Financial frugality and the technology device market
The global economy is tough. The International Monetary Fund (IMF) has forecast that global growth for the year will be 2.9%. When it comes to the tech sector, Canalys figures for Q4 2022 show worldwide smartphone shipments fell 18%, the wearable band market fell 18%, smart personal audio fell 26%, and PC shipments (desktops and notebooks combined) fell 29% (and down 16% across the year).
It is important for technology vendors and retailers to consider the margins and value of products they offer, providing the right mix from an affordable ‘value range’ through to premium products, avoiding any duplicate ranges between price points. Significantly, GFK says that in the tech and durables sector across Europe, both high and low-income customers rate price as the most important purchase factor (70% and 78%, respectively), with product features running a close second (67% and 61%). Desirability characteristics might relate to a strong feature set, filling a gap in what is already owned or providing a necessary upgrade.
Those involved in technology product marketing and sales will need to work hard in this environment. While they can’t change the wider economy, they can adopt strategies that can help maximise sales volume and revenue. Slashing prices can stimulate customer interest and action, but it can also create immediate impacts elsewhere that are hard to recover from, such as price competition and devaluing brand perception.
Develop laser-focus and pare down the offer
During any downturn, products benefit from a strong focus on value. Marketing and promotions must articulate a straightforward value proposition of product benefits in relation to cost.
Sensibly priced promotions can help shift inventory that is unsold, even as consumers reduce spending. But the strategy needs to be thought through. For example, it can be effective to bundle low-margin, high-stocked items alongside other products to show value and create demand.
Paring down the offer might also be helpful for vendors in some technology sectors. For example, instead of having five or more price points for different offer combinations or service levels, bring it down to three – entry, mid-market and premium. Work out where the main profit will come: premium ranges often remain resilient in downturns.
Make informed, strategic decisions on whether to offer discounts, trade-in offers, reward vouchers, loyalty bonuses, or use other means, targeting specific segments with the most appropriate offers – and be very realistic about both likely take-up and margin per transition. Know what inventory sits unsold, the cost of storage, and decide on the mix of profit, dispose at cost or loss lead as the way to go. Now more than ever, it is also important to be agile. Fail fast may be something of an overused phrase, but deploy the strategy wisely. Watch competitors and react where that seems appropriate by tweaking your own strategies. Understand potential cross-sell opportunities.
Technology vendors must avoid empty messages that fail to resonate or turn off consumers, such as a derisory discount in the face of the headline inflation rate, of which consumers are well aware thanks to their personal cash flow and the media. If a gift is offered, keeping it super-relevant to the purchase item and marketing it well might mean an item sourced at a relatively low cost brings in a high take-up and strong profit. On the other hand, you might consider a strategy is successful if it helps more with brand-building than profitability.
Avoid overreacting to competitor discounts
84% of customers are influenced to purchase by sales promotions, according to Opia’s research, and promotions bring on board both brand switchers and new customers, as well as provide existing customers with an incentive not to switch.
While of the many options available, discounting sits in the mix, avoid a “fire-sale” mentality at all costs. Huge price reductions can suggest to consumers that the seller is struggling or that their profit was vastly inflated before the reduction – or both. Brand loyalty can take a nosedive in this situation. As the old saying goes, trust takes years to earn and minutes to lose.
One company taking a fire-sale mentality is bad for the company. Another following suit and then another in a fight to win customers is bad for the sector. In a race to the bottom like this, nobody wins. Short-term financial gains for the consumer quickly turn into long-term profit erosion, reduction in product and service quality, consumer dissatisfaction and a sector in freefall.
The coming months won’t be easy for technology vendors and their industry partners selling the goods. Those with well-formulated promotional strategies, who are prepared to be agile in the face of customer response, and who understand the consumers they are selling to as well as the nuances of profitability and brand-building to a granular level with each promotion they run, have the greatest opportunity to manage inventory and remain profitable.