"This all means that the pricing of the Elite 70" has absolutely nothing to to with the technology (one could argue it would if there would be e.g. 1000+ zones) and it has nothing to do with the sales volumes. "
So you now acknowledge that there can be a fundamental, utter disconnect between retail pricing and cost. I feel we are making progress!
"What is amazing in this story is mind-blowing targeting of products: extremely low pricing of the basic 70" and extremely high pricing of the Elite, with nothing really in between. As much as the 732 is a steal for buyers, the Elite is a steal for Sharp"
What's sad about this aside from being a downer for thrifty enthusiasts is this: Sharp is leaving a fortune on the table. For those of us that value robust competition and want to see Sharp thrive -- especially for single-handedly breathing life into the jumbo LCD market -- this marketing strategy is awful.
Let's say they sell 250,000 of the lower priced sets (all the 73x series combined) and make $500 margin on each of them. I think most of us agree they aren't even making that much, but go with me, the less they make down here, the more the following will show the error in Sharp's "marketing math". For what it's worth, I believe 250K units is within the realm of accurate for the 70" 73x series for 2011. It could certainly be somewhat higher, but it's not going to be 2 million units if anyone is wondering. And, regardless, you'll see from the below, the more the sell, the bigger the likely error.
The Elite 70" is going to sell no more than about 10k-20k units
. Really. And even if you again think I'm wrong aside from visiting my "East River Bridge Store" (excellent pricing on slightly used automotive and rail bridges), it's safe to assume the ratio of 73x series to Elite 70s is 10:1 and probably much greater than that
Retailers get to make money on Elites and the electronics cost more as does having unique cosmetics so let's pretend Sharp moves these out of the factory at about $5000 and clears $2500 per unit.
The total margin they will make this year is:
250,000 x $500 = $125,000,000 (from 73x)
15,000 x $2500 = 37,500,000
Total = $162,500,000 in gross margin
Now, pretend there is one model somewhere in between that splits the difference and actually MSRPs for $5000. It doesn't matter what the features are. It sells through generic retail so it doesn't have "Elite-like" dealer margins, but it carries margin. Sharp makes an additional $1000 per unit on these over the base 73x series, but doesn't make the $2500 it makes on Elites. Again, this is a thought experiment, so we'd have to set the pricing to make this all work with reality, but it can certainly work. I'm suggesting the margin would be $1500 per unit. I'm going to test this concept with $1000 per unit just to prove the point.
Because Sharp now sells at more price points (I hate the term price point, but it actually applies here) -- wait for it -- they are going to sell more total TVs
. So in our example above, they only sold 265,000 TVs. Now, they are going to sell 300,000. Again, I'm lowballing. The truth is, with TVs at $3000 and $7000, they are missing out on far more than 35,000 sales.
(I hate parentheses too, but it's worth noting that some of you are going, "Hey Rogo, Sharp has the 735, it's $4500 MSRP and so they already know this and are doing this." I direct you to Cleveland Plasma for evidence that Sharp is not making any real additional money on the 735. It's for dealers to make some more money. It doubtless does bring Sharp some additional margin, but that's why I have the 73x at $500 margin per unit. Spec and Irkuck would both tell you that Sharp is not making $500 per unit at all and they may well be right. But at least by mixing in 734s and 735s with the 732/733 they are upping the margin of of the 73x series. If you repeat my math assuming the 73x series makes an average of $100 per unit or less, you'll see why my way is that much better still
OK, so now we have to divide those 300,000 sales. Well there's good news and bad news here for Sharp. Good news is that some of the "middle model" is going to come from the 73x series. Bad news is that some of if it is going to come from the Elite. Best news? Most of it is coming out of the hide of Sony/Samsung/LG/Panasonic. Sharp had nothing to compete with them until Rogo came along and "invented" the Sharp LC70888 (for good luck). OK, so let's say it breaks down like this:
73x series: 225,000 units (some upsell occurs, 10%)
888 series: 65,000 units (25,000 from 73x, 5,000 from Elite, 35,000 from competitors)
Elites: 10,000 units (oops, we lost 5,000 Elite sales to the 888. We won't really lose that many. The Elite buyer is looking to buy the best and know he/she has bought the best. That's signaled by price and so the actual Elite market is capped by the number of people willing to pay $7-8.5K but who then find the Samsung 75" too large or just too stupidly priced if it really comes in at $10K. We can quibble over exactly how big this market is, but if you think it's really very big, I re-invite you to my "East River Bridge Store". It's right over here, c'mon....)
225,000 x 500 = 112,500,000
65,000 x 1,000 = 65,000,000
10,000 x 2,500 = 25,000,000
Total = $202,500,000 in gross margin.
So we improved gross margin by $40,000,000 and we sold more TVs, which will actually improved gross margin more. You see there is still a learning curve in these plants and the more units we make, the further we push down the curve faster. While this effect is marginal, it's real and so we wanted to sell more.
Nevermind that we now have 35,000 more brand ambassadors who have 70" TVs that their friends see and drool over. Nevermind that we have a significant number of people in the online/blog/etc. community who are enthusiasts who might stretch for the mid-level set, but wouldn't even bother considering a $7000-8500 TV. Nevermind that we hit Sony and Samsung in their
high-margin zone for a change.
I am not at all stunned that Sharp went so high on the Elites. I am disappointing they went that high -- the Pioneer Elite brand has been coming down into more mainstream territory since Pioneer exited the TV business. But I'm stunned they chose to leave out the space between the Elite and the 735 (which, again, is a fake $4500 MSRP. It's really a $3000 TV with 3-D which can already be had for $3500. I doubt it's ever going to really move at $4500 and regardless, Sharp is not making money on it like a "true" $4500 TV anyway.)
EDIT: Between when I started and when I finished, dsinger's post went up. His logic is pretty sound too.