News

GfK: the importance of Internet sales to the CE market (28/11/2006)

The Consumer Electronics Conference staged by GfK Retail and Technology in Nuremberg on the importance of Internet sales to the CE market

Online purchasing is becoming increasingly popular in the consumer electronics sector. In 2006, 17% of all camcorders, 15% of receivers and 10% of flat screen TVs were already bought by consumers online. Price advantages of between 5% and 15% on identical products do not represent exceptions. These consumer benefits are causing the industry and traditional retailers in particular, major financial problems. The Consumer Electronics Conference, held on November 14 and attended by over 230 experts from industry, retail and the press who came to Nuremberg from 21 countries, concentrated on examining the impact of the Internet on the structures, development, attitudes and behavior of the market players in the CE sector. Seven experts illuminated the subject from various perspectives.

The starting point of the conference was the observation that the consumer electronics market is being shaped by far-reaching changes in the technology, as well as in the business structures. This refers, in particular, to the virtually limitless availability of information on products and prices, and the unlimited opportunities to buy and sell online. The Internet has also evolved into a platform for the exchange of ideas, opinions and assessments of products, manufacturers and retailers. The key word here is Web 2.0.

Friedrich Fleischmann, Division Manager of GfK Retail Services International, reported that in Western Europe, in the past eight years, over 17,800 electrical retailers had been forced to close. The primary reasons for this are the 1,000 or so new electrical supermarkets which have sprung up and online selling over the Internet. About 50% of the population of Western Europe has access to the Internet, the figure for Germany is 64%. Internet users have around 8,500 websites in Western Europe offering technical consumer goods at their disposal. In this region, 6% of all sales of technical consumer goods are made online and in Germany, the number is already as high as 10%. According to observation, the photographic sector account for the highest share of online sales in Western Europe, followed by information technology with 10%. Much lower down with a 6% share of sales come the consumer electronics sector, ahead of telecommunications (5%) and electrical home appliances (3%).

Top quality at attractive prices

JŸrgen Boyny, Divisional Manager of GfK Marketing Services, gave an informative analysis of Internet sales in Germany, France and the UK, showing that in all three countries, online buyers make up the lion's share of the consumer electronics market for MP3 players, camcorders and flat screen TVs in roughly equal numbers for these products. Internet buyers prefer top quality products with all the latest technical refinements, but at attractive prices. These results contradict the long-cherished opinion that products sold over the Internet are primarily cheap goods. In fact, online shops offer a relatively small range of branded products for which there is a high demand, which they market very effectively. Electrical supermarkets counter this by offering as wide a range as possible, whereas the typical specialist shop distinguishes itself by carrying a specialized range only.

Dr. Michael Sauter, Consultant to GfK Retail Services International, presented the findings of a survey of electrical retailers. 83% of German retailers already have an Internet presence, with 42% of them offering online shopping facilities. These retailers are anticipating their Internet sales to treble in the next three years. All the retailers surveyed had already been challenged on the subject of Internet prices when discussing potential purchases with customers. A quarter of those interested in buying are equipped with knowledge of the corresponding prices. Given this fact, it is amazing to record that one third of all retailers have not yet given their sales staff any guidance or counter-arguments to deal with this issue, let alone any special sales training.

Stefan Nigg, Marketing Manager of GfK Panel Services, devoted himself to that fast growing species, the online shopper. In 2006, more online shoppers bought more products on average and spent more per capita than in the previous year. In the past two years, the proportion of frequent shoppers making more than one online purchase per month on the Internet has more than doubled by almost 20%. This group of shoppers represents virtually half of all online sales. Before buying a consumer electronics product, one in three buyers will obtain information from the Internet. The online buyer is the typical "smart shopper", trying to buy a particular aspirational brand product at a favorable price. These people are young, well educated and have purchasing power. They are demanding in terms of the quality, design and lifestyle aspirations of the products they want to buy. For branded goods manufacturers, this means that investment in brand value, in the "share of soul", are just as important as investing in product quality, good online marketing and an attractive website.

Stephan Musikant, Vice President Marketing & Sales of Ciao, dealt with the issue of whether the era of Web 2.0 would herald a new and different age for e-commerce, or whether quality and service would remain the path to success? Using consumer portals and price comparison sites by way of example, it is clear that Web 2.0 increases transparency and at the same time enhances "consumer democracy". This means considerably higher demands on product quality and communications. Manufacturers and retailers should not regard this development as a hazard, but as an opportunity for improving communications with consumers. Consumer electronics are among the most popular product sectors. More and more elements of the in-shop purchasing process can now be carried out online. This presents new challenges to communication and the product ranges on offer, but at the same time, it also offers attractive potential.

Polarization of the markets

Werner Winkelmann, President of EURONICS International and CEO of EURONICS Deutschland, explained that the members of the purchasing cooperatives were battling against declining markets, price wars, concentration processes and competition from the Internet. Although consumers are price-conscious and use the Internet, they are still looking for advice and service. This is leading to a polarization of the markets into a low and a high end in terms of both price and quality, where the importance of the "middle" is clearly on the decline. Retail specialists are aiming for the top end of the market, which offers new opportunities. These also include the parallel sale of products in shop and online, at competitive, but not aggressive prices. Euronics offers its members extensive assistance for their Internet activities. Intelligent marketing and top class products are the key to future success.

Stephen Baker, Vice President Industry Analysis, The NPD Group, presented specific insights into the current situation concerning online trading of consumer electronics in the USA. There, direct sales by manufacturers over the Internet are considerably more important than in Europe. This is affecting the market for PCs and MP3 players, in particular. Another feature of the USA market is that consumers tend to buy the higher quality products and latest technology online, also at prices which are as favorable as possible. By contrast with Europe, American online shoppers differ from their offline counterparts only in that they have slightly more purchasing power, although they are not necessarily better educated or limited to particular age groups.

In conclusion, Werner Winkler, Managing Director of GfK Marketing Services, stressed that the relentless trend towards more and more online purchasing was now unstoppable. The best solution would be to welcome this development and participate proactively. To do this, accurate and up-todate facts and market data are an essential prerequisite. The challenge for every market player is to develop a particular strategy and here, it is worth bearing in mind that not all products are suitable for selling online. The Internet is the extended shop shelf and the display window of the trade and it never closes. Most online shoppers first obtain information about the products they are interested in from shops. This is the perfect opportunity for retailers to put across the advantages of buying from a shop. Comprehensive sales training is more important now than ever before. Reliability consumers can trust in is the essential key to successful Internet marketing.

www.gfk.com