The power of the chain
Carefully calibrated alliances enabled AmTRAN to sharply reduce VIZIO’s manufacturing costs, cutting them to a level 40% below those their rivals faced for similarly sized flat-screen TVs.
Once they had cut costs, their next task was to make consumers aware of their products.
Wu says that Americans used to buy their TVs from major home electronics chains like Best Buy and Circuit City, but these distribution channels demanded margins of at least 30% on the items they stocked. If VIZIO had chosen to compete in this arena, consumers would have seen little benefit.
The company therefore decided to go a different route, targeting the market for consumers with annual incomes of less than US$40,000. VIZIO founder William Wang himself brought samples of his products to Costco, a warehouse retailer that at the time didn’t sell TVs. In an interview with the media, Wang recalled that Costco managers had asked him why they should carry his products. He told them, “Because we’re the next Sony, the next Toshiba.”
VIZIO sent shockwaves through the industry when it released a 50” plasma TV for just US$2,499. At the time, Japanese and Korean manufacturers were still selling comparable TVs for US$4,000, and the 40% price differential shook consumers’ faith in the more established brands. In the first week of a test run at 10 Costco locations, they sold a record 2,000 units. Just three or four months later, sales had grown to 9,000 units per week.
Costco began stocking VIZIO at all its more than 300 locations around the US, and chain stores such as Sears and Wal-Mart also approached the company about carrying its TVs. With its reputation for quality at an affordable price and its massive distribution channels, VIZIO quickly established itself in American living rooms. Its growth was truly astonishing, its market share soaring from 1% in 2005, to 12% in 2007, and 21.7% in the first half of 2009. In the process, it surged ahead of the likes of Samsung, Sony, Sharp, and LG to become the number-one TV brand by sales in North America.
Running JVC
For the last two years, VIZIO and Samsung have traded the top spot repeatedly. Meanwhile, former market leader Sony has suffered badly in North America, with its TV division hemorrhaging red ink for the last eight years.
In 2007, VIZIO began selling its products in Taiwan, but is yet to have the kind of success here that it has enjoyed in the US. It currently ranks 10th in the Taiwan market.
Commenting on the company’s greater success abroad, Wu says that Taiwanese like showing off, that we want the TV we have in our living room to be of a well known brand. VIZIO has underperformed in the domestic market because it isn’t nearly as well known here as the major Japanese and Korean manufacturers, and it hasn’t attempted to compete in the small-TV segment where other domestic brands shine.
Nonetheless, AmTRAN has continued to pursue Taiwanese consumers by offering them a comprehensive five-year warranty on its products, a warranty more than twice the length of that provided by the typical Japanese manufacturer. Home electronics discussion forums such as mobile 01 have reacted positively to the offer.
Noting the efficiency with which AmTRAN was running VIZIO, JVC, which had withdrawn from the US TV market for a time, approached the company in 2010. Discussions led to the two companies forming a strategic alliance that gave AmTRAN the right to manufacture and sell JVC TVs in the US. These new “JVC” TVs are now being distributed throughout the US.
Wu has no worries that the mid- to upper-tier JVC brand will negatively impact VIZIO. “Having brands in two different segments will expand our market and attract still more consumers to our products.”
AmTRAN has grown from a tiny R&D lab into a major enterprise employing more than 4,000 people and generating more than NT$60 billion in annual revenues. Its use of vertical and horizontal alliances, its pragmatism, and its ability to grasp opportunities when they present themselves are a textbook example of how to succeed in business.
AmTRAN fact file
Established: August 11, 1994
Primary operations: OEM/ODM LCD displays, televisions, systems integration
Audio equipment Intelligent remote controls
Global locations: Taiwan; Suzhou, China; California, USA
Paid-in capital: NT$8.1 billion
Revenues: NT$56.4 billion (2011)
Awards: Model Entrepreneur Award (2011)
Ranked 19th among Business Next magazine’s Top 100 Taiwanese tech companies (2010)
iF product design award (2007, 2008, 2010)
Reddot design award (2007)
National Quality Award, Gold Medal (1999)