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Bookmark | Report 2016-12-15 22:46   Visits: 76   Replies: 0

LED Lighting Manufacturers: Specialization or Diversification?

The LED lighting industry is a promising but daunting niche that attracts continuous investment while at the same time keeps destroying many insiders' confidence. It's an industry of innovation and imitation. The flagship players like Philips and CREE lead the way in solid state lighting technology. The tier-2, tier-3 manufacturers and numerous small followers struggle for existence and are forced to replicate either legally or illegally the ideas and designs developed by the industry leaders. Sometimes I call it an assembly industry and most LED lighting manufacturers are merely assembly service providers. They buy LEDs from CREE, Osram or Epistar, order LED drivers from Mean Well, Tridonic or Phihong, and source commercially available luminaire housings. With little innovation and proprietary know-hows, LED lighting manufacturers have very slim profit margins because everything is transparent. Smart buyers could easily squeeze every penny out of manufacturers' profit margin by checking a BOM sheet.

The extremely low industry threshold drives many manufacturers to diversify their product offerings so they can capture a larger market share. They seek to grow the business by offering customers whatever they want under one roof. Whenever you visit a Chinese manufacturer's website, I bet you'll most likely see an astonishing selection of products offered there, ranging from indoor LED bulbs, tubes, panels, downlights to outdoor LED flood lights, street lights, garden lights, and even more specialized products such as grow lights, aquarium lights, stage lights, etc. But is this good? The answer is a definite 'maybe.' The product diversification strategy is exceptionally advantageous for manufacturers that already have a loyal customer base. The strategy leverages your knowledge of customer needs and the solid relationship with your customer to offer products that complement those you already supply. If, for instance, you've got a good reputation supplying light bulbs, perhaps your customers will trust you to produce outdoor luminaires for them as well.

Product diversification is a high risk strategy which can be an expensive, time-consuming task. It means you will most likely invest a strategy that don't pay off and your existing competence will very possibly be deteriorated due to the distracting effort and specialization. A target market strategy with product specialization allows a manufacturer to focus on its reputation for expertise which opens up new possibilities. The narrow specialization allows the manufacturers to produce superior products in the highest efficiency with customized service. One good example is Anhui Zerun Optoelectronic Co., Ltd., a Chinese manufacturer that specializes in LED panel lights. The company has built very good reputation in this niche simply because of their dedication to one single line of products. Their word-of-mouth fame beats lower-price competitors.
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