optimize the lighting industry: split it in half

The architectural lighting industry has become quite familiar with disruption:  A host of new technologies have brought dramatic change to our long dormant industry.  However, what many have missed is that the industry’s channels to market are ripe for innovative disruption as well.

The lighting industry currently utilizes an antiquated system of channel intermediaries, such as wholesale distributors, 3rd party manufacturer’s representatives, independent lighting designers, specialist installers, and so forth.  All of these “middlemen” have their history rooted in the second-half of the last century, when communications and logistics were extremely limited.  Manufacturers needed a host of partners both to reach customers and to share risk:  Distributors to process paper checks and physically deliver the product; rep agencies to put “feet on the street” to distribute product binders and samples; lighting designers to perform calculations and visualizations; and system integrators to deal with a messy tangle of proprietary control systems.  These methods of simply reaching and serving customers required such a huge investment in labor that the market could not split into optimized channels; the market had to compromise its service offerings to access as large of a customer base as possible.  There were no efficient technologies or services available to optimize to specific end customers: no Internet, no contract manufacturers, no on-demand logistics services.  Even credit cards were still novelties when many of these intermediary groups first came to power.  The challenge the industry currently faces: What value do these middlemen add today?  Why do they still exist?

In order to seize the potential offered through new technologies and reform our antiquated market channels, the industry needs to split itself and ruthlessly focus on two customer-optimized market approaches: Commodity Products and Holistic Solutions. In doing so, current middlemen and other various intermediaries will either find ways to evolve and contribute customer value or simply crash and burn.

The lighting market can be split and polarized into two types of end-customers:

  • Project owners who need light
  • Project owners who want light

Project owners who need light treat lighting as a utility, a requirement, a commodity.  A cost to be minimized.  Installers servicing such disinterested clients with their rudimentary, repetitive projects already know what products they need and are shopping on price.  As well-proven in many other industries, a host of online technologies makes this process highly efficient and indeed, ruthless.  Manufacturers servicing this side of the market shouldn’t fool themselves:  They can try all they want to be innovative or different or to build a “hot” brand, but if you’re just selling “pieces and parts”, the end game is quickly a race-to-the-bottom on price.  In the lighting industry, the technical barriers-to-entry are just too low, the ability to protect designs or other IP simply not strong enough, and most project intermediaries ignore branding and simply accept a lower-cost substitute — in fact, most are incentivized to do so through an industry practice known as “packaging”.  These entrenched, powerful and highly fragmented industry middlemen bring little-to-no added value to either manufacturer or customer — but manufacturers fear their wrath if they cut them out of the process.  So customers wind up with commodity-grade generic products saddled with big, fat parasitic markups, and lighting manufacturers and their attendant “partners” find themselves in a extremely vulnerable situation.

On the other end of the market spectrum, project owners who want light understand the power of lighting, and its impact in many areas such as physical well being, creating a sense of place, delivering environmental sustainability, etc.  They demand sophisticated lighting solutions to complement their overall project goals.  This process begins with education and insight, continues with collaborative turn-key project management services, delivers great products, ensures long term maintenance services, and all at a great package price.  Five-star customer service is mandatory.  The current system of powerful industry middlemen is highly fragmented and inhibits this desired level of service:  Each provider is focused on their own fees, markups, and strict delineation of responsibilities.  No economic stimulus exists to actually provide holistic project solutions to engaged project owners.    Such a system is completely lacking empathy for the end customer, who on a typical construction project is already dealing with numerous firms and countless project management issues.  The last thing they need is to be burdened by the legacy fragmentation of the lighting industry.  A real estate developer doesn’t care about some fixture manufacturer’s lead times; they want to increase the appeal of their properties.  A retailer doesn’t want to be bothered with validating a substitution his contractor proposes on some track fixture; she wants to enhance the appearance of her merchandise.  And a restaurateur doesn’t care who specified or provided the wrong dimming interface; she just wants her lighting to look great on opening night.

The current channels to market in the lighting industry offer neither price optimization nor holistic service solutions.  Logically, the channels serving these two polar extremes should be split and fundamentally optimized for each type of customer.  If you are part of the lighting industry and not clearly optimized to supply either low-cost Products or holistic Solutions, its like you’re developing “more efficient” incandescent light bulbs.  You simply need to scrap the past and optimize for the future.

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About Brad Koerner

Venture Manager - Luminous Patterns Philips Lighting
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