Cree CEO: LED bulb marketing changing ‘generations of belief’

Oct. 30, 2013 @ 09:57 AM

At the company’s annual meeting, Cree Inc. CEO Chuck Swoboda said the lighting company has made a “big investment” in marketing its new consumer-targeted LED light bulbs as part of a brand-building strategy. 

“We are changing generations of belief about lighting,” Swoboda said, speaking at the shareholders meeting that was held at the company’s Research Triangle Park offices Tuesday.
Cree is a Durham-based maker of LED chips, components and lights. Its business has focused on selling LEDs to commercial and industrial customers. In March, the company announced the release of LED light bulbs targeted to consumers.
Designed to look like traditional incandescent light bulbs, the company released a warm-white bulb priced at $9.97 that consumes 6 watts of energy. It’s designed to replace a traditional incandescent bulb that consumes 40 watts of energy. That bulb, and another slightly more expensive bulb designed to replace a 60-watt incandescent bulb, are sold exclusively at The Home Depot.
Swoboda said Cree officials wanted the bulbs to look like regular incandescent bulbs; to perform similarly, only better; to be priced so that consumers would have an incentive to switch from incandescent bulbs; and to be more energy efficient.
He said the company has paid for TV and other advertisements, has worked to get mentions in news stories, and has launched a website for consumers to market the bulbs.
He showed TV commercials written and created by the Raleigh-based creative agency Baldwin&. The longest commercial is 60 seconds, said Baldwin& founder David Baldwin. Named “Eulogy,” the commercial shows a spokesman burying an old incandescent light bulb in a field.
The commercials launched April 20 on ABC and ESPN in conjunction with the NBA playoffs. They continue to air on the networks for a number of sporting events, mostly during NCAA college football games, according to an email from a company spokeswoman. Since the beginning of October, they’ve also been airing on the DIY and HGTV networks.
“It’s going to take a lot more of this,” Swoboda said.
Since the consumer-targeted LED bulbs’ launch, Swoboda said investors have asked why the company has gotten into the low-margin consumer business. He said their release is part of a “high-margin brand strategy.”
“It’s much more than just selling a bulb,” he said.
Peter Wahlstrom, a senior analyst who tracks Cree’s performance for the investment research firm Morningstar Inc., indicated that the company’s marketing investment had a role in a recent drop in stock price. At the market’s opening the day after the company’s first-quarter earnings release, Cree’s stock price was down about 16 percent compared to the market’s close on the day of the release. 
The company had reported that its net income was up 38 percent to $30.5 million year-over-year in the quarter, and that its revenues were up 24 percent to $391 million. But Wahlstrom noted that the company’s gross margin for its lighting products business was down nearly 5 percentage points.
“Yes there’s a lot of revenue growth to be had, and Cree is angling to promote its bulbs and to be the market leader and to get some brand recognition in its market place, but it is apparently spending pretty heavily to do so,” he said.
Wahlstrom said he believes the company is trying to “strike while the iron is hot” so it can get a lead over competitors.
“To me, they’re working the marketing playbook as they should, and with the market expected to grow … it seems reasonable that they should be able to capture their fair share of the market,” he said. “But meanwhile, they’re not operating in a vacuum, there are going to be other plays that see potential, and want to see their products get to market as quickly as possible.”