Electronics Retailing Limits Product Adoption

Intel has announced a move away from computing power to remaking itself as a company selling digital lifestyles. And why not? Telephone, cable and satellite companies, digital hardware makers, VoIP service providers, cell phone companies, national retailers, and an assortment of other players offering new product and service innovations are all jockeying for territory in the great electronics and communications landrush. Magazines, television, websites, blogs and podcasts are awash with hype and buzz about all manner of new innovative consumer products, services, and applications. Promises of lower prices are even more pervasive

It must all add up to a bonanza for consumers looking to speed up online access, view digital video, experiment with internet telephone, upgrade home theatre, or participate in entertainment designed for “netizens” It is indeed a good time to be buying if you’re a computer programmer or a Geek Squad employee at Best Buy; those euphemistically referred to as “early adoptors”.

But the rest of us are struggling, even though we’re the pot of gold everyone is after, the so-called “early majority” and “mass market” consumer segments. We’re the buyers who determine if a new product or service is ultimately lucrative. With new consumer electronic products and communications solutions evolving at lightening speed, most of us need help keeping up. Down here at ground level, we need more assistance sorting through alternatives and making final product or service choices and configurations. We want to have fun in the process. We appreciate new features and capabilities best through live demonstrations. We need help with setup, installation, and usage. We value easy and fast repairs and maintenance. And with the rapid changes in technology, the whole process will start all over again long before we want it to.

Down here at ground level, the reality is that a lot of innovation with great potential is being lost in markets that compete myopically on lower prices. Consumers have been taught to have extremely low expectations of their buying and ownership experience. Funding the myriad activities and services required to meet consumer needs and drive successful adoption of new technologies and products requires adequate profit in the entire system - from a manufacturer’s plant all the way through retail and the consumer’s total ownership experience.

But today’s system lacks adequate profit, in great part because manufacturers and retailers spend most of their relationship time fighting for incremental inches of shelf space, negotiating lower price points, and arguing over extra payments required to get position. What little is done to address the consumer experience rarely gets beyond slick presentations to wall street analysts. But the greatest damage comes from widespread free-riding in today’s retail environment (where one player relies on others to provide the right consumer experience in hopes that their own lower prices will ultimately steal the purchase away). It’s a fool’s game when free-riding is rampant across an entire industry.

Continued reliance on aggressive price wars for retail growth inevitably leads to spiraling cuts in service. Consumers subsequently leave stores frustrated, bewildered and empty handed. Frightened manufacturers and retailers cut prices further in hopes of stimulating demand. Like any addiction, getting off the low price–low margin–low value treadmill is not easy. But continuing to blame disappointing sales and adoption levels on hurricanes, gas prices, terrorism, or interest rates will do little to stop the madness.

The better path forward for manufacturers and retailers alike is as simple as it is straight-forward. First, accept that consumers who always buy the lowest price are a small minority of any marketplace (if a majority of the market today does buy on price, it’s guaranteed they don’t see alternative shopping and ownership experiences that are tangibly differentiated and improved). Second, stop treating retail distribution as an after-thought, and invest as much – or more – in the entire consumer experience as you do in the product development lever. Third, instill the discipline required to nurture the right retail distribution model. Put aside long-standing cynicism and distrust and work collaboratively to create and fund new and exciting environments for consumers.

Apple Computer was so desperate to find an improved consumer shopping experience for their blockbuster new products, that they were ultimately forced to open over 100 company stores. The move into company-owned retail has paid off handsomely (the average Apple store gets 9,000 visitors per week and had a revenue increase of over 50% from a year earlier). But the bottom line is that Apple should never have had to go to these lengths to reach consumers.

To be successful, manufacturers and retailers must chose their relationships selectively, with an eye on executing and funding new adoption-friendly retailing strategies. These new partnerships will succeed only when they follow Apple’s lead and recognize that successful innovation today is as much about the overall consumer experience as it is about engineering new products and price points.

The alternative is to continue down the current path. Cutting employee pension benefits, slashing prices, reducing service levels, moving production offshore, changing out shelf signage, adjusting lighting levels and aisle widths, ratcheting up private label programs, and shuffling products for premium display payments. But these moves will eventually be seen for what they are: last gasps of hopelessness on the commodity treadmill. Buyer (and investor) beware!