When Markets Are No Longer Price Sensitive
There will always be a customer who only wants the lowest cost products. That truth however, does not represent the whole market. Price, for the majority of consumers, is not the only driving purchasing force.
If in every market the lowest cost product was all consumers wanted–then we would all be driving Toyota Corollas.
The fact of the matter is, in markets where consumers are mature low-cost is only attractive to a segment of the market but not the market as a whole.
Keep in mind, I am making a distinction between mature markets and mature consumers. Mature markets are one where a category or product is no longer new and well understood. Mature consumers are ones who have been shopping long enough to have pre-determined needs, wants, and desires on a variety of goods.
Developed markets for the most part have mature consumers. Because of that fact, new product categories will mature faster than in emerging markets. So for example, smart phones are still largely an immature market. Many consumers still do not own a smart phone. This market however, is maturing rapidly because we have mature consumers. Interestingly, they are not just buying the cheapest smart phones on the market.
Emerging markets consist of consumers who are maturing, still developing their needs, wants, and desires for a variety of goods. This is because the big trend in emerging markets is the rising middle class. The rising middle class has not historically had much disposable income prior to their “rising”; therefore, they were not generally consumers of a large variety of goods.
Since they have attained more disposable income they have began to consume more goods and are therefore, maturing as a consumer learning what their needs, wants, and desires are with a variety of goods.
I belive that in a market where consumers themselves are maturing price is more important. You need to first consume goods for the first time before you refine your tastes and begin to appreciate differentiation. Therefore, low price products help these consumers consume the goods because of the lower barrier to consume said good.
PCs, smart phones, and tablets are a good example of this in emerging markets. Lower costs will help these consumers first experience these products and learn what they like and don’t like. As they flesh out their needs, wants, and desires for these products they will then begin to shop with a more keen eye. When that happens, differentiation or products designed for a market segment becomes the strategy–not low-cost.
In a number of books I’ve read on the subject the observation is continually made that when a market matures it fragments. The below slide shows how this happened within the automobiles market.
Consumers first owned a car that was of lower cost. As they continued to own more cars they began to mature as a consumer of automobiles and eventually decided they wanted a minivan, truck, sports, or economy car. They made this decision based on their needs, wants, and desires and then chose the appropriate product. To re-emphasize my point, this decision was not based on price alone but on needs, wants, and/or desires.
All of this has a profound impact on how consumer technology companies orient themselves going forward. The reality is some markets are price sensitive and some are not. Companies need to be wise to understand which markets to enter and have an appropriate strategy.
The bottom line is developing a product to fill a consumers need, wants, and desire is a better strategy than trying to be the low-cost leader.