HBR---CREE-Introducing-the-LED-Light-Bulb

9-515-026REV:APRIL1,2015ProfessorJohnGourvilleandCaseResearcherMichaelNorris(CaseResearch&WritingGroup)preparedthiscase.Itwasreviewedandapprovedbeforepublicationbyacompanydesignate.FundingforthedevelopmentofthiscasewasprovidedbyHarvardBusinessSchoolandnotbythecompany.Certaindetailshavebeendisguised.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2014,2015PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto:IntroducingtheLEDLightBulbItwasearlyMarchin2013asChuckSwoboda,theCEOofCree,Inc.,andNealHunter,oneofthecompany'sfounders,readwithsatisfactionCree'slatestpressrelease:Durham,NC--March5,2013--Cree,Inc.introducesagame-changingseriesofLEDbulbsataretailpricepointthatgivesconsumersareasontoswitchtoLEDlighting.Thelong-lastingCreeLEDbulbsshowcaseCree'scommitmenttoLEDlightinginnovation.Thenewbulbsshineasbrightlyascomparableincandescentswhilesavingenergycomparedtotraditionalbulbs.TheCreeLEDbulbsarebackedbya10-yearlimitedwarrantyandavailableexclusivelyatTheHomeDepot.ForCree,aNorthCarolina-basedmanufactureroflightemittingdiodes(LEDs)withmorethan$1billioninsalestoindustrialandgovernmentcustomers,theCree-brandedLEDlightbulbrepresentedthecompany’sfirstforayintotheconsumermarket.Itwasdesignedtoreplacethefamiliarincandescentlightbulb—ahouseholdstapleformorethanacentury.Italsoculminatedseveralyearsofeffort,fromprototypinganearlyLEDlightbulb,todecidingtoenteramarketdominatedbythelikesofGeneralElectric,Philips,andSylvania,tofinalizingthebulb’sdesign,toquicklyandquietlybuildingamanufacturingfacilityandrampingupproduction.Intheprocess,the“BulbTeamhadmademanytoughdecisions.Forinstance,itenteredintoanexclusivedealwithTheHomeDepottosellthebulbthroughits2,000stores.Similarly,whileitwantedtobuildCreeintoahouseholdbrand,itshunnedtheadviceofconsultantstospendmorethan$100millionperyearorupto$1billioncumulativelyonbroad-basednationaladvertising.Instead,itspentlessthan$20millionontargetedtelevisionads,billboards,digitalmedia,andin-storemerchandising.Finally,whilecompetitors’LEDbulbsregularlyretailedat$30ormoreperbulb,theteamestablishedaretailpriceofunder$10forits40-wattequivalentbulbandunder$13forits60-wattequivalentbulb,inthehopesofspurringadoption.Butwerethesetherightdecisions?Mostimportantly,whatwererealisticexpectationsforsalesforthenextseveralyears?SwobodainstructedMikeWatson,vicepresidentofcorporatemarketing,andChrisJames,vicepresidentofstrategyandbusinessdevelopment,toworkwiththeBulbTeamtodeveloplikelysalesscenariosforthenextthreeyears.FortheexclusiveuseofR.Lin,2016.ThisdocumentisauthorizedforuseonlybyRubyLininTechnologyStrategytaughtbyCockburn,BostonUniversityfromJanuary2016toJuly2016.515-026CreeInc.:IntroducingtheLEDLightBulb2TheLightingTechnologiesBy2013,anydiscussionofthegenerallightingmarketinvolvedthreemaintechnologies:incandescent,fluorescent,andLEDlightbulbs(seeExhibit1forexamplesofeach).IncandescentLightBulbsThetechnologythatstilldominatedthemarketwastheincandescentlightbulb.LargelyunchangedfromthebulbThomasEdisoninvented130yearsearlier,anincandescentbulbproducedlightbysendingelectricitythroughacoiledtungstenfilamenthousedinaglassbulbfilledwithaninertgas(e.g.,argon,nitrogen),causingthefilamenttoglow.Whenmostconsumersthoughtofa“lightbulb,”itwasthe“A-line”incandescentbulbthatcametomind.AnA-linebulbhadthatclassiclightbulbshape,ascrew-likebase,aslightlyfrostedcoatingontheinside,andmostoftencameinincrementsof40,60,75,and100watts.Collectively,theseA-linebulbsmadeuptwo-thirdsoftheincandescentbulbsinuseintheU.S.,withtheremainingone-thirdconsistingofclearbulbs,coloredbulbs,three-waybulbs,spotlights,andotherspecialtybulbs.ManyofthefeaturesconsumersassociatedwithalightbulbstemmedfromtheseA-linebulbs.Forinstance,whilethebrightnessofanylightsourceshouldbemeasuredinlumens,mostpeoplethoughtof“watts”whenitcametobrightness.Inreality,wattsmeasuredtheenergyrequiredforaspecificbulbtoproduceacertainlevelofillumination.Toproduce800lumensoflight,forinstance,anincandescentbulbrequired60wattsofenergy.Inturn,whilethecosttooperateanincandescentbulbvariedwiththepriceofelectricityacrosstheU.S.(seeExhibit2),a60-wattbulbusedforthreehoursperdayconsumedanaverageof$7.00inelectricityinoneyear.TheA-lineincandescentbulbalsofosteredexpectationsabouthowalightbulbshouldlookandact.Forinstance,mostpeoplecametoexpectthatalightbulb:shouldbecheap—costing$0.50to$1.00perbulbshouldgiveoffayellowybrightness—termed“warmwhiteorsoftwhite”bytheindustrywouldgetveryhotwithusage—anincandescentconverted10%oftheenergyitconsumedintolight,withtherestlosttoheatwouldfailcatastrophicallyasthefilamentbroke,sometimeswithanaudible“pop”Giventheaveragelifespanofaninc