“The price reduction should come as an integrated solution that will include more efficient design, easier manufacturing, and negotiations with sales channels,” said Vladislav Bougrov, the executive vice president of of Optogan Group. A recent interview with Bougrov got me thinking about the most important factors that affect the final pricing of LED bulbs.
The new definition for a bulb
LED bulb replacements are characterized relative to traditional bulbs as equivalents of certain wattages. This is how traditional lighting sources have always been characterized. LED bulbs provide the benefits of consuming less energy and providing equal amount of lumens, similar color temperature, and high CRI, but the equivalency is not well-defined. Consumers are suddenly forced to learn what light is all about and how it affects the price they pay.
Buying an LED bulb is more like buying a device that will last long time and will save money. Japanese manufacturers offer a great lesson to any market on consumer education: the packaging illustrates the comparison for light distribution and lumen output of traditional lamps versus LED lamps and stores are full of interactive stands that display practical applications and compare LED lamps with other types of lamps. The efforts of the US retailers to educate consumers about LEDs are less impressive.
Manufacturers are offering the equivalent substitute for the traditional lighting sources that would give the same lumen output as well as color quality for the most part. However, Bougrov shared with me Optogan’s intention to introduce their new 400- and 600-lm 2700 K lamps to Russian and eastern European markets that would be significantly cheaper than the current market prices. The product selection was defined by their marketing team.
The goal in designing an LED bulb is to provide an alternative that would have a similar form factor and lumen output. If, however, consumers are only now beginning to be educated about what new quality light is, why not offer them a variety of options for the lumen/dollars? The unique properties of LEDs allow manufacturers to innovate, keeping the legacy form factor in mind. For example, luminaire manufacturers are promoting LED modules for the purpose of interchangeability -- LED lamps could benefit from this approach as well. The simplification of design would ease the manufacturing process of LED bulbs.
Sales channel — the Gatekeepers
The relationship with sales channels is critical, affecting the availability of lower priced lamps on the market. In a recent article in LEDs Magazine it was suggested that the current retail price for LED bulbs is high partially because of multiple mark-ups in the sales channels. According to LED manufacturers, in some cases the sales channels mark-up can reach 100% from the manufacturer’s average selling price. The existing relationships create an advantage for lighting leaders and make it more difficult for less well-known companies. Can this arrangement be changed?
Financial incentives for commodity market
Financial incentives, in the form of rebates, help to ease either the manufacturers’ costs or the price consumers pay. However, for the commodity market the rebate system not only lacks consistency in geographical distribution and availabilities to LED lamps but is also a subject to availability of funds, timing, and, the political climate. Large companies have a better chance to establish a working relationship with organizations that issue financial incentives. This is not always the case for smaller or foreign manufacturers that strive to gain access to new markets. Manufacturers are better off relying on their technology, manufacturing capacity, supply chain, and their relationship with the sales channels.