Pi-Consulting

In a year-end shopping season when American consumers are handing over $17 billion US to purchase integrated home-entertainment sound systems, hi-definition plasma TVs, 8.2-megapixel digicams, portable MP3 music players and the like, the big box-movers have been falling over themselves to give the consumer what he – and increasing she – wants.
The consumer electronics industry all about high tech and low price, right? Wrong. The industry is discovering that information and service are now essential components of consumers’ expectations. Pi just spent three days attending the annual CEA consumer electronics convention in Las Vegas, Nevada, where the big focus this year was on consumer insight research. The manufacturers, retailers and market researchers attending spent less of their time talking about the electronic gizmos themselves than about how to sell them to people without infuriating them. It seems the new battleground is not technology (which the buying public is beginning to take for granted), but service, product information and the salespeople’s bedside manner.

Cue a collective attack of nerves among the big American retailers of consumer electronics (CE) products. And there are more stores (and more types of stores) involved than you might imagine. Of the top twenty CE retailers in America, seven (including market leader Best Buy) are specialized electronics outlets, three are specialists in office supplies like Office Depot, while five are general mass-merchandise outlets. This last group includes Wal-Mart, the market’s number two box-mover, and Target, the number-seven.

The significant fact is that sales are migrating fast from “smart” specialist stores to “dumb” general-produce outlets. While just under half of top-20 stores’ sales are still in the hands of the multi-brand specialists, almost a third has been grabbed by non-specialists like Wal-Mart, Target, Costco and Sam’s Club. Department stores are giving up the fight — only one such store, Sears, makes the top-twenty-retailer list — while online retailer Amazon.com points another way of the future, coming in for the first time at number twenty. This leaves Best Buy and Circuit City with plenty to worry about.

They think, with some justification, that service and know-how are vital ingredients in their recipe for survival. Best Buy have invested heavily in training their “Blue-Shirts”, the sales assistants helping customers on the sales floor, and their “Geek Squad” of computing and technology experts. But do these employees know enough of the “right stuff” to keep the customer satisfied?

70% of CE purchase decisions now involve a woman, says CEA. The industry, having ignored females almost totally for years, are now scrambling to include the so-called WAF (“wife acceptance factor”) in their positioning. Nor can consumer loyalty to any one type of outlet be relied on any more. Pity the poor retailer who has to keep his sights focused on a consumer segment that increasingly browses in high-end specialist stores, then buys online or in a cheaper and less specialized outlet. Then again, there are those who do their browsing online and come to Best Buy or Circuit City to actually purchase the goods they have chosen. The former are driven by price in a market they view as increasingly commoditised. The latter have done their shopping around for prices and they don’t like to wait for delivery, or they like the reassurance of buying from a “reputable source”, or they have a nostalgic urge to deal with a “real person”. The onus is on sellers to recognize the differences, and react flexibly to each buyer-type’s requirements and sensitivities on price.

During October’s Las Vegas convention, CEA’s market research experts shared with the industry their reading of mindsets and attitudes among four different consumer types. The smallest groups identified were the “Infrequents”, who tend to stay away, and the “Next Wavers”, average-income older folk who dislike shopping and are increasingly venturing online.

The two key groups described were the “Traditionals” (“Jills” in Best Buy’s parlance) and the “Tech-Savvy Buyer” (whom Best Buy nickname “Buzz”). Traditionals represent 46% of the population, and just over half of all estimated sales. They are typically female home-makers, they like the hands-on aspects of shopping, care how the product will look with their home décor, have reservations about internet buying and browsing, but – tellingly — don’t like being rushed or patronized by smirking, know-it-all sales staff. The Tech-Savvies are fewer in number, only 11% of population, but their high per-capita CE expenditure and trend-setter status make them disproportionately important to the industry. These are predominantly younger urban males, committed internet-users who can’t stand waiting for anything, and sneeringly refer to specialist-store salespeople as “DK Jacks”, because they “don’t know jack” about the products they are selling.

It is dawning on retailers that the way they have been training the help risks falling midway between these two key buyer groups, and leaving both disappointed. Verbatim comments from the CEA research ranged from “Great customer service, the employees actually know their products” to “Salespeople were pushy and fake”, “They didn’t treat me as though I could afford the merchandise” and “Friendly but annoying. You want to look around, they just want to sell you something”.

There are still plenty of CE shoppers saying that the major specialist stores give them better quality and choice, and that sales staff are well-informed and helpful. But does that mean these shoppers will actually buy big-ticket electronics in the store concerned? Pricing differentials say otherwise. Shoppers who go to specialty CE stores spend two-thirds more money than the average consumer, but almost half of their spending is now in other places. They are reviewing the product offerings in Best Buy or Circuit City, then defecting to the Wal-Marts and Targets (or buying online) when it’s time to lay out the hard cash.

Caveat emptor? It’s the sellers who need to watch out.