Consumer tech demand defies the economic headwinds
Deloitte predicts that overall global demand for consumer technology will likely grow in 2012. Record numbers of smartphones and tablet computers are likely to be purchased, and more computers of all descriptions are likely to be bought. Global television sales may see only modest growth on average, but sales are forecast to be robust in emerging countries1. Even countries that are experiencing stagnant growth or mild recessions should see overall growth in consumer technology unit shipments, although the total dollar value may be flat as prices come down due to Moore’s Law and new form factors.
While global economic growth forecasts for 2012 are weaker than those at the start of 2011, the outlook remains positive for most regions2. However, developed markets are likely to see the weakest growth. In these countries, consumers may defer spending on big-ticket items while maintaining spending on smaller items, including consumer technology3. Emerging markets, where the installed base for many types of consumer technology remains relatively low, should still enjoy relatively robust overall growth (mid to high single figures). Lower entry-level prices for computers, as well as the availability of a widening range of less expensive smartphones, should further drive demand for devices in those countries.
Personal technology in 2012 will likely provide outstanding ’bang for your buck’. Although it may seem that modern society spends a lot on technology, the actual amounts are less than one might expect: the average US household spent only $1,200 on consumer technology in 2011, or less than 2.5 percent of median income4. Consumer tech purchases start at the low tens of dollars for basic mobile phones, and rise to hundreds of dollars for high-end smartphones, tablets, laptop computers and televisions.
It is an exceptional tech purchase that cracks four figures in dollar terms today, while a decade ago the average PC or big screen TV typically cost more than $1,000. Three decades back, the average television cost an inflation-adjusted $1,800. Today that $1,800 could get you two large flat screen televisions, two tablets, two netbooks, three smartphones, and still leave change to take the family out for dinner.
Most consumers do not quantify value for money to the exact cent when buying or upgrading a device or service. But many are likely to have a rough idea of how much they might use it. Consumer technology generally fares well in this type of analysis. The average $500 tablet is used for 350-700 hours per year, implying an hourly cost as low as $0.70, assuming the tablet is kept for just one year5. The average living room TV is typically used for three to five hours per day. Given that the price for an entry-level flat panel television is about $400, the hourly cost is $0.45 or less, again assuming the TV is kept for one year only6. By contrast, the cost of a car, overseas vacation, music concert or sporting event is at least ten dollars per hour, and major events can cost hundreds of dollars per hour.
Consumer tech provides such good value for several reasons. Moore’s Law allows vendors to offer everimproving devices for ever-lower prices. Another driver is the high degree of competition for many categories of consumer technology7. Margins for some TV vendors have been estimated by analysts at below two percent8; for others they are negative. Margins for some tablets are in the low single figures, with profits being primarily generated from accessory sales9.
Spending on consumer technology in 2012 may also be stronger than expected due to a structural shift in priorities. A growing number of individuals, across all regions, may be placing more emphasis on purchasing, owning and enjoying technology than ever before. At one time, the rite of passage for becoming an adult may have been buying a car and then a house. However, in 2012 the rising cost of running a car10 and buying a house11 may well cause priorities to be reset. Renting may become more acceptable, and taking public transportation, taxis and renting cars may become preferable to owning them, particularly in cities with highly congested roads12. Spending less on housing and transportation enables more money to be spent on technology devices.
In emerging countries, consumer technology seems likely to remain a key purchase as households emerge from a subsistence-level existence. A television set is often one of the first items purchased in emerging countries with demand for TV sets even ahead of refrigerators, showers and electricity (many TV sets are powered by car batteries)13. In emerging markets the entry-level price for a television can be significantly lower than in developed countries, with thicker flat screen TVs (four centimeters vs. one centimeter) and cathode ray tube (CRT) TVs still selling well14.
Consumer technology has many reasons to perform well in 2012, even in markets with little growth, declining incomes and rising prices. There are several major advantages that should be emphasized: new markets enabled by the seemingly inexorable rise in different types of consumer technology; a steady increase in value for the money of many devices; and the growing importance of technology as a status symbol.
Consumers’ budgets may be limited, but how they allocate their spending varies. In many cases, consumers can be readily persuaded to shift spending between seemingly un-connected categories – and marketing should exploit these tendencies. For example, consumers with constrained budgets may not be willing to choose between a television or computer; instead they may opt to stay close to home for vacation and then use the resulting travel savings to buy both devices15.
Deloitte Canada, as referenced in videos, podcasts, or online materials related to TMT Predictions 2012, refers to Deloitte & Touche LLP, the Canadian member firm of Deloitte Touche Tohmatsu Limited.
1The forecast for 2011 (a post World Cup year) was for a small decline in sales, to 250 million units, down about one percent year-on-year. The forecast for 2012 is for about five percent growth in units to 262 million. Source: World Market of Consumer Technics, GFK/CEA 2011: http://www1.messe-berlin.de/vip8_1/Website/Internet/Internet/www.ifa-gpc/pdf/IFA_Press_Conference – 2011_GfK – Boyny.pdf
2As of November 2011, the OECD’s forecast for Eurozone growth was positive, at 0.2 percent for 2012, as was Goldman Sachs’ outlook for Europe in October 2011, at 0.1 percent for 2012. Source: OECD calls for urgent action to boost ailing global economy, OECD, 28 November 2011: http://www.oecd.org/document/47/0,3746,en_21571361_44315115_49095919_1_1_1_1,00.html; Source: Global Themes and Risks, Goldman Sachs Research, October 2011: < a href="http://www2.goldmansachs.com/our-thinking/global-economic-outlook/global-themes-and-risks-OCT-2011.pdf">http://www2.goldmansachs.com/our-thinking/global-economic-outlook/global-themes-and-risks-OCT-2011.pdf
3In a country experiencing low levels of growth (by historical standards) following a recession, such as the United States in 2011, spending on smaller ticket items has returned to pre-recession levels, with spending on personal technology particularly resilient; however, spending on larger ticket items such as cars and housing remains slow. Source: What Americans are(n’t) buying, Financial Times, 7 November 2011: http://ftalphaville.ft.com/blog/2011/11/07/731141/
4American Households Spend More Than $1,100 Annually On Consumer Electronics, CEA Study Finds, EON, 23 May 2011: http://eon.businesswire.com/news/eon/20110523006914/en/Consumer-Electronics-Association/consumer-electronics-spending/household-spending
5In India, basic seven-inch tablets are available at a retail price of $100. See: Indian tablet market abuzz with low-priced entrants starting at $99, The next Web, 22 August 2011: http://thenextWeb.com/in/2011/08/22/indian-tablet-market-abuzz-with-low-priced-entrants-starting-at-99/
6In Korea, 32-inch flat panel full HD LED screens are available for about $440. See: Samsung TVs feel the squeeze, Beyondbrics, 24 November 2011: http://blogs.ft.com/beyond-brics/2011/11/24/samsung-tvs-feel-the-squeeze/#axzz1f5JUqIys ; In the United States, the cheapest 32-inch televisions cost about $250 as of December 2011, based on pricing at http://www.amazon.com/ for a 720p 60Hz LCD HD TV.
7In Japan, the average price of a 32-inch LCD TV fell from Y62,000 ($800) to Y47,000 ($610) in the year to May 2011. See: Japan ponders pulling the plug on TVs, Financial Times, 16 August 2011: http://www.ft.com/cms/s/0/309d0d38-c405-11e0-b302-00144feabdc0.html#axzz1ewc8wE5Q
8Samsung TVs feel the squeeze, Beyondbrics, 24 November 2011: http://blogs.ft.com/beyond-brics/2011/11/24/samsung-tvs-feel-the-squeeze/#axzz1f5JUqIys
9The iPad’s other big advantage: Retailers only get 3% off, Tech Republic, 11 March 2011: http://www.techrepublic.com/blog/hiner/the-ipads-other-bigadvantage-retailers-only-get-3-off/7880?tag=content;siu-container
10In the United Kingdom, according to one motoring association, the average cost of running a car, considering fuel costs, depreciation and insurance is about $10,000. This represents a year-on-year rise of 14 percent. See: Cost of motoring increases at three times rate of inflation, The Telegraph, 23 November 2011: http://www.telegraph.co.uk/finance/personalfinance/insurance/motorinsurance/8909027/Cost-of-motoring-increases-at-three-times-rate-of-inflation. html. For further information on the cost of motoring see: Ever wonder how much you’re really paying to drive your car each year, AAA Exchange Website: http://www.aaaexchange.com/main/Default.asp?CategoryID=16&SubCategoryID=76&ContentID=353, Private Ownership Costs, New - 5 years @ 15,000km per year, RACQ 2011: http://www.racq.com.au/__data/assets/pdf_file/0004/69205/RACQ-Private-Vehicle-Running-Costs-2011.pdf
11First-time buyers: Life begins at 40, The Independent, 20 November 2011: http://www.independent.co.uk/money/mortgages/firsttime-buyers-life-beginsat-40-6265083.html
12Cities where there has been a significant shift from driving to public transportation include Nairobi, Mexico City, Shenzhen, Buenos Aires and Beijing. See: IBM Global Commuter Pain Survey: Traffic Congestion Down, Pain Way Up, Armonk, 8 September 2011: http://www-03.ibm.com/press/us/en/ pressrelease/35359.wss.For information on the extent and rise of traffic congestion see: Traffic Congestion in Europe, INRIX Website:http://www.inrix.com/pressrelease.asp?ID=108; UK is Europe’s most traffic-clogged nation, ClickGreen, 3 November 2010: http://www.clickgreen.org.uk/analysis/general-analysis/121603-uk-is-ranked-europes-most-traffic-clogged-nation.html
13In Mexico, more houses have televisions (93 percent) than fridges (82 percent) or showers (65 percent). The number of homes without a bare earth floor is just one percent lower than those without a television. See: TVs outnumber fridges, The Economist, 28 April 2011: http://www.economist.com/blogs/ americasview/2011/04/mexico%E2%80%99s_census
14Fatscreen is the new flatscreen, Beyondbrics, 25 October 2011: < ahref="http://blogs.ft.com/beyond-brics/2011/10/25/em-consumers-fatscreen-is-the-newflatscreen/#axzz1f5JUqIys">http://blogs.ft.com/beyond-brics/2011/10/25/em-consumers-fatscreen-is-the-newflatscreen/#axzz1f5JUqIys
15Spending on technology and communications products is forecast to rise by 20 percent between 2010 and 2015 in the United Kingdom. In 2010, half of UK adults perceived a vacation as a luxury, up from 38 percent prior to the recession. See: Essential items top consumer shopping lists but economic worries top woes, Mintel Oxygen Reports, August 2010: http://www.mintel.com/press-centre/press-releases/589/essential-items-top-consumer-shopping-lists-buteconomic- worries-top-woes