UNDERSTANDING THE BUSINESS ENVIRONMENT OF CONSUMER DURABLES AND ELECTRONICS INDUSTRY
SAAD ANWAR HASHMI
Sep 3 - 9, 2012
Consumer durables and electronics include products purchased to form a basic necessity for every household including mobile phones, televisions, DVD players, MP3 players, digital, cameras, electronic tablets, PDA's, portable players, digital diaries, electronic watches and various kitchen appliances along with beauty products. With population growth, these products have had an evergreen demand as new product are frequently launched to capture the market need. The products sold in Pakistan follow two retail structures i.e. either through company owned and controlled outlets or a general retail network using a downstream channel of distributors and retailers. The industry has thrived since these products are purchased both for gifts and personal use through purchases of new products for features or replacement of old products. The electronics industry is more vibrant with new product launches every quarter intensifying competition. The consumer durables market which mainly includes home and kitchen appliances assumes that a consumer purchasing a microwave, hair dryer, shaver or any product for that matter would last for atleast 5 years before the consumer will enter the market for a new purchase or replacement. The domestic industry in Pakistan faces competition on two parameters i.e. price and quality. The industry is experiencing competition from Chinese branded and unbranded products available at a price lower than conventional brands where the differences in features tends to be negligible. The general population of Pakistan with high inflation coupled with high cost of living is increasingly price sensitive which is where Chinese products have thrived. Despite developing the core understanding of differences in quality to determine the price, consumer electronics and durables available at a lower price tend to fetch the highest turnover. With such competition in place, domestic manufacturers are driven to increase spending on marketing, sales and trade promotion programs to communicate such differences to the general public which in hindsight adds pressure to margins and increased expenses in terms of advertisement reflected on the income statement.
Considering the macro economic environment of consumer electronics and durables, most of the products available in the domestic market are imported and later distributed based on retail structures as discussed earlier. Brands available domestically are but not limited to Sony, Samsung, LG, Philips, Haier, Anex, Kenwood, Panasonic, Braun, Waves, General, along with various other Chinese brands which are either copy of mainstream conventional and more well-known brands or are sold with a new brand name through carry features of mainstream brands. The competition in the market is stiff as consumers have a wide choice of products with homogenous features.
The industry is such where consumers unlike consumer goods market require the touch, feel and experience of the brand before they are bought for instance, a customer would physically watch and run a new television or mobile phone at the retail store before the purchase decision is made. The challenge for the companies in terms of marketing here is to induce trial shifting most marketing efforts to "Below the Line" activities where the product is made available to consumers to experience through setting up stalls in various malls, exhibitions and super markets. We have time and again witnessed these efforts by mega companies willing to invest significantly in marketing efforts, however, companies behind either unknown or less popular brands tend to cut back on the marketing budget in an attempt to induce and engage the customer to purchase on the basis of price with claims of quality being the same.
Unlike other industries, two critical features for the consumer goods and electronics industry is the level of control maintained by the company over the retail price as communicated down the channel through the distributers to the retails defining a margin and the distribution network from the manufacturing or storage facility to the retail outlets. Each company tends to release a sheet with defined distributor and retailer margin along with the retail price at which the product will be offered. There is no such control in the industry to check if the retail price as defined by the company is actually being followed in the market where the sales and distribution teams have virtually lost the ability to influence the retails. The retails on the other hand set a retail price 5% to 15% over and above the retail price defined by the company with justification that the retail price communicated by the company is low and that margins are not competitive. There are exceptions where retailers follow the intended retail price though it is rare. The only avenue where companies have been able to maintain a price is in company operated display centers. The second important aspect is the degree to which the products are sold in the market through geographic reach and coverage. Companies with high penetration in rural and urban areas tend to exemplify the best profitability which gives us the understanding that independent of marketing, distribution alone and the capacity to flood the retail stores with a brand and the entire product range automatically generates sales. Marketing however is paramount and continues to be at its pinnacle to create the differentiated effect to push for sales.
The cost of inputs including price of gas, oil and electricity are increasing which has partly increased the cost of production for the given industry. Since most products or raw materials for manufacturing are imported, the industry has also been affected through devaluation of the exchange rate. The versatility of the industry is such where any cost increases are transferred to the consumers through price revisions. The demand however is not expected to reduce since such products are demanded and will continue to be sold in the market as they address a basic need of the consumers. To future prospects of the industry remain positive where growth is expected to remain the double digits through FY13.