Monday, June 1, 2009

From Retrevo Pulse: Recession and Our Obsession with Gadgets!

Blog Post submitted by Vipin Jain, CEO, Retrevo

So what is it with us and our gadgets? We seem to be growing more passionate about them, whether it’s that shiny new petite digital camera with 12 megapixels, face recognition and optical image stabilization, or that Blu-ray Disc Player exhilarating us with all 2 million pixels delivered in our newly installed home theater system with a receiver that can blast lossless Dolby TrueHD and DTS-HD master audio. Or maybe it’s that recently purchased Blackberry Storm that most of us have a love/hate relationship with and that is on the verge of becoming obsolete by Storm2 within months (with hopefully a better touch screen, usable software and WiFi). And even though we were almost scared to buy anything in the first few months of the year, we have now come back with a vengeance, scooping up all the latest and greatest gadgets we’ve always aspired to own to make our digital lives more productive and enjoyable.

Retrevo is releasing its monthly Pulse Report for May. Surprise, surprise... what do we see? Electronics shoppers are back in the market buying electronics but not just any electronics. We’re buying gadgets that are new and shiny, and we’re willing to pay higher prices for these innovative products that deliver the latest and greatest features. The most notable categories picking up momentum are Digital Cameras and Optical Disc Players (some of us are used to calling this category DVD Players but the introduction of Blu-ray changes the definition so it will take some getting used to).

Here are the specifics:

1. Optical Disc Players: more than a third of Optical Disc Players shipping now are Blu-ray. These Blu-ray players comprised less than 10% last holiday season. This transition to newer, hi-def technology has created an uplift in ASPs of > 20% post-holiday season. And in mid-April, demand started picking up for Optical Disc Players. So people are not only buying Optical Disc Players, they are spending more money than ever before to acquire the latest and greatest in hi-def.

2. Digital Cameras: more than 50% of shipping digital cameras now have optical image stabilization and face recognition making it easy to click and organize those precious memories. DSLR is also finding its way downstream with a more consumer friendly interface and form factors. Aided by general knowledge, consumers are buying these higher feature products and paying higher prices (10% higher than last holiday season). Digital Camera demand had been flat from Feb through April but it has picked up in May. So again, people are not only buying Digital Cameras but they are willing to pay higher prices to acquire the latest and greatest than ever before.

Now don't take me the wrong way. The fact that people are spending more money doesn't mean consumers aren't value conscious. In fact, a recent Retrevo Gadgetology analysis revealed that 76% of Consumer Electronics shoppers selected products based on good value (34%), Trusted sites and experts raving about a product/brand (25%) and other users raving about a product/brand (10%). The consumers are absolutely value conscious for the technology they wish to purchase, they just are not interested in buying cheapest products around without regard to the innovation.

So did we see any disappointment in Retrevo's Pulse Report? Absolutely. HDTVs and Home Theater Systems continue to disappoint consumers. Here is our analysis of these two categories:

1.Home Theater Systems: these were hot during the last holiday season but demand plummeted post-holiday season along with everything else. Prices after being stable for better part of this year started falling in mid-Apr (now down > 10%). Yet the demand has continued to fall. Why is this so when Optical Disc Players are picking up? Guess how many Home Theater Systems ship with a Blu-ray player? Less than 5%. Yes, while consumers can buy HDTVs and Blu-ray players to their heart's content, they can't find Home Theater Systems with a Blu-ray player. Yikes! Lesson learned? Don't assume consumers will keep buying stale products with no major innovation in sight for more than 6 months. And we are not talking about new innovation, HTS manufacturers just need to keep up with the market, follow the lead from HDTV and Blu-ray players and get more Blu out. There is pent-up demand. Amen to that!

2.HDTVs: this category is near and dear to my heart. High momentum in the first half and excess inventory in the second half of 2008 depressed prices to unrealistic levels last holiday season. Negative margins forced brands and retailers to raise prices post-holiday season as excess inventory cleared from the channel (ASPs up more than 30% from January to mid-April). Even though the category has gone through a refresh cycle in last few months (more than 50% of currently selling HDTVs were introduced this year) but demand hasn't picked up even after a technology refresh cycle. What is the innovation in HDTVs lately? Transition from 720p to 1080p? Yawn! Consumers are not biting. Let's work on the basics. Get the best out-of-the-box experience without worrying about ISF specs, calibration etc, get HDTVs to network and "simply" download content from your computer and from the Internet, and we will have a shot at making people spend more for the newer technology rather than simply gravitating to value brands for a seemingly commoditized technology.

What's the takeaway? Overall demand is soft (Retrevo's Demand Index shows a 15% decline year-over-year), lower demand doesn't translate into people buying cheap (and commoditized) technology. Consumers care about innovation, latest and greatest (in a meaningful way, not from marketing speak). Consumers are spending 20% more time researching and yes, they will want the best value and good quality products but at the same time, they will spend more for the innovation. So let's not slow down the pace of innovation. Let's push the envelope, think about ways to make our daily lives more connected, more productive and more enjoyable and we the consumers, will spend more money because it will be worth it. This is what I call Obsession for a Purpose!

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