Reference no: EM131287262

FUJITSU GENERAL AMERICA INC.

Fujitsu General America Inc. is a subsidiary of Fujitsu General Limited, which is headquartered in Kawasaki, Japan. A large conglomerate that includes the manufacturer of Fujitsu consumer electronics, the company has been in business since 1935. In 1993, Fujitsu introduced the world's first color plasma display: 21 inches (measured diagonally) for $25,000.

In January 1997, Fujitsu introduced the first large-format, flat-panel plasma display at a price of $13,999. By the spring of 1997, the Stereophile Guide to Home Theater24 still had not listed any plasma screens in its "Recommended Components" section, where it cites home theater products worthy of consideration for purchase-nor, for that matter, had it mentioned plasma screens anywhere else in the magazine. It wasn't until September 1998, almost two years later, that the magazine finally reviewed any plasma monitors, including Fujitsu's latest 42-inch model, the 4204, priced at $10,999 (introduced in January 1998), as well as the higher-priced Philips 42-inch model at $15,000 and the lower-priced Mitsubishi 40-inch model at $10,000.

Fujitsu's version offered 852 × 480 resolution, was 6 inches thick, weighed in at 87 pounds, and could not reproduce high-definition television. Nonetheless, the magazine's reviewer selected the Fujitsu as the clear choice "in terms of both cost and performance. It offers an impressive picture, the most advanced electronics, and the best black-level rendition."25 The plasma screen went on to become the world's best selling. In June 1999, Fujitsu announced a price reduction on the 4203 to $6,995, noting "Since introducing the 4203 in January 1998, one of our primary objectives has been to make this model more affordable."

According to Michael Gleason, National Sales Manager of Fujitsu General America, "This considerable price move is attainable because of our factory's ability to minimize costs, especially on this model, which they have been producing for over 18 months." Later in 1999, the firm introduced a new 42-inch plasma display model, the 4221, that was only 3.3 inches thick and had a host of new features and capabilities, including the ability to produce high-definition television with 1024 × 1024 resolution. The price was set at $15,999, apparently to invoke a premium pricing strategy, position the company in the competitive landscape as the high-price/quality leader, and signal high quality to consumers.

Reviewed by Stereophile Guide to Home Theater in summer 2000, this model led the author to conclude that "Fujitsu's Plasmavision Slim Screen PDS 4221 is easily the finest plasma display I have ever reviewed."26 At some point in January or February 2001, the price of the 4221 fell to $13,999. Then, in March 2001, Fujitsu announced price reductions on most of its plasma displays, including a $4,000 reduction in the latest version of the 42" high-definition model (4222) from $13,999 to $9,999. In June, it announced the next generation (4241) with more features, improved quality, and a new price of $8,995.

In just four months in 2001, the price had dropped by almost half. Another successor model (4242) was introduced in July 2001 at $9,995, slightly higher than the previous model. Apparently, Fujitsu had inventory of the old model to sell and did not want to be forced to discount it, as it would be if it had brought the new model out at the same price. By April 2003, the latest version of the high-definition, 42-inch plasma monitor was priced at $7,999; by January 2005, the replacement model was priced at $6,995, a much slower decrease per year over these three and a half years than consumers experienced during the first few years.

Questions

1. Does it make sense for Fujitsu to keep using a skimming pricing strategy? Justify your position. If the company were to change to a penetration strategy, what issues would it need to wrestle with?

2. When new technologies move through the marketplace, the process is called the "diffusion of innovation." Plasma technology seems to be gaining acceptance; what, other than lower prices, has influenced consumers' perceptions of value of the plasma displays?

3. Does the price-quality relationship hold for the market for plasma displays? Why or why not.