Consumer Electronics Market in France-Dissertation Writing Help
Executive Summary
Consumer Electronics Market in Strong Growth
In 2008 the
consumer electronics market showed strong growth. Indeed, in constant Euros, it
grew by 10.2%.
The average unit
price of an electronic product is also rising because of the high demand and
interest surrounding high value digital innovative products such as HD TVs and
computers. These are boosting the French consumer electronics market. This
higher average unit price is accountable for the volume growth rate (8.2%)
being lower than the value growth rate.
A Favourable Economic Context
In France, in
2008, the economic situation improved. The unemployment rate dropped almost 1%
(to 8%), and GDP grew by more than 2%. This good economic context meant higher
disposable incomes thus helping the market to grow. In fact, the global
financial crisis has not affected France as much as other developed countries
and did not influence seasonal sales around the Christmas period. France’s high
birth rate in recent years (the highest in the EU, along with Ireland) is
further fuelling the market as young consumers, teenagers and parents who wish
to offer their children “the best of everything” are supporting the consumption
in in-home electronic products.
Hdtvs - the Major Sector in Growth and Value.
The HDTVs
subsector is growing very fast. Since the “boom” of 2006 demand is still very
strong due to a number of factors: the anticipation of the Beijing Olympic
Games increased demand; the disappearance of analogue TVs; and the price
differential between analogue and digital TV is not great enough to encourage a
consumer to stay with analogue technology. The infrastructure support for the
analogue signal is due to end on November 30, 2011, whilst HD content becomes
more freely available which was not the case in 2006 and 2007.
Market Characterised by Concentration, Fragmentation & Maturity
The market is
still concentrated between the four major payers (around 40% of the market):
Samsung, Sony, Nokia and Philips. The other players derive from South Korea,
Japan and from Asia. Samsung is becoming a key player particularly in France
due to its presence in large and lucrative markets like HDTVs and mobile
phones.
The maturity of
some subsectors can be noted. Indeed, mobile phones, navigation devices,
digital cameras are example of products that have reached maturity. The growth
rate of theses products is beginning to fall in contrast to its strong
expansion just a few years before.
The
fragmentation of the market is also noted. There is now a gap between top and
lower end prices due to the characteristics of the mobile phones sector
(touchscreen versus 2G), the laptops sector (laptops versus notebooks), and
also in audio products.
Some Difficulties for A Still Growing Market
After a buoyant
2008, the consumer electronics market is likely to feel the effects of the global
credit crisis as credit dries up and consumers shift to purchasing only
essential goods. Sectors computers and TVs will suffer the least as such
products can often be viewed as essential due to their use for work, business
and central to home life and entertainment. The uptake of some new technologies
will not be as high as was originally anticipated which is reflected in the
difficult start of Blue Ray players which saw sluggish growth; consumers were
not responsive to the premium price in relation to the jump in quality with
many deciding not to replace their DVDs until unit prices fall and technology
becomes more established.
Key Trends and Developments
the Increasing Influence of the Government
Certain aspects
of the consumer electronics market are likely to change in terms of
manufacturing, retailing and distribution due to new laws and taxes introduced
by the government. Tax laws which may affect profitability and new standards to
which companies will have to adhere may influence the way the products are
built. Retailers must take into account the taxes, and how this will affect
their pricing and competitive strategies.
Outlook
The French state
is today likely to intervene into the consumer electronics market. Today its
action is viewed in many subsectors: TVs (with the end of the analogue signal,
and the taxes), computer peripherals (with a new important tax on storage
devices, for intellectual property), and potentially in every subsectors (because
of the wide reaching taxes and laws). Moreover, the French Government has
announced it is to replace the “taxe professionel”, by a “carbon tax”, by 2010.
It will penalise the most polluting products. This could be an advantage for
the biggest and more technological companies, more able to make big investments
into green technologies. And of course, the end of the analogue broadband will
also have positive impact on the sales of TVs and converters.
Current Impact
An “eco-taxe”,
which is a tax to compensate the impact on the environment of electronic
products. This tax is today quite small (no more than several Euros on a TV),
and is not affecting consumer purchasing decisions. However this tax may
evolve, considering the current interest in the environment. The government has
announced that the analogue signal for TV will stop in 2011 which should boost
sales in digital TVs well ahead of this date. There are numerous advertisements
encouraging consumers to purchase a specific digital receiver in order to watch
TV with a digital signal.
Future Impact
The future
impact of such regulations could be massive for the market. After a deep
modification of the automotive market with the creation of a “bonus-malus”
system (a “bonus”, a sum of money is given when someone buys a low emission
car, and a penalty is given when the car bought is a high polluter), the
government thought has applied the same tactics for plastic products, such as
plastic forks, plastic made glasses, and other products, and in the future, it
may introduce the same system for the electronics market. If so, the ‘greener’
manufactures will be in this case the winners of market shares (with the
opportunity to keep high prices, thanks to the “bonus”). Therefore, it is not
limited to only one sector. As an
example of the impact of this measure, on the car market it made the SUVs
decrease by 50% between 2007 and 2008!
the Maturity Strikes Many Sectors
2008 is marked
by the maturity of many sectors. The strong growth of some sectors - navigation
systems, and mobiles phones for example peaked in 2008 with growth rates
starting to fall. Indeed, the maturity of a product is characterised when its
sales are no longer growing at a comparative level than during the previous
period. This situation is also characterised by the fact that a large part of
the target consumers for the product already have one thus reaching high levels
of saturation and depleting any potential growth left in the sector. A mature
market is also called a market of “renewal”, thereby such markets are the ones
to watch because of the changes it implies for new manufacturer and retailer
strategies.
Current Impact
The two best
examples of mature markets are the mobile phone sector, and the navigation
systems sector. For the mobile phones, the CARG was around 9% between 2003 and
2008, when it is foretasted to be around 1% between 2008 and 2013. The same
phenomenon can be noted for the navigation systems, when the CARG in 2008 was
36% and it is foretasted to be 5% between 2008 and 2013. Digital cameras, the
audio sector, peripherals and the portables media players are following a
similar trend but on a different scale.
The effect of
mature markets represents a slow down of overall growth of the consumer
electronics market. Those are important sectors in terms of value as
manufacturers are not witnessing falling sales. As a response, companies are
forced to adapt strategy on a production, distribution and marketing level.
Outlook
The two sectors
which lead the market - PCs and HDTVs - are not in a position of maturity yet.
In fact, they are growing very fast. And there are already innovative new
products to replace them, (3D for the TVs, touch screens for the PCs).
Therefore, even if some products in 2008 are in mature phase, there are
numerous new products released onto the market that will stimulate and excite
the interest of tech savvy consumers wishing to upgrade to the latest models.
Future Impact
Manufacturers
are less focused on introducing products with high unit prices but are more
determining their success on how quickly a consumer replaces their older model
with a more updated one with more features and added value benefits. As
replacement cycles are falling across many sectors, manufactures will have to
find and target new growth areas (by investing in R&D), to hold onto market
share as competition becomes stiffer. It is a period where the most innovative
firm will win market shares. The nature of the market will also support the
development of new products, in perfect response to consumer needs and demands
in terms of technology. Manufacturers need to respond quickly by adapting
production schedules and lines, to avoid to losing revenue producing an
obsolete product.
the Internet Retailers' Deception
Internet retailing
in France nourished big expectations. However, development has been slow of
internet retailing with slow market share growth of the overall market. This is
the result of several factors, such as consumers not favouring online payments
or being suspicious of delivery methods. But it is also because of the sheer
size of televisions consumers prefer to choose one within a store and take it
home. Smaller items however, such as cameras and MP3 player are sold more
successfully on the internet.
Current Impact
Internet
retailers won an additional 0.5% market share in 2008 totalling 5.2%. This slow
growth is hiding disparities between the sectors. Online retailing of TVs
accounted for only 3.8%. This is below the global average of internet retailing
of TVs to be explained by the price and the size of the HDTVs. The buyer is
worried about buying such an expensive product on the internet, without testing
it, or minimal visual presentation of the product, and the size make the
delivery expensive and vulnerable to damage. But over 6% of small electronic
products are sold on the internet such as cameras, MP3 players, and navigation
systems. This slow growth allows the non-grocery retailers to expand their
market share (+0.4% for the durable goods retailers, +0.5% for the mixed
retailers). It is explained by the fact that the consumer likes face to face
advise before buying an electronic product. They also appreciate the after
sales services, which are more efficient and reliable with non-grocery
retailers.
Outlook
Expectations for
internet retailing to show stronger growth are apparent in the forecast period.
The comparative advantage of the internet retailers is that the consumer will
find more competitive prices and ways to compare price and product and read user
reviews. It’s a more democratic environment. This arena will become more
relevant in 2009 because to the financial crisis. Furthermore, retailers are
tightening up any problems with payment and delivery and thus gaining consumer
confidence.
Future Impact
The improvements
into the quality of the services of internet retailers (after sales services,
reliable delivery), offer an improved image. Therefore, the consumer is more
likely to buy online than previously. The main challenge for internet retailers
is to keep their services reliable and constant. Their competitive advantages -
lower prices and easy comparison - must be maintained for them to see growth of
market share.
Market Become More Polarised.
In 2008, the
consumer electronics market became more segmented with more offerings in both
the high end and low end markets to the detriment of the mid-range market. For
example the development of both netbooks and Apple's products in France are
characteristic of a segmentation of the market (the netbooks are very cheap,
whilst Apple's products are premium priced). Similarly, the “Bic phone”, a
disposable phone is a low priced product whereas smartphones represent the
newest technology at the highest prices.
Current Impact
As a result of
this segmentation, products of the middle market are more difficult to sell in
2008. Indeed, the marketing of these products is more difficult than the
premium market which sells lifestyle products whilst the low end market offers
cost effective products. Similarly, the
margins are enjoyed by the premium market, whereas sheer volume share is
enjoyed by the low market. Therefore, there has been a natural movement of
manufacturers to find ways to exploit the two polarised markets. The demand for
low priced products since the financial crisis has been substantial as consumer
preferences have shifted to cost effective solutions and the importance of a
good quality/price ratio. The upper market's success is explained by the phenomenon
that consumers wish to treat themselves and cocoon themselves whilst times are
tough.
Outlook
Due to the
financial crisis, France's GDP is foretasted for 2009 to be around 0%, compared
to 1% in 2008. This will have consequences on the purchasing power of consumers
due to higher unemployment and falling wages. Therefore, the trend of
segmentation in the market is expected to continue in 2009 and further. As the
economy begins recovery a new period of GDP growth could reverse this trend,
however, it is not anticipated for a couple of years.
Future Impact
The impact of a
polarised market will be important for both manufacturers and retailers. For
the manufacturers, the impact will be that they will have to adapt their
products, to fit the market in term of prices. Doing that, they will have to be
careful to protect their brand image (very cheap products could have a
detrimental affect on this image). The solution could be to introduce a new and
separate brand, specific for the lower end market. The manufacturers will also
be affected by the arrival of new players and stiffer competition, as more wish
to get a slice of the pie. For the retailers, this trend is likely to support
the non-grocery retailers, discounters, and internet retailers, as they represent
the top and bottom market. Indeed, the supermarkets and the hypermarkets will
lose market shares in the future because of it. It is already the case in 2008
(they lost 0.8% together).
Convergence of Functions Into A Single Multifunctional Device
As the
technology forges ahead, there is a movement to the convergence of functions
into one multifunctional device. Indeed, the capacity of miniaturisation of all
the various components allows manufacturers to pack them into a small device.
The best examples are the mobiles phones; into a smartphone, there is today an
internet browser, a MP3 player, a navigation system, and a digital camera. Add
to this, digital cameras can also be used as a camcorder, a sound system for
the TV, used as a HIFI system, the PC is used as a TV, and vice versa, the TV
is used as a media centre, linked to the internet.
Current Impact
These
technological changes raise consumer expectations of what functions such
products can fulfil for them. As manufacturers listen to consumer feedback they
are able to tweak products and develop with new updated models all the time. As
usage practices change, so do buying practices. The consumer thinks about the
pros and cons of a product of a certain sector, and compares it to a product
from another sector resulting in a degree of cannibalisation of sectors.
Instead of buying a camera, a navigation system, and a MP3 player, the consumer
could just buy a smartphone with all four functions. Smartphones enjoyed growth
rate between 2007 and 2008 of 55%.
Outlook
The trends for
this sector are led by technological progression. Therefore, there is no reason
that this trend will stop, in fact it’s more likely to gain pace in the
forecast period. Plus, converging products, as smartphones will continue to be
a big success in France as there is the perception that by only having to spend
on one multifunctional product the consumer is saving money by not having to
buy several products thereby justifying the premium spend. Similarly,
manufacturers will boost the trend by continuing investment in R&D.
Future Impact
A key impact of
this trend of polarisation will be on the structure of the market, as some
sectors, or subsectors, may adapt or disappear. Indeed, if everybody has a
phone with a MP3 player, demand for standalone MP3 players is likely to
decrease. This is a challenge for the manufacturers, to keep looking for
potential market growth in the right areas in line with technological advances,
in order to keep their market share.
