Monday, August 18, 2003

Selling Gadgets in a Wal-Mart World: Disappearance of "middle class" electronics

Selling Gadgets in a Wal-Mart World: "In this model store, as Circuit City calls it, customers grab merchandise from metal shelves and toss it into shopping carts. The staff on the floor are now hourly workers rather than higher-paid commissioned sales clerks. The front of the store is filled with forklift pallets piled with $45 DVD players and $99 televisions..."

Being near ancient, I remember when calculators went from $300 to essentially free, then became pointless. I thought about 8 years ago that we'd see Palm type PDAs do the same thing (though they have not, probably because it turns out that very few people want a PDA at any price). Sand (silica based electronics) and plastic doesn't cost much - especially if environmental costs are ignored.

Now that so many of our goods are "sand and plastic", they are all following the calculator trajectory. Unlike calculators, however, DVD players and DV cameras are complex devices that once came with manuals and that require an investment to learn to operate. There's not enough profit margin to support that now.

Of course the market could produce ultra-simple products that didn't require manuals and much user study, but consumers don't choose such devices. They choose the flashier, fancier product. Since the incremental cost of the feature-filled product is very low, that's what manufacturers must provide. Without, however, manuals or quality control or support or service or product testing.

Which would be "fine", except these low cost unsupported devices have eliminated the "middle class" device -- the well made, well documented, and reliable standard of years past. How can a $300 DV player compete with an essentially disposable $50 player with the same features and theoretical performance? Absent the middle class, the tiny percent of consumers who want something reliable, well designed, and well documented, must pay luxury prices.

The nature of technological change does create a case for the low end choice. Within a year or two the well made product is obsolete, and is in some ways truly inferior to the disposable product selling for less than $50. We may be doomed to an endless stream of very unreliable, undocumented, very cheap, disposable electronics. (In a related story, I have a very lovely 600 dpi Laser printer that was last sold @ 1994. It's built like a tank and could last another 10 years. Unfortunately the consumables are no longer produced, soon it will be junk.)

Signs of hope?

1. Consumers will actually start to value extreme simplicity, so at least we'll get by without manuals and without having to study products. This will take a while, but it may restore the "middle class" product.

2. Legislation will require consumers and manufacturers to pay the real environmental costs of these products. Alas, that would require two impossibilities -- replacement of the Bush administration and a Chinese environmental movement.

3. A few vendors will decide to "own" the middle ground. It will be a touch space. The only vendor who's tried this so far is Apple. (SONY is often thought of as being here, but they've gone too far into the low end.) This space needs a super-strong brand and more than a bit of fashion sense. Extensive warrantee services and customer support services are a prerequisite. Prices will be 200% to 400% higher than the low end. A brutal space.

4. Stores like Nordstroms sell clothing at sub-luxury price premium, kind of upper-middle class. They deliver reasonable quality in a small nice market.

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