Tuesday, January 22, 2013

Products: Innovation vs. Profit

The newest trend for light bulbs is the light-emitting diode or LED, which is a better but pricier alternative to the bulbs most consumers use. Within the past few years, the common incandescent light bulb has been targeted as outdated, inefficient and bad for the environment. Diane Cardwell explains that the incandescent technology is wasteful because it requires a large amount of electricity to power its filaments, which then glow. With initiatives supported by the U.S. Government and local electric energy companies, the compact florescent bulb recently became the bulb to buy. It boasted a longer life span and energy saving technology. Yet, consumers complained that it is too bright, slow to dim and and takes too long to warm up. Thus, the energy industry pushed for a better product.

The LED bulb is swiftly growing in demand as the solution to the florescent bulb. Unlike its competitor, the LED bulb comes with software applications to adjust the light and color and work with tablets and smartphones. And while all LED's are pricier than incandescent and florescent bulbs, their lower end models sell for around 25 dollars. The success of the LED bulb is expected to increase as consumers will demand them more than incandescent bulbs by 2014. The problem for manufacturers such as Philips who are pioneering this technology is that the bulbs last from 9 to 25 years. Thus, once consumers purchase enough bulbs, demand will significantly decrease. Cardwell states that lighting manufacturers are racing to become the dominant source of LED bulbs in order to receive the biggest payoff. Otherwise, manufacturers will not receive the profits initially expected. Overall, the LED bulb is an exciting product to watch in terms of market growth, demand, supply and ultimately, who will dominate the sales. 

LED technology has been around since the beginning of the 20th century, so why did it take so long to use the technology for lighting? I believe one of the problems manufacturers face is producing an efficient product with increased longevity for sales. In this case, profit yielding products overruled innovation until the market shifted from florescent light bulbs and consumers wanted a better product. Is efficiency stifling innovation for mainstream consumers? I would argue that it was at least delayed with developing a great light bulb that lasts a decade. 

This article relates to our class topic of new product design for operational effectiveness and planning demand and supply. One of the assigned readings demonstrates how Tata Motors redesigned a car with less patents but increased innovation for a retail price of 2,500 dollars. Motors altered their supply chain by allowing their cars to be shipped and assembled on site through third parties to reach rural consumers. As for the light bulbs, Philips is the leading manufacturer of LED light bulbs and altered their supply chain from filaments to diodes to produce the new product. Although increased operational efficiency, Philips is encountering a slow start, but the company expects a huge payoff since demand for the bulbs will be high within the next couple years. 

Source: LED's Emerge as a Popular "Green" Lighting, by Diane Cardwell, New York Times January 21, 2013 http://www.nytimes.com/2013/01/22/business/leds-emerge-as-a-popular-green-lighting.html?_r=0

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