In the consumer electronics industry, these challenging economic times are tough on many levels. We all have been hearing the reasons why. They don’t need to be rehashed here.
But what we’ve heard very little about are the genuine opportunities that exist for consumer electronics companies to take action to improve their competitive positions now and prepare for future success.
During this unusual economic storm, now is not the time to hunker down, take shelter, succumb to knee-jerk reactions, and just wait things out.
That’s a recipe for failure. Rather, now is the time to take advantage of this unprecedented market situation by taking action on several different fronts, including laying the groundwork for transformational and structural changes. Indeed, being proactive in these challenging times is a recipe—in fact an imperative–for managing through this market cycle, fine-tuning differentiating capabilities, expanding market share, and accelerating towards sustainable high performance.
In our research into performance of companies in the United States soon after the 1990-1991 recession, we found a clear distinction between those that followed a strategy of managing their cost structure and strengthening their strategic position and the rest. Those who took the bolder path outperformed their industry peers for six years following the recession.
With this positive mindset, we offer seven winning actions consumer electronics companies should seriously consider:
First: Strategically Cutting Costs
The most pressing challenge for high-tech companies is rapid and sustained cost management. In times of uncertainty, keeping costs low to preserve profit margins is paramount. Based on Accenture’s research, cost-cutting needs to be balanced against funding future growth.
As a result, cutting costs associated with declining or overlapping product categories, while preserving investments in emerging categories, is an approach that balances short-term needs with long-term performance.
Second: Sharpening Consumer Focus
An increasingly critical driver of consumers’ purchase decisions is the overall experience surrounding the product. This spans from the time they open the box, through their use of the product, through when they might seek technical assistance. Companies seeking a stronger, sustainable differentiation beyond price focus on the user experience.
In fact, Accenture’s High Performance Business research has found that high performing companies examine their customers by segment, geography, and usage patterns. These exceptional achievers then personalize and boost the quality of the customer experience to more closely match what consumers want.
Third: Driving Operational Excellence Globally
Consumer electronics companies need to adopt a new networked operating model that can address their company’s need to grow, access talent, secure resources, manage volatility and risk, and achieve superior and sustainable economic returns. In many cases, this new model is made possible by out˝sourcing select business operations. These include outsourcing of supply chain, global training and development, and finance and accounting operations. The current market downturn is an opportunity to embrace a corporate-wide, global operating model aimed at lowering operating costs.
This transformational move could for companies deliver new and profound differentiation versus competitors who make more conventional and conservative moves. Now is prime time for changing business models and industrializing processes so they are more repeatable and reusable.
Fourth: Acquiring Key Capabilities and Assets
In this market environment, consumer electronics companies need to think proactively about how their potential acquisitions may better position them in the marketplace. In our experience, companies that acquire a target firm in a recession benefit from a lower “entry price” and less competition. Consumer electron˝ics companies with a strong financial position can make strategic use of acquisitions to achieve economies of scale, reduce capacity–and therefore price pressure–and add to organic growth. Of course, successful M&A integration remains a key driver for achieving estimated synergies regardless of the economic environment,
Fifth: Investing in Innovation
It may seem counter-intuitive to invest during an economic downturn, but making targeted, strategic investments can actually reap big business rewards when the market improves. Accenture research has discovered that consumer electronics companies that outperform their competition continue to invest in refreshing their product portfolio–regardless of market conditions. This is true even if the investment a company makes temporarily weakens their balance sheets.
Sixth: Maintaining Pricing Discipline
We have found that companies that drop their prices too aggressively and across too many products and services are usually making a big mistake.
Cutting prices too aggressively makes it much tougher to raise prices when market conditions improve because the price cuts will have de-valued the company’s brand and consumers will be more reluctant to pay their higher prices. Before pulling the pricing-cutting lever, consumer electronics companies need to consider which products in their portfolio are differentiated and where to take action. This is also the time to fine-tune the product mix by, for example, focusing on the entry-level products that meet the needs of belt-tightening consumers.
Contrary to expectations, all pricing power is not lost. For example, a new Accenture digital lifestyle survey of 3,000 Americans found that, because of the global economic recession, 56 percent of respondents indicated they were less willing to spend more for environmentally friendly consumer electronics. Companies might reconsider whether to cut prices of their best ‘green’ consumer electronics to address these consumers. Or they might focus their efforts on the 44 percent of consumers still willing to pay a ‘green’ premium.
Seventh: Focusing on Specific Market Segments
Continue to invest in well-targeted market segments such as broadband connectivity and mobility. The same new Accenture survey revealed that nearly 44 percent of the people surveyed do not plan to drop those connections during a prolonged recession. According to the survey, only 3.7 percent of those surveyed are willing to stop using home Internet access—the lowest percentage of any connectivity service. Ranking second lowest was mobile phone service (8.7 percent are willing to stop using) and cable or satellite TV (9.6 percent are willing to stop using).
Also, focus on the consumer electronics game market, including those played on wireless handheld devices. These products, along with ever-smarter mobile devices and Global Positioning Satellite (GPS) systems, are expected to remain popular.
Final Thoughts
Despite these challenging times, the current economy offers great opportunities for consumer electronics companies to make aggressive changes to their businesses to grow stronger. They need to capitalize on the convergence of electronic device, network and content industries to deliver compelling new consumer experiences. At the same time, they need to streamline and focus their operations. If they do all this, they’ll be well on their way to achieving high performance.
Kumu Puri is a senior executive with Accenture’s Consumer Technology practice. She can be reached at kumu.puri@accenture.com
