Marketing Study of Philips Hue Lights

Marketing Study of Philips Hue LightsMBA-8350 Marketing ManagementS83 CohortJuly 23rd, 2014By: Colette Samplawski, Hieu Nguyen, & Nancy XiongS83 CohortDfdfdfdf

Table of ContentsExecutive Summary3Company Overview 3Mission3Values 3Brand Behaviors 3Philips Hue Light Bulbs 4Figure 1: Philips Hue Products4Attributes & Features 5Target Market 5Distribution Channels 5Promotion 5SWOT Analysis 6Figure 2: SWOT Analysis for Philips Hue Lights 6Strengths 6Weaknesses7Opportunities 8Threats 9Competitors Analysis 9Figure 3: Competitors Analysis 10Market Demand Estimate11Figure 4: Estimated LED Penetration of the Global Lighting Market from 2010 to 2020 11Figure 5: Global Device Penetration Per Capita 13Conclusion 13References14

Executive Summary

This report provides a marketing analysis of Philips Hue an innovative replacement lighting product of Philips. The analysis will thoroughly explain the features of the Philips Hue, the market analysis for this new product, the competitors analysis and the estimation of product demand in the next 6 years.

The report finds the prospects of Philips Inc. are very promising. Philips Hue is a portion of the LED lighting market, which market penetration has been increasing significantly from 0.3% in 2010 to 65-80% in 2020. As the leader of the new technology, Philips has the technological advantages with its innovative staff, its own reputation, and well-known distribution channels worldwide.

Company Overview

In 1891, Gerard Philips and his father Frederik Philips established Philips & Co. in Eindhoven, the Netherlands. In 1895, Anton Phillips, Gerards brother, reinforced the adolescent company with his excellent marketing and commercial talent, which led Phillips Co. to be the largest producer of light bulbs in the world. Philips first research laboratory was established in 1914 and the company started introducing its first innovations in the x-ray and radio technology. From this point on, Phillips has continued to grow and improving peoples lives through many innovative products in lighting, healthcare and consumer products.

Phillips Mission Statement

Improve peoples lives through meaningful innovation.

ValuesPhilips has valued and positioned R&D and innovation at the nucleus of its strategies, generating numerous breakthrough discoveries, such as theCompact Cassette and the CD. The navy Philips word and the company shield logo have developed into an essential part of the Philips brand, recognized all over the globe. These values continue to strengthen its global vision,At Philips, we strive to make the world healthier and more sustainable through innovation. Our goal is to improve the lives of 3 billion people a year by 2025. We will be the best place to work for people who share our passion. Together we will deliver superior value for our customers and shareholders.Brand BehaviorsPhillips strives through its vision by three core behaviors the company and shareholders promise. Phillips promises being eager to win, take ownership, and team up to excel. Their products overlap in three sectors healthcare, lighting, and consumer lifestyle. Phillips will strive to create, designed, and effectively execute meaningful technology and applications that improve people lives. Phillips Hue Light Bulb

In 2012, Phillips expanded its first product, the light bulb, into an innovated, smart, and multi-colored product that is controlled by a smartphone or tablet. The Phillip Hue is personalized wireless lighting system that allows you to control at your fingertips. It is the worlds smartest web-enabled LED lighting system. Philips Hue is more than just a connected bulb. It can become an integral part of your day-to-day living.

Philips Hue is currently available in four formats: E26, E27, GU10, and BR30. There are three components that are needed: the light bulb, the bridge, and the app (Android, Kindle, iOS, and Windows Phones). Simple steps to get Hue started: 1. Screw in. 2. Plug in. 3. Connect

Figure 1: Philips Hue Products

The BulbFunctionRetailEnergy

E26600 lumens$ 59.9580% less power

E27600 lumens$ 59.9580% less power

GU10300 lumens $ 59.95Uses 5 times less energy

BR30600 lumens$ 59.9580% less power

The Starter KitFunctionRetail

1 Bridge & 3 BulbsBridge communicate between light bulb and smart devices$ 199.99

The App

iOS & AndroidsSoftware Free

Attributes and Features

These bulbs are LED, making them bright, cool to touch, and are compatible with most sockets. The Hue lights can tell you when you receive an important email on your device or any significant weather changes. The Hue Application allows the user to change their light bulbs to any color on your devices screen by simply touch that color point.

The Philips Hue is compatible with IFFF (if this then that), which is a service that allow developers to create wireless connections between your Hue lights and many web applications. For example, if you are tag on Facebook, then your Hue lights will notify you. The other connection can be with weather, news, daily tasks, people, animals, sport, activities, technology, home ware, and entertainment. The Hue light has also been used for personal and home security. If youre not home, the lights can make it seem like youre still home. The application can set rooms to light up at different times.

Target Market

The main things that consumer needs to operate Philip Hue light bulb are a smart phone, the apps, and the bridge. Anyone with a smart phone can use this product easily and effectively. The target markets for Philips Hue are homeowners and business owners. The amounts that Philips Hue can do for homeowners and business owners are infinite.

Distribution Channels

Philips Hue has a very wide distribution channel ranging from popular online and/or store retailers such as Amazon.com, Home Depot, Best Buy, and Verizon in the US. It also has a strong distribution channel in many countries such as Ireland, UK, Turkey, and the Asian Pacific area through the local retailers.

Recently, Hue light bulb was added to Bulbs.com, the largest online distributor of replacement lighting. This is a very promising opportunity for Philips Hue as its reputation and customer awareness will increase significantly.

Promotion

The Philips Hue has started to build up its reputation in a broad range. In the summer of 2014, SkyMall Magazine had a multi-colored smart lights presented on the front cover. The lights advertised were not Phillips, but an off brand Ilumi. This is a lucid indication that additional competitors are entering the market creating more competition and ways to promote. The SkyMall magazine describes the lights as, ability to paint amazing atmosphere color from bright white to rich color. Wirelessly control your lights from anywhere in your home (SkyMall, page 89). Ilumi brand offers only two sizes of bulbs and their promotion through SkyMall magazine. This is a way to gain distribution and increase consumer knowledge.

SWOT Analysis

Figure 2 is a SWOT Analysis for Philips Hue. This SWOT Analysis highlights the strengths, weaknesses, opportunities, and threats of the Philips Hue product in the current market. This SWOT Analysis provides valuable information for the company to see where the product has been recently, where it is now, and where it is heading in the market. This allows the company to develop an effective marketing plan to achieve its mission and objectives.

Figure 2. SWOT Analysis for Philips Hue Lights

Strengths

Philips is a well-known technology company that has a mission to improve and make a difference in peoples lives through innovating products. The company focuses on delivering innovation that matters to its customers. As a well-known company, Philips brand illuminates across the globe and attracts billions of customers. When Phillips launched the Philips Hue in 2012, the product has brand equity attached to it because Philips takes the multiproduct branding approach. The companys brand gives the new product a competitive advantage. Furthermore, the Philip Hue is not just an ordinary light bulb and lighting system; it has revolutionized the lighting and home industry with its unlimited possibilities.

The Philips Hue is a web-enabled light bulb that allows customer to control the light bulb from anywhere in the world and from any smart devices. This is one of the strengths of the product because the customers have full control over its functionality to meet their needs. For example, a user can walk into a room and the light can turn on automatically without having to use the light switch. This concept is called geo-location, whereby your smart device communicates to the Hue lighting systems your location and triggers the command that you set as you enter a designated location in your house, which gives users the ability to improve their lifestyle.

Another strength the Philips Hue has is that the light bulbs are made out of LEDs. As many Americans desire to preserve the environment, the Philips Hue light bulb addresses those needs because it is built to be more energy efficient and environmental friendly. LEDs are a new generation that Philips is betting will affect not just people's homes, but agriculture, health care, and urban safety. It has the potential to reduce the amount of electricity used in the U.S. by 50%, saving $250 billion (Gertner, 2014). This is a societal marketing concept where it is a win-win situation for both the company and consumers.

The Philip Hue has an app that is available for free via iOS and Android. The Hue light bulb is an average light bulb if it were not for the app, but with the app comes the smartness of the light bulb. The app allows users to personalize their settings and configurations. Philips has offered an open source platform known as API for third-party developers to build new apps for the lights. The developers are exploring and unleashing more possibilities to experience and interact with light to enhance peoples lives. One example is flashing the light red when the smoke alarm detects a fire. As more and more apps are showing up in market to support Hue, it makes the product more valuable.

Weaknesses

A major weakness of Hue is its high-end price. From $59.99 for a single light bulb to $199.99 for a starter kit that consists of three light bulbs, one Ethernet network cable, one power adapter, and one bridge. The high price is due to the quality of the product. It is considered a shopping product because customers need much more time to compare price, quality, or style of the product with other alternatives that serve the same purpose. The product may attract early adopters, but for the most part the cost has put it out of reach for a wide number of customers.

The wireless lighting system is the nuts and bolts of the product, but it may become an issue if customers do not have a wireless connection on their smart devices or in their home. This poses a weakness because customers will need to purchase a wireless network in order to utilize the full functionalities of the Philips Hue.

Philips has not been focusing on advertising the Hue. For the most part, it is promoted through word of mouth, online product reviews, and videos via YouTube. Even though, the Philip Hue has managed to achieve a high level of awareness, the price is still the biggest barrier for entry. If Philips lowers its price, more people will buy it. Philips needs to persuade more people to purchase the product by highlighting its strengths compare to its competitors. Therefore, the product promotion is weak causing the demand is not as strong.

When Philips Hue first came out, it was exclusively distributed to Apple stores worldwide and on Apple.com. Philipss partnership with Apple was to give Hue a spotlight with one of the worlds most popular brands in Apple. It's unclear why Philips has chosen to sell the bulbs exclusively through Apple, but the company clearly believes Apple's audience would be more likely to purchase this kind of product from the outset than the owners of other devices (Cheng, 2012). It can be assumed that Philips chose to sell through Apple because of a similar mission, values, and vision. Both companies can relate to innovation, high quality, and making a difference in peoples lives. Philips has learned to adopt to a selective distribution approach where not only Apple carries the product, but now you can find it at Best Buy, Home Deport, Verizon, and Amazon.com

Opportunities

The Home Automation Market was valued at USD 3.6 billion in 2012 and is expected to reach USD 16.4 billion by 2019, growing at a CAGR of 24.6% from 2013 to 2019 (Digital Journal, 2014). As our society is starting to depend upon automation in our home and life, we depend on products that promote automation and increase our well-being. The Philip Hue existed to target this segment of the market and it will continue to thrive with new innovations. For example, Google is working with Philips to integrate Hue with Nest, a Google-owned smart thermostat. The idea is to use the Hue lights to indicate smoke or carbon monoxide that is present in the room. This function can potentially save many lives as well as securing a safe environment with these products.

Everyday technology is getting better, regardless if it is hardware or software. The Philips Hue light utilizes both hardware (phone, light bulb, & bridge) and software (apps) to create value for its ultimate consumers. The Philips Hue light bulb is classified as both a consumer and business product. Light bulbs are continuously being use daily in our home and businesses to promote productivity. As technology continues to improve, it allows for an opportunity to deliver better value to customers. While approximately 25 percent of the worlds population has access to and uses the Internet, more than 65 percent use mobile phones. Of the 331 million mobile phone users in the United States, approximately 45 percent use smartphones (Kerin, Hartley, Rudelius, 325). This opportunity indicates that cell phone and Internet users are becoming a huge margin. Generation Y, which are known as the Millennial Generation, are a tech savvy generation. They have grown up with technology and it has become a significant part of their day-to-day life. The opportunity to target to this market of smartphone and tablet users will increase sales, profit, and brand equity.

Philips has recently announced its partnership with Bulb. Com, which Bulb.com is adding the Philips Hue lighting system to its LED product assortment. This is a great opportunity for Philips Hue because it is exposure beyond the Apple stores and into the mass market.

Threats

One of the threats for the Philips Hue is its increasing competition. Philips Hue is a leader in smart lights, but many competitors such as LG and Samsung are entering into the market. Philips has to continue to stay on top of its competitors in order to hold its title as the leader in smart LED lights.

Another threat is shift in consumer taste. The ability to have your light bulb change colors is interesting now, but in the future there maybe better alternative to what the Philips Hue can provide. For example, with the introduction of smart wearable such as smart watch a smoke alarm can vibrate your wrist rather than flicker the lights.

One of the environmental forces that affect businesses is regulation. Federal regulation on the Philips Hue can cause potential challenges for the company to be innovative. However, it is also true the other way around. For example, the Department of Energy issued energy efficiency standards for light bulbs, which required the use of more efficient light bulbs. Philips Hue met the standard, but any future standards, laws, or restrictions placed on the business can be a threat.

The latest threat to connected homes has emerged: a popular brand of connected LED lightbulbs can be hacked to change the lighting, and worse, to reveal the homeowners Wi-Fi Internet password (King, 2014). Philips Hue is subject to security issues. Anything connected to the Internet or wirelessly is a target for potential hacking. The idea of having an intruder turn off your lights at any moment can cause even the most techno loving consumer to stay away.

Competitors Analysis

Figure 3 is a Competitors Analysis of the Philips Hue LED smart light bulb. It illustrates the main difference between Philips Hue and some of its competitors products and marketing mix.

Philips Hue is in the growth stage of its product life cycle, its important to communicate the points of differences to consumers because it helps them distinguish the products. The points of differences are characteristics of a product that make it superior to competitive substitutes.

In summary, the Philip Hue has been in the market for longer and its more established than its competitors. Two years from its release, Hue had expanded to some retail and online stores to make it more available. Even though, its price has not change. It has recently added new a member to its product line called Philips Lux. The Philips Lux is cheaper, but cannot change colors. However, the new product has a new hub called the Tap, which is powered by kinetic energy from ones touch. In comparison to its competitors, many provide the same value to consumers. The main points of difference between Hue and its competitors are that they are eliminating a hub, utilizing a Bluetooth connection, and allowing more bulbs to be control by the smart devices.

Figure 3. Competitors Analysis

Company:Name:Date:Product:Price:Place:Point of Difference:

1. PhilipsPhilips HueOct. 2012LED$59.99 (bulb cost)

$199.99 (kit cost)Selective Retails and online.

Zigbee Bridge (Hub) 50 bulbs can connect to the Bridge 600 lumens of light

Philips LuxMar.2014LED$40(bulb cost)

$100(kit cost)Selective Retails and online. Zigbee White-light only bulbs Tap (Wireless wall switch powered by kinetic energy) 50 bulbs can connect to the Tap

2. Lifx

LifxNov. 2012LED$99.00 (bulb cost)

$380(kit cost)Selective Retails and online

Zigbee No hub required 1000 lumen of light 17 watts of power Bigger & heavier (10.4 ounces) No IFTTT compatibility

3. TCP

Connected2013LED$ 30 (bulb cost)

$169 (kit cost)Exclusive Retail stores and online(Home Depot) JenNet-IP protocol White-light Comes with a remote No IFTTT compatibility 800 lumens of light 11 watts of power Robber light Control 250 bulbs

4. Belkin

Belkin WeMoJan. 2014LED$39 (bulb cost)

$129 (kit cost)Exclusive Retail stores and online(Home Depot) Zigbee 800 lumen of light 60 watts of power Kindle IFTT compatibility

5. Samsung

Smart BulbsMar.2014LED$32 (single)Retail stores and online. White-light Bluetooth No hub 64 bulbs can connect to mobile app

6. GE

LinkJuly 2014LED$30 (bulb)

$70 (Wink Hub)Exclusive retails and online(Home Depot) White-light Bluetooth No hub required 800 lumens of light 12 watts of power 50 bulbs can be supported

Market Demand Estimate

To estimate the demand for smart lights, we need to look at the market pattern for LED light bulbs because LED is the core of smart lights. The market pattern of smart lights will likely be aligned with the growth of the LED light bulbs.

LED light bulbs are also in growth stage of its life cycle with the expected market penetration as described in the following graph provided by Statista.com:

Figure 4: Estimated LED Penetration of the Global Lighting Market from 2010 to 2020

According to former CEO of Philips, LED lighting would even reach 80% market share of the global light bulb industry in 2020 (Lacey, 2013).

According to Forbes.com, LED light bulbs currently account for 18% of the global light bulb market, which is 360 million LED bulbs sold each year (based on the 2 billion global annual sales of light bulbs according to Charles Fishman). For simplicity, we will assume this 360 million LED bulbs include the smart lights. We could not prove this point but we can reasonable assume it because none of the light manufacturers separate the number of LED light bulbs and smart lights in their financial reporting.

Based on our assumption, we will estimate the demand for smart lights according to the percentage of the early adopters in the market. According to Henry Blodget (2012), the buyers of new technology products will fall under 5 segments:

Innovators(2.5% of market) Early Adopters(13.5% of market) Early Majority(34% of market) Late Majority(34% of market) Laggards(16% of market)

With the current price of the smart lights, we determine that the early adopters will most likely purchase the products. Based on our estimate of 360 million LED bulbs sold each year, the market demand for smart lights would be 13.5% of 360 millions, which is about 48.6 million bulbs. This number will be attainable and reasonable since smart lights have wide and popular distribution channels in the world. Information about distribution channels was discussed in the earlier section.

We expect the annual demand of 48.6 million bulbs will be stable for the next 3 years. As more competitors are entering the smart light market, we expect a significant price reduction for this product starting in 2018. This predicted price reduction would increase significantly based on the annual growth in sales of LED bulbs and as the early majority class starts to purchase smart lights.

Another factor that would likely boost the sales of smart lights is the popular of smart lights complementary products such as smartphones and tablets.

Figure 5: Global Device Penetration Per Capita

According to the chart above from John Heggestuen, tablets and smartphones are penetrating the market at an incredible rate: 22% for smartphones and 6% for tablets (Business Insider). These penetrations mean that every 4 people in the world, one of them owns a smartphone and every 17 people, one of them owns a table. With the strong growth of the complementary products, we believe smart light market penetration will increase rapidly in the near future.

Conclusion

In conclusion, the Phillips Hue is a well-established product and its ahead of its competitors. The benefits that Philips Hue has to offers its consumers are beyond reach. Theres no doubt that Philips Hue will continue to improve and impact consumers. No one has ever thought about how a simple product such as the light bulb can be a game changer. The demands for this product will continues to grow along with the Internet of Things that makes a difference in peoples lives. The next brightest opportunity for Philips Hue will be in its app. The possibilities are unlimited.

References

Blodget, H. (2012, September 13). Actually, The US Smartphone Revolution Has Entered The Late Innings. Business Insider. Retrieved July 22, 2014, from http://www.businessinsider.com/us-smartphone-market-2012-9

Cheng, J. (2012, October 29). Philips selling colorful Wi-Fi lightbulbs exclusively through Apple. Ars Technica. Retrieved July 17, 2014, from http://arstechnica.com/gadgets/2012/10/philips-selling-colorful-wi-fi-lightbulbs-exclusively-through-apple/Dhanjani, N. (2013, August 13). Hacking Lightbulbs. 'Nitesh Dhanjani'. Retrieved July 17, 2014, from http://www.dhanjani.com/blog/2013/08/hacking-lightbulbs.html

Estimated LED Penetration of the Global Lighting Market from 2010 to 2020. Retrieved July 22, 2014 from http://www.statista.com/statistics/246030/estimated-led-penetration-of-the-global-lighting-market/

Fishman, C. (2006, September 1). How Many Lightbulbs Does it Take to Change the World? One. And You're Looking At It.. Fast Company. Retrieved July 22, 2014, from http://www.fastcompany.com/57676/how-many-lightbulbs-does-it-take-change-world-one-and-youre-looking-it

Gernter, J. (2014, February 10). Philips. Fast Company. Retrieved July 17, 2014, from http://www.fastcompany.com/most-innovative-companies/2014/philips

Heggestuen, J. (2013, December 15). One In Every 5 People In The World Own A Smartphone, One In Every 17 Own A Tablet [CHART]. Business Insider. Retrieved July 22, 2014, from http://www.businessinsider.com/smartphone-and-tablet-penetration-2013-10Home Automation Market: An Overview of Growth Factors and Future Prospects 2013-2019. (n.d.). Press Release. Retrieved July 17, 2014, from http://www.digitaljournal.com/pr/2007528

Kerin, R. A., Hartley, S. W., & Rudelius, W. (2013). Marketing : The Core, 5th ed (5th ed.). New York: McGraw-Hill.

Lacey, S. (2013, April 30). The Path to 80 Percent Market Share for LED Lights. The Path to 80 Percent Market Share for LED Lights : Greentech Media. Retrieved July 22, 2014, from http://www.greentechmedia.com/articles/read/The-Path-to-an-80-Percent-Market-Share-for-LED-Lights

Mood, B. (2012, November 7). Philips' Hue: A Bright Idea for Tech Investors | InvestorPlace. InvestorPlace . Retrieved July 17, 2014, from http://investorplace.com/2012/11/philips-hue-a-bright-idea-and-investment/#.U8gFoGYwz9s

New! Color you world with ilumi tunable LED Lights. (Summer 2014). SkyMall. Pg. 89. Philips Lighting B.V. (Philips), High Tech Campus 45, 5656 AE, Eindhoven, The Netherlands ("Philips"). Retrieved July 15, 2014, from http://meethue.com/en-USTrefis Team. (2013, June 11). GE Lighting Sees Brighter Future With LED Growth.Forbes. Retrieved July 22, 2014, from http://www.forbes.com/sites/greatspeculations/2013/06/11/ge-lighting-sees-brighter-future-with-led-growth/Youtube. Phillips HuePersonal Wireless Lighting. Online Video Clip. YouTube, 16 December 2013. Web. 20 July 2014..

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