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From the Editor: Emerging Markets Are a State of Mind
December 31, 1969 |Estimated reading time: 3 minutes
I'm often aghast at the age of children with cell phones, not only because many of them have no concept of public etiquette with a phone, but also because they simply are too young to be spending any time independent of an adult. What is the point of paying an extra phone bill for your toddler, I wonder. The point, from an industry standpoint, is the genius of diversifying one of the most saturated cellular markets on the globe, by convincing your customer base to get a specialized cell phone for the kids, and another specialized one for the grandparents. Suddenly the cellular consumption for an average household could double, even triple, and still stay on its every-18-months replacement cycle. The emerging market was here all along.
I cannot imagine my grandfather, who wore a plaid shirt for most every occasion and was an expert at relaxing, texting his friends. My grandmother was convinced of the convenience and added safety of carrying a cell phone, however, and every niece and nephew from toddler to teenager has one. Advertisers have been mining the wealth of buying power in young children for decades, and cellular handsets and service is just another step on that path. The Walt Disney Company unveiled a mobile phone plan of its own this April, and, despite the camera-phone scandal Disney endured a few months prior, the plan promotes camera phones for youngsters. Certain service providers also have written documents to inform parents of the "appropriate" age for cell-phone ownership.
We speak a lot about emerging consumer markets in SMT, and perhaps the best target growth market is, paradoxically, the one you've already captured. Disposable income is a lacking area in certain developing markets with small middle-class populations, like India, but not in American children (by proxy of their parents), and not in the growing population of elderly Americans.
Despite the niche-ification of U.S. cell phone markets, the bulk of "emerging" demand still is coming from places, not ages. Some basic rules apply in both situations. According to a BBC summary of Strategy Analytics' mobile phone report, good-looking and feature-rich phones are most popular among consumers. Strategy Analytics sees Motorola's under-diversified handset offering as a real danger to the company. The analyst firm also noted that the conventional emerging markets, like Africa and Asia, boasted high demand in Q'01 2008, undeterred by rising food costs and credit crises hitting developing and developed nations alike.
According to the report, 290 million handsets will be sold in Q'02 2008, up 12% from last year. While these various market options and steady demand bode well for consumer electronics, the constant decline in average selling prices (ASPs) remains an unavoidable damper on profits for manufacturers. Analyst firm iSuppli offered this take: "The design of electronic goods leads directly to equipment production, which in turn drives semiconductor purchasing," asserts Min-Sun Moon, analyst, OEM semiconductor spending and design influence for iSuppli Corp. "Companies like Nokia that engage in design of electronic equipment, such as mobile handsets, also are responsible for specifying the use of particular chips in the products being developed. Thus, these companies have a major influence on global semiconductor spending patterns." In a way, we consumers young and old, from the U.S. to India, with our desire for feature-rich phones, are having a major influence on the entire world.
All this leads me to conclude that diversification is driven both by saturated markets and by the profit-plumping aura of added value. The key to mastering this diversification is saving those profits from the hungry mouths of new bills of materials (BOMs) and redesigns. It's a rule that can be applied to virtually all consumer electronics sectors. If a cell phone is manufactured specifically to satisfy the needs of one demographic, it is worth more to that consumer than a one-size-fits-all handset. This is as true for my first-time-buyer grandmother as it is for a first-time-buyer in central China. And if that cell phone costs no more to make than the one-size-fits-all variety, then the campaign is a success for the manufacturer as well. For my sake, please equip every cell phone targeting the "tween" and younger generations with a "mute" option.
Meredith Courtemanche, managing editor