As TV prices drop, Samsung hits the 'pause' button

Steve Marcus / Reuters file

A 75-inch Samsung LED television is displayed at the Consumer Electronics Show in Las Vegas last month. Samsung is trying to hold the line on prices with its new line of Web-connected "smart" TVs.

Shoppers planning to buy a high-end Samsung TV might want to grab a closeout deal on last year's model or else brace for sticker shock. Taking a page from Apple's playbook, the company reportedly plans to implement a fixed-price policy for its 2012 models.

In the cutthroat arena of television manufacturing, it's a risky move. Among its peers, though, Samsung is the most likely candidate to pull this off — and possibly transform the TV-shopping experience in the process.

Website HD Guru, which first reported the as-yet-unannounced pricing shift, said the new "unilateral pricing policy" will prohibit retailers from offering discounts below a price floor set by Samsung or risk losing the right to sell those products. "It could change the way TVs are sold if it catches on," said Gary Merson, editor of HD Guru.

The website, citing unidentified industry sources and a leaked price list, said the result would be that Samsung HD televisions, including higher-end models selling for $1,600 and up, would carry a price premium of up to 15 percent over comparable models from makers such as LG and Panasonic. Samsung did not respond to a request for comment.

Rampant discounting has been a thorn in the side of electronics companies, especially when it comes to TVs. "The business model can't continue the way it is," Merson said. "Something's got to give."

When a new technology debuts, companies have a brief window of time during which they can charge a premium for it, before competing versions, especially low-end ones, drive prices down.

"The product life cycle being squeezed and shortened," said Tarique Hossain, associate professor of marketing at California State Polytechnic University. 

Manufacturers were hoping to reset the pricing bar with the advent of 3D TVs, but consumers have responded coolly. The next buzzed-about development, big-screen TVs with display technology known as OLED, hasn't arrived yet. "The next innovation has to be something dramatic," Hossain said. "Consumer expectation of the perceived benefit can be a little tricky to predict."

Brick-and-mortar stores also suffer from the process known as "showrooming" — when a customer browses in-store, then buys the item online for less. Retailers like Best Buy and Sears have too much overhead to set prices as aggressively as their web-only competitors, so they fall back on heavy discounting. This phenomenon is partially retailers' own fault; they've taught consumers to view TVs from a price-first standpoint by hawking TV "doorbuster" deals on Black Friday and other seasonal sale events.

Samsung's plan for fixed pricing would be a gamble, especially since the company is making its move before big-screen OLEDs come to market. In spite of some minor enhancements to the 2012 lineup, the company essentially is asking customers to pay more for a technology that's getting long in the tooth. "They're really adding more in terms of features, not performance," Merson said.

"The success of this policy... depends in a large part on whether other manufacturers will follow suit," said Hossain. Merson predicted most will take a wait-and-see attitude, adding that a previous attempt by Sony at setting fixed prices for a high-end model line was abandoned after just a few months.

"Even if the industry heavyweights jump on the bandwagon, then the lower-end manufacturers will keep up the price pressure," Hossain said. "Samsung and these heavyweights are likely to lose market share."

The question is whether electronics manufacturers — and their shareholders — have the stomach for reduced market share in pursuit of higher margins. 

If anybody can pull it off, it just might be Samsung, which posted TV sales in the fourth quarter that were better than anticipated.

A recent Nomura Equity Research note praised Samsung's "successful margin differentiation" and "design capability" in the high-end TV sector. "In 2012, we expect all TV makers, including Samsung, to pioneer growth opportunity in the high-end market," it said. 

"I think Samsung has proven that they've got innovative products," said Peter Misek, managing director at Jefferies & Co., who  compared Samsung's innovation and integration strategies to those practiced by Apple. "If you offer a lot of value you can set your price." 

Head on over to our Facebook page to share your thoughts on TV pricing.