Shrimpy Digital Products
By Steve Smith -- TWICE, 1/26/2004
The allure of the consumer electronics industry was on display at the 2004 edition of International CES for all to see. The design and engineering magic of digital electronics, in a kalidescope of forms, drew the attention of everyone who attended the show and who saw and read some of the proceedings through the media.
Even though, for years, the industry has taught consumers that, if they wait a little bit, prices of their favorite products go down, the appeal and the hype of CE has convinced everyone that anyone involved in CE has hit the lottery since the industry's products are so popular.
Of course I know what CE manufacturers ... and many retailers say about that: Think again. Due to the hyper-competitiveness of the CE business, quick price erosion has always been the case. And in the digital age manufacturers and retailers who want to make a decent profit and aren't looking to use their technology as a loss leader to further the stock price or build a career, are in a familiar bind.
The top technology of CE is becoming more of a commodity, faster than ever before. Chinese manufacturers have entered the market in volume, as well as U.S.-based computer suppliers and retailers, with what some suggest are new, low-cost, business models. That, plus the traditional cut-throat CE pricing, has resulted in a very high end and a very low, commodity end, of the market with the middle all but disappearing.
Fumio Ohtsubo, president of Panasonic's AVC Networks Company and senior managing director of of Matsushita Electric Industrial's board, addressed this point during his CES keynote. (See story on pg. 1.) He related that the company's founder, Konosuke Matsushita, once said that consumer electronics should be "available to everyone and abundant — like water."
Ohtsubo said that when he visited a supermarket here in the U.S. recently in one aisle they were selling a calculator for 99 cents, with a solar panel, "so the power source was completely free." And then he went over to another aisle where the store was selling "a bottle of Evian water for $2.49! Isn't that ironic? Electronics less expensive than water!" I'm sure that when Mr. Matsushita made his statement that he expected electronics to be at least priced higher than water.
Well, if that doesn't get to you, how about the story of the DVD player and the shrimp? On New Year's Eve afternoon my wife asked me to go to Costco and buy some shrimp, and some other appetizers, for holiday guests. I looked at a small and medium trays, but decided on buying a large tray of cooked and cleaned shrimp. It was $49.99.
Like a GMM or a retail buyer, an editor-in-chief of a trade publication is never off duty, even on New Year's Eve. So I walked through the CE department. I found a progressive-scan DVD player that plays CDs, MP3s, video CDs and is a karaoke machine for $49.95. I bought it. I couldn't resist. I had to see how it performed. (It's fine, but at that price point, how long will it perform that way?)
When I brought it home, to my wife's surprise, I justified my purchase by saying, "It was the same price as the shrimp! And besides, the guy who sold the shrimp to Costco made a bigger profit than the company that sold them the DVD player!"
My wife couldn't believe that a progressive-scan DVD player could now be the same price and profit margin as a tray of cooked shrimp. Neither can I. Neither can you. But consumers have begun to believe it. That's the problem.
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