At a Glance
Manufacturers can break the cycle of rapid commoditization and margin decline by assembling segment-oriented lifestyle solutions, innovative groups of electronics products and complementary, value-adding services that address a complex need that a single product or service cannot meet. Shortcut to:
Lifestyle Solutions Better Meet Broader, More Complex Needs
The Rewards of Bundling Are Compelling
Getting from Simple Bundling to Lifestyle Solutions Posted: October 22, 2003 This article is based on a 2003 study conducted by the Accenture Institute for Strategic Change and Accenture’s Communications & High Tech Operating Group. Order the full 20 page "Lifestyle Solutions" white paper. According to the Consumer Electronics Association, US factory-to-dealer sales across all consumer electronics product categories will increase 3.5 percent in 2003, approaching the $100 billion mark. So why are the share prices of so many manufacturers suffering? The challenge is margins, not sales. Ever-increasing competition compels manufacturers to differentiate on price, dropping margins to near zero at unprecedented speed. In addition, manufacturers must compete for the same fixed share of consumer wallet. Even the most successful products have historically failed to generate the dramatic incremental spending manufacturers need for long-term growth and market penetration. Recent Accenture research indicates that manufacturers can break the cycle of rapid commoditization and margin decline by assembling segment-oriented lifestyle solutions. Lifestyle Solutions Better Meet Broader, More Complex Needs Lifestyle solutions are innovative groups of electronics products and complementary, value-adding services that address a complex need that a single product or service cannot meet. Each component of a lifestyle solution must have compelling functionality and its own appeal, as a big-screen television or digital still camera does. But together, these components fulfill a broader consumer need. For example, combining a digital camera with software, a computer, a scanner and a printer moves a consumer beyond simply taking pictures to creating, storing and managing an archive of digital memories. Consumer receptivity to lifestyle solutions is high. Our research shows that consumers want and understand the value of getting multiple functions in a single purchase, and would replace current electronics if a bundle better met their needs. The most desired items could constitute core components of a lifestyle solution. For example, a high-definition television could anchor a home theater solution, while digital video cameras and recorders could make home movies part of a digital memories library. The Rewards of Bundling Are Compelling Lifestyle solutions can deliver three key business benefits to manufacturers: Increased market penetration. Bundling newer products with more mature ones gives them higher visibility and helps subsidize their trial among mainstream consumers.¹ For example, marketing personal MP3 players by including them in PC media center bundles. Lifestyle solutions also enable manufacturers to reach new groups of consumers who may never have bought individual bundle components. Conventional wisdom holds that the primary markets for video game consoles are families with children and gaming enthusiasts. But under what circumstances would grandparents buy one so their grandchildren can play games when they visit? Meaningful differentiation. Bundling electronics into lifestyle solutions positions manufacturers to compete on attributes other than price. Companies can distinguish themselves by assembling products and services in a way that demonstrates superior understanding of customers’ specific needs. Manufacturers that tailor solutions to the lifestyles of distinct customer groups, such as female professionals, not only enhance the value proposition of the bundle, but also make themselves a trusted source for meeting those consumers’ future needs. As manufacturers create these new forms of differentiation, they also erect barriers to entry for low-cost electronics providers. Improved margins. Researchers have found that bundles can reduce production costs and selling costs alike, thanks to greater standardization in production, packaging, marketing, merchandising and sales staffing. In addition, the increased sales volumes of certain products and services newly included in bundles can enable new operational efficiencies, increase economies of scale or better leverage in supplier relationships. Some manufacturers have begun to reap these rewards through home theater-in-a-box, gathering the most powerful electronics systems in dedicated media rooms that include all the attractions of an actual theater. As a result, the typical home theater package sells for $350, $64 more than in 1998, thanks to DVD players expanding the bundle.² Getting from Simple Bundling to Lifestyle Solutions Developing value-driven lifestyle solutions requires more than throwing some existing products together in a box and selling it cheaper, hoping to attract more customers. It means manufacturers must: - Better understand how products are integrated into consumers’ lives.
- Look beyond home or office use alone, to consumers traveling, playing sports and more.
- Blend current offerings with other components and tailor to consumer priorities.
- Formulate value propositions that satisfy consumer desire for benefits like performance excellence and hassle-free exchanges or refunds.
- Balance price with assurance.
Manufacturers are taking steps to apply their traditional strengths in marketing, design, production and distribution as well as new capabilities in consumer research, bundle design, alliances and customer segmentation. Sony began dividing customers into seven segments based on their life phase, from double-income, no-kids professional households to “CE Alphas” who adopt technologies early. And Samsung’s recent DigitAll brand campaign emphasizes how its electronics improve peoples’ lives at home and at work. As consumer electronics move from being fancy gadgets to becoming significant tools in peoples’ lives, companies must develop and deliver offerings with the value that will generate sales and margins. Lifestyle solutions are such offerings. For more information about Lifestyle Solutions or to learn how Accenture can help you make this strategy work for your business, please contact us. About the Authors: Charles Roussel is a partner with the Communications & High Tech group working with Accenture’s top consumer electronics clients. Paul F. Nunes is a senior research fellow at the Accenture Institute for High Performance Business, where his work focuses on the impact of technology on marketing strategy. ¹ Michael Porter, Competitive Advantage, p.427
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