Tier-two brands pine for, and get, attention - CE Update - consumer electronics

DSN Retailing Today, March 24, 2003 by Laura Heller

Consumer Electronics is a category typically dominated by established powerhouse brands. Sony. Sharp. Samsung. Apex.

Apex? While that last name may come as a surprise, the popularity and success of second-tier brands in all retail channels is on the rise.

The advent of DVD offered the perfect opportunity for a new brand to enter the CE market. It was a new product category with strong consumer interest. No existing value or low-cost options existed at the product introduction when manufacturers traditionally command the highest prices of a products' lifespan.

Enter Apex, which introduced its first player into the market just a year after the technology launched. In February 2000, the first 5,000 units were sold to Circuit City. By incorporating a new feature, MP3 playback, and listing for just $179, the company racked up $100 million in sales during its first year, according to Apex spokesman, Colton Manly.

Since then, the company has expanded its product line and this winter unveiled an ambitious new program with 50 new products that go well beyond DVD players to cutting-edge technology. And Apex is hardly alone.

At the Consumer Electronics Show last January, several up-and-coming manufacturers were showing expanded CE lines encompassing everything from those DVD players to HDTV, plasma and LCD displays. Haier, Funai and BenQ are all angling to be the low-cost provider of high-tech products, particularly video displays. The intent is to offer a complete selection of product from entry level to top of the line. Although the Consumer Electronics Association (CEA) hasn't been tracking sales of these lines, according to senior research analyst Sean Wargo, "We definitely know that the market shares of brands like Apex, Mintek, Funai, etc., have increased drastically over the past year and a half. Consumers certainly are very attracted to the extremely low price offerings of these brands."

Thanks to the high number of low-cost DVD players already sold, consumers have more confidence when purchasing a new name.

"At first, the attitude seemed to be, 'it's so inexpensive, I think I'll try it,'" said Manly. "The general consumer looked at price and features."

"There doesn't appear to be wholesale quality issues with the lower-priced brands," said Wargo. "At least I have seen no research or even anecdotal evidence to suggest that the lower-priced products have quality issues."

That's because there are only a few component manufacturers supplying virtually all CE manufacturers on the planet. "That means most brands are at least starting on the same foot," he said. "From there, differentiation comes from sound and video processing, outputs and other advanced features. Quality just doesn't seem to be a factor."

And the value message plays well with both consumers and retailers, which aggressively promote these products to bring people into the store. "The fact is, retailers did a terrific job running ads," said Manly. "They made a decent profit and sold as many as we could get into the stores."

Retailers also carried the advertising costs themselves without the use of co-op dollars, he said. It's not unlike WalMart's philosophy--a retail partner that has proven to be a good fit for brands like Apex--make up in volume what you can't get in margin. "If we can't sell a million units, then we're probably not interested," said Manly.

But will the same hold true for premium products such as plasma TVs? Apex plans to price its 42-inch LCD TV for as low as $1,500 or less, said Manly.

"Consumers are very willing to try some of the new brands because the price is right," said Wargo. "The lower you go in price, the more pockets you'll fit," said Manly. "It's that simple."