NPD Group Blog » Reasons To Be Cheerful Part 3

Reasons To Be Cheerful Part 3

Wednesday, February 22nd, 2012
By Stephen Baker, Vice President, Industry Analysis

Not the best known song, and frankly not a particularly great one sung by the bizarrely named 80s band Ian Drury and the Blockheads, but a great title nonetheless and one that fits perfectly here. There are no blockheads in CE as this is an industry that sheds underperformers and laggards pretty quickly. After our last post some may be tempted to view the stagnant consumer technology industry fortunes and think the whole market is really a laggard among consumer markets. But that is far from the truth. What is true, as we pointed out, is that in an environment of stagnation there must be some strong niches and opportunities out there to offset the decliners. So it seemed like a natural segue to review some of the product segments and industry trends that give us a reason to be cheerful about the future of consumer technology.

Demand Stability - While our last post talked about declines in volumes; understand that demand in general is not the biggest issue facing consumer technology. While there are a significant number of categories facing absolute unit demand issues, tech’s revenue shortfalls are more structural and mix related. In general tech continues to work from a position of strength in respect to consumer demand. As has been pointed out constantly over the past few years, technology is at the center of consumer’s lives and even in difficult times has shown that they will make spending here a priority over other choices.

Price Stability - Tech is also known as an area where prices are constantly falling. And while that is likely to remain true on an item basis, savvy brands and retailers are looking at their entire product portfolios and recognizing that mix is critical in maintaining category price stability. Opening price points in many segments, especially declining ones, have little additional room to fall. With growing opportunities in premium price ranges and stable prices and volume shares at the entry level the case for serious price declines in 2012 is very weak.

Premium Priced Product - The new 3P’s of technology mean that the industry has exciting growth prospects in more aspirational goods. As demand and prices stabilize an important driver of this is the growing appetite from the consumer for more premium-priced products (and the increased interest in the industry to providing it). Vibrant premium level product offerings is a core factor in bringing about demand and price stability in the technology industry.

Look What I Found - Despite some of our pessimism there are a myriad of emerging niches in technology supporting our arguments above. Whether it is $100 headphones, $200 speaker docks, dedicated streaming audio or video players, large screen and Smart TVs, ultrabooks and network storage devices, or mirrorless cameras there are more than enough categories and manufacturers exploring new product ideas and opportunities. Price point assumptions are continuously being challenged in order, to provide targeted, but important, growth accelerators to the overall marketplace.

Retail isn’t dead - While the retail store is changing, and will continue to change, innovative ideas such as Best Buy’s connected store initiative, CompUSA’s retail 2.0 stores, and hhgregg’s commitment to a culture of help inside the store prove that no one at retail is standing still. Add to that the store initiatives manufacturers are taking to supplement their indirect sales paths and the challenge is becomes much more about who sells what than it is about the sales channel. Physical retail will remain the most important sales outlet for technology hardware for years to come.

Everybody loves CE - One of the most telling positives of increasing industry focus on an ecosystem and some level of standardization is that it forces all the players in the supply chain to work from the same page, one that is managed to offer the consistency and stability most consumer prefer. . As technology becomes more pervasive in more people’s lives it will be this level of coordinated approaches to the consumer’s experience that will help maintain the desirability of CE. And the requirement to build to these standards will help the industry maintain the value of products and features longer, helping everyone avoid some of the ruinous pricing activity of the past few years.

There are lots of reasons to be optimistic about the prospects for sales in 2012; we’ve only listed a few. Just as there are threats to the traditional products and business models in technology there are plenty of opportunities. Building on a base of price and demand stability and continued consumer demand for your products is a position most industries would love to have. While the big growth days of CE may have ended only a blockhead would quarrel with the idea that plenty of opportunities remain ahead.

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