A Very Different Kind of Light Bulb

Since the LED lamp exploded onto the scene as a serious player several years ago, it has been acknowledged by most of the lighting and electrical industry as the wave of the future. As many of you probably noticed, the 2012 Light Fair in Las Vegas was so entirely dominated by LEDs that almost immediately visitors took to calling it the LED Fair. 

Despite this almost universal acceptance-or perhaps, resignation-sales have been less than brisk, causing manufacturers to scratch their heads in bewilderment. It cannot be argued that many LEDs are superior to other lights, and the ones that aren't, soon will be. When comparing an LED bulb to a traditional bulb the advantages are tremendous, including a lifetime increased tenfold while using a fraction of the energy. Why then are customers, especially in a consumer climate that so vociferously trumpets the need for green solutions, so hesitant to make the switch?

The answer is that for many distributors and their end-users, LEDs still cost too much. Why spend fifty dollars on a PAR38 LED instead of the five dollars one usually lays out for a PAR Halogen, many of them ask. It's still too early for LEDs, the current wisdom dictates. Wait until the price comes down, just like it did with calculators and color televisions; these lamps are still too expensive.

Or are they? If one looks at them in terms of what they are replacing, then yes, they are too expensive. An eleven dollar LED MR16 costs a lot more than a one dollar halogen MR16-there is no denying that. But this seemingly flawless logic falls apart when one considers that we are not discussing the same products or simply comparing apples to more expensive apples. The LED is not only a very different kind of bulb; it is very nearly an injustice to call it a bulb or lamp at all.

What the LED is, and what other bulbs are not, is a complicated piece of electronics. Containing drivers and semi-conducting chips and intricate heat sinks, the LED is less a bulb than a lighting device with its own on-board computer. This takes the LED into a completely different sphere high above that of a simple light bulb. Its manufacturing costs and developmental lead time far outweigh those of the bulbs that preceded it. As a result, it may become necessary to rethink the way LEDs are priced and sold.

The markup on a simple halogen lamp can often be as high as 100 per cent. This is normal, and it is the current way of doing business.

With an LED lamp, however, distributors expect to do business the same way, and this could be why LEDs are meeting so much resistance from the general consumer. When doing the calculations according to this standard, the end user price is usually a great deal of money for a light bulb, no matter how good it is.

But it has been established that the LED is not merely a light bulb; it is an electronics product, and this is where its divergence from normal lamp pricing starts.

Because an LED bulb is a consumer electronic product, its pricing should besimilarto other electronic products, such as laptops and IPads, which means that the margins would be significantly lower. For example, an LED lamp that costs a distributor $25.00 should probably be offered to the end user in the $33.00 to $38.00 range instead the usual $45.00 to $75.00 range.

This lower margin and apparent decrease in profit may at first repel the average distributor. What's the point, they might ask, in going from a big profit to a small one?

One question, two answers. The first is that no one takes a bigger profit if they're not selling anything in the first place. The seventy dollar LED lamp isn't going anywhere; no one is buying it. But take that same LED lamp and price it at $40.00 and you will sell LED lamps. The profits may seem smaller at first, but in reality, they won't be, because we need to look at the absolute value of the profits and not the margin. Large revenue with smaller margins is the same as small revenue with large margins, and although the light bulb industry is very comfortable with large margins, it is time to start thinking like the electronics industry-exactly as our favorite big box stores have already done. This is the reality of the LED business. Current performance has clearly shown that selling it the same way as other bulbs simply does not work. Not only that, but the way pricing is now, high quality manufacturers are leaving themselves open to competition from cheaper products, whose dubious quality may eventually undermine the public's trust in the product in general.

Secondly, LEDs are the future; there's no getting around it. It may take just a bit longer to shake out, but that is definitely the market's direction. And as anyone who buys and sells anything must be fully aware, you either follow the market, or get left behind.