Professional Documents
Culture Documents
a Transforming
Lighting Industry
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HOW TO WIN IN A
TRANSFORMING
LIGHTING INDUSTRY
FRANOIS CANDELON
ALLARD CREYGHTON
MAX HONG
HOLGER RUBEL
MARTY SMITS
3 EXECUTIVE SUMMARY
7 AN INDUSTRY IN FLUX
The Ecosystem Is Complex
Steady Growth Belies Major Change
2 9 APPENDIX
The total lamp volume will decrease, for two reasons. First, the
long life of both LEDs and more efficient conventional technolo-
gies (such as CFLs) will reduce the overall demand for replacement
bulbs. Second, the development of LED luminaires (which use not
a separate lamp but a built-in module) will mean that fewer lamps
will be needed in general.
Revenues for conventional lamps will decline from roughly $13 bil-
lion in 2014 to about $5.5 billion in 2020; margins will hold steady.
Companies competing in this area will need to rationalize their
manufacturing operations amid that contraction.
GENERAL-LIGHTING MARKET
BACKLIGHT MARKET
100
43 (39%)
Systems1
80 Services2
60 Luminaires
19 (17%)
Systems
40
Luminaires
8 (7%)
20 17 (15%)
0
Lamps Electronics Consumer Professional AUTOMOTIVE BACKLIGHT
luminaires luminaires, LIGHTING
and systems systems, and
services
Retail
Average lifetime
Hospitality of LED
Consumer
Architectural
Health care
Office
Industrial
Residential
Road and street
Sports
0 5 10 15 20 25
Average renovation cycle (years)
calculation will become an even stronger sell- The Varying Speed of LED Adoption. The forces
ing point. This will be a major factor for lin- driving LED adoption will certainly play out
ear LED lamps in particular. Prices for linear differently in various customer segments as
LED lamps are still relatively high, but we ex- well as in different geographies.
pect them to drop by about 18 percent annu-
ally from 2014 through 2020. (See Exhibit 3.) In the professional segment, the TCO is cen-
tral to purchase decisions. As a result, profes-
Regulations favoring LED have had a major sional customers have already moved to
impact in the past, but we expect regulatory more-efficient conventional technologies
moves to have a muted effect going forward. such as CFL and are now shifting to LED.
(See the sidebar The Most Powerful Consumers, by contrast, are more focused on
Regulator.) the purchase price of the lamp when making
105
Incandescent
113
76
Halogen
80
45x
26 45
CFL LFL
26 45
LED 1.5x
24 64
LED point linear
15 lamps 30
0 50 100 150 0 20 40 60 80
TCO1,2,3 ($ per 15,000 hours) TCO2,4,5 ($ per 15,000 hours)
2014 2020
Sources: Expert interviews; Frost & Sullivan; Amazon.com; Walmart Stores; Infiniti Research; U.S. Energy Information
Administration.
Note: The total cost of ownership includes lamp replacement and energy costs. CFL = compact fluorescent lamp; LED =
light-emitting diode; LFL = linear fluorescent lamp; TCO = total cost of ownership.
1
Total cost of ownership for a 60-watt equivalent point (750 to 900 lumen).
2
Based on $0.10 per kilowatt-hour.
3
Based on U.S. retail prices as of March 2015.
4
Total cost of ownership for a 25-watt LFL equivalent (2,600 lumen).
5
Based on EU retail prices as of March 2015, converted to U.S. dollars.
a buying decision. We expect the tipping The exact speed at which LED technology
point for consumersthe point at which will penetrate the market is highly dependent
adoption will accelerateto arrive by 2020, on several uncertainties. Technological devel-
when LED lamps are likely to cost just two to opments and competitor dynamics might
three times more than conventional lamps. change the pace of the LED-price decline and
therefore the pace of the transition. Further-
The rate of LED adoption will also differ by more, consumer acceptance of LED is difficult
region. Japan and China will probably be the to predict, in particular because some per-
countries that move most rapidly to LED, ow- ceive LED as less warm and less attractive
ing to high rates of customer acceptance and than other technologies.
strong regulations, followed closely by Europe
and North America. LED adoption will be a The Shift to Connected Lighting. The increas-
bit slower, meanwhile, in developing econo- ing popularity of LED gives momentum to
mies in Latin America and Africa. In those re- another significant shift: the adoption of
gions, CFL and linear fluorescent lamp, or connecting lighting systems (also called smart
LFL, technology have not been widely em- systems). Given the versatility of LED in
braced because they remain expensive rela- terms of factors such as brightness and color
tive to incandescent lighting. But as LED pric- variation, connected systems make more
es decline over the next decade, emerging sense for use with LED than when conven-
markets are likely to leapfrog CFL and LFL, tional lighting technology is used.
moving directly from incandescent to LED.
Adoption rates for various lighting technolo- Other factors are driving the adoption of con-
giesand the amount that customers are will- nected lighting as well. Connected lights can
ing to pay for those technologiesalso differ be programmed and controlled in an expand-
across geographies on the basis of customer ing variety of ways, which further strengthens
preference for warm or soft light (a variable the demand for systems. In offices, for exam-
known as color temperature preference). ple, lighting can be automatically adjusted in
12
0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 203030
Incandescent Announcement
ban RoW
Fully effective
Halogen Announcement
ban RoW
Fully effective
Fluorescent Announcement
ban Fully effective
response to the level of natural lighting, tialanother 40 percent on top of the al-
which in turn can enhance employee produc- ready hefty savings offered by LED alone.
tivity. And smartphone apps can be used to And data generated by connected systems
easily manage connected lighting systems, a automated alerts to show where lamps have
feature that makes those systems increasingly burned out, for examplecan pare other
accessible to a broader group of customers. costs, such as maintenance expenses.
Connected lighting also offers cost-saving Meanwhile, existing regulations are making
opportunities. Energy cost reductions from energy-saving light systems more attractive.
efficiently controlled systems can be substan- In the U.S., for example, regulations require
The General-Lighting Market Will The impact of falling volumes will be tem-
Be Transformed pered somewhat by the higher price of LED-
In the general-lighting market, various chang- based light sources relative to conventional
es are under way, including the decline in the technologies. Conventional lamps have al-
market for conventional lighting and the de- ready moved toward use of more-efficient
velopment of lighting-related services. technologies, such as CFL. And by 2020, more
than 30 percent of lamp volume will have
moved from conventional to the more expen-
The shifts under way will fun- sive LED technology. (See Exhibit 5.) As a re-
sult, total lamp revenues will roughly hold
damentally alter the global steady between 2015 and 2020.
lighting market by 2020. Within the total lamp market, however, two
distinct lamp segmentsconventional and
LEDwill emerge, each with very different
Lamp Market: Volumes and Prices Decline. economics. (See the sidebar A New Game in
The shift toward longer-lasting technologies, Lamps.) Within the LED-lamp segment, vol-
and specifically the rise of LED, will translate umes will growby about 30 percent on a
into an overall decline in the volume of compound annual basis during the period
lamps sold, for two reasons: from the end of 2014 through 2020. After
2023, however, volumes will decline as a con-
Because newer conventional technologies sequence of LED luminaires cannibalization
(such as CFL) and LEDs have longer lives of the LED-lamp market. The upshot: we ex-
51% 41%
60
11%
40 1%
4% 7%
14% 12% 4%
20 7% 3% 2%
19% 19%
17%
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
GENERAL LIGHTING
Services1 LED luminaires LED lamps BACKLIGHT
Systems2 Conventional luminaires Conventional lamps AUTOMOTIVE LIGHTING
10 23%
21% 6
36%
9
29%
5 24% 8% 15
14%
18% 22
14%
9%
10% 6% 2% 3% 20
0
2010 2012 2014 2016 2018 2020
LED LAMPS CONVENTIONAL LAMPS
LED linear lamps LED points HID LFL CFL Halogen Incandescent
Key market Capital intensive because of high R&D Low-scale, assembly business
characteristics and capacity requirements
pect LED-lamp revenues to rise to nearly $10 As LED market share approaches 100
billion in 2020 and decline thereafter. And percent, the drag on total lamp volumes
margins, currently almost zero or even nega- created by the shift from conventional to
tive for most players given the intense com- longer-life LED lamps will lessen.
petition for shelf space, will remain weak in
the near term. The market share gains for LED lumi-
naires will flatten, which means that the
The conventional-lamp segment, meanwhile, erosion of the LED lamp market due to
will shrink quickly. Revenues are expected to cannibalization from LED luminaires will
decrease from roughly $13 billion in 2014 to subside.
about $5.5 billion in 2020, as sales through-
out the segment (particularly for incandes- The result: after 2030 the total demand for
cent, halogen, and high-intensity discharge, or light sourcesincluding both lamps and the
HID), decline. Overall margins, however, are modules that provide the light in an LED lu-
expected to hold steady. minairewill return to the historical 3 per-
cent compound annual sales growth rate.
At some point after 2023, LED-lamp prices
will bottom out and lamp volumes will stabi- Meanwhile, the market for replacement
lize. (See Exhibit 6.) Thats because two lamps will still exist in 2030 despite the shift
trends that depress lamp volume will have to LED luminaires. (See Exhibit 7.) The rea-
run their course: son: renovation cycles are relatively longon
15 30
10 20
5 10
0 0
2010 2014 2018 2022 2026 2030 2010 2014 2018 2022 2026 2030
2012 2016 2020 2024 2028 2012 2016 2020 2024 2028
Exhibit 7 | The Market for Conventional Luminaires Will Remain Sizable Beyond 2030
Installed-luminaire base (Index 2010 =100)
200
150 147
55%
100
45%
Uncertainty
range
50
35%
35%
0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
0.6 0.6
0.4 0.4
71
62 64 63
0.2 0.2
34
28 25
21
10 11 8
0.0 0.0 3
2014 2020 2014 2020
Conventional without driver Conventional with driver LED (always includes driver)
overlap of production technology, R&D, and $10.3 billion. Electronics profits, meanwhile,
the client base between conventional and will increase from about $550 million to $950
LED drivers as well as the strong customer million as margins hold relatively stable.
loyalty to luminaire manufacturers (custom-
ers are hesitant to switch suppliers for criti- Professional Market: Systems and Services
cally important electronics, especially while Take Off. The professional marketwhich
they are transitioning to LED technology). includes lumimaires, systems, and services
used in professional settingswill change
The low-end market for both LED drivers and dramatically owing to the rise of LED and
modulesabout 50 percent of the electronics connected lighting.
market, concentrated largely in the consumer
segmentis more fragmented than the high- LED luminaires are rapidly replacing conven-
end market. In the low-end market, many tional luminaires across just about every pro-
small, low-cost Asian players dominate, mak- fessional customer segment and geography.
ing products that do not have extremely high As a result, in 2020, 80 percent of profession-
quality standards, are easy to assemble, and al luminaires sold (measured in volume) will
require less R&D. be LED luminaires. At the same time, the per-
centage of all luminaires (measured in reve-
Overall, the electronics marketboth profes- nues) that are sold as part of a connected
sional and consumerwill double in size lighting system is expected to be 25 percent,
from the end of 2014 through 2020. Sales will up from 5 percent in 2014. Much of that shift
grow from roughly $8.2 billion to about $16 will occur in the professional market.
billion. Module revenues will jump from
about $2.9 billion to $5.7 billion and driver The capabilities of these smart systems create
revenues will increase from $5.3 billion to new opportunities to sell professional ser-
LIGHTING AS A SERVICE
Lighting customers are increasingly looking installation companies install the lighting
to buy an integrated solutionthe entire system and receive a fee from the lighting
package including lamps, luminaires, company for maintaining that equipment
controls, software, and services. This is over the life of the contract.
spawning a new category: lighting as a
service. The upside for customers is predictable
and even reducedcapital expenditures as
In this model, a customer does not buy its well as guaranteed and improved lighting
own lighting equipment; rather, it enters a performance. And for lighting companies
multiyear contract that stipulates a flat fee and installers, these services offer a
for all its lighting needs. The lighting player powerful way to differentiate their offerings
provides the lamps, luminaires, and while generating ongoing revenue streams.
controlsand in some cases can also offer
additional services such as data analysis
and financing arrangements. Separate
3 67
4
9 6 (9%)
60
8 (12%)
51
3 (6%)
4 (8%)
40
53 (79%)
20 44 (86%)
0
Professional Growth of Growth of Gowth of Professional
market 2014 luminaire sales systems sales white-collar market 2020
(excluding lamps) services sales (excluding lamps)
CAGR
20142020 ~3 ~15 ~14 ~5
(%)
Profitability within the consumer luminaire At the moment, only three main technolo-
business will get a boost over the next few giesLED, halogen, and HIDare bright, ro-
years from the shift toward higher-margin bust, and cost-effective enough to be used for
LED luminaires. That will be a welcome im- automotive-lighting systems on a large scale.
provement in a business in which fragmenta- And LEDeven though it is more expensive
tion, little impact from brand marketing, and than the other two technologiesis garner-
complex distribution combine to yield tight ing an ever larger slice of the market. Thats
margins. But the profitability improvement because LED not only offers improved energy
will be temporary thanks to the expected rap- efficiency but also can be used to create dif-
id decline in LED-luminaire prices that is ex- ferent light effects, such as dots and stripes.
6.0
6
0.2 0.7 0.9
4.9 0.2
0.4
1.0
1.1
4
0.8
0.6
0.6
2
3.3
2.6
0
Profit pool Lamps Electronics Consumer Professional Profit pool
2014 luminaires luminaires, 2020
and systems systems, and
services
RETURN ON INVESTED
~37 ~33 ~15 ~19 ~23
CAPITAL 2020 (%)
With these new dynamics in mind, compa- Within the consumer category, the LED lamp
nies competing in our six segments must de- market will become segmented, with premi-
um brands at one end of the market and pri- In the professional segment, LED-lamp man-
vate labels at the other. In both price seg- ufacturers need strategies that offer buyers a
ments, the key to success will be winning compelling offering in terms of the total cost
shelf space by ensuring that retailers earn a of ownership of LED lights. Success will stem
healthy margin. But the way in which lamp in part from continued R&D investments to
manufacturers deliver that retailer margin drive down manufacturing costs (thus allow-
will differ on the basis of their price level. ing lamp manufacturers to cut prices) and to
improve the efficiency and longevity of the
Premium-lamp manufacturers in the consum- lamp. Lamp players in the professional seg-
er category can offer a range of differentiated ment must also train the wholesalers that
products with strong brands. These products market their products to deliver the message
will carry a relatively high retail price, giving about the lower TCO afforded by LED.
the retailer room to earn a decent margin. In-
novative R&D will be central to building out Electronics Market: Rapid Innovation and
that broad, differentiated portfolioand will Customer Insight Drive Success. The rapidly
protect against commoditization of the prod- expanding electronics market in lighting is
uct line. At the same time, premium players attractive, but its technology requirements
must build a reliable supply chain to ensure pose a significant barrier to entry.
that retail shelves are always fully stocked
with their products. For those with the technical know-how to
compete in the high-end, largely professional
Private-label-lamp manufacturers can offer segment, developing a broad portfolio is cru-
that margin by keeping their costsand cial. Thats because of the large number of
therefore the price they charge to retailers luminaire types in the professional market,
as low as possible. They need to put an em- which creates the need for a variety of driv-
phasis on a few products that will sell quickly ers and modules. At the same time, custom-
rather than a comprehensive portfolio of ers are demanding continuous quality im-
products. And they need to hone an R&D pro- provements in electronics. Electronics makers
cess that can quickly copy popular new offer- that can manage a large, complex portfolio
ings in the market. and rapid R&D innovation will win.
whereby installers or wholesalers provide that Market. The consumer luminaire market is
sales support to lighting customers. In addi- fragmented; many players boast broad
tion, partnerships between systems and ser- portfolios aimed at addressing different
vices players and luminaire makers will be- consumer preferences across regions and
come more common. Those arrangements will applications. The key to success here is
give luminaire makers the chance to create in- matching the right strategy to each particular
tegrated solutions for their customers and pro- segment of the market that a company seeks
vide companies from outside the lighting sys- to serve.
tems and services industry with an opportunity
to build a solid position in lighting. In both the value segment (where customers
focus heavily on price) and the mass-market
Consumer Market: Different Strategies Are functional segment (where customers focus
Required for the High and Low Ends of the more on function than aesthetics), companies
T
Rapidly echnology is transforming lighting more
As lighting becomes a more distinguishing, rapidly than at any time since the inven-
brand-oriented feature in automobiles, play- tion of the incandescent bulb. As LED tech-
ers in this segment will need to offer innova- nology changes the basic economics in light-
tive, advanced, high-quality lighting products. ing and as connected lighting systems create
new opportunities, lighting players across the
But cutting-edge technology will not be value chain must rewrite their playbooks.
enough. Amid intense competition, the win-
ners in this segment will be those that foster Long-established companies face a challenge
strong partnerships with automakers as well in maximizing returns from their existing
as with their tier-one component suppliers. conventional business while making the leap
Certainly, the level of collaboration between to develop products based on newer technol-
vehicle and lighting manufacturers has al- ogy. Reliable profits from that existing busi-
ways been strong. And as dynamic lighting ness can provide a critical funding source for
systems gain ground and lighting increasingly investing in these newer LED products and
becomes a signature feature, this collabora- services. And established players and new en-
tion will only become more important. trants alike must make sure that they under-
stand customer demands and build opera-
In addition, the long automotive-design cy- tions that reflect an understanding of rapidly
clesabout seven years on averagemake changing sources of advantage.
establishing long-term relationships even
more imperative. A lighting company operat-
ing in this sector needs to position itself as a
This report is based on BCGs 2020 Lighting- The renovation-lamp market covers the
Market Model, which has been developed to installed area that is being renovated;
forecast the future of the worldwide lighting during renovation cycles, both lamp and
market. The model covers eight key technolo- luminaire are replaced.
gies, nine major application segments across
all parts of the value chain, and six regions. The replacement-lamp market covers the
(See the exhibit Streamlined Market-Model replacement of lamps in existing sockets.
Structure.)
The automotive-lighting market consists of
Sizing of the market has been conducted lamps and luminaires in five lighting catego-
from the bottom up on the basis of existing ries: front lights, rear lights, daytime running
market reports, investor reports, BCG exper- lamps and fog lights, side lights, and inside
tise, and close to 100 interviews with external lights.
experts. We have modeled market growth
projections taking into consideration likely The backlight market covers four key applica-
future volume growth, technology mix, and tions: smartphones, TVs, tablets, and comput-
price. The logic is consistent throughout the ers and peripherals.
model, for all technologies, application seg-
ments, and geographies. Specialty lighting is excluded.
The model includes the new, renovation, and The market value is based on average manu-
replacement markets for lamps. In the new facturers sales price, does not include infla-
and renovation markets, both the lamp and tion, and assumes constant 2014 exchange
luminaire are sold, whereas in the replace- rates (EUR1 to USD1.3269) for the projec-
ment market, only the lamp is being re- tions through 2020. Product value is allocated
placed. The value of components is included to the region in which the product is ulti-
in the value of the lamp: mately sold.
Growth in
Total Price Automotive number of
2014 annual
Automotive automotive development technology automobiles,
sales
market per technology mix trucks, and
motorcycles
Growth in
number of
Total Price Backlight screens and 2014 annual
Backlight backlight development technology size and sales
market per technology mix brightness
of LEDs
The report covers one consumer application Architectural. This professional application
segment (residential) and eight professional consists of the illumination of large
application segments, as follows: buildings and other large construction
projects such as bridges.
Residential. The consumer application
includes all lighting used at home, such as Office. This professional application in-
permanently installed fixtures and cludes lighting for office buildings and
portable corded fixtures. educational buildings as well as other
public and commercial buildings that are
Road and Street. This professional applica- used for similar purposes.
tion includes road and street lighting
(such as highways and tunnels) and other Industrial. This professional application
outdoor areas such as parking lots (public consists of general lighting used in
and private). industrial environments, such as produc-
tion, assembly, and storage spaces in
Sports. This professional application factories and workplaces.
covers lighting of areas such as sports
stadiums and playing fields that require Retail. This professional application covers
high-intensity lamps to cover large areas general shop-floor area lighting, display
from a distance. lighting, and decorative lighting.
Max Hong
Partner and Managing Director
BCG San Francisco
+1 415 732 8000
hong.max@bcg.com
Holger Rubel
Senior Partner and Managing Director
BCG Frankfurt
+49 69 9 15 02 0
rubel.holger@bcg.com
Marty Smits
Partner and Managing Director
BCG Amsterdam
+31 20 548 4000
smits.marty@bcg.com
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