This is a tale of the little company that could - Vizio. Formed just 4 years ago, the company achieved a remarkable milestone in Q2′07. According to DisplaySearch, Vizio was the top North American supplier of LCD-TVs with a 12.1% unit share. And, when combined LCD and PDP TV sales are considered, Vizio again ranked number one. This is a remarkable achievement and the company should be very proud. But, how were they able to out-sell Samsung, Sharp, Sony and other top tier brands?

Chris Chinnock
Senior Analyst and Editor
for Insight Media

The key to their success is the channel strategy. Vizio initially focused exclusively on the warehouse club channel (Costco, Sam’s Club, BJ Wholesale Club), offering decent quality LCD and PDP TVs at rock bottom prices. Of course, there was no sales help to advise consumers, which was a risky situation. Early sales of HDTVs at these club warehouses resulted in a lot of returns as consumers did not know how to connect them to HD video sources, and the image quality was worse with SD content. And, with a very generous return policy, early suppliers took a big chance. As I recall, Vizio did indeed have just such problems with some of its initial RPTV offerings.

But Vizio hung in there and began to reap success with its PDP and especially, LCD TVs. This drove up volumes to high enough levels to get the attention of more traditional retailers. As a result, Vizio was able to expand distribution first to Circuit City, and in Q2′07 to Sears and Wal-Mart. These extra channels helped propel it into the top spot.

Vizio offers LCD TVs from 20 inches to 52 inches at very attractive MSRP price points. For example, the company has just released four new models; two at 42 inches ($1,199 and $1,399); a 47-inch model ($1,699) and a 52-inch model ($2,299). Not only are these great prices, but the performance can be quite good, too. According to iSuppli, Vizio had the most shipments of 32-, 37-, 42- and 47-inch LCD TVs.

So how is Vizio able to offer such low prices with decent image quality? First, Vizio has a distribution strategy that is focused and does not use any distributors or middlemen. Vizio ships directly to its main retail accounts. Second, the company is focused on very fast turn over of its inventory to keep the cash flowing. And, finally, and just as important, the company has managed to keep the cost of its goods low. It does this by working with a select group of suppliers who in effect agree to supply components to Vizio at lower margins with the anticipation that Vizio can leverage this into leading value-priced products, driving increasing volumes. This approach also helps its suppliers by providing a ready outlet of product to keep the factories humming and operating more efficiently. Vizio doesn’t divulge who those suppliers are, but some are believed to be top tier vendors.

Does this strategy mean that Vizio might also get some "second" quality components? Possibly, but we have no knowledge of this.

One of the other risks is that if supply gets tight, the component suppliers may be locked up in supply agreements with more important customers, potentially leading to limited allocation for Vizio. However, with it top-selling status, Vizio may be the one that causes other companies into allocation, if the supply gets tight.

Vizio’s success is also emblematic of the maturity of the flat panel TV market. Consumers are now much more willing to take a chance on a lesser-known brand if the price is right. Syntax-Brillian has also benefited from a similar sourcing strategy and growing industry maturity.

According to DisplaySearch, Vizio was followed in LCD TV unit share rankings by Samsung, Sharp, Funai (Sylvania) and Polaroid. Polaroid rose from #11 to number #5, primarily because of a new distribution deal thru Wal-Mart. In the Flat Panel TV (LCD and PDP) unit rankings, Vizio was followed by Samsung, Sharp, Philips, and Funai.

So, as the title of this article suggests, a good distribution strategy coupled with good quality and low prices has now trumped the traditional brand centric methodology. The times they are a changin’, and there’s something blowin’ in the wind.

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