High Value Consumer Electronics Buyers: Who are they and what do they look for when they shop?
By Gina Woodall
Let's face it, some people get it and some people don't. There are consumers who have to have the latest electronics products and consider them an integral part of their daily lives, and there are consumers who don't. The trick for marketers is to know who these receptive customers are and what they want in order to develop the right products and effective marketing strategies for them.
In the 2005 National Technology Readiness Survey (NTRS) by Rockbridge Associates, Inc., consumers can be divided into tiers based on their ownership and intent to buy a number of consumer technologies. Based on this tiering approach, high value customers are more likely to own or intend to buy consumer electronics (CE) such as computers, audio and video systems, and portable communications devices.
Who are these high value CE customers? High value customers are younger with a larger number of singles than low/medium value customers. They also include many young families, as high value customers have a higher incidence of children in the household. They tend to be a mix of males and females, not skewing in either direction.
High value customers have the means to buy CE products. They have higher incomes and are more often employed than their less technology-focused counterparts, so they are more likely to have the disposable income to make CE purchases.
High value customers are more diverse, particularly African American. They also tend to live in more urban areas, as opposed to more rural locations.
To target high value CE customers, marketers should develop advertising that represents singles and family lifestyles, as well as ethnic diversity. More urban areas should be targeted for promotions and communications.
What do high value customers want in CE products? Across all groups of consumers, portability stands out as the leading feature buyers consider when shopping for a CE product. Consumers want products that are light and easy to move around first and foremost. Secondly, they want a good deal; they want to pay a reasonable price for the product. Following price is high quality audio and video. A good brand name and product warranty are moderately important to all groups of consumers.
But where do high value customers differ in their needs? High value customers actually like having some assembly or installation required to use the product rather than having no assembly, which is preferred by low value customers. This may be because high value customers tend to be more tech savvy and want customized products. Since high value customers are interested in configuring their new CE products in a way that best meets their needs, advertising and product packaging should tout the product's flexibility.
Products that are rich in features and functions are less important to consumers overall, as are products that use the newest technology. However, high value customers value products that use cutting edge technology more than other customers, even though it is less important overall in their purchase decision. Marketers should convey the use of new technology in their products to entice this group of customers to buy.
The market for consumer electronics is substantial, but marketers must cut through the hype to attract high value customers. Knowing who they are and what they are looking for in CE products is the first step in developing effective marketing strategies to influence their purchase process.
Research to the Rescue
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Optimizing your Product: How Market Research can Guide you on the Most Profitable Design
By Charles L. Colby, Chief Methodologist for eBrain Market Research
Manufacturers of consumer technology face a series of trade-offs when designing an innovative new product. They can enhance the market appeal of the product by incorporating richer functionality and superior quality, but doing so increases the production cost and the required price to break even. The trade-off is further complicated by the presence of multiple offerings of the same product, since the offerings can cannibalize each other. For example, if a manufacturer introduces a "basic" and "advanced" version of a new product, the choices made in the pricing and features for each version will affect the overall market success and profitability of the line as a whole.
Fortunately, market research methodologies exist that can help a manufacturer optimize a product design before production and market launch occur. Just as product designers must make trade-offs in their specifications, these survey methodologies require consumers to make trade-offs as a way of quantifying the impact of price and design on choice. Termed "conjoint" or "choice" analysis, these methods involve an interesting data collection approach that presents consumers with product choices and asks them to behave as they would in a real purchase situation. Ultimately, the information is used to create a simulation tool, based on a rigorous mathematical model, to help managers test the impact of various product feature and price configurations on the demand and profitability of their products.
Implementing a Choice Study
The first step in designing research for product optimization is to carefully identify the parameters of the product optimization problem. This requires a close dialogue between a research professional and the manager responsible for product design. As the chief methodologist at eBrain Market Research, I often get involved in these conversations with clients. Ultimately, we try to agree on the following with our client:
- What are the underlying "attributes" that determine a product design? Attributes are product decisions that vary in the design decision, and can include features such as the level of sound or video quality, size, color, functionality, power options, connectivity options, built in functions, compatibility with other products, warranty, etc.
- Within each "attribute," which "levels" need to be evaluated? An attribute must have at least two levels. For example, it may include the absence or existence of an added-value feature, such as a cell phone including a built in camera or not. Or, it may include a series of options, such as a disposable battery or rechargeable battery, four screen sizes on a TV, or three warranty options.
- What is the proposed pricing structure, and what is the range of prices under consideration? For example, some products may have two elements, a one-time (such as installation or equipment purchase) and recurring price (such as a monthly subscription or annual licensing fee).
- What is the decision context for the new products? For example, if a line of products are being offered simultaneously, it is critical to evaluate all of them at once in order to make the optimal decision. In one study, we tested a "discount," "standard," and "premium option" for a portable internet service. The demand for the "discount" option increased if its price were lower, but it was important to know if the demand came from new sales or from cannibalizing the "standard" option.
After obtaining input on the decision and marketing context from managers, the next step is to design a "choice task" for presentation to consumers in a survey. A choice task consists of a set of two or more product alternatives, each with different features and prices. The example below suggests what this might look like for a television product study. A consumer would be shown this set of alternatives and asked to choose which one he or she would purchase if shopping for the product. It is critical to include a choice of "none" since it is possible that nothing in the set will be acceptable to the buyer.
In this kind of study, consumers are presented with more than one "choice set," typically, anywhere from 4 to 16 different scenarios. As the consumer evaluates the choice sets, the features and prices vary, forcing a continual evaluation of trade-offs. For example, the size of the TV may be larger (50" instead of 42"), but the price may be more, forcing the consumer to consider whether it is really worth trading up.
Conducting a choice study is efficient when using web-based interviewing. A web survey can be designed to present product information, including pictures, tables and pop-up descriptions. The web allows survey respondents to evaluate the information in each choice set carefully before clicking their desired option. eBrain Market Research has access to online consumer panels that allow screening for particular demographic groups, and we can also access panels of organizational decision-makers for b2b products and services. The sample size for a choice study is usually at least 150, and typically ranges from 600 to 1,500 individuals depending on the complexity of the design and the number of sub-groups being studied.
Turning Information into Action
The responses to a choice study are analyzed with sophisticated multivariate statistical methods, ultimately producing a mathematical model that predicts consumer choice. The model provides predictions of share based on the product features and pricing introduced. The output for management decision-makers is much simpler, consisting of a simulation tool that is powered by a spreadsheet.
The inputs a manager makes consist of price and feature assumptions. These must be within the range captured in the survey. For example, if three types of technology were tested in a study, a manager could enter either one of them as an assumption (but could not work with one not included in the design). If prices from $799 to $1,999 were tested in the study, it would not be possible to test $2,399 because it is outside the range. However, a predictive model could capture any price within the range tested so that a fine-tuned price, such as $833, could be tested.
We typically work with our clients to create a business model that captures all parameters that might affect a market decision. For instance, the output for a model can also include a revenue projection (price X share). But it can also incorporate assumptions about production costs for individual features so that the model can output estimates of profit as well as share and revenue.
The table below illustrates how a product manager introducing a digital SLR camera might decide on whether to include 8 or 10 megapixel quality, assuming that the production cost difference is $150. Four scenarios are examined: the baseline product with 8 megapixels at a price of $1,000, and an upgrade to 10 megapixels with prices of $1,000, $1100, $1200 and $1,300. The choice model shows that – price equal – the share increases from 25% to 35% with the higher quality. Raising the price to cover the higher cost results in lower share, and the optimal scenario is to offer the upgrade at a price of $1,100. It is interesting that the price increase of $100 does not cover the additional $150 in unit production; yet, the impact on share is so substantial that profits actually increase despite the higher cost.
A Worthy Investment
A product optimization study based on a choice design can be a sound investment of resources. The research will cost tens of thousands to conduct but can save millions by helping to establish optimal production and pricing standards before the product is launched.
Optimizing a Technology Product: A Case Study
By Sara Farbry and Mariel Molina
When preparing to release a new product, determining what features you should include quickly becomes a question of how much your customers will be comfortable paying for these features. eBrain recently worked with a consumer technology client who needed to determine parameters for pricing, features, and sound quality for its new portable devices. While enhanced features and audio would add to the devices' market appeal, they would also drive up manufacturing costs.
To determine what combination of prices and features would be most successful, eBrain designed a discrete choice trade-off study. This methodology can be used to predict the choices consumers will make when presented with several alternatives. Combining eBrain’s understanding of experimental designs and the client’s knowledge of the product specifications, the two teams worked together to develop several hypothetical configurations and price points for the new product. Potential consumers were then asked to choose which of the proposed versions appealed to them the most. The consumers also had the option of saying that none of the choices appealed to them.
After analyzing the results, eBrain was able to provide the client with a spreadsheet tool that allowed managers to enter different prices and features and output projections of share, revenue and profit. With this tool, the client was able to determine the best combination of features and pricing for its product roll-out. The decisions ultimately ensured greater market appeal while allowing a prudent investment in design and manufacturing.
| Events |
Catch us at CES! eBrain will be at the 2007 International Consumer Electronics Show. We invite you to attend our presentation, “One Size Doesn’t Fit All,” which will address how market research can be used to segment the customer base for a product rollout along the lines of needs, expectations and demographics. The presentation will discuss the latest market segmentation techniques and uses case studies to show results. We hope to see you there!
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