Consumer Electronics Market in Mexico

 Consumer Electronics Market in Mexico-Dissertation Writing Help

Executive Summary

Outstanding Performance of the Sector in the Middle of Recession

The highly positive performance of the market of consumer electronics throughout 2008 was an asset by the time the American and then international financial recession strongly hit Mexico’s economic activities overall in the last trimester of 2008. By the end of the year, authorities recognised that the Mexican economy was decelerating, which was confirmed by the decreasing GDP growth for 2008 (3.3%, compared to 4.8% in 2007).

However, the growth of the sector in 2008 had an outstanding performance in respect to 2007, growing from 3% volume growth in 2007 to almost 23% in 2008. In the context of strong momentum in Mexico, where analogue technologies are being increasingly left behind throughout the entire sector, market value has been driven up through products with higher value added and thus, characterised by higher unit prices.

High-income Segment Influences Healthy Market Performance

Behind the maximum historic level in volume and value growth reached in the last five years by consumer electronics sector, there is the backup of the highly strengthened subsector of portable consumer electronics, thanks to the refreshing proposals from portable media players, camcorders and mobile phones. Many product innovations in 2008 were mainly high end, with premium prices and targeting middle- and high-income consumers, like iPhones, pivotal not only to maintaining a satisfactory level but to surpass expectations of the sector’s performance in 2008.

Consumers Cling To Refreshing Proposals of Premium Digital Gadgets

According to the National Association of Selfservice and Department Stores (ANTAD), sales of electronic digital articles, video and cell phones grew more than perishables or clothing. Indeed, subsectors most demanded by Mexican consumers in 2008 were mobile phones, portable media players (mainly portable multimedia, DVD and MP3 players), digital camcorders and digital TVs. A common denominator underlying all these categories is the quickly changing lifestyles, which is pushing consumers to embrace more digitalised technologies as a status symbol and full integration to the modern rhythm of life, especially in double-income households where parents aim to provide the best they possibly can for the integral education, socialisation and entertainment of their children and of themselves.

Competition Only Within Professional Players

A considerable emphasis on new digital product developments or commercialisation, more attractive promotions, credits or payment facilities, together with enhanced distribution was the focus of both, leading and emerging players in the consumer electronics market. In this way, the competitive environment tightened and left no space for improvisation, last-minute decisions or unprepared market responses. The concentration of competition amongst multinational companies, was however dynamic in 2008, by the challenge of players to strengthen and diversify their proposals to the Mexican market in fast-growing and high-potential subsectors (like portable multimedia players or the newest generations of mobile phones), in an attempt to position themselves or gain market share.

Positive Outlook for the Sector

Despite the recession in the United States, having a strong impact on several Mexican sectors and industries, it is not expected to downsize the consumer electronics market. On the contrary, total volume sales during 2008–2013 are expected to triple the ones during 2003–2008, while value sales are estimated to be 2.4 times greater. Reasons behind this are, for example, that high-income consumers are one of the main targets of hi-tech innovations, and middle-income consumers can easily approach those high-end products (like multifunctional mobile phones) through the availability of credit or payment facilities. Also, companies will start acquiring awareness of the increasing growth of internet retailing during the forecast period, as through their ultimate technologies they are appealing for a young generation which understands a lot of electronic media and is highly familiarised with modern means of communication and commerce-making.

Key Trends and Developments

Unique Potential Demographic Bonus With Younger Generations and Double-income Families Redefining the Sector

In 2008 we find in Mexico 106.7 million inhabitants, 8.4% more than in year 2000 and equivalent to a 1% annual growth in average annually since then. According to projections done by CONAPO (National Council of Population) a demographic bonus is occurring in Mexico between 2000 and 2030, reaching 121 million inhabitants and a number of people of prime working age (25–54 years) increasing at a far greater pace than before.

It is foreseen that these developments will bring to the labour force a widened pool of 730,000 workers in average annually, translating into more people enabled to strengthen their disposable incomes and destine them, for example, to buy a modest apartment or enter into bigger credit agreements to acquire a new house, and to purchase or update their electronic technologies. For the consumer electronics market, this implies increasing sales and product development opportunities.

Current impact

The significant growth of the population reaching working age is expanding the potential market. The market is becoming more competitive with stronger tension between price and quality. Companies are working towards specialisation, aiming for the fulfilment of market niches associated with advances in technology. Innovations means products are becoming more multifunctional and also responding more to how people live.  For example, Sony, one of the leaders in home audio and cinema products, launched in 2008 a home cinema set HT-IS100, characterised by the smallest loudspeakers on the market, (with a diameter of 1.7 inches), catering for the necessities of couples or families living in small properties with small room dimensions.

Mexican consumer demographics is changing, as more women have entered the labour market, bringing more disposable income into the household. For example, women are showing increasing interest towards portable laptops, mobile phones and MP3s with stylish designs. All in all, as the number of single-income families is falling, there is a significant correlation between the predominance of both working parents and the reliance on modern and desirably, multifunctional consumer electronic appliances.

Outlook

Mexico has traditionally been a young country demographically. However, the over 40s segment is fast expanding thus stimulating demand for consumer electronics. This segment will represent 13.9% of the total population by 2020.

Working women are likely to adopt personal gadgets as style statements. Also, the rising affluence and lifestyle changes of urban centred families will soon result in a new class of consumer with greater spending power. Many of the purchasing decisions will be influenced by the younger members of the family who will be familiar with the new generation of consumer electronics. Thus, in years to come, the teen segment is expected to contribute more to the overall dynamism of the market. It is predicted that an increasing number of manufacturers will latch on to this growing consumer group by designing products that are both appealing to both these population segments.

Future Impact

By year 2030, forecasts show that from a total population of more than 121 million inhabitants in Mexico, 91 million will be located in urban areas, which means cities of more than 15,000 inhabitants. This will be a key driver pushing up demand for new houses and thus, for consumer electronics.

Considering that the pool of potential workers will see a sizeable increase, accounting for nearly 43% of the national population in 2020 (compared with only 27.4% in 1980), reliance on consumer electronics will strengthen within modern households, where there will be both parents working or single employed professionals.

This scenario will be complemented by more single urban households of young professionals with access to more credit (or the social benefit money in INFONAVIT), as employment rates continue rising.

Looking further ahead, as well as an increase in middle-income families, the expansion of the 65+ population will urge consumer electronic manufacturers to focus on the convergence of technology with user friendly appliances, taking into consideration that Mexico is a country where more than 80% of the population has an average education of elementary school and very advanced devices would be under utilised. Through successful marketing as well as through targeted promotions tailored to individual consumers, manufacturers could see the sector becoming an important host of new applications, while retailers may see volume sales increase dramatically as consumers grow more familiar with a new generation of consumer electronics.

Credit Options: An Ally To the Sector

While access to credit by the low-income population has been fundamental to promoting the economic growth of the country, in the last five years formal employment has experienced growth of 17.5%, having a direct impact on a fostered internal consumption. New consumers now have access for the first time to markets such as motorcars, housing, domestic electrical appliances and consumer electronics. Also, since 2006, credit cards from commercial banks are more accessible to low-income households in Mexico. Since then, credit to consumption shows elevated growth levels. Also store credit cards are competing directly with bank credit cards, although offering higher interest rates.

Although the global credit crisis has tightened up access to credit, in 2008 it was still fairly easy for consumers to gain credit when compared to previous years which helped boost sales of durable goods in Mexico. Overall, for the consumer electronics market, many facilities of credit exist for the purchase of both large consumables like plasma TVs, blu-ray DVDs or a desktop computer and also for small appliances like cameras, a portable MP3 player or a mobile phone.

Current impact

The Association of Banks in Mexico revealed that the emission of credit cards by commercial banks has been extended to a phenomenal level. By the first quarter of 2008, 22 million credit cards were circulating, which means a rise of 134% in respect to the existing 9.4 million credit cards just 3 years before. This must be seen within a context where the number of households living in poverty has decreased from the high level of 12.4 million households in 1998, to less than 9.3 in 2008. Also, families stepping into the medium socioeconomic class have increased to more than 13.3 million in 2008, whereas they were 7.9 million in year 2000.

Some bank and store credit cards have increased their offer of not having to pay back anything until several months later and with no interest. Also, the monthly bank statements often include information on promotions to buy mobile phones, TVs, digital cameras or DVD players, inviting their card members to enjoy extended payment deadlines.

Another indirect mode of credit has been created by one of the main telecommunications enterprises, Telmex which customers can buy online from their website. Internauts and Telmex’s clients can look for a display of consumer electronics, which include laptops of different brands (Hewlett-Packard, Lanix, Dell, etc.), GPS navigation systems, computer peripherals (like webcams) and speakers for iPods. With their monthly telephone bills arriving home, consumers meet with new publicity, at the time they are informed of the payment amount due for that particular month, added to the rest of the telephone bill.

Outlook

Credit authorities in Mexico, namely the CONDUSEF (Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros), has reported that 60% of bank issued credit card holders have the habit of making the minimum payment due every month. Thus, Mexican consumers can be expected to wind up paying lingering sums for their purchases as also retailers keep extending credit options even for small consumer electronics (especially variety stores, supermarket, and departmental stores), in order to keep sales up. This strategy aims to better encounter two factors in the next five years: firstly, the increasing prices that might push down retail consumption in general (even more towards non-essential products), and secondly, the fact that low-income consumers account for 60% of total Mexican households, and still cannot gain credit.

Still, strong positive growth is expected for credit and store credit cards in the forecast period. The financial cards sector has the total support of the government in continuing its strong growth well into the forecast period, as having the option of using financial instruments helps reduce the need and expense of printing money.

Yet, a big risk underlies this monetary public and personal management. According to the CONDUSEF, an estimated 10% of the individual credit card holders have eight or more credit cards and the average line of credit for each account is pegged at MX$2,800. Taking into consideration that the percentage of all consumer bank loans registered as non-paying grew from 6% in 2006 to 10% by March 2008, the increase of financial cards dissemination gives an added risk of faulty payments. Despite acknowledging this, retailers will not cease offering credit for consumer electronics, as they prefer keeping low inventory costs and securing sales somehow. Low- and middle-income consumers are expected to use the cards for durable goods, especially during an economic recession. 

Future impact

Whereas the consumer credit sector helped drive the Mexican economy during the last five years, obstacles are expected to start emerging within this monetary context where credit interest rates are going up rapidly. On the contrary, bankers disagree with CONDUSEF, who has denounced that the Mexican consumers’ credit card debts will soon chill the Mexican economy. Whichever position they defend, it is a fact that an increase in bad credit card debts is worrisome for the national economy, as it means there could be a generation of Mexicans who are not eligible for credit and is listed with the Credit Bureau, implying they may not be able to buy big ticket goods and may cause a contraction within the future consumer electronics sector.

A linear consequence of strengthening the financial cards market would help consumer electronics volume sales, by preventing it from severely declining but at least keep moderate growth for 2009–2013. Still, price instability is another factor to consider due to several steep commodity price hikes (like steel) and a moderate GDP growth (already weaker in 2008 than expected: 3.3% instead of more than 4.5%). Thus, credit might be at stake in the upcoming years.

Financial card service companies will continue to target low income households to acquire credit cards. As this is the widest consumer base in Mexico, manufacturers of consumer electronics can count on high penetration rates in the future.

Cocooning As An Emerging Lifestyle

As people travel less outside of their homes as a reaction to the tough external conditions and a bleaker world preferences for in-home entertainment have vastly grown (and improved by manufacturers), with technologies such as high-definition TVs, DVDs and blu-ray, easier and quicker downloads, large screen TVs and cinema style sound systems.

In addition, consumers have been creating a mode of “outdoor cocooning” with the use of personal gadgets like mobile phones and media players being a form of shutting off their physical surroundings and entering their own world – just as they do when they shut the door at home.

Current impact

Although a global mindset fixed on the world’s financial market difficulties is influencing Mexican consumers to downscale their spending behaviours, the consumer electronics sectors is less affected than other sectors. This is mainly due to electronic products delivering to the consumer either entertainment or communication services that provide the escapism and comfort that consumers cherish in difficult times. With money tight and life tough, consumers are flocking to personal high-end gadgets like digital cameras, multifunctional mobile phones or powerful laptops, or turning to DVDs and blu-ray films, HD TVs, large flat screens, high-quality sound systems – all providing superior in-home entertainment and to find escapism in the company of others or alone.

The large screen and superior sound of cinemas, for example, is increasingly imitated by home cinema products and encouraging Mexican consumers to invite friends and family home for group viewing. To a large extent, the whole concept of a group or a gathering form of entertainment has been replaced by the personal comfort of cocooning at home, which also leaves the door open to socialising.

Outlook

As the intense product development and the adequate marketing and sales campaigns from consumer electronic firms is facilitating the products’ affordability to consumers, electronics entertainment and communication devices will become part of the cocooning experience, allowing consumers to feel not only protected and secure at home (even more so in big cities, like Mexico City, where there are constant dangers and traffic chaos), but also entertained and in contact with friends and the world through the comfort of being at home with the possibility of staying away fron the impersonal, harsh life outside.

The cocooning phenomenon will take Mexicans closer to the global trend of developing online communities from the comfort of their sofa by calling, texting, e-mailing and exchanging photos with friends or members of an online community to keep in touch. This will further stimulated by the proliferation of the booming single person household in Mexico, and within the younger generations, familiar with the modern processes of staying in touch with society without leaving their homes.

Most high-income households, together with the segment of successful professionals will increasingly tend towards creating their own room in their homes providing all what is necessary to build up their entertainment corner or small home office, which again, will create a constant and fresh demand for basic laptops, routers, mobiles and other computer peripherals.

Future impact

For previous generations, an emphasis on cocooning might have been seen as coming with a social cost (not meeting family and friends), but the new generations of Mexicans will be far more geared up to keeping in touch via devices with beloved people, and will not see this as unusual.

For those belonging mostly to the middle- and high-income levels, a new paradigm might emerge, and will be the idea of people having the vital need to communicate and be entertained. The desire to communicate and find escapism in an impersonal and isolating world might start becoming essential and the norm. In term of consumer electronics demand, it is a market unlikely to go into reverse throughout the recession.

However, one transcendental issue will always be the price of digital and technological gadgets and devices. With technology moving so quickly and hardly leaving time for low-priced versions to take hold before the next must-have product is launched, it is highly likely that Mexico’s economic structure functions as a brake for the industry, provoking leading players to slow down with ground-breaking launches, giving time for consumers to catch up and expand the consumption of existing technologies. A consequence of this is that the major brand names may also be tempted to offer basic, no frills versions of their ranges – appealing to both the lower-income buyer and the more experienced user seeking a particular product at the lowest price.

These scenarios might all converge by strengthening the cocooning phenomenon in society, especially if low-priced technology substitutes with lower prices bring in new buyers and succeed in creating a larger base market for services and upgrades for consumer electronics in the future.

Convergence of Fashion and Technology Is A Crucial Component of Success

The digital revolution that started up in Mexico in the 1990s, when computers were brand new on the market and cars were considered the social status symbol par excellence (mainly of the male consumers), has now matured today into a personal tech goods market, which is adopted as a visible display of social status.

While state-of-the art-brands are essential to the younger, cooler buyer, older buyers realise too that the latest gadgets are not only useful, but enhance their own personality as “youthful” and “in touch”. A key element behind the social value of hi-tech goods is the fact that they attract male and female social trend-setting professional groups who are increasingly attracted to ultimate innovations of modern premium gadgets.

Current impact

Mexican consumers are increasingly escaping into affordable luxuries – which today include not only one-day spa therapies or short, de-stressing trips, but now also sleek, cool, personal tech goods.

In this context, fashion and technology have become a powerful combination, which serve as a major driving force in the introduction of new consumer electronic products in the Mexican market. Digital technology has marked a new era for the consumer electronics market as the launch of HD LCD televisions, hard-disk DVD players, home theatres and camcorders, MP3 players, the iPod, pocket PCs and navigation systems have expanded the market across all segments in recent years. Many of these new products have sleek designs and features that are tilted towards the preferences of the youth market and of the high-income segment (professional single men and women, and married couples in double-income households). For example, a premium device, such as the iPhone, is appearing as an essential style statement and one of the holy grails of brand marketing. Consumers who own such a product not only gain avant-garde services but also assure their self-esteem and social status amongst their peer group.

Thus, the latest tech gadgets are pushing the consumer electronics sector to be in a better state than most consumer sectors in surviving the recession. And for the higher-profile areas of the market, the news is that consumers appear ready to keep spending on hi tech goods and to support premium brands and prices – not only based on the product’s overall functionality – but mainly due to their sheer desirability.

Outlook

The consumer electronics market can be expected to focus on personal gadgets where design features will be a key selling point. Elegant styles in design, matched by easy, intuitive use, will be paramount to buyers. The big winner of the moment will be the iPhone, which has managed to significantly upgrade the mobile’s phone subsector by offering a high-profile multifunctional device serving as music player and even as a mini-computer (at least in terms of mobile web browsing and e-mail). It is likely that iPhones won’t encounter any stronger multifunctional competitor in the coming years. Additionally, the “iPhone” phenomenon in Mexico is expected to bring positive outcomes for the sector in general and for the mobile phones subsector in particular, as they have triggered an initial intense response from consumers, whose consequence of reactivating the sector will endure throughout the following years.

There will be a tight competitive landscape in the immediate future, as innovations and newer versions of products will be constantly launched that offer status-related services and the technological benefits that consumers value, as new icons are dictated by the new demands of modern lifestyles.

With all of these positive associations in the consumer’s mind, top line tech goods naturally will keep attracting a strong potential market, although surely they might not answer to the needs of budget buyers (to whom the solution will be however offered by mid-range, standard-priced gadgets.)

Future impact

As an advantage of the sector in the long term, the placebo effect of a belonging sentiment and feel good factor surrounding tech purchases will be strengthened in the forecast period. Personal technological gadgets will become a kind of new language in the long term, clearly saying something about the owner’s sense of style, personal spending power and being switched on to the modern tech world. Fostered sales of high-end multifunctional devices purchases will be increasingly justified in the consumer’s mind by covering several needs, although the real drivers will lie in self-esteem, confidence, peer group status and indulgence at a time of economic crisis and also sheer sexiness.

In a sector that often leads its consumers, creative firms and manufacturers will benefit significantly from this trend, as this will be translated into higher revenues and a type of “secure-shield” enabling the sector to assure long-term commercial success, as they have already gained the most difficult part of their tasks: high consumer interest.

Further consequences in the Mexican market for consumer electronics based on stylish designs with “look at me value” in a tech aware society, will be that mainly portable communications and computing devices will be set to spread into the mainstream consumer market in the long term.

Modern Aesthetics Refreshing the Market

The industry-led trend in in-home consumer electronics has materialised by hi-tech stylish proposals seen across retail showrooms, in magazines and internet advertisements during 2008. Vibrant silver, grey and black colours in sleek finishes have been a refreshing proposal to make the Mexican home appear more modern. Together with the payment facilities offered by some credit and store cards or directly from retailers, this is appealing especially amongst younger couples and single professionals updating their consumer electronics equipment.

In addition, small and large families are tempted to show openly in their own houses the connectivity of their devices, presenting every time more integrated systems such as the TVs-DVD players-home audio and cinema products. Today, beyond the basic entertainment function of these devices, consumer electronic products had become elements of home decoration displaying the modernity of Mexican homes.

Current impact

New company driven products featuring sleek designs in grey and black or silver are encouraging higher-income consumers in particular, to enter into purchasing the most avant-garde designs as a way of transforming their living rooms into a focal point of sharing and entertaining moments for the whole family, around TV-audio-home theatre sets.

However, with the aim of fulfilling all market niches Sony decided to adapt to the conditions of social housing and small apartments by launching a home cinema set HT-IS100, characterised by having the smallest loudspeakers of the market, with a diameter of 1.7 inches, catering for couples or families living in small dimension rooms.

Being highly promoted through television, print and internet media, consumer electronics have been marketed with the idea of creating a room dedicated to a home cinema system complete with plasma or LCD TVs with wide flat screens in brilliant black or silver finishes, allowing the projection of blu-ray DVDs and connected to stylish loudspeakers. Similarly, the message of creating of a home office containing a bundle of computer products and related peripherals has also been processed by marketing campaigns.  According to specialists, the aesthetics and elegance of these new consumer electronic products inspire people to show off their modern and harmonious integrated rooms with hi-tech appliances, unlike 20 years ago, when the trend was to hide or camouflage this kind of equipment behind closed doors.

Outlook

Leading companies will continue focusing on the concept of multi-functionality and more aesthetics amongst electronic products. Audio, visual and digital appliances are expected to continue being the most preferred by householders when they move house (even over white goods) or when they wish to furnish their homes with replacements.

This fashion of decorating homes using modern consumer electronic products, apart from helping to invigorate sales, will also help with the companies’ strategy to shorten replacement cycles by offering different designs and colours.

Although the traditional niche market for high end products has always been young, high-income consumers, an important extension of the consumer base for these products will be the middle-income consumers, who are following a smooth trend of gradual increase, according to the forecasts regarding the socioeconomic structure.

Future impact

There is a deep rooted tradition of Mexican families that is not expected to change, and furthermore will be strengthened: the experience of building and sharing family memories and moments by the family nucleus and extended branches of the family. Even the socialisation of homes of single people will be increasingly around consumer electronics, acting as a cohesive element for socialisation, education, communication and interaction amongst family members or friends, (in the context of a country like Mexico, where there are higher penetration rates for TVs than for washing machines.). This means that for Mexican households the trend will be towards updating their entertainment devices, like TVs and DVD players rather than white goods.

Social processes around technological devices will be increasing in the forecast period, mainly as analogue technologies are substituted for digital versions.

Thus, new product development of consumer electronics will be a driver feeding the trend, by offering new designs and components in the forecast period.