October 4, 2004 4:00 AM PDT
Best Buy initiates a battle of the brands
The retailer has quietly begun selling a range of devices, including large-screen televisions, portable DVD players and desktop PCs, under a new in-house brand name, Insignia.
The Insignia products, on sale now, offer relatively low prices for their respective categories, giving consumers more choices in purchasing products such as LCD televisions. The 26-inch Insignia LCD TV lists for $1,649, for example, beating prices offered by Dell and many other brand-name electronics companies on same-size models.
As more brand-name PC and electronics companies, such as HP and Sony, look to take on the likes of Dell through direct sales, brick-and-mortar retailer Best Buy is fighting fire with fire by offering its own brand of products alongside theirs.
It's not easy to build an electronics brand, and Best Buy has faltered on this score in the past. Still, many people rely on its sales staff for recommendations, and the company is large enough now to give it leverage with contract manufacturers and allow it to compete on price and quality with Dell and others.
The products' broader purpose, however, is to help Best Buy fill in a few gaps on its shelves, in some cases, and boost its overall ability to compete with companies such as Dell, as well other retailers, including Wal-Mart and Sears. These companies have set their sights on moving deeper into consumer electronics markets such as televisions.
"Insignia is a place where we can brand a wide variety of product that all have that promise of quality at a price," said Michael Vitelli, Best Buy's senior vice president of consumer electronics. Thus, "If you're looking for a quality LCD TV for the lowest possible price to get reasonable quality, Insignia can give you that."
Best Buy is taking a page out of PC makers' playbooks to produce the Insignia products. It's using contract manufacturers, whose skill makes it relatively easy for a company like Best Buy to procure and then sell products such as televisions under its own brand name. Gateway, Dell and Hewlett-Packard have all taken the same path, making it possible that the companies may even use the same manufacturers for their products. Many of Best Buy's intentions are the same--it aims to guard against competitors and expand its sales--however, it also wants to use the Insignia brand to offer consumers lower-priced products, which others, including PC makers and traditional consumer electronics makers, may not be willing to do, analysts said.
"There is a move among a lot of retailers, now, to go to private-label, in-house-sourced products," said Steve Baker, analyst with NPD Group, which tracks retail sales in the United States. "It gives them a way to fill in some gaps or supply a product their OEMs (original equipment manufacturers) can't supply or are unwilling to supply. Insignia is something (Best Buy) is not just looking at to support its PC business. It's part of a much broader overall strategic company vision that says, 'We need to protect ourselves from the marketplace.'"
Pick and choose
Although it could be seen as competing with some of its main suppliers, including companies such as Sony, Sharp and even Hewlett-Packard, Best Buy believes it can effectively carry a wide range of brands and allow its customers to choose products based on advice from its sales representatives. Thus Best Buy stores will continue to carry premium products, such as Sharp's Aquos LCD TVs, and sell them alongside Insignia televisions, Vitelli said.
"We want to make sure that customers have the widest possible choice between price points, variety of products and the way they want to buy. The goal is to have it all, from one end of the spectrum to the other, in all of our categories," he said.
Best Buy plans for Insignia to become a permanent fixture on its shelves. It will use contract manufacturers to expand Insignia products over time, Vitelli said, thus increasing the house brand's presence in consumer electronics rather than filling in with products from lesser-known companies. Although some reports have said Wal-Mart is considering selling its own brand of televisions, the retailer has taken the opposite approach thus far. It has been using no-name companies, such as Tatung of Taiwan, to offer low-price televisions. Tatung has the scale to offer low-price products--it manufacturers a variety of computers, televisions and other electronic devices under its own brand and under contract for third parties--but it's not well known in the United States.
Insignia also lets Best Buy tout a product that can't be found elsewhere. Companies responsible for some of the retailer's largest brands, including HP and Sony, have begun offering more products direct to customers as they work to compete with one another and with Dell. Thus products, such as televisions, that had been sold mostly at retail can be purchased more easily without walking into a store.
"I suspect some of this is a reaction to the manufacturers' belief that they need to be multichannel sellers. HP is going to sell direct and through retail," Baker said. "To some extent that takes a little bit of the panache away from the retailers, and they're going to be out there looking for a way of distinguishing themselves."
Still, launching a new brand name is a tricky prospect, particularly for retailers in the electronics business. Although house brands dominate other industries, such as apparel, they have failed more often than not in electronics. Even past Best Buy efforts, including its VPR Matrix house-brand PC line, have petered out over time. The Matrix moniker appears in small print on Best Buy's new Insignia PCs, but the Insignia name is clearly the more dominant of the two.
Building a new brand--any brand--in consumer electronics "is a delicate proposition," Vitelli said.
Electronics is a "tough business to do it in, and that's why it hasn't happened yet," he said. But "Best Buy is at size now; that makes it effective. We're now able to talk to manufacturers about volumes that are substantial enough to get some manufacturing cost advantage."
That means the retailer can obtain enough of a discount to allow it to sell the products for low prices and still turn what it deems is a reasonable profit. Those profits are the key to it sustaining the brand, he said.
This is how you do it If its effort is successful, Best Buy might be able to teach Dell, Gateway and HP a thing or two about life in the electronics business.
The PC makers, Gateway in particular, were among the first to use contract manufacturing to market goods such as televisions. But using the same model, Best Buy has been able to source its own products, and offer them at competitive prices as well, answering even Dell's low prices. In some cases, Best Buy products offer somewhat lower prices or better features for the same price, making the companies' brand names the only thing that really separates their two products.
Despite Dell or HP's huge brand recognition, Vitelli argues that Best Buy, which has more than 600 stores in the United States, has better contacts with customers, who often turn to its sales reps before deciding on what to buy.
Best Buy's 26-inch Insignia television lists for $1,649 and often goes on sale for less. Dell's 26-inch LCD television lists for $1,999, and also goes on sale from time to time. The two televisions share nearly identical specifications, including features such as picture-in-picture, wide screens and 1,280-by-768-pixel resolution. The Insignia set has a higher 600:1 contrast ratio.
The Insignia model is also competitive with other brands, including a 26-inch Philips brand LCD television, offered for $1,899 on Best Buy's Web site, and PC maker Gateway's 26-inch LCD TV, which list for $1,999.
Wal-Mart also offers several brand-name sets for similar prices. But it trumps them all by offering a 30-inch LCD television from Tatung for $1,594. It also offers a 23-inch Tatung LCD TV for $998 as an online-only special, its Web site shows.
Best Buy's Insignia line also includes two Intel Pentium 4 processor desktop PC models, priced at $559 and $659 before rebates, respectively, and a $109 17-inch CRT monitor to go with them. It also includes a 23-inch LCD television for $1,499, and two portable DVD players, which offer 7-inch or 10-inch screens and sell for $229 and $449, respectively.
Best Buy isn't planning to release any additional Insignia models anytime soon, but "We'll be ready for the ability to expand that more as we get more into the future," Vitelli said.
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