Vizio Inc Case
VIZIO is founded in 2002 by William Wang, with a startup capital of $600,000. The company produces high-quality flat-panel televisions at affordable prices. From 2002 to 2007, it realizes continuous growth and expansion. VIZIOR earns razor-thin margins, at a time when other famous brands such as Sony and Samsung still focus on high-end customers and charge a very high price for flat-panel television. By the end of 2007, VIZIO reached $1. 9 billion in revenue and shipped approximately 2800000 television sets.
Its business model is based largely on the volume sales with discount retailers and the extremely low cost of operating expenses. However, things have been changed and VIZIO is facing challenges now. First, in 2007, Sony and Samsung introduced low-end and entry-level TV lines to compete directly against VIZIO’s products. At the same time, the whole industry has experienced price cutting and intense competition. Some of the companies were forced to exit from this market, such as Syntax-Brillian and Phillips, with a looming market expectation for 2008 after the financial crisis.
Secondly, VIZIO’s market share of shipment for some models fell dramatically in the second quarter of 2008. It needs more finance if VIZIO wants to compete with giant brands in this industry at this time, in order to get sustainable profits. Analyzing: For sustainable growth, VIZIO needs to maintain its existing competitive advantage: keeping operation cost at a minimum level, while at the same time, carefully managing supply chain relationship, expanding product lines, building positive brand recognition, and keeping marching into selected international markets.
Manage supply chain relationship with Amtran, while seeking other possible partnership, to decrease its dependent on Amtran. VIZIO uses a contract manufacturing model to produce flat-panel televisions. Amtran provided about 80% of VIZIO’s procurement and assembly work, and other partners all together provide the remaining 20%. However, Amtran also manufactures televisions for other companies such as Sony and Sharp. And in 2008, it formed a joint venture with LG Display. Before the joint venture, VIZIO contributes 80% to Amtran’s profits.
However, by the changes in Amtran, the interest conflicts may jeopardize the future relationship between VIZIO and Amtran. In order to decrease this risk, VIZIO could start develop other reliable partnerships, and move some portion of production from Amtran to other partners. However, increasing the number of partners may lead to increasing cost for VIZIO, since there will not be a large bargaining power over each manufacturer. To address this incidental problem, the best way for VIZIO is to figure out a way to increase total number of shipments.
Therefore, each manufacturer can capture more profits through mass production. Expand products lines to increase its competitive advantage. For now, VIZIO has four television product lines: 50’’ and Bigger, 42’’ to 49’’, 32’’ to 41’’ and 20’’ to 31’’, a total of 27 different kinds of products from lowest $399. 99 to highest $1699. 99 per set (from Exhibit 2). If VIZIO expand its product lines, and provide some other products such as TV or digital accessories, they can have large profits. In fact, VIZIO has already begun to produce accessories and even customized some models for its customers.
Build brand recognition and increase advertising budget. The early success for VIZIO is that they took advantage of the pricing umbrella to establish a foothold. It provide the same high-quality flat-panel televisions while charges much less than other brand companies, such as Sony, Samsung. At the end of 2007, Samsung had a profit margin of 13. 4%, and this number rose to 14. 0% at the end of 2008. While at the same time, Samsung’s advertising expenses was kept at a relatively high level (from Exhibit 11 and Exhibit 9). Therefore, there is a positive relation between the cost of advertising and the sales.
From TV brand survey conducted by Core Strategies Dec. 30 2008, Brand contributes 44% to VIZIO’s profits. In 2008, at the time of financial crisis, VISIO still realized light profits, and 44% of them came from the brand recognition. This suggests that the early marketing strategies took effect and VISIO has to continue marketing and branding. If it didn’t put efforts on branding, in the declining market, it is difficulty to make profits, especially when many big giant companies began to compete against VIZIO in the low-end television market. Select
international expansion regions and appropriate discount retailers to cooperate. So far, VIZIO has partnerships with BJ’s, Costco, Kmart, Sam’s, Sears, Target and Wal-Mart. Wal-Mart has strongest growth, because in 2008, it is the only discount store that realizes a positive profit margin (from Exhibit 13). By region, from 2008 to 2013, Latin American and Middle East & Africa has the strongest growth rate at approximately 30% per year. Next are China, Eastern Europe and Rest APAC. VIZIO should focus on these areas for the international expansion.
Now, VIZIO has entered Japan and Canada through Costco, Sam’s and Wal-Mart, but Japan and Costco don’t show strong growth signal. Wal-Mart has the largest number of international stores and a very mature inventory management and delivery system. Therefore, if VIZIO partners with Wal-Mart, it could benefit from Wal-Mart’s developed system and easily adapt to the local environment. To finance the sustainable growth, VIZIO requires substantial money. William started VIZIO with $ 600000. After that, it received two 2004 investments from Amtran and Hon Hai, totaling $2 million.
It generate positive profit and free cash flows over consecutive five years. For now, it uses Vendor Managed Inventory model to minimize its storage cost and inventory level. The cash cycle is shorter for customers with high credit ratings, such as Wal-Mart, than customers with low credit ratings. Its suppliers are willing to extend the accounts payable period for customers like Wal-Mart, and for low rating customers, VIZIO provides credit insurance. But considering the future making campaign as well as international expansion, it is requires more fund.
These are two possible solutions to address this problem: Attract venture capital. VIZIO has a very good business model, and a prosperous bright future. With venture capital’s investment, it could grow faster with sufficient fund. Sell shares to partners or suppliers. This can strength their common interest and make sure suppliers will do their most to keep VIZIO growing. Conclusions: Generally speaking, VIZIO has large chances to continue its growth when it maintain its competitive advantage, seek sufficient fund by attracting venture capital and selling shares to partner companies, and handle well with all parts of relationships.