, mail-in rebates will offer additional support for vendors’ aggressive promotional moves.
Vendors should mind, however, that instant rebates are consumers’ favorites. While mail-in rebates are unavoidable, vendors that are able to advertise more competitive mixtures of instant and mail-in savings will offer an important differential and increase their chances of success.
Price â€“ The Slim Dollar Difference between Success and Failure
Nearly 83% of all consumers are spending less then $400 on an LCD monitor. In fact, 50% of all monitor shoppers are walking out of mainstream retail stores with a sub-$300 unit. This represents a significant change from the holidays in 2004, as shown on the graph below.
Most of the sub-$300 frenzy has been driven by 17-inch SKUs, which currently represent 55% of all retail LCD monitor sales. The segment is followed by 19- and 15-inch, currently at 23% and 22% of the market, respectively.
As prices for key 15-, 17-, and 19-inch LCD monitor segments stabilize in the second half, the bulk of consumer spending on the technology will remain within those price bands. Therefore, effective monitor prices will have to fall in the sub-$300 segment in the upcoming holiday season.
Deal Forecast â€“ LCDs as Low as They Can Go
While it is expected that the most effective LCD monitor FSI placements of the upcoming holiday season will focus on the sub-$300 segment, Black Friday specials will continue to be a different story. As mentioned earlier, sub-$200 17-inch and sub-$350 19-inch promotions, which were remarkable in Black Friday 2004, became common place in mainstream retail throughout 2005. Subsequently, what will retailers do to bring early Christmas grins to those looking for mind-boggling bargains?
Based on the patterns we have seen in the past, Current Analysis expects this Black Friday to outdo anything that has ever been seen in the monitor space. For a limited number of hours, buyers should see value 17-inch SKUs for as little as $149 after rebates, while 15-inch SKUs are expected to go under $100 for the first time ever. Black Friday 19-inch LCD deals will fall to around $219-$229, although chances are we will see something in the likes of a $199 19-incher that will sell like hot cakes. Watch for compelling offers from Proview (including sister brands KDS and MAG Innovision), Acer, EPI, FMI, and Westinghouse Digital.
Name brand SKUs will remain a little less aggressive; entry-level 17-inch products are expected to hit $199, while 19-inch products may fall in the $249-$259 range. Samsung, LG, NEC, ViewSonic, and BenQ will likely have the most compelling promotions in the space.
PC/LCD monitor bundles will again attract significant attention during the upcoming Black Friday. Expect to see PCs bundled with 15-inch LCDs for $249-$299, and PC/17-inch LCD promotions somewhere between $399 and $449. HP and Gateway/eMachines will lead this effort.
Santa’s List â€“ What Do Consumers Really Want?
While it is obvious that price is the main driver of today’s LCD monitor market, a few additional consumer wishes should be taken into consideration by monitor vendors aiming to capitalize on the holiday season.
The stars of the holiday season will again be 17-inchers, both in terms of FSI placements and sales. However, as prices decline and buyers move from 17-inch to 19-inch displays, the period will also enliven manufacturers pushing the envelope in the 19-inch space. Sales of 19-inch SKUs will significantly outnumber those of 15-inchers and get a bit closer to 17-inch volumes.
In terms of cabinet color, expect to see a lot of silver. Over 80% of monitors sold in retail today are either silver or a combination of silver and black. The silver color carries a contemporary look and blends better with CE devices such as TVs and DVD players. This is an important trend as consumers embrace the Digital Home concept, where theoretically all home gadgets will work together and follow the same contemporary theme. The trend is also relevant to the desktop PC space, which helps drive sales of monitors of the same color.
Response time is another important specification that tech-savvy consumers have watched closely. Response time is represented in milliseconds (ms) and measures the time it takes for a monitor pixel to go from black (off) to a given color and back to black. If this time is above 16ms, users experience blurring when looking at fast-moving images, such as those in games and videos. Vendors have been putting a lot of effort into developing more video-efficient displays, and tech-savvy consumers understand that this is one of the most important specifications to look for when shopping for a new monitor. Today, approximately 85% of all LCD monitors sold in retail feature response times of 16ms or less. SKUs featuring 8ms response times, now the fastest in the retail channel, already make up to 15%-17% of all LCD monitor sales. By year-end, SKUs with 4ms and 6ms response times are expected to hit retail.
It is worth noting that bundling desktop PCs with LCD monitors will continue to be a major promotional strategy for retailers this holiday season. In June 2005, an average of 65% of all LCD monitor FSI placements in retail were for bundled systems. As a result, roughly 35% of all LCD monitors sold in retail throughout that period were bundled with PCs. Vendors that are able to offer competitively priced packages will continue to have access to a slice of the market that monitor-only vendors have difficulty tapping into.
Additionally, vendors and retailers should realize the emergent chance to market LCD monitors as second, “home-use” displays for notebook PC users. Current Analysis’ recent reports indicate that notebook PC sales reached 52% of all retail PC sales in Q2 2005, outselling desktop PCs for a full quarter for the first time ever. Also in Q2 2005, notebook PCs with screens measuring from 14 to 15.4 inches reached 88% of all retail notebook sales, up from 84.5% from Q2 2004. As the concept of portability in the notebook space has preserved small screen sizes, FSI placements for notebook PCs with matching 17- and 19-inch LCD displays have the potential to capture increasing attention in the retail space.
Let Christmas Begin
At the end of the day, consumers want good products, they do not want to pay much for them, and they would prefer not to fill out forms and wait several weeks to get their savings back. With the cutthroat competition in the retail LCD monitor space, where no-name brands are progressively stealing market share from the big guys, this holiday season promises to bring monitor shoppers savings that are larger than those they saw throughout the year. Ultimately, winners will be vendors that are able to please the most demanding consumers and still manage to turn a profit.