May 20, 2017

Risk-backed innovation in electronic goods

Learn how to make the sale while others take the risk

In the battle for consumer spending in consumer electronics, retailers and brands have frequently sought short-term competitive advantage by discounting.

The longer-term effect of this is to create deflationary expectations in consumers which only result in heavily-eroded margins for retailers and manufacturers.

Rather than making price their sole focus, these businesses need to shift to more distinctive and innovative risk-managed sales promotions, enabling them to increase sales and move inventory at optimum prices.

As consumers become more accustomed to shopping on the internet and sending and receiving money electronically, cash-back offers in particular are growing in popularity.

Description of cash-backs and trade-ins here, with explanation of risk-management.

UK and US markets Opia survey of 2000 consumers in the UK showed that despite having to wait to claim the money, a quarter of UK consumers (25 per cent) are most persuaded by cash-back offers.

The majority of those who had taken part in either a cash-back or a trade-in promotion (78 per cent) confirmed they had a satisfactory experience.

In all, 83 per cent of customers said they would be willing to wait up to a month or longer to make the claim (77 per cent said they wanted to receive the money electronically direct to their account or via PayPal).

More than a third (38 per cent) of shoppers in the research were ‘always on the lookout’ for promotions and offers.

15 per cent took part in a promotional offer each month, while 19 per cent used them once or twice a year.

Trade-ins and cash-backs induced the least scepticism (13 per cent and 11 per cent, respectively).

In the laptop market, long refresh cycles are hitting margins, with consumers hanging on to devices for as long as five years.

Innovation is required to break out of these lengthening cycles.

Opia research of 1,000 consumers shows that 44 per cent would be persuaded to upgrade by the right deal.

40 per cent have already used offers of one kind or another for PC purchases (cash-back, discounting, free warranties) so are open to suggestion.

39 per cent would be persuaded to buy a new tablet by the right cash-back or trade-in deal.

Asian markets Wrong to assume the same mechanisms work in Asia, where promotions have traditionally been limited to discounting.

81 per cent in Opia survey of 1,000 Asian consumers had never seen or taken up a cash-back offer.

Trade-ins had never been seen or used by 64 per cent.

However the research shows that there is a big appetite for money-back deals, with 80 per cent of customers never having seen one.

90 per cent of respondents would be more likely to buy a new mobile for instance, if it came with a 60-day, 100 per cent money-back guarantee (paid if they are not satisfied).

These deals need to be handled with care as Asian consumers are suspicious about receiving the money.

74 per cent said they would be put off if by the length of time it took to get the money.

Another mechanism is GFV – offering consumers the certainty of receiving a fixed percentage of the item’s value if they upgrade to equivalent or more expensive within a set period of time.

This works in the automotive market.

In laptops and consumer electronic goods this has the potential to double the volume of sales by encouraging, for example, renewal every two years.

Opia asked 1,000 consumers in UK and US if they would upgrade within two years if offered GFV of 50 per cent – 73 per cent in US and 69 per cent in UK said yes.

Research found that 85 per cent of consumers wait more than three years to buy a new laptop.

69 per cent in the UK and 63 per cent in the US are hanging on for the right offer because they believe laptops are too expensive.

About a third of consumers in both countries will buy a more expensive model than their current one if offered 50 per cent GFV.

(35 per cent in the US and 30 per cent in the UK).

Many consumers already familiar with promotional offers – 59 per cent across the two countries have already taken up such offers in the past.