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Around the Industry - Dec 21, 2012
As with any disruptive technology, LEDs are beginning to affect the whole market channel for lamps. They require a different sales approach, invite a different array of participants playing changing roles, and the technology itself is still very much in a state of flux.
For electrical distributors, the changes bring a welcome shot of excitement and growth potential amid the doldrums of a global economic recession, but also new challenges.
LED lighting is new technology, but that hasn't seemed to dampen interest in it. The fascination with it has drawn a wave of new entrants selling LED lighting that often fails to perform as advertised.
“LED and solid-state lighting is still in its infancy, it's still a prototype industry. But the interest in it has been a perfect storm of the media age of information as well as all the interest in energy efficiency, which have forced prototype systems to market,” says Alex Boesenberg, technical program manager for the Lighting Systems Division of NEMA. “We're struggling to establish standards of quality and performance for those items and get products to market that satisfy consumer expectations while defending the market from overseas garbage.”
The U.S. Department of Energy is taking the lead along with manufacturers, associations and standards bodies in developing objective criteria for testing solid-state lighting systems and, through a program called CALiPER (Commercially Available LED Product Evaluation and Reporting), verifying whether the products meet their manufacturers' claims.
Some of the products have proven to seriously underperform the claims in their marketing materials, to the detriment of LED lighting's long-term prospects. The hope is to avoid the kind of backlash the industry saw with the introductions of self-ballasted compact fluorescent lamps (CFLs) and electronic ballasts.
The involvement of the DOE has been a positive thing, say the lamp manufacturers.
“What the DOE is doing has been an incredible help to the LED industry,” says Steve Briggs, vice president of marketing and global product management for GE Lighting Solutions. “Despite their great efforts, there's still a widespread lack of product quality in the marketplace. If it wasn't for their efforts it would probably be far worse. They're a catalyst for the industry, but there's still a lot of bogus claims out there.”
One thing DOE has focused on is the importance of the whole LED lighting system — the LED light source, ballast, fixture and controls — in assuring performance, beyond the performance of any individual component. The importance of the whole system has been driving the major lamp manufacturers to integrate vertically so they can supply all parts of the system.
Osram Sylvania, Danvers, Mass., through its Osram Opto Semiconductor subsidiary, is the second largest LED manufacturer in the world (after Nichia Corp. of Japan). It has alliances with many fixture manufacturers and is integrated clear down to the energy services and installation level through a joint venture with Traxon Technologies and its Sylvania Lighting Services operation.
Philips Lighting, Somerset, N.J., third in production of LED chips through its acquisition of LumiLEDs and Color Kinetics, also added massive fixture lines with the acquisition of Genlyte Group in 2008
GE Lighting, Nela Park, Ohio, in January moved to combine its fixtures and LED units into one business, GE Lighting Solutions.
The importance of this shift toward vertical integration may be muted over time, as industry standards make LED lighting system components increasingly interchangeable, modular and therefore upgradable. An organization called the Zhaga Consortium, “A consortium for standardization of LED light engines” (www.zhagastandard.org) was set up recently to foster standards that will promote this interchangability.
Expect to see a lot of announcements this month and next as lighting manufacturers introduce their latest modular solutions at the Light+Building 2010 show in Frankfurt, Germany, April 11-16, and Lightfair International in Las Vegas May 12-14.
Lamp manufacturers' vertical integration may have a significant impact on distributors. It may mean lamp vendors, which account for six percent to eight percent of a typical electrical distributor's sales, may come to represent as much as 20 percent.
Bill Attardi, president of Attardi Marketing, Colts Neck, N.J., expects to see lamp manufacturers push for closer alliances with key distributors as a result. “Lamp manufacturers will be able to pick and choose who they want to do business with. I'm sure they're betting on the fact that, if they have the premier offer, why not offer that to the premium distributors?”
Because LEDs will last almost as long as the fixtures in which they reside, the market's focus will shift to sales of the systems for retrofit and new construction where distributors already play a more prominent role than they do now in replacement lamps.
“Solid-state lighting is largely a retrofit and new construction market, not all MRO like traditional lighting,” says Briggs of GE. “This requires the entire channel to focus on value selling and economics. Historically (for distributors) it's been a good blend of MRO and new projects. But for electrical wholesalers to survive in the future, that balance of MRO versus new projects is going to shift.”
Distributors that master this change will have a significant opportunity, says Karen Lee, head of marketing applications for Osram Sylvania.
“Electrical distributors have an opportunity to play a much more sophisticated role in the specification process than ever before,” Lee says. “With the emphasis on green building and increasing energy efficiency through the use of more advanced lighting systems, in addition to the increasingly stringent energy codes that must be met, it's more important than ever that distributors keep up with technology and understand the broad range of tools available to meet an enduser's objectives for quality lighting that respects a business' bottom line.”
The manufacturers are gearing up to support this more intricate selling process with additional manpower and technical support. “We're adding application and design engineers, and we're doubling our field lighting system engineers,” says Briggs of GE.