Adapts early and upgrades often - Connecting with the Customer: Tech Obsessed

DSN Retailing Today, Dec 16, 2002 by Doug Desjardins

The demographic that's driven the rise of new high-tech products has always skewed toward a younger crowd with plenty of disposable income. Affluent young adults fueled the DVD market in the late 1990s and both male and female teens have been the driving force behind the growth of MP3 players during the past few years.

Those consumers are still the target audience for consumer electronics chains like Best Buy and home entertainment outlets such as Musicland and Electronics Boutique. But as new technology becomes mainstream and more affordable, consumer habits are changing and retailers are campaigning hard to make sure they reach a new and larger audience.

Probably the best example is Wal-Mart's campaign to grab a larger share of the consumer electronics market, particularly in DVD. In 2001, the chain bulked up on DVD hardware and software and began flooding the airwaves with TV commercials promoting the format.

"They went after the toy market a few years ago and really took it over and now they're trying to do the same with home electronics," said Todd Hale, an analyst with research firm ACNielsen. "And they're probably going to succeed."

Wal-Mart's strong push into the DVD market was perfectly timed and actually helped create millions of new tech-obsessed consumers. It began pushing both DVD software and hardware just when the price of many DVD players was falling below the $100 mark (a decline Wal-Mart helped precipitate with rock-bottom prices). It also low-balled the competition on software prices and was one of the first retailers to create small sections devoted to older DVD releases priced under $10.

That strategy played to its core consumer and helped make DVD a mainstream product much faster than most analysts had predicted. "They (WalMart) really have a hold on the middle-income, blue-collar consumer and that's a demographic where low prices can really drive a market," said Hale.

According to Adams Media Research, the mass merchant channel accounted for 39% of all DVD software sales in the United States in 2001. With Wal-Mart controlling nearly half of share, some analysts predict the chain could account for up to 25% of DVD sales this year.

The price factor is driving sales. in other high-tech categories, including high-definition and flat-screen televisions. Sales of the new-generation TVs have been surprisingly strong, given their high price tag and the slow economy, and consumers are showing a strong intent to buy. According to a recent survey by Roper Reports, 13% of consumer electronics shoppers showed an interest in buying a flat-screen television next year.

Like the DVD market before it, sales of flat-screen TVs are being driven by aggressive advertising and plunging prices. "Samsung has an $800 set out there now, so the prices are corning down fast," said Adi Kishore, an analyst with The Yankee Group in Boston. "And the fact the TV networks are providing more programs in the high-definition format is also helping it grow."

Another area where the traditional tech-obsessed consumer is changing is in video games. During its early years, the video game market was driven by kids and teens who spent most of their disposable income on new games and accessories. Now, that first wave of buyers has grown up but their habits haven't changed.

"I remember playing Atari games with my friends but we stopped playing them after high school," said Brian O'Rourke, an analyst with In-Stat/MDR in Scottsdale, Ariz. "But now people continue to play games into their 20s and 30s and it's really shifted the demographic."

O'Rourke points to the Zany Brainy retail chain's decision in November to stop selling video games. "They only sold kid's games rated "E" for everyone but they had to stop because there just aren't enough of those games coming out," said O'Rourke.

The days when kid-oriented games like "Donkey Kong" and "Super Mario" drove the market are long gone. The biggest hit games now are mostly rated "M" for mature--the equivalent of a strong PG-13 or R-rated film--and cater to an older audience of male players in their teens and 20s. "The number of mature-rated games like 'Dead to Rights' and 'Grand Theft Auto' is increasing and they're skewing a lot older," said O'Rourke.

Video retail chain Hollywood Video is tapping into that audience with its new Game Crazy video game outlets. The small stores focus on buying and selling used games and game consoles and target veteran gainers who want to trade in old hardware and software and move on to the next generation. The outlets have been such a hit with gainers that Hollywood opened 100 new stores in the fourth quarter and has 400 new openings planned for 2003.

RELATED ARTICLE: DEMO DATA

DID YOU KNOW?

52% of U.S. consumers own a CD player (up 33% since 1996)

48% own a large-screen TV (up 12% since 2000)

25% own a DVD player (up 12% since 2001)

22% own a CD burner/recorder (up 10% since 2001)

19% own a Scanner for their computer (up 4% since 2001)

13% of adult electronics shoppers are "interested" in buying a flat-screen TV in the next year