Consumer Electronics Market in Romania

Consumer Electronics Market in Romania-Dissertation Writing Help

Executive Summary

Pending EU Accession Boosts Market Growth

In the final phases of the country's preparation for accession to the EU in 2007, the Romanian Consumer Electronics (CE) markets exhibited upward trends, both in terms sales volume and value. In 2006, the strongest performance in volume was in the portable CE segment, while the rest of the market grew a little slower. Even so, the biggest share in terms of both value and volume for the entire 1998-2007 period was in the in-home consumer electronics segment. Performance was driven mainly by growth in the IT market as well as by increasing demand in the television sector. The volume growth in this sector fluctuated enormously throughout the 2002-2007 period, with the peak performance occurring in 2003. The increase in volume sales is expected to continue, primarily due to the direct influence that the country's accession to the EU will have on price. Price reductions in the CE market will always result in a rapid increase in consumer demand.

Other Incentives Boost Sales

Several other factors will contribute to increased spending in the CE sector. These include continuing government reform efforts, privatisation in the energy sector, high levels of foreign direct investment, declining inflation and unemployment rates, and Romania's dynamic economic growth, which exceeded 6% in 2006. Declining prices will also help to stimulate significant growth in CE sales. Strong demand from small and medium-sized enterprises for new high-technology products also contributed to a newly buoyant consumer electronics market.

Market Performances

The portable CE sector was the fastest-growing product category. Its 2006 performance was driven by the telecommunications market which experienced a large increase in the number of mobile phone and mobile services subscribers. On the other hand, analogue product sales in this sector plunged throughout the 2002-2007 period, reaching the zero threshold by 2008.

Consumer Preferences Remain the Primary Stimulus

One of the main engines of growth in this sector is increased spending by mid-sized companies and by the more progressive small enterprises turning to more sophisticated technologies in order to maintain competitive advantage. The fast-growing Romanian CE market continues to be characterised by a shift from traditional analogue products to high-tech digital products. Sales of traditional CE products barely increased over the 1998-2007 period due primarily to consumers' increasing demand for digital products.

Future Trends in Ce Market

Even though a lower rate of growth is expected over the next five years, the overall Romanian CE market volume growth will remain high. The in-home CE market is expected to grow, and good performances registered in the portable CE market are set to continue, and the in-car consumer electronics market is expected to do well throughout the coming five-year forecast period (although the in-car CE segment represents a much lower share in terms of both volume and value). The entire market is expected to continue its upward trend driven by factors such as decreasing prices, the increasing range of products and brands available and the increased spending by Romania's public sector as its accesses its EU structural funds.

Key Trends and Developments

the Importance and Impact of Innovation and New Product Development

The increasing importance and impact of innovation and new product development is a positive feature for the entire Romanian retail market. This is a win-win situation, as both consumers and producers benefit: consumers obtain access to better performing, high-quality products while producers take advantage of the increasing consumer demand. There has been a strong increase in Romanians' desire for advanced technology. As well, as noted earlier, a main drivers of growth has been the increased spending by mid-sized companies and more progressive small enterprises.

Current impact

The traditional analogue product segment peaked in its maturity by late 2000 and the market for these products has been diminishing throughout the review period. On the other hand, the impact of technology on Romanian consumer lifestyles has been strong enough to reverse the negative trend of traditional products in the CE market.

The biggest sales have been in PCs, mobile phones, televisions and audio products. The PC market continues to be characterised by a shift in demand from traditional desktop products to high-performing notebooks, and as notebooks continue to incorporate the latest technologies the trend is set to continue. Telephone manufacturers are also expected to continue to add new and more appealing features to their products and this will increase the rate of consumers replacing their older products. The Romanian mobile phone market is experiencing good growth and it continues to profit from intensifying competition in the high-end feature segment due to the increasing proliferation of media – specifically imaging and music – available through new handsets. Introducing these highly innovative features has served to maintain healthy product renewal cycles. Global System for Mobile-GSM only-communication is rapidly being replaced as a technology for entry-level handsets by EDGE and the proportion of handsets using Wideband Code Division Multiple Access is growing substantially.

The uptake of 3G services across Romania continues to grow, although not at a particularly high rate. The market for converged devices, such as smart phones and wireless handhelds, is seeing healthy sales volumes thanks to the availability of a wider range of handsets, price reductions and aggressive promotion efforts. Even as some older CE technologies have declined in the past years, flat-screen TV and digital personal audio products have seen a robust increase in sales. Other products registered, at best, flat value sales. Traditional analogue categories, on the other hand, often registered negative sales growth. The rapid decline of old CRT TV is the logical consequence of the strong performance of new innovative flat panels and CRT TV sales continue to decrease in volume and value. Even small screens, despite the steady decline in their average price and the varied range on offer, are beginning to be affected by the strong growth of LCD. Similarly, the VCR is quickly been superseded by DVD players and recorders.

Outlook

CE manufacturers are fully aware of the importance of innovation and its influence on market demand. They are expected to continue to add new and more appealing features to CE products in order to increase the rate of consumers replacing their older devices. Fast-developing technology is the main engine driving up sales in this market and manufacturers cannot afford to let this trend lose steam and die out. An immediate market reaction to this would be a huge decline in demand followed by a collapse in sales. In the long run, companies not continually introducing new innovations will be replaced by market entrants launching new high-technology products.

Future impact

More and more innovative products will emerge in the Romanian CE market. Corporate customers will increasingly seek to use new technologies not only as a tool to maintain the operation of their businesses but also to change their businesses, making them more efficient and more profitable. Global competitive pressures will drive firms to grow their businesses through the use of these new high-performing tools. In the long term, successful business performances will rely on innovative and high-performing technologies.

Innovation is the main consideration in the purchasing decisions of Romanian consumers and it is the key to healthy sales growth in the CE market. As far as producers are concerned, innovation is the only factor that will ensure them increasing profits, gaining in market share and achieving the competitive edge.

Globalisation

There are many implications of globalisation for the Romanian economy. Globalisation has intensified interdependence and competition among the world's economies and their markets, and this is reflected in the current trading in goods and services and in movement of capital. As a result, domestic economic developments are no longer determined entirely by domestic policies and market conditions. Rather, they are now influenced by both domestic and international policies and economic conditions. It is clear that those evaluating and formulating domestic policies now cannot afford to ignore the possible reactions of those policies to developments in the rest of the world. They must also be keenly aware of policies and activities in key international markets in order to evaluate the reaction in their own domestic markets. This situation has constrained the number of options available to government policy-makers, implying to some extent a loss of autonomy in decision-making at the national level.

Current impact

The Romanian CE market has been developing within the context of an increasingly globalised world. One important consequence of this has been the increasing number of new entrants into the Romanian market. Overall, the market will benefit from the increasing competition generated by more producers, more brands, and a wider range of available products.

A logical consequence of increased competition is the appearance of better performing products, as companies seek to maintain their competitive advantage. An increase in the number of market offerings will result in decreasing prices in the long term. Consumers will benefit by having more choices, higher-quality products, lower-priced products and products with better price/performance ratios.

The shape and structure of the Romanian CE market is a perfect example of the consequences of globalisation. In 2007, there were over twice as many brands available than were available in 1998 and prices declined throughout the entire review period. The product segments that benefited most from the impact of globalisation were the mobile phone, television, and audio and video sectors, as well as the IT market.

Outlook

In the forecast period, it is anticipated that the number of CE brands available in the market will continue to increase and that competition in the market will continue to intensify. 

Future impact

As they will find themselves facing an increasing number of competitors, current producers will have to undertake great efforts to maintain leading positions in the CE market. In response to trade liberalisation, producers will need to focus on their core strengths. Successful producers will be keenly aware of and employ all of the factors that drive up the volume sales in this sector: lower retail prices, improved price/performance ratios, high quality, development of new products and new product features and other factors related to innovation.

Globalisation will always have a significant impact on entrepreneurial enterprises. The changing international environment in finance, human resources, technology, politics, economics, and social conditions has created opportunities for entrepreneurial enterprises to expand their international activities at a much faster rate. With the help of local governments, large corporations and international organisations, entrepreneurial enterprises will be able to respond to the challenges posed by globalisation and economic liberalisation by improving their competitiveness in the global market and better serving global consumers.

Changes in Consumer Lifestyles

Hectic lifestyles are a hallmark of a continually modernizing world, as more and more people seek a place to work and find themselves attempting to satisfy their daily requirements. 'Hectic lifestyle', on the other hand, is synonymous with people being too busy, often rushing around and generally feeling as though there aren't enough hours in the day. CE products often help consumers cope with the stress and pressure of a hectic lifestyle. For example, some electronic products may be used to help consumers relax during their leisure time (audio and video products), some make it easy to learn or to stay informed (TV sets) while others make it easy and convenient to communicate with either work partners or family (mobile phones).

Other major demographic changes in Romania that influence purchasing decisions are the increased number of people moving to urban areas looking for work opportunities and the increased number of women working.

Current impact

In Romania, recent lifestyle changes have led to important changes in what consumers now perceive as their needs. For example, the growing number of Romanians now living in larger urban areas has had a major influence on the increasing number of automobile sales. In turn, this has led to an increase in the demand for in-car consumer electronic products. As well, the increased number of urban households has boosted the sales of in-home consumer electronic products.

The biggest sales growth, however, belongs to the portable CE segment. This growth is easily explained by the newly developed needs of modern Romanian consumers. They now need to move faster, to communicate more easily, to become more efficient and to waste less energy and portable CE products help them do these things. Electronic products have always improved efficiency in work environments and now consumers look to them as ways to improve efficiency during their leisure time.

Electronic products are pervasive and the play a role in almost every aspect of Romanians' lives. Changing lifestyles are fueling sales in this market and manufacturers of electronics are constantly improving the product lines to adapt to changing preferences and needs of Romanians. As a consequence, the CE market continues to experience healthy sales increases.

Outlook

Changes in demographics and consumer lifestyles have been two of the important factors influencing the Romanian consumer market, and it is anticipated that these factors will continue to generate change in the coming forecast period.

More are expected to work from home in the coming years, whether to avoid commuting, to care for elderly parents or simply to fulfill the desire to be one's own boss. Working from home will soon become a way of life in Romania. As a consequence, consumers will demand more space for home offices and home theaters. Producers and contractors will turn to products with advanced technologies to satisfy these requirements and to outperform their competitors.

Future impact

As consumer lifestyles continue to change, they will create significant changes in consumer demand. As a result, manufacturers will have to broaden the range of their product lines. To survive, they will be obliged to incorporate new and advanced technologies into their products to satisfy new consumer requirements and this will ensure that the CE market continues to reach new levels of performance.

Analogue products will disappear from the market and be replaced by high-performance digital products. Overall, the CE market will experience significant growth as consumers come to depend on these new products.

Pricing

Despite the decline in average product prices in the CE market, both sales value and volume increased, as the price reductions led to a compensating increase in sales.

Moreover, Romania's accession to the EU resulted in lower prices for electronics through the diminishing custom duties on electronic products imported from other European countries. The in-home CE market experienced declines in average unit price over the review period, and the PC market continues to be hit by aggressive pricing. Even so, price reductions overall have not been as robust as expected.

Current impact

All CE subsectors have been affected by declining inflation rates, even though this has resulted in very small differences in prices. Promotions have also played a decisive role in consumers' purchasing decisions. This can be easily seen by analyzing CE volume sales throughout a calendar year. For example, December has always seen higher rates of promotional activity and has, thus, always experienced the best sales performance. This analysis can also be done by looking at distributor sales. Producers tend to offer discounts to all distributors in rotation and distributors tend to promote only those products for which they have discounts. A direct consequence is an increase in that distributor's sales for the advertised brand. For example, during a recent October/November/December period, the distributor Altex was given discounts by LG for LCD TVS. Altex sales for these products increased by more than 15% during the period.

Outlook

In a time when customers are exposed daily to a nearly infinite number of promotional messages, many marketers are discovering that advertising alone is not enough to move members of a target market to take actions such as trying a new product. Instead, some marketers have learned that to meet their goals they must use additional promotional methods in conjunction with advertising. Other marketers have found that certain characteristics of their target market or characteristics of their product make advertising a less attractive option. For these marketers, better results may be obtained using other promotional approaches and may lead them to direct all of their promotional spending to non-advertising promotions. Finally, the high cost of advertising may drive many to seek alternative, lower-cost promotional techniques to meet their promotion goals.

Producers are expected to replace aggressive pricing strategies with less aggressive pricing techniques. Within the context of decreasing inflation, average unit prices for electronic products are expected to decline over the next five years. Despite these anticipated price reductions, sales of traditional analogue products are not expected to recover over the forecast period. For example, the cassette decks and radios, having reached their all-time lowest price in 2006, are just no longer attractive to Romanian consumers and sales growth for these products is not forecast.

Future impact

Pricing is powerful factor in sales performance in the CE market. Producers may, in order to spur sales momentum, utilize pricing strategies such as sales promotions. Less aggressive pricing strategies, used in accordance with consumers' purchasing power, have typically led to improved sales performances. For example, the decreasing inflation rate in Romania led to lower average prices for CE products over the period 1998-2007. As a result, producers found themselves able to spend their time creating product awareness, stimulating interest and demand for CE products, reinforcing their brands and, ultimately, increasing their sales. One of the most powerful sales promotion techniques is the short-term price reduction or, as it known in some areas, "on sale" pricing. Lowering a product's selling price can have an immediate impact on demand, though marketers must exercise caution since the frequent use of this technique can lead customers anticipating the reduction and, consequently, withholding their purchases until the next price reduction is offered.

During the forecast period, declining unit prices will result in an increase in volume sales. Regardless, Romanian consumers seem to prefer to purchase many of the more expensive alternative products incorporating the latest innovative technology. This indicates a trend toward consumers opting for products with better price/performance ratios rather than products that are just less expensive.

Advertising

The key players in the CE market tend to consider good sales performances being the direct result of successful advertising campaigns. For example, Altex conducted one of Romania's most successful advertising campaigns in its "Have you gone mad in search of small prices?" advert from its "The lowest price in Romania" campaign. During the first month after this advert had been released, Altex sales increased by nearly 17%. The advert appealed to the public because it promoted low prices using an interesting and amusing approach, acknowledging consumers' tendency to look for less expensive products. The campaign also showed an interest in consumer preferences. The message is that consumers want the lowest prices and Altex purports to offer them that.

The success of a single advertising campaign is best judged by the influence it has on sales volume. Indeed, the growth generated by the Altex advertising campaign proves that intelligent, client-oriented advertising campaigns are effective and really do appeal to Romanian consumers.

Current impact

With expenses for advertising and promotions (A&P) accounting for more than 20% of sales for many Romanian CE companies, managers are looking either to reduce costs or to reap more value from them.

All possible advertising methods and media are present in the Romanian CE market, ranging from classic newspaper, radio and TV adverts to promotions to internet advertising. 36% of Romanian consumers are influenced by internet based advertising, whereas 28% are influenced by TV adverts and only 12% by direct marketing.

However, the Romanian CE market suffers from three shortcomings regarding advertising. First, it gives only limited consideration to the significant differences in A&P intensity and sensitivity that often exist among market segments and regions. Second, it fails to recognise the fundamental choices to be made among growth, maintenance, and harvest strategies for each brand, segment, and region or country. Third, market share and the impact of support investments on profits are not measured, and, as a result, share targets are not linked to A&P budgets.

Outlook

Advertising campaigns will always be a major factor influencing brand awareness, consumer loyalty and sales volume. The key players are becoming increasingly aware of the importance of successful advertising campaigns. It is, therefore, expected that the market will see an increase in the use of outsourced advertising services during the forecast period.

Future impact

For advertising and promotions to be effective, companies must spend on the right brands in the right regions and convey compelling messages through the right channels. Outsourcing advertising services will help Romanian producers and distributors cut their costs and remain competitive. Outsourcing creative services is likely to breathe new life into the advertisements consumers see daily and this will ultimately boost sales. One impact of globalisation during the 1990s has been the creation of a vast pool of exceptionally talented advertising professionals around the world who have experience with multinational brands, who still strictly follow the advertising discipline, and who create extraordinary work in the English language. These professionals collectively have not only been successful in winning a large percentage of the world's advertising awards but, more importantly, they have given their brands first-class tickets to leadership positions by moving products off the shelves and gaining permanent places in consumers hearts. Outsourcing advertising services to such professionals will surely provide a competitive advantage.